NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo (including its subsidiaries and affiliates, the “Company” or “we”) is a global Internet media company. It operates Travelzoo®, the club for travel enthusiasts, and Jack’s Flight Club®, a subscription service that provides information about exceptional airfares. Travelzoo has more than 30 million members.
Through its websites, e-mails newsletters, iOS and Android apps, and social media channels, Travelzoo provides members information and access to exclusive discounted travel, entertainment, and local offers and experiences. Offers are researched, negotiated, and personally selected by Travelzoo’s deal experts around the globe. Offers are sourced from more than 5,000 top travel and entertainment partners.
The Company generates revenues from advertising, membership fees, and other.
In March 2022, the Company began the development of Travelzoo META, a subscription service that is intended to provide Metaverse travel experiences.
APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model. The Company’s Asia Pacific business was classified as discontinued operations as of March 31, 2020.
Travelzoo currently has license agreements covering Australia, Japan, New Zealand, Singapore, and South Korea. The license agreements provide the licensees exclusive rights to use Travelzoo products, services and intellectual property in each jurisdiction in exchange for quarterly royalty payments based upon net revenue over a five-year term, with an option to renew.
Ownership
Ralph Bartel, who founded Travelzoo, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. Azzurro Capital Inc. is the Company’s largest shareholder, and as of June 30, 2024, holds approximately 40.8% of the Company's outstanding shares. Holger Bartel, the Company's Global CEO, is Ralph Bartel's brother and separately holds 2.5% of the Company's outstanding shares as of June 30, 2024.
Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2023, included in the Company’s Form 10-K filed with the SEC on March 22, 2024.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments. We have reclassified prior period financial statements to conform to the current period presentation.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the U.S. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other future period, and the Company makes no representations related thereto.
(b) Recent Accounting Pronouncements
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures", to expand the disclosure requirements for income taxes, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating the ASU to determine its impact on our income tax disclosures.
(c) Significant Accounting Policies
Below is a summary of the Company's significant accounting policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2023.
Revenue Recognition
The Company follows Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), under which revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company's revenues consist of (1) advertising revenues and commissions, derived from and generated in connection with purchases made by Travelzoo members, (2) membership fees and (3) other.
Advertising Revenues
Advertising revenues are generated from the publishing of travel and entertainment deals on the Travelzoo website, in Top 20 email newsletters, in Standalone email newsletters and through the Travelzoo Network. The Company also generates transaction-based commission revenues from the sale of vouchers (our Local Deals and Getaways offerings), operation of our hotel booking platform and limited offerings of vacation packages.
Specifically, for fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period. For Top 20 email newsletters and other email products, the Company recognizes revenues when the emails are delivered to its members. For cost-per-click advertising, whereby an advertiser pays the Company when a user clicks on an ad (typically served on Travelzoo properties or Travelzoo Network partner properties), the Company recognizes revenues each time a user clicks on the ad.
The Company also offers clients other advertising models whereby an advertiser pays the Company based on the number of times their advertisement is displayed (whether on Travelzoo properties, email advertisements, Travelzoo Network properties, social platforms or other media properties). For these instances, the Company recognizes revenues each time an ad is displayed.
For transaction-based advertising revenues, including from products such as Local Deals and Getaways prepaid voucher sales, hotel platform bookings and vacation package sales, the Company evaluates whether it is acting as principal (thereby reporting revenue on a gross basis) versus agent (thereby reporting revenue on a net basis). Accordingly, the Company reports transaction-based advertising revenues on a net basis, as third-party suppliers are primarily responsible for fulfilling the underlying good or service, which the Company does not control prior to its transfer to the customer.
For Local Deals and Getaways prepaid voucher sales, the Company earns a fee for acting as an agent on the sale, while vouchers can subsequently be redeemed for goods or services with third-party merchants. Commission revenues are, accordingly, presented net of amounts due to third-party merchants for fulfilling the underlying goods and services, and net of estimated future refunds to consumers, as the terms of the vouchers permit. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.
Commission revenues generated from bookings on our hotel platform are recognized ratably over the periods of guest stays, net of an allowance for estimated cancellations, based upon historical patterns. For bookings of non-cancelable reservations, where the Company’s performance obligation is deemed to be completed upon the successful booking, the Company records commission revenue at such time.
In certain instances, the Company’s contracts with customers may include multiple performance obligations, whereby the Company allocates revenues to each performance obligation based on its standalone selling price. The Company determines standalone selling prices based on overall pricing objectives, taking into consideration the type of goods or services, geographical region of the customers, rate card pricing and customary discounts. Standalone selling prices are generally determined based on the prices charged to customers when the good or service is sold separately.
The Company relies upon certain practical expedients and exemptions provided for in Topic 606. The Company expenses sales commissions when incurred, as the amortization period would be one year or less, which are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, and contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
Membership Fee Revenues
Membership fee revenues are generated from subscription fees paid by Travelzoo, Jack's Flight Club and Travelzoo META members. We recognize subscription revenues ratably over the subscription periods.
