TRAVELZOO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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The information in this report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based upon current expectations, assumptions, estimates and projections about
Travelzoo and our industry. These forward-looking statements are subject to the
many risks and uncertainties that exist in our operations and business
environment that may cause actual results, performance or achievements of
Travelzoo to be different from those expected or anticipated in the
forward-looking statements. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
For example, words such as "may", "will", "should", "estimates", "predicts",
"potential", "continue", "strategy", "believes", "anticipates", "plans",
"expects", "intends", and similar expressions are intended to identify
forward-looking statements. Travelzoo's actual results and the timing of certain
events could differ significantly from those anticipated in such forward-looking
statements. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those discussed elsewhere in this report in the
section entitled "Risk Factors" and the risks discussed in our other SEC
filings. The forward-looking statements included in this report reflect the
beliefs of our management on the date of this report. Travelzoo undertakes no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other circumstances occur in the
future.

Overview

Travelzoo® is a global Internet media company. We provide our 30 million members
insider deals and one-of-a-kind experiences personally reviewed by one of our
deal experts around the globe. We have our finger on the pulse of outstanding
travel, entertainment, and lifestyle experiences. For over 20 years we have
worked in partnership with more than 5,000 top travel suppliers-our
long-standing relationships give Travelzoo members access to irresistible deals.

Travelzoo (the "Company" or "we") attracts a high-quality audience of travel
enthusiasts across multiple digital platforms, including email, web, social
media and mobile applications. Our insider deals and email newsletters are
published by Travelzoo and its licensees worldwide. Our publications and
products include the Travelzoo website (travelzoo.com),, the Travelzoo iPhone
and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email
alert service, and the Travelzoo Network. Our Travelzoo website includes Local
Deals and Getaways listings that allow our members to purchase vouchers for
deals from local businesses such as spas, hotels and restaurants.

In January 2022, the Company's German branch of Travelzoo (Europe) Limited
received the payment for approximately $1.2 million from German federal
government for companies suffered Corona-related slump. The Company recorded
$1.2 million gain in Other income, net in the three months ended March 31, 2022.
The Company also received job retention related funding from Canada was
approximately $68,000 and $168,000 for three months ended March 31, 2022 and
2021, respectively, and from European locations was approximately $0 and $20,000
for three months ended March 31, 2022 and 2021, respectively. Those fundings
were recorded against salary and related expenses.

The Company sold all of its shares in WeGo to trivago for a total purchase price
of approximately $2.9 million, of which $195,000 was placed in escrow for one
year. The Company received the full escrow payment in January 2022 and recorded
the gain in Other income (loss), net for the three months ended March 31, 2022.

Historically, the Company managed its business geographically and operated in
three reportable segments including Asia Pacific, Europe and North America. In
the first quarter of 2020, the Company classified the results of its Asia
Pacific segment as discontinued operations in its consolidated financial
statements for current and prior periods presented. On January 13, 2020,
Travelzoo entered into a Sales Purchase Agreement with the Sellers of Jack's
Flight Club to purchase 60% of the Shares. Upon the acquisition, the Company's
chief operating decision maker reviewed and evaluated Jack's Flight Club as a
separate segment. Travelzoo currently has three reportable operating segments:
Travelzoo North America, Travelzoo Europe and Jack's Flight Club. Travelzoo
North America consists of the Company's operations in Canada and the U.S.
Travelzoo Europe consists of the Company's operations in France, Germany, Spain,
and the UK.

When evaluating the financial condition and operating performance of the
Company, management focuses on financial and non-financial indicators such as
growth in the number of members to the Company's newsletters, operating margin,
growth in revenues in the absolute and relative to the growth in reach of the
Company's publications measured as revenue per member and revenue per employee
as a measure of productivity.


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How we generate revenue

travelzoo

Revenue for the Travelzoo brand and business comes primarily from advertising costs from two revenue categories: travel and local.

