Travelzoo 2020 Form 10-K Summary
Business Context and Reporting Period
Travelzoo filed its Form 10-K for the fiscal year ended December 31, 2020; the filing also provides fourth-quarter information. Travelzoo is a global Internet media company generating revenue primarily from travel and local advertising, voucher commissions, hotel and vacation bookings, and Jack’s Flight Club subscriptions.
The company reported approximately 30.2 million members at year-end and operated through Travelzoo North America, Travelzoo Europe, and Jack’s Flight Club. Asia Pacific was exited in 2020 and presented as discontinued operations. Travelzoo acquired a 60% controlling interest in Jack’s Flight Club in January 2020.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $53.6 million | $104.9 million | Down 49% |
| Gross profit | $43.0 million | $93.5 million | Down 54% |
| Gross margin | 80.3% | 89.1% | Down 8.8 points |
| Operating income (loss) | $(14.1) million | $17.0 million | Declined materially |
| Net income (loss) | $(14.6) million | $4.2 million | Turned to loss |
| Net loss attributable to Travelzoo | $(13.4) million | $4.2 million | Turned to loss |
| Basic loss per share | $(1.18) | $0.35 | Declined |
| Cash flow from operations | $47.0 million | $11.2 million | Increased |
| Cash and cash equivalents | $63.1 million | $18.7 million | Increased $44.3 million |
Revenue consisted of $45.9 million of Travel revenue, $4.2 million of Local revenue, and $3.5 million from Jack’s Flight Club. North America represented 65% of revenue, Europe 28%, and Jack’s Flight Club 7%.
Cost of revenues was $10.6 million, or 19.7% of revenue, compared with 10.9% in 2019. Sales and marketing expense was $30.6 million, product development expense was $3.1 million, and general and administrative expense was $20.5 million. General and administrative expense included $6.2 million of stock-based compensation.
Operating cash flow benefited substantially from a $44.1 million increase in merchant payables associated with unredeemed vouchers, as well as noncash charges. This cash flow should not be viewed as solely reflective of underlying profitability.
At December 31, 2020, the company had negative working capital of $12.8 million, including $57.1 million of merchant payables. PPP loans totaled $3.7 million, with $2.8 million classified as current and $814,000 as long-term. Management stated that the company had no other outstanding debt and expected cash on hand to fund operations for at least the following twelve months, subject to voucher redemptions and operating performance.
Material Changes Versus the Prior Comparable Period
- Revenue fell $51.3 million, primarily because COVID-19 reduced travel advertising, website advertising, hotel and entertainment commissions, and Local Deals voucher sales.
- North America revenue declined 49% to $34.9 million; Europe revenue declined 59% to $15.2 million.
- Revenue per member declined to $1.65 from $3.75, while total members were broadly stable at 30.2 million versus 30.3 million.
- Travelzoo reduced sales and marketing expense by $20.7 million and product development expense by $3.6 million, reflecting cost reductions, furloughs, and lower member-acquisition spending.
- The company recorded $2.9 million of impairment charges related to Jack’s Flight Club, consisting of $810,000 for the trade name and approximately $2.1 million for goodwill.
- Travelzoo acquired Jack’s Flight Club for consideration of approximately $12.1 million, including cash, promissory notes, and the fair value of a put/call option. Jack’s Flight Club contributed $3.5 million of revenue and generated a $2.8 million operating loss for the consolidated period.
- Travelzoo exited Asia Pacific, recording $3.4 million of discontinued-operations loss in 2020 compared with $8.1 million in 2019. Japan and Singapore operations were sold for nominal consideration and licensed back under royalty arrangements.
- Travelzoo sold its WeGo investment for approximately $2.9 million and recorded a $468,000 gain. It also sold the weekend.com domain and trademark for $822,000.
- Stock repurchases declined to $1.2 million in 2020 from $10.8 million in 2019. The company repurchased 168,602 shares during 2020.
Outlook, Risks, Contingencies, and Unusual Items
Management expected COVID-19 to continue negatively affecting 2021 financial results and potentially the longer term. The company also expected pent-up travel demand to support a recovery in advertising as travel restrictions ease, but it did not provide quantitative revenue or earnings guidance.
Travelzoo expanded its voucher policy to allow full refunds through expiration or redemption. At year-end, approximately $15.2 million of fully refundable, unredeemed vouchers remained outstanding, with an estimated $3.9 million refund liability. Changes in redemption and refund rates could reduce future revenue, liquidity, and profitability.
Key risks include prolonged weakness in travel and hospitality, advertiser cancellations, merchant insolvency, accelerated voucher redemptions, competition, dependence on email and search traffic, privacy and data regulations, cybersecurity incidents, foreign exchange movements, tax liabilities, and impairment of goodwill or intangible assets.
The company had approximately $15.2 million of net operating lease commitments, $46,000 of purchase commitments, and approximately $388,000 of contingencies related to net unrecognized tax benefits, including interest. The potential cost of a voluntary program for former Netsurfers promotional shareholders remains not reliably estimable.
Subsequent events included a related-party license agreement entered into in March 2021 for access to 2.2 million subscribers, requiring a fee of $413,000 per quarter, and a March 2021 agreement to repurchase 100,000 shares from executive Holger Bartel for approximately $1.6 million.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020. The independent auditor issued an unqualified opinion but identified revenue and refund reserves, the Jack’s Flight Club acquisition valuation, and goodwill impairment as critical audit matters.
Important Facts for Investors to Verify
- Whether travel advertising, Local Deals, and hotel-related revenue recover as travel restrictions ease.
- The timing and amount of voucher redemptions and refunds relative to the $57.1 million merchant-payables balance and $3.9 million refund reserve.
- Whether Jack’s Flight Club reaches profitability and whether additional goodwill or intangible-asset impairments are required.
- The extent to which the $3.7 million PPP loans are forgiven and the resulting cash repayment obligations.
- Whether $63.1 million of cash remains sufficient after merchant settlements, lease obligations, operating losses, and strategic investments.
- The effect of the Asia Pacific exit, licensing royalties, and the related-party subscriber license on future revenue and expenses.
- The impact of substantial stock-option grants and repricing, including 3.3 million outstanding options at year-end, on dilution and stock-based compensation.