Travelzoo membership has historically been free, however, on January 1, 2024, Travelzoo introduced an annual membership fee of $40 (or local equivalent) for new members in the United States, Canada, United Kingdom and Germany, with the 2024 annual fee waived for existing members as of December 31, 2023.
Other Revenues
Other revenues include licensing fees, fees generated from the existing retail business acquired by the Company when it acquired MTE.
Deferred Revenues
Deferred revenue primarily consists of deferred membership fees, customer prepayments and undelivered Company performance obligations related to contracts comprising multiple performance obligations. As of December 31, 2023, $1.5 million was recorded as deferred revenue for Jack's Flight Club, of which $1.2 million was recognized in the six months ended June 30, 2024, $569,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $532,000 was recognized as revenue in the six months ended June 30, 2024. As of June 30, 2024, the deferred revenue balance was $3.2 million, of which $2.0 million was for Jack's Flight Club and the remaining $1.2 million was for Travelzoo North America and Travelzoo Europe.
Reserve for Refunds to Members
The Company estimates and records a reserve for future refunds on member purchases of Local Deals and Getaways vouchers, at the time revenue is recorded. We consider various factors such as historical refund timeframes from dates of sale, reasons for refunds, time periods remaining until expiration, changes in refund procedures and estimates of redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to members. Specifically, if the financial condition of our merchant partners, on behalf of whom vouchers are sold, were to deteriorate, affecting their ability to provide the goods or services to our members, additional reserves for refunds to members may be required and may adversely affect future revenues as the liability is recorded against revenue.
The Company's refund policy is a 14-day refund period from date of purchase, with an option to extend refund eligibility until voucher redemption or expiration, for a surcharge. As of June 30, 2024, the expiration dates of unexpired vouchers ranged from July 2024 through December 2025; provided, that expiration dates may sometimes be extended on a case-by-case basis and final payments to merchants upon expiration may not be due for up to a year later.
As of June 30, 2024, the Company had approximately $4.2 million of unredeemed vouchers that had been sold, representing the Company’s commission earned. The Company estimated and recorded a refund reserve of $177,000 for these unredeemed vouchers as of June 30, 2024, which is recorded as a reduction of revenues on the condensed consolidated statements of operations and accrued expenses and other on the condensed consolidated balance sheet. As of December 31, 2023, the Company had approximately $5.2 million of unredeemed vouchers that had been sold representing the Company’s commission earned from the sale and estimated a refund reserve of $268,000 for these unredeemed vouchers as of December 31, 2023, as a reduction of revenues on the condensed consolidated statements of operations and accrued expenses and other on the condensed consolidated balance sheet.
If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from amounts previously accrued. Merchant payables of $16.7 million as of June 30, 2024 is recorded on the consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed.
Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment annually, and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate its carrying value may not be recoverable. The Company performs an impairment test by comparing the book value of the reporting unit to the fair value of the reporting unit utilizing a combination of valuation techniques, including an income approach (discounted cash flows) and market approach (guideline company method). The Company performed its annual impairment testing as of October 31, 2023 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the six months ended June 30, 2024.
Operating Leases
The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities, as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize leases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities on our unaudited condensed consolidated balance sheets. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Certain Risks and Uncertainties
The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer goods or services on compelling terms to our members.
The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. As of June 30, 2024 and December 31, 2023, the Company did not have any customers that accounted for 10% or more of accounts receivable.
As of June 30, 2024, the Company had merchant payables of $16.7 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. As such, the consolidated balance sheet reflects negative net working capital (defined as current assets minus current liabilities) of $4.3 million at June 30, 2024. Payables to merchants are generally due upon redemption of vouchers by members who purchased them from the Company. As of June 30, 2024, unredeemed vouchers have maturities ranging from July 2024 through December 2025; however, expiration dates may be extended on a case-by-case basis and final payment to merchants upon expiration may not be due for up to a year after. Based on current projections of future redemption activity, management expects that cash on hand as of June 30, 2024 will be sufficient to provide for working capital needs for at least the next twelve months.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase. Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to refundable for leases.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:
| | | | | | | | | | | |
| | June 30, | | December 31, |
| 2024 | | 2023 |
| Cash and cash equivalents | $ | 12,567 | | | $ | 15,713 | |
| Restricted cash | 675 | | | 675 | |
| Cash, cash equivalents and restricted cash–discontinued operations | 1 | | | 1 | |
| Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows | $ | 13,243 | | | $ | 16,389 | |
The Company’s restricted cash was included in noncurrent assets as of June 30, 2024 and December 31, 2023.