The "Travel" category consists of advertising or publishing revenues, primarily
(a) listing fees paid by travel companies for the publishing of their offers on
Travelzoo's media properties and (b) commission from the sale of Getaways
vouchers. Listing fees are based on audience reach, placement, number of
listings, number of impressions, number of clicks, and actual sales. For
publishing revenue, we recognize revenue upon delivery of the emails and
delivery of the clicks, over the period of the placement of the advertising.
Insertion orders for publishing revenue are typically for periods between one
month and twelve months and are not automatically renewed. For Getaways
vouchers, we recognize a percentage of the face value of the vouchers upon the
sale of the vouchers. Merchant agreements for Getaways advertisers are typically
for periods between twelve months and twenty-four months and are not
automatically renewed. Since the second quarter of 2020, the Company expanded
its vouchers refund policy in order to entice customers given the current
economic climate to fully refundable until the voucher expires or is redeemed by
the customer. The Company now offers full refunds for vouchers that have not
been redeemed or expired. The expiration dates of vouchers range between April
2022 through December 2025 with the majority of vouchers expiring in 2022 and
the remaining primarily expiring in 2023; provided, that these expiration dates
may sometimes be extended on a case-by-case basis. The revenues generated from
Local Deals vouchers and entertainment offers are based upon a percentage of the
face value of the vouchers, commission on actual sales or a listing fee based on
audience reach. For Local Deals vouchers, we recognize a percentage of the face
value of vouchers upon the sale of the vouchers. The Company estimated the
refund reserve by using historical and current refund rates by product and by
merchant location to calculate the estimated future refunds. As of March 31,
2022, the Company had approximately $15.1 million of unredeemed vouchers that
had been sold through December 31, 2021 representing the Company's commission
earned from the sale. The Company had estimated a refund liability of $3.8
million for these unredeemed vouchers as of March 31, 2022 which is recorded as
a reduction of revenues and is reflected as a current liability in Accrued
expenses and other on the consolidated balance sheet. The Company has recorded
Merchant Payables of $60.5 million as of March 31, 2022 related to unredeemed
vouchers. 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.

The "Local" category consists of publishing revenue for negotiated high-quality
deals from local businesses, such as restaurants, spas, shows, and other
activities and includes Local Deals vouchers and entertainment offers (vouchers
and direct bookings). The revenues generated from these products are based upon
a percentage of the face value of the vouchers, commission on actual sales or a
listing fee based on audience reach. We recognize revenue upon the sale of the
vouchers, upon notification of the amount of direct bookings or upon delivery of
the emails. For Local Deals vouchers, we recognize a percentage of the face
value of vouchers upon the sale of the vouchers. Insertion orders and merchant
agreements for Local are typically for periods between one month and twelve
months and are not automatically renewed. Certain merchant contracts in foreign
locations allow us to retain fees related to vouchers sold that are not redeemed
by purchasers upon expiration, which we recognize as revenue based upon
estimates at the time of sale.

Jack’s Flight Club

Jack’s Flight Club revenues are generated by subscriptions paid by members. Subscription options are quarterly, semi-annually and annually. We recognize monthly revenue pro rata to the subscription period.

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Trends in our business

Our ability to generate revenues in the future depends on numerous factors such
as our ability to sell more advertising to existing and new advertisers, our
ability to increase our audience reach and advertising rates, our ability to
have sufficient supply of hotels offered at competitive rates, our ability to
develop and launch new products and our ability to continue to service our
members without interruption. Our ability to generate revenues is also dependent
on trends impacting the travel industry and online advertising businesses more
broadly.

Our current revenue model primarily depends on advertising fees paid primarily
by travel, entertainment and local businesses. A number of factors can influence
whether current and new advertisers decide to advertise their offers with us. We
have been impacted and expect to continue to be impacted by external factors
such as the shift from offline to online advertising, the relative condition of
the economy, competition and the introduction of new methods of advertising, and
the decline in consumer demand for vouchers and travel more generally. A number
of factors will have impact on our revenue, such as the reduction in spending by
travel intermediaries due to their focus on improving profitability, the trend
towards mobile usage by consumers, the willingness of consumers to purchase the
deals we advertise, and the willingness of certain competitors to grow their
business unprofitably. In addition, we have been impacted and expect to continue
to be impacted by internal factors such as introduction of new technologies and
advertising products, hiring and relying on key employees for the continued
maintenance and growth of our business and ensuring our advertising products
continue to attract the audience that advertisers desire. We also have been
impacted and expect to continue to be impacted by external factors, such as the
global pandemic, which decrease the demand for travel and entertainment and
increasing cybersecurity risks due to increased dependence on digital
technologies. We also could be indirectly impacted by climate change and related
legislation to the extent such legislation impacts the businesses of our
advertisers such as airlines and cruise ship operators, which have come under
increasing scrutiny for their carbon footprints.

