Travelzoo Reports Third Quarter 2007 Results

Travelzoo Inc. (NASDAQ:TZOO): Revenue of $19.9 million, up 13% year-over-year Operating profit of $4.9 million $0.14 earnings per share, down from $0.28 in the prior-year period Income tax rate of 59.5% Travelzoo Inc., a global Internet media company, today announced financial results for the third quarter ended September 30, 2007, with revenue of $19.9 million, an increase of 13% year-over-year. Net income was $2.2 million, with diluted earnings per share (EPS) of $0.14, down from $0.28 in the prior-year period. "Travelzoo’s latest results were impacted by non-tax deductible losses from our foreign operations and our aggressive spending on acquiring more subscribers in new markets,” said Ralph Bartel, chairman and chief executive officer, Travelzoo. "North America revenue was impacted by technical and execution problems of a third-party provider that manages traffic acquisition for our SuperSearch™ product. In Q4, we will continue to aggressively execute our global strategy and focus on better execution in North America.” North America North America business segment revenue grew 10% year-over-year to $18.4 million. North America reported operating income of $7.1 million, or 38.5% of revenue, down from operating income of $8.4 million, or 50.5% of revenue, in the prior-year period. Europe Europe business segment revenue grew 67% year-over-year to $1.6 million. Europe reported an operating loss of $1.4 million, compared to an operating loss of $277,000 in the prior-year period. The increase in operating loss was primarily attributable to increased spending on subscriber acquisition and the start up of operations in Germany and France. Travelzoo began operations in the U.K. in May 2005, in Germany in September 2006, and in France in March 2007. Asia Pacific The Asia Pacific business segment reported an operating loss of $706,000. Travelzoo began operations in Hong Kong in April 2007 and began operations in Japan in September 2007. Income Taxes Travelzoo’s effective income tax rate was 59.5%, up from 45.9% in the prior-year period. The effective tax rate was impacted by operating losses in Canada, Europe and Asia. These operating losses were treated as having no recognizable tax benefit. Asset Management Travelzoo generated $1.3 million in cash flow from operations. Accounts receivable increased $863,000 sequentially and increased $581,000 over the prior-year period to $9.4 million. Accounts payable decreased $692,000 sequentially and increased $3.3 million over the prior-year period to $5.8 million. Travelzoo utilized $19.8 million of cash during the third quarter to repurchase 1 million shares of common stock from the open market. Travelzoo exited the quarter with $23.3 million in cash and cash equivalents. Conference Call Travelzoo will host a conference call to discuss third quarter results at 5:00 p.m. ET today. A live Web cast can be accessed through the company's investor relations Web site at www.travelzoo.com/ir. About Travelzoo Travelzoo is a global Internet media company. Travelzoo's media properties, which reach more than 11 million travel enthusiasts in the U.S., Canada, France, Germany, Hong Kong and the U.K., include the Travelzoo® Web site (www.travelzoo.com), the Top 20® list, the Newsflash™ e-mail alert service and SuperSearch™, a travel search engine. Travelzoo publishes offers from more than 600 advertisers. Travelzoo's deal experts review each offer to find the best travel deals and confirm their true value. Travelzoo is headquartered in New York City. Certain statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include, but are not limited to, statements about our plans, objectives, expectations, prospects and intentions, markets in which we participate and other statements contained in this press release that are not historical facts. When used in this press release, the words "expect,” "predict,” "project,” "anticipate,” "believe,” "estimate,” "intend,” "plan,” "seek” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including changes in our plans, objectives, expectations, prospects and intentions and other factors discussed in our filings with the SEC. We cannot guarantee any future levels of activity, performance or achievements. Travelzoo undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release. Travelzoo and Top 20 are registered trademarks of Travelzoo Inc. All other company and product names mentioned are trademarks of their respective owners. Travelzoo Inc. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)       Three months ended Nine months ended September 30, September 30, 2007   2006 2007   2006 Revenues $ 19,943 $ 17,586 $ 59,798 $ 51,873 Cost of revenues 563 232 1,360 782 Gross profit 19,380 17,354 58,438 51,091 Operating expenses: Sales and marketing 10,954 6,974 31,015 22,047 General and administrative 3,488 2,249 9,254 6,962 Total operating expenses 14,442 9,223 40,269 29,009 Income from operations 4,938 8,131 18,169 22,082 Other income and expense: Interest income 312 279 1,103 926 Gain on foreign currency 68 7 103 12 Income before income taxes 5,318 8,417 19,375 23,020 Income taxes 3,164 3,866 10,312 10,502 Net income $ 2,154 $ 4,551 $ 9,063 $ 12,518   Basic net income per share $ 0.15 $ 0.30 $ 0.60 $ 0.80 Diluted net income per share 0.14 0.28 0.56 0.74   Shares used in computing basic net income per share 14,659 15,250 15,053 15,595 Shares used in computing diluted net income per share 15,873 16,464 16,278 16,803 Travelzoo Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands)   September 30,   December 31,   2007     2006 ASSETS Cash and cash equivalents $ 23,253 $ 33,415 Accounts receivable, net 9,408 7,274 Deposits 181 177 Prepaid expenses and other current assets 1,088 506 Deferred tax assets   1,980     1,980 Total current assets   35,910     43,352     Deposits, less current portion 239 142 Property and equipment, net 387 172 Intangible assets, net   33     34     Total Assets $ 36,569   $ 43,700 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable 5,750 2,839 Accrued expenses 3,101 2,149 Deferred revenue 471 750 Deferred rent 25 - Income tax payable   -     1,142     Total current liabilities   9,347     6,880 Other liabilities 1,196 3   Common stock 153 153 Treasury stock (19,823 ) - Additional paid-in capital 2,076 2,076 Accumulated other comprehensive income (9 ) 22 Retained earnings   43,629     34,566     Total Stockholders' Equity   26,026     36,817 Total Liabilities and Stockholders' Equity $ 36,569   $ 43,700 Travelzoo Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)     Three months ended September 30, Nine months ended September 30,   2007       2006     2007       2006   CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,154 $ 4,551 $ 9,063 $ 12,518 Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation and amortization 53 35 132 103 Provision for losses on accounts receivable (44 ) (2 ) (52 ) 228 Accrued income on short-term investments - (115 ) - (449 ) Changes in operating assets and liabilities: Accounts receivable (783 ) (256 ) (2,018 ) 3 Deposits (30 ) (2 ) (96 ) (92 ) Prepaid expenses and other current assets 243 86 (571 ) 63 Accounts payable (698 ) (498 ) 2,881 100 Accrued expenses 645 (386 ) 892 (271 ) Deferred revenue (246 ) 14 (283 ) 282 Deferred rent 17 - 72 - Income tax payable   -     (641 )   3     (649 ) Net cash provided by operating activities   1,311     2,786     10,023     11,836   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (89 ) (17 ) (335 ) (96 ) Purchase of short-term investments - - - (14,663 ) Sale of short-term investments - 15,000 - 35,000 Purchase of intangible assets   (5 )   -     (5 )   -           Net cash provided by (used in) investing activities   (94 )   14,983     (340 )   20,241   CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common stock   (19,823 )   -     (19,823 )   (28,579 ) Net cash used in financing activities   (19,823 )   -     (19,823 )   (28,579 ) Effect of exchange rate on cash and cash equivalents   (17 )   8     (22 )   10   Net increase (decrease) in cash and cash equivalents (18,623 ) 17,777 (10,162 ) 3,508 Cash and cash equivalents at beginning of period   41,876     10,200     33,415     24,469   Cash and cash equivalents at end of period   23,253     27,977     23,253     27,977   Supplemental disclosure of cash flow information:   Cash paid for income taxes net of refunds received $ 2,853   $ 4,507   $ 10,404   $ 11,152   Travelzoo Inc. Segment Information (Unaudited) (In thousands)             Three months ended September 30, 2007   North America Europe Asia Pacific Elimination Consolidated Revenue from unaffiliated customers $ 18,332 $ 1,611 $ - $ - $ 19,943 Intersegment revenue   33   -       (33 )   - Total net revenues   18,365   1,611     -     (33 )   19,943 Operating income (loss) $ 7,066 $ (1,423 ) $ (706 ) $ 1   $ 4,938   Three months ended September 30, 2006   North America Europe Asia Pacific Elimination Consolidated Revenue from unaffiliated customers $ 16,627 $ 959 $ - $ - $ 17,586 Intersegment revenue   37   4     -     (41 )   - Total net revenues   16,664   963     -     (41 )   17,586 Operating income (loss) $ 8,407 $ (277 ) $ -   $ 1   $ 8,131   Nine months ended September 30, 2007   North America Europe Asia Pacific Elimination Consolidated Revenue from unaffiliated customers $ 55,406 $ 4,392 $ - $ - $ 59,798 Intersegment revenue   152   5     -     (157 )   - Total net revenues   55,558   4,397     -     (157 )   59,798 Operating income (loss) $ 22,540 $ (3,266 ) $ (1,107 ) $ 2   $ 18,169   Nine months ended September 30, 2006   North America Europe Asia Pacific Elimination Consolidated Revenue from unaffiliated customers $ 49,607 $ 2,266 $ - $ - $ 51,873 Intersegment revenue   150   6     -     (156 )   - Total net revenues   49,757   2,272     -     (156 )   51,873 Operating income (loss) $ 23,311 $ (1,231 ) $ -   $ 2   $ 22,082