Note 2: Net Income Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Numerator: | | | | | | | |
| Net income attributable to Travelzoo—continuing operations | $ | 2,927 | | | $ | 2,624 | | | $ | 7,163 | | | $ | 6,299 | |
| Net income attributable to Travelzoo—discontinued operations | $ | — | | | $ | 2 | | | $ | — | | | $ | — | |
| Denominator: | | | | | | | |
| Weighted average common shares—basic | 12,895 | | | 15,275 | | | 13,191 | | | 15,485 | |
| Effect of dilutive securities: stock options | 81 | | | 62 | | | 109 | | | 72 | |
| Weighted average common shares—diluted | 12,976 | | | 15,337 | | | 13,300 | | | 15,557 | |
| | | | | | | |
| Income per share—basic | | | | | | | |
| Continuing operations | $ | 0.23 | | | $ | 0.17 | | | $ | 0.54 | | | $ | 0.41 | |
| Discontinued operations | — | | | — | | | — | | | — | |
| Net income per share —basic | $ | 0.23 | | | $ | 0.17 | | | $ | 0.54 | | | $ | 0.41 | |
| | | | | | | |
| Income per share—diluted | | | | | | | |
| Continuing operations | $ | 0.23 | | | $ | 0.17 | | | $ | 0.54 | | | $ | 0.40 | |
| Discontinued operations | — | | | — | | | — | | | — | |
| Net income per share—diluted | $ | 0.23 | | | $ | 0.17 | | | $ | 0.54 | | | $ | 0.40 | |
For the three months ended June 30, 2024 and 2023, options to purchase 850,000 and 750,000 shares of common stock, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For each of the six months ended June 30, 2024 and 2023, options to purchase 750,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.
Note 3: Acquisitions
Jack’s Flight Club
In January 2020, the Company acquired a 60% interest in JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares.
Stock Purchase Agreement (“SPA”) between Travelzoo and Azzurro
In connection with the acquisition of Metaverse Travel Experiences (“MTE”), formerly a wholly-owned subsidiary of Azzurro, the Company completed a private placement of newly issued shares with Azzurro. Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. Azzurro was the Company’s largest shareholder at the time of the MTE acquisition and, as of December 31, 2022, Azzurro and Ralph Bartel, in his individual capacity, owned approximately 50.3% of the Company’s outstanding shares. On December 28, 2022, the stockholders of Travelzoo approved the issuance and sale of 3.4 million shares of common stock (the “Shares”) of Travelzoo to Azzurro, in exchange for certain consideration, and on December 30, 2022 (the “Closing Date”), the transaction was consummated. The closing price of Travelzoo’s common stock on December 30, 2022 was $4.45 per share, resulting in an aggregate fair value of the Shares of $15.2 million. The consideration for the Shares consisted of the following: (a) $1.0 million in cash paid on the Closing Date; (b) $4.8 million paid in the form of a promissory note, carrying a 12% interest rate per annum, issued on the Closing Date and payable by June 30, 2023; and (c) the transfer to the Company of all outstanding capital stock of MTE, which was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date. The Company records the $4.8 million promissory note as Note receivable from shareholder in the stockholders’ equity section. In October 2023, the Company and Azzurro agreed to a payment plan for payment of the promissory note in five installments, ending in February 2024, with interest on the outstanding principal accruing at 16% per annum beginning on July 1, 2023. During the year ended December 31, 2023, Azzurro paid $3.0 million of principal. The remaining principal amount of $1.8 million promissory note is collateralized by the Shares and is expected to be paid in 2024. Azzurro paid interest of $70,000 and
$285,000 in the three months ended June 30, 2024 and 2023, respectively. Azzurro paid interest of $140,000 and $285,000 in the six months ended June 30, 2024 and 2023, respectively.
Intangible Assets
The following table represents the fair value and estimated useful lives of intangible assets from acquisitions (in thousands):
| | | | | | | | | | | |
| Fair Value | | Estimated Life (Years) |
| Customer relationships (Jack’s Flight Club) | $ | 3,500 | | | 5.0 |
| Trade name (Jack’s Flight Club) | 2,460 | | | indefinite |
| Non-compete agreements (Jack’s Flight Club) | 660 | | | 4.0 |
| Secret Escapes Spain member database | 445 | | | 3.0 |
| Secret Escapes U.S. member database | 1,751 | | | 2.3 |
Assets Measured at Fair Value on a Non-recurring Basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment, are adjusted to fair value if an impairment is recognized during the period. The fair value measurements are based on Level 3 inputs which are unobservable inputs based on management assumptions used to measure assets at fair value.
The goodwill assessment was performed by comparing the fair value of the reporting units to their carrying value. The fair value estimates for the reporting units were based on a blended analysis of the present value of future discounted cash flows and the market value approach, using Level 3 inputs. The indefinite-lived intangible assets assessment was performed using the relief-from-royalty method, which includes unobservable inputs, classified as Level 3, including projected revenues and approximately 5% royalty rate.
The Company performed an annual impairment test in October 2023 and did not identify any indicators of impairment for the year ended December 31, 2023.