Additionally, existing advertisers may shift from one advertising service
(e.g. Top 20) to another (e.g. Local Deals and Getaways). These shifts between
advertising services by advertisers could result in no incremental revenue or
less revenue than in previous periods depending on the amount purchased by the
advertisers, and in particular with Local Deals and Getaways, depending on how
many vouchers are purchased by members.

Local revenues have been and may continue to decline over time due to market
conditions driven by competition and declines in consumer demand. In the last
several years, we have seen a decline in the number of vouchers sold and a
decrease in the average take rate earned by us from the merchants for voucher
sold. However, due to the global pandemic and the increase in demand by
consumers for fully refundable travel options, we have now begun to see a slight
reversal of this trend and an increase in the sale of Getaways hotel vouchers.
Demand for restaurants and spas continues to be low due to the global pandemic.

Our ability to continue to generate advertising revenue depends heavily upon our
ability to maintain and grow an attractive audience for our publications. We
monitor our members to assess our efforts to maintain and grow our audience
reach. We obtain additional members and activity on our websites by acquiring
traffic from Internet search companies. The costs to grow our audience have had,
and we expect will continue to have, a significant impact on our financial
results and can vary from period to period. We may have to increase our
expenditures on acquiring traffic to continue to grow or maintain our reach of
our publications due to competition. We continue to see a shift in the audience
to accessing our services through mobile devices and social media. When funds
are available for marketing spend, we are addressing this growing channel of our
audience through increased marketing on social media channels. However, we will
need to keep pace with technological change and this trend to further address
this shift in the audience behavior in order to offset any related declines in
revenue.

We believe that we can increase our advertising rates only if the reach of our
publications increases. We do not know if we will be able to increase the reach
of our publications. If we are able to increase the reach of our publications,
we still may not be able to or want to increase rates given market conditions
such as intense competition in our industry. We have not had any significant
rate increase in recent years due to intense competition in our industry. Even
if we increase our rates, the increased price may reduce the number of
advertisers willing to advertise with us and, therefore, decrease our revenue.
We may need to decrease our rates based on competitive market conditions and the
performance of our audience in order to maintain or grow our revenue.

We do not know what our cost of revenues as a percentage of revenues will be in
future periods. Our cost of revenues may increase if the face value of vouchers
that we sell for Local Deals and Getaways increases or the total number of
vouchers sold increases because we have credit card fees based upon face value
of vouchers sold, due to customer service costs related to vouchers sold and due
to refunds to members on vouchers sold. We expect fluctuations in cost of
revenues as a percentage of revenues from quarter to quarter. Some of the
fluctuations may be significant and may have a material impact on our results of
operations.


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We do not know what our sales and marketing expenses as a percentage of revenue
will be in future periods. Increased competition in our industry may require us
to increase advertising for our brand and for our products. In order to increase
the reach of our publications, we have to acquire a significant number of new
members in every quarter and continue to promote our brand. One significant
factor that impacts our advertising expenses is the average cost per acquisition
of a new member. Increases in the average cost of acquiring new members may
result in an increase of sales and marketing expenses as a percentage of
revenue. We believe that the average cost per acquisition depends mainly on the
advertising rates which we pay for media buys, our ability to manage our member
acquisition efforts successfully, the regions we choose to acquire new members
and the relative costs for that region, and the degree of competition in our
industry. We may decide to accelerate our member acquisition, including through
merger and acquisition activity, for various strategic and tactical reasons and,
as a result, increase our marketing and other expenses. We expect the average
cost per acquisition to increase with our increased expectations for the quality
of the members we acquire. We may see an unique opportunity for a brand
marketing campaign that will result in an increase of marketing expenses. In
addition, there may be a significant number of members that cancel or we may
cancel their subscription for various reasons, which may drive us to spend more
on member acquisition in order to replace the lost members. We expect
fluctuations in sales and marketing expenses as a percentage of revenue from
year to year and from quarter to quarter. Some of the fluctuations may be
significant and have a material impact on our results of operations. We expect
increased marketing expense to spur continued growth in members and revenue in
future periods; however, we cannot be assured of this due to the many factors
that impact our growth in members and revenue. We expect to adjust the level of
such incremental spending during any given quarter based upon market conditions,
as well as our performance in each quarter.

We do not know what our product development expenses as a percentage of revenue
will be in future periods. There may be fluctuations that have a material impact
on our results of operations. Product development changes may lead to reductions
of revenue based on changes in presentation of our offerings to our audience. We
expect our efforts on developing our product and services will continue to be a
focus in the future, which may lead to increased product development expenses.
This increase in expense may be the result of an increase in costs related to
third party technology service providers and software licenses, headcount, the
compensation related to existing headcount and the increased use of professional
services.

We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. Certain fluctuations can materially affect our results of operations.

We do not know what our income taxes will be in future periods. There may be
fluctuations that have a material impact on our results of operations. Our
income taxes are dependent on numerous factors such as the geographic mix of our
taxable income, foreign, federal, state and local tax law and regulations and
changes thereto. Our income taxes are also dependent on the determination of
whether valuation allowances for certain tax assets are required or not, audits
of prior years' tax returns that result in adjustments, resolution of uncertain
tax positions and different treatments for certain items for tax versus books.
We expect fluctuations in our income taxes from year to year and from quarter to
quarter. Some of the fluctuations may be significant and have a material impact
on our results of operations.

With the impact to revenues caused by the global pandemic, spending by the
Company in many areas within the business has been slowed or stopped, including
but not limited to, marketing, technology and human resources. For example, in
2020, the Company ceased operations in Asia Pacific, conducted employee
furloughs and restructured its employees significantly. The Company also
renegotiated many of its outstanding contractual obligations with vendors and
closed some ancillary office locations in order to reduce capital expenditures.
We do not anticipate that any additional cost-cutting measures will be necessary
at this time, but the Board and management of the Company are continually
evaluating.

While the Company has already implemented a policy governing employees returning
to the office voluntarily (in jurisdictions where they are permitted to do so),
which includes health, safety and cleaning protocols, the Board and management
are continually evaluating the best timeframe for employees' official return to
the offices, including implementing a phased return and ongoing remote working
arrangements, and will determine when an official return will be safe for
employees based on government regulations and guidance in the applicable
jurisdictions.

The key elements of our growth strategy include building a travel and lifestyle
brand with a large, high-quality user base and offering our users products that
keep pace with consumer preference and technology, such as the trend toward
mobile usage by consumers and toward fully refundable travel deals given the
uncertainty of the global pandemic. We expect to continue our efforts to grow;
however, we may not grow or we may experience slower growth.

We believe that we can sell more advertising if the market for online
advertising continues to grow and if we can maintain or increase our market
share. We believe that the market for advertising continues to shift from
offline to online. We do not know if we will be able to maintain or increase our
market share. We do not know if we will be able to increase the number of our
advertisers in the future. We do not know if we will have market acceptance of
our new products or whether the market will continue to accept our existing
products.
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Operating results

The following table presents, as a percentage of total revenues, the results of our operations for the periods indicated.

                                                                                       Three Months Ended
                                                                                            March 31,
                                                                                 2022                            2021
Revenues                                                                                  100.0  %                   100.0  %
Cost of revenues                                                                           15.3                       21.1
Gross profit                                                                               84.7                       78.9
Operating expenses:
Sales and marketing                                                                        46.5                       47.5
Product development                                                                         2.5                        4.8
General and administrative                                                                 25.3                       31.9
Impairment of intangible assets and goodwill                                                  -                          -
Total operating expenses                                                                   74.3                       84.2
Operating income (loss)                                                                    10.4                       (5.3)
Other income (loss), net                                                                    7.7                       (1.2)
Income (loss) from continuing operations before income taxes                               18.1                       (6.5)
Income tax expense (benefit)                                                                5.2                        5.2
Income (loss) from continuing operations                                                   12.9                      (11.7)
Income (loss) from discontinued operations, net of taxes                                   (0.1)                      (0.1)
Net income (loss)                                                                          12.8                      (11.8)
Net income (loss) attributable to non-controlling interest                                    -                       (0.3)
Net income (loss) attributable to Travelzoo                                                12.8  %                   (11.5) %


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Operating Metrics

The following table presents, as a percentage of total revenues, the results of our operations for the periods indicated.