Amortization of Acquired Intangible Assets
The following table represents the activities of intangible assets for the three months ended June 30, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | | |
| Jack’s Flight Club | | Secret Escape Spain | | Secret Escape U.S. |
| Intangible assets—December 31, 2022 | $ | 2,351 | | | $ | 327 | | | $ | 973 | |
| Amortization of intangible assets with definite lives | (168) | | | (39) | | | (195) | |
| Intangible assets—March 31, 2023 | 2,183 | | | 288 | | | 778 | |
| Amortization of intangible assets with definite lives | (158) | | | (36) | | | (194) | |
| Intangible assets—June 30, 2023 | 2,025 | | | 252 | | | 584 | |
| Amortization of intangible assets with definite lives | (157) | | | $ | (29) | | | $ | (195) | |
| Intangible assets—September 30, 2023 | 1,868 | | | 223 | | | 389 | |
| Amortization of intangible assets with definite lives | (158) | | | (37) | | | (194) | |
| Intangible assets—December 31, 2023 | 1,710 | | | 186 | | | 195 | |
| Amortization of intangible assets with definite lives | (75) | | | (48) | | | (195) | |
| Intangible assets—March 31, 2024 | 1,635 | | | 138 | | | — | |
| Amortization of intangible assets with definite lives | (59) | | | (28) | | | — | |
| Intangible assets—June 30, 2024 | $ | 1,576 | | | $ | 110 | | | $ | — | |
Amortization expense for acquired intangibles was $87,000 and $388,000 for the three months ended June 30, 2024 and 2023, respectively. Amortization expense for acquired intangibles was $405,000 and $790,000 for the six months ended June 30, 2024 and 2023, respectively.
Expected future amortization expense of acquired intangible assets as of June 30, 2024 is as follows (in thousands):
| | | | | |
| Years ending December 31, | |
| 2024 (excluding the six months ended June 30, 2024) | 189 | |
| 2025 | 47 | |
| $ | 236 | |
The Company performed its annual impairment testing of Trade name as of October 31, 2023 using a relief from royalty method. No impairment was identified in 2023. As of June 30, 2024, the carrying value of the Trade name was $1.5 million. The Company did not identify any indicators of impairment during the six months ended June 30, 2024.
Note 4: Commitments and Contingencies
From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and believes it is probable that the matter will be ruled on adversely. Accruals for legal contingencies were not material as of June 30, 2024 and December 31, 2023. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.
The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S. under operating leases. Our leases have remaining terms ranging from less than one year to up to six years. The Company maintained standby letters of credit (“LOC”) serve as collateral issued to the landlords. The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the condensed consolidated balance sheets.
The Company has purchase commitments aggregating approximately $256,000 as of June 30, 2024, which represent the minimum obligations the Company has under agreements with certain suppliers. These minimum obligations are less than the Company’s projected use for those periods. Payments may be more than the minimum obligations based on actual use.
In January 2022, July 2022 and May 2023, the German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received notification and payments of $1.2 million, $494,000 and $205,000 from the German Federal Government under its Bridging Aid III plan, Bridging Aid III+ and Bridging Aid IV programs, respectively. These programs were for companies that suffered a decrease in sales of at least 30% in one month compared to the reference month in 2019 because of the COVID-19 pandemic. Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022, July 2022, and May 2023. The Company is required to submit a final declaration in connection with the grants received by September 30, 2024. The Company believes it was eligible to participate in the programs and is entitled to the funding received and does not expect significant changes to the amounts already received to arise from the final submission. The Company recorded $1.2 million, $494,000 and $205,000 gains in Other income, net in the first and third quarters of 2022 and second quarter of 2023, respectively.
Note 5: Income Taxes
In determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K.
The Company’s effective tax rate from continuing operations was 30% and 29%, respectively, for the three months ended June 30, 2024 and 2023. The Company’s effective tax rate for the three months ended June 30, 2024 changed from the three months ended June 30, 2023 primarily due to an increase in certain non-deductible expenses in the three months ended June 30, 2024. The Company’s effective tax rate from continuing operations was 28% for each of the six months ended June 30, 2024 and 2023.
As of June 30, 2024, the Company is permanently reinvested in certain of its non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $826,000.
The Company maintains liabilities for uncertain tax positions. As of June 30, 2024, the Company had approximately $23.9 million in total unrecognized tax benefits, of which up to $16.6 million would favorably affect the Company’s effective income tax rate if realized.
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. As of June 30, 2024 and December 31, 2023, the Company had approximately $905,000 and $803,000 in accrued interest and penalties, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 2019 and forward and is subject to California tax examinations for years after 2018.
Note 6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Beginning balance | $ | (4,861) | | | $ | (4,825) | | | $ | (4,607) | | | $ | (4,905) | |
| Other comprehensive income (loss) due to foreign currency translation, net of tax | (90) | | | 135 | | | (344) | | | 215 | |
| Ending balance | $ | (4,951) | | | $ | (4,690) | | | $ | (4,951) | | | $ | (4,690) | |
There were no amounts reclassified from accumulated other comprehensive loss for the three and six months ended June 30, 2024 and 2023. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 7: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant, employing an option-pricing model. The value of the portion of awards expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s consolidated statements of operations.
In September 2019, pursuant to executed Option Agreements, the Company granted six employees stock options to purchase 50,000 shares of common stock each (300,000 in the aggregate) with an exercise price of $10.79, of which 75,000 options vest and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023. The options expire in September 2024. On May 29, 2020, the shareholders of the Company approved the grants, as well as certain amendments to the Option Agreements, which increased and repriced all outstanding, unexercised options granted to such employees. Pursuant to the applicable amendments, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the amendments to the Option Agreements, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49, the option grants were each increased to 100,000 each, resulting in 300,000 additional options in the aggregate. In 2020, 100,000 unvested options were forfeited upon an employee’s departure, 75,000 options were exercised and 54,258 shares of common stock were issued as the result of a cashless exercise which were approved by Travelzoo’s Board of Directors. In 2021, 125,000 unvested options were forfeited upon employees’ departure, 150,000 options were exercised and 88,917 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. No option was exercised in 2022. In 2023, 50,000 options were exercised and 18,098 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. As of December 31, 2023, stock-based compensation related to these Option Agreements and applicable Option Agreement Amendments were fully expensed. During the six months ended June 30, 2024, 75,000 options were exercised and 26,871 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. As of June 30, 2024, all options granted under these Option Agreements have been exercised or forfeited.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 800,000 shares of common stock to Mr. Ralph Bartel, Chairman of the Board of Directors of the Company at the time, with an exercise price of $3.49 and quarterly vesting beginning June 30, 2020 and ending on March 31, 2022. The options expire in March 2025. This grant was approved at the 2020 Annual Meeting of the shareholders. In 2021, 600,000 options were exercised and 390,809 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. Stock-based compensation related to this grant was fully expensed in 2022. In 2023, the remaining 200,000 options were exercised and 121,307 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024. The options expire in March 2025. In 2021, 50,000 options were exercised, and 24,474 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. In 2022, 50,000 unvested options were forfeited upon one employee’s departure, 25,000 options were exercised and 4,676 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. In 2023, 50,000 options were exercised and 16,619 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. As of June 30, 2024, 25,000 options were vested and outstanding. Stock-based compensation related to this grant was fully expensed as of March 31, 2023. Total stock-based compensation related to this option grant of $25,000 was recorded in general and administrative expenses for the six months ended June 30, 2024. Total stock-based compensation related to this option grant of $25,000 and $50,000 was recorded in general and administrative expenses for the three and six months ended June 30, 2023, respectively.
On June 1, 2021, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 50,000 shares of common stock to one employee, with an exercise price of $9.44, with annual vesting starting January 1, 2022 and ending on January 1, 2025. The options expire in January 2026. As of June 30, 2024, 50,000 options were outstanding and 37,500 of these options were vested. Total stock-based compensation related to this option grant of $36,000 was recorded in general and administrative expenses for each of the three months ended June 30, 2024 and 2023, respectively. Total stock-based compensation related to this option grant of $72,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was approximately $72,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 0.5 years.
In March 2022, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 600,000 shares of common stock of the Company, with an exercise price of $8.14 and vesting 25% every six months over two years beginning on June 30, 2022 and ending on December 31, 2023. The options expire in March 2027. This grant was approved at the 2022 Annual Meeting of the shareholders. As of June 30, 2024, 600,000 options were vested and outstanding. During the three and six months ended June 30, 2023, $216,000 and $433,000, respectively, was recorded in general and administrative expenses. Stock-based compensation related to this grant was fully expensed in 2023.
In June 2022, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $6.78 and quarterly vesting beginning on September 30, 2022 and ending on June 30, 2025 with vesting based on both a time-based service condition and performance conditions. However, if the performance targets are not met as of the first date on which the time condition is met, the time condition may be extended by one quarter up to three times. The options expire in June 2027. The Company did not recognize stock-based compensation expense for this grant as the performance targets were not achieved and thus no shares were vested in 2022. As of June 30, 2024, 100,000 options were outstanding and 33,333 of these options were vested. The Company did not record stock-based compensation related to this option grant during the six months ended June 30, 2024 and thus no shares vested in the six months ended June 30, 2024. Total stock-based compensation related to this option grant of $30,000 and $60,000 was recorded in sales and marketing expenses for the three and six months ended June 30, 2023, respectively. As of June 30, 2024, there was approximately $239,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 1.0 year.
In March 2023, the Company granted its General Counsel and Head of Global Functions, Christina Sindoni Ciocca, options to purchase 200,000 shares of common stock of the Company, with an exercise price of $4.96 and vesting 12.5% every six months over four years beginning on June 30, 2023 and ending on December 31, 2026. This grant was approved at the Annual Meeting of Stockholders held in June 2023. The options expire in March 2025. As of June 30, 2024, 200,000 options were outstanding and 75,000 of these options were vested. Total stock-based compensation related to this option grant of $35,000 and $52,000 was recorded in general and administrative expenses for the three months ended June 30, 2024 and 2023, respectively. Total stock-based compensation related to this option grant of $70,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was approximately $348,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 2.5 years.
In March 2024, the Compensation Committee of the Board of Directors granted Holger Bartel 600,000 stock options that vest through December 31, 2025. On April 26, 2024, pursuant to an executed Option Agreement, the shareholders of the Company approved to grant Holger Bartel, options to purchase 600,000 shares of common stock of the Company, with an exercise price of $8.58 and vesting 25% every six months over two years beginning on June 30, 2024 and ending on December 31, 2025. The options expire in March 2029. As of June 30, 2024, 600,000 options were outstanding and 150,000 of these options were vested. Total stock-based compensation related to this option grant of $609,000 was recorded in general and administrative expenses for the three and six months ended June 30, 2024. As of June 30, 2024, there was approximately $1.8 million of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 1.5 years.
In June 2024, the Company granted 100,000 stock options as inducement awards to an employee, with an exercise price of $7.87, with annual vesting starting June 12, 2024 and ending on June 12, 2028. The options expire in June 2029. As of June 30, 2024, 100,000 options were outstanding and none of these options was vested. Total stock-based compensation related to this option grant of $8,000 was recorded in general and administrative expenses for the three and six months ended June 30, 2024. As of June 30, 2024, there was approximately $394,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 4.0 years.
Note 8: Stock Repurchase Program
The Company’s stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and with capital allocation. Management is allowed discretion in the execution of repurchase programs, based upon market conditions and consideration of capital allocation.
In June 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. In 2022, the Company repurchased 306,375 shares of common stock for an aggregate purchase price of $1.6 million, which were recorded as part of treasury stock as of December 31, 2022. The Company repurchased 34,687 shares of common stock in the first quarter of 2023 for $186,000 and repurchased 658,938 shares of common stock in the second quarter of 2023 for $4.7 million. The repurchases were retired and recorded as a reduction of additional paid-in capital. This stock repurchase program was completed in 2023.
On July 26, 2023, Travelzoo announced that its board of directors has authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock. The Company repurchased 1,000,000 shares of common stock for an aggregate purchase price of $6.9 million which were retired and recorded as a reduction of additional paid-in capital. This stock repurchase program was completed in 2023.
On October 24, 2023, the Company announced that its board of directors authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock. The Company repurchased 600,000 shares of common stock for an aggregate purchase price of $5.0 million, excluding excise tax due under the Inflation Reduction Act of 2022, with such shares retired and recorded as a reduction of additional paid-in capital. As of December 31, 2023, there were 400,000 shares remaining to be repurchased under this program.
During the three months ended March 31, 2024, the Company repurchased 400,000 shares of common stock for an aggregate purchase price of $3.9 million, excluding excise tax due under the Inflation Reduction Act of 2022, with such shares retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
On April 29, 2024, Travelzoo announced that its board of directors has authorized the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. During the three months ended June 30, 2024, the Company repurchased 600,000 shares of common stock for an aggregate purchase price of $5.0 million, excluding excise tax due under the Inflation Reduction Act of 2022, with such shares retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings. As of June 30, 2024, there were 400,000 shares remaining to be repurchased under this program.
On June 15, 2024, the Company entered into a Stock Repurchase Agreement with Mr. Holger Bartel to privately repurchase an aggregate of 200,000 shares of the Company’s common stock for an aggregate purchase price of $1.5 million, excluding excise tax due under the Inflation Reduction Act of 2022, with such shares retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings. This transaction was approved by the Compensation Committee of the Board of Directors. See Note 12: Related Party Transactions for further information.
Note 9: Segment Reporting and Significant Customer Information
The Company determines its reportable segments based upon the chief operating decision maker’s management of the business. The Company currently has four reportable operating segments: Travelzoo North America, Travelzoo Europe, Jack’s Flight Club and New Initiatives. Travelzoo North America consists of the Company’s operations in the U.S. and Canada. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain and the U.K. Jack’s Flight Club consists of subscription revenues from premium members to access and receive flight deals from Jack’s Flight Club via email or mobile applications. New Initiatives consists of Travelzoo’s licensing activities in certain Asia Pacific territories, the Travelzoo META subscription service and MTE.
Management relies on an internal management reporting process that provides revenue and segment operating profit (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating profit (loss) are appropriate measures for evaluating the operational performance of the Company’s segments.
The following is a summary of operating results by business segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2024 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Consolidated |
| Revenues from unaffiliated customers | $ | 14,015 | | | $ | 6,004 | | | $ | 1,099 | | | $ | 23 | | | $ | 21,141 | |
| Intersegment revenues | 119 | | | (53) | | | (66) | | | — | | | — | |
| Total net revenues | 14,134 | | | 5,951 | | | 1,033 | | | 23 | | | 21,141 | |
| Operating profit (loss) | $ | 3,717 | | | $ | 512 | | | $ | (34) | | | $ | (184) | | | $ | 4,011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Consolidated |
| Revenues from unaffiliated customers | $ | 13,642 | | | $ | 6,462 | | | $ | 1,011 | | | $ | 13 | | | $ | 21,128 | |
| Intersegment revenues | 491 | | | (575) | | | 84 | | | — | | | — | |
| Total net revenues | 14,133 | | | 5,887 | | | 1,095 | | | 13 | | | 21,128 | |
| Operating profit (loss) | $ | 3,753 | | | $ | (239) | | | $ | 97 | | | $ | (338) | | | $ | 3,273 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2024 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Consolidated |
| Revenues from unaffiliated customers | $ | 28,288 | | | $ | 12,584 | | | $ | 2,199 | | | $ | 55 | | | $ | 43,126 | |
| Intersegment revenues | 74 | | | 29 | | | (103) | | | — | | | — | |
| Total net revenues | 28,362 | | | 12,613 | | | 2,096 | | | 55 | | | 43,126 | |
| Operating profit (loss) | $ | 8,155 | | | $ | 1,894 | | | $ | (133) | | | $ | (314) | | | $ | 9,602 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Consolidated |
| Revenues from unaffiliated customers | $ | 28,209 | | | $ | 12,540 | | | $ | 1,959 | | | $ | 21 | | | $ | 42,729 | |
| Intersegment revenues | 682 | | | (766) | | | 84 | | | — | | | — | |
| Total net revenues | 28,891 | | | 11,774 | | | 2,043 | | | 21 | | | 42,729 | |
| Operating profit (loss) | $ | 8,269 | | | $ | 218 | | | $ | 52 | | | $ | (555) | | | $ | 7,984 | |
Property and equipment are attributed to the geographic region in which the assets are located. Revenues from unaffiliated customers excludes intersegment revenues and represents revenue with parties unaffiliated with the Company and its wholly owned subsidiaries.
The following is a summary of assets by business segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Elimination | | Consolidated |
| Long-lived assets | $ | 116 | | | $ | 124 | | | $ | — | | | $ | 259 | | | $ | — | | | $ | 499 | |
| Total assets excluding discontinued operations | $ | 98,898 | | | $ | 22,091 | | | $ | 19,673 | | | $ | 3,436 | | | $ | (92,586) | | | $ | 51,512 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | Travelzoo North
America | | Travelzoo Europe | | Jack’s Flight Club | | New Initiatives | | Elimination | | Consolidated |
| Long-lived assets | $ | 152 | | | $ | 106 | | | $ | — | | | $ | 320 | | | $ | — | | | $ | 578 | |
| Total assets excluding discontinued operations | $ | 96,865 | | | $ | 22,655 | | | $ | 19,472 | | | $ | 3,570 | | | $ | (87,181) | | | $ | 55,381 | |
For the three and six months ended June 30, 2024 and 2023, the Company did not have any customers that accounted for 10% or more of revenue. As of June 30, 2024 and December 31, 2023, the Company did not have any customers that accounted for 10% or more of accounts receivable.
The following table sets forth the breakdown of revenues (in thousands) by category: Advertising, Membership Fees, and Other. Advertising includes travel publications (Top 20, Travelzoo website, Standalone email newsletters, Travelzoo Network), Getaways vouchers, hotel platform, vacation packages, Local Deals vouchers and entertainment offers (vouchers and direct bookings). Membership Fees includes subscription fees paid by Travelzoo, Jack's Flight Club and Travelzoo META members. Travelzoo and Jack's Flight Club members. Other includes licensing fees from license agreements and the existing retail business acquired by the Company in the MTE transaction.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Advertising | $ | 19,957 | | | $ | 20,020 | | | $ | 40,807 | | | $ | 40,665 | |
| Membership Fees | 1,161 | | | 1,095 | | | 2,265 | | | 2,043 | |
| Other | 23 | | | 13 | | | 54 | | | 21 | |
| Total revenues | $ | 21,141 | | | $ | 21,128 | | | $ | 43,126 | | | $ | 42,729 | |
Revenue by geography is based on the billing address of the advertiser. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned. The following table sets forth revenue for countries that exceed 10% of total revenue (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Revenue | | | | | | | |
| United States | $ | 12,805 | | | $ | 12,749 | | | $ | 25,576 | | | $ | 26,222 | |
| United Kingdom | 4,855 | | | 4,858 | | | 10,370 | | | 9,820 | |
| Germany | 1,796 | | | 1,738 | | | 3,667 | | | 3,233 | |
| Rest of the world | 1,685 | | | 1,783 | | | 3,513 | | | 3,454 | |
| Total revenues | $ | 21,141 | | | $ | 21,128 | | | $ | 43,126 | | | $ | 42,729 | |
The following table sets forth property and equipment by geographic area (in thousands):
| | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2024 | | 2023 |
| United States | $ | 105 | | | $ | 115 | |
| China (Hong Kong) | 250 | | | 308 | |
| Rest of the world | 144 | | | 155 | |
| Total long-lived assets | $ | 499 | | | $ | 578 | |
Note 10: Leases
The Company has operating leases for real estate and certain equipment. The Company leases office space in Canada, Germany, Spain, the U.K., and the U.S. under operating leases. Our leases have remaining lease terms ranging from less than one year up to six years. Certain leases include one or more options to renew. All of our leases qualify as operating leases.
The following table summarizes the components of lease expense for the three and six months ended June 30, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Operating lease cost | $ | 529 | | | $ | 646 | | | $ | 1,061 | | | $ | 1,320 | |
| Short-term lease cost | 134 | | | 20 | | | 271 | | | 40 | |
| Variable lease cost | 96 | | | 166 | | | 216 | | | 316 | |
| Sublease income | — | | | (90) | | | — | | | (180) | |
| Total lease cost | $ | 759 | | | $ | 742 | | | $ | 1,548 | | | $ | 1,496 | |
Cash payments against the operating lease liabilities totaled $1.7 million for each of the six months ended June 30, 2024 and 2023, respectively. ROU assets obtained in exchange for lease obligations was $646,000 for the six months ended June 30, 2024. There was no ROU asset obtained in exchange for lease obligations for six months ended June 30, 2023.
The following table summarizes the presentation in our condensed consolidated balance sheets of our operating leases (in thousands):
| | | | | | | | | | | | | | | | | |
| | | June 30, 2024 | | December 31, 2023 |
| Assets: | | | | |
| Operating lease right-of-use assets | | $ | 5,873 | | | $ | 6,015 | |
| | | | | |
| Liabilities: | | | | |
| Operating lease liabilities | | $ | 2,389 | | | $ | 2,530 | |
| Long-term operating lease liabilities | | 6,342 | | | 6,717 | |
| Total operating lease liabilities | | $ | 8,731 | | | $ | 9,247 | |
| | | | | |
| Weighted average remaining lease term (years) | | 4.93 | | 5.26 |
| Weighted average discount rate | | 4.6 | % | | 4.3 | % |
Maturities of lease liabilities were as follows (in thousands):
| | | | | |
| Years ending December 31, | |
| 2024 (excluding the six months ended June 30, 2024) | $ | 1,311 | |
| 2025 | 2,183 | |
| 2026 | 1,530 | |
| 2027 | 1,464 | |
| 2028 | 1,463 | |
| Thereafter | 1,679 | |
| Total lease payments | 9,630 | |
| Less interest | (899) | |
| Present value of operating lease liabilities | $ | 8,731 | |
Note 11: Non-Controlling Interest
The Company’s consolidated financial statements include Jack’s Flight Club where the Company has operating control but owns 60% of the equity interest.
The non-controlling interest for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands):
| | | | | |
| Non-controlling interest—December 31, 2022 | $ | 4,595 | |
| Net income attributable to non-controlling interest | 8 | |
| Non-controlling interest—March 31, 2023 | 4,603 | |
| Net income attributable to non-controlling interest | 37 | |
| Non-controlling interest—June 30, 2023 | 4,640 | |
| Net income attributable to non-controlling interest | 52 | |
| Non-controlling interest—September 30, 2023 | 4,692 | |
| Net income attributable to non-controlling interest | 5 | |
| Non-controlling interest—December 31, 2023 | 4,697 | |
| Net income attributable to non-controlling interest | (11) | |
| Non-controlling interest—March 31, 2024 | 4,686 | |
| Net income attributable to non-controlling interest | (7) | |
| Non-controlling interest—June 30, 2024 | $ | 4,679 | |
Note 12: Related Party Transactions
Stock Purchase Agreement between Travelzoo and Azzurro
In connection with the development of Travelzoo META, on December 28, 2022, the Company acquired MTE, a wholly owned subsidiary of Azzurro Capital Inc., and also completed a private placement of newly issued shares. As of December 31, 2022, Azzurro Capital Inc. and Ralph Bartel owned approximately 50.3% of the Company’s outstanding shares. See Note 3: Acquisitions in the condensed consolidated financial statements for further information.
Sale and Purchase of Travelzoo Common Stock within Six Month Period
On May 23, 2023, Travelzoo was named as a nominal defendant in a complaint for recovery of short swing profits filed in the Southern District of New York under Section 16(b) of the Securities Exchange Act, by Dennis J. Donoghue and Mark Rubenstein, against Ralph Bartel, the Ralph Bartel 2005 Trust and Azzurro Capital Inc.
Stock Repurchase Agreement
Travelzoo, from time to time, engages in share repurchases, and on June 15, 2024, the Company entered into a Stock Repurchase Agreement (the “SRA”) with Holger Bartel, the Company's Global Chief Executive Officer, to repurchase an aggregate of 200,000 shares of the Company’s common stock at a price of $7.66 per share. Travelzoo's compensation committee negotiated the purchase price with Holger Bartel after receiving advice from an independent financial adviser. The aggregate purchase price of $1.5 million was paid during the three months ended June 30, 2024, following the execution of the SRA.