                                                      Three Months Ended
                                                          March 31,
                                                    2022              2021
North America
Total members (1)                                16,663,000        18,113,000
Average cost per acquisition of a new member   $       1.92      $       0.80
Revenue per member (2)                         $       2.77      $       2.41
Revenue per employee (3)                       $    393,000      $    345,000
Mobile application downloads                      4,014,000         3,771,000
Social media followers                            3,252,000         3,250,000
Europe
Total members (1)                                 9,062,000         8,596,000
Average cost per acquisition of a new member   $       1.13      $       1.67
Revenue per member (2)                         $       2.83      $       1.64
Revenue per employee (3)                       $    227,000      $    145,000
Mobile application downloads                      2,161,000         2,163,000
Social media followers                              898,000           895,000
Jack's Flight Club
Total members                                     1,735,000         1,643,000
Consolidated
Total members (1)                                27,460,000        28,352,000
Average cost per acquisition of a new member   $       1.25      $       0.81
Revenue per member (2)                         $       2.47      $       1.77
Revenue per employee (3)                       $    315,000      $    260,000
Mobile application downloads                      7,181,000         6,831,000
Social media followers                            4,150,000         4,145,000


(1)Members represent individuals who have signed up to receive one or more of our free e-mail publications that feature our travel, entertainment and local offers.

(2) Annualized turnover divided by the number of members at the beginning of the year.

(3) Annualized revenue divided by the number of employees at the end of the quarter.

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Revenue

The following table sets forth the breakdown of revenues (in thousands) by
category and segment. Travel revenue includes travel publications (Top 20,
Travelzoo website, Newsflash, Travelzoo Network), Getaways vouchers, and hotel
platform and vacation packages. Local revenue includes Local Deals vouchers and
entertainment offers (vouchers and direct bookings).

                                             Three Months Ended
                                                 March 31,
                                             2022           2021
Travelzoo North America
Travel                                   $   11,050      $  8,990
Local                                           646           829

Total Travelzoo North America income 11,696 9,819
Travelzoo Europe Travel

                                        5,624         3,301
Local                                           310           277
Total Travelzoo Europe revenues               5,934         3,578
Jack's Flight Club                              823           887
Consolidated
Travelzoo Travel                             16,674        12,291
Travelzoo Local                                 956         1,106
Jack's Flight Club                              823           887
Total revenues                           $   18,453      $ 14,284


Travelzoo North America

North America revenues increased $1.9 million for the three months ended
March 31, 2022 from the three months ended March 31, 2021. This increase was
primarily due to $2.1 million increase in Travel revenues offset by $183,000
decrease in Local revenues. We have seen improvement in our business and a trend
of revenue recovery compared to the global pandemic time in 2022. The increase
in Travel revenue of $2.1 million was primarily due to $4.7 million increase as
a result of higher revenues from Top 20 and Newsflash and $295,000 increase in
hotel commission, offset partially by $3.1 million decrease in Getaways vouchers
due to decrease in number of vouchers sold. The decrease in Local revenues of
$183,000 was primarily due to the decrease in number of Local Deals vouchers
sold.

Travelzoo Europe

Europe revenues increased $2.4 million for the three months ended March 31, 2022
from the three months ended March 31, 2021. The increase was primarily due to
$2.6 million increase in Travel revenues, $43,000 increase in Local revenues,
offset partially by $313,000 negative impact from foreign currency movements
relative to the U.S. dollar. The increase in Travel revenue of $2.6 million was
primarily due to $1.4 million increase as a result of higher revenues from Top
20 and Newsflash, $627,000 increase in Getaways vouchers due to increase in
number of vouchers sold and $267,000 increase in hotel commission. The increase
in Local revenues of $43,000 was primarily due to the increase in number of
Local Deals vouchers sold.

Jack’s Flight Club

Travelzoo acquired 60% of the Shares of Jack's Flight Club on January 13, 2020.
Jack's Flight Club's premium members pay subscription fees quarterly,
semi-annually or annually to receive emails or app notifications of flight
deals. Jack's Flight Club's revenue decreased by $64,000 for three months ended
March 31, 2022 from the three months ended March 31, 2021 due to the decrease of
premium members.
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Revenue cost

Cost of revenues consists primarily of network expenses, including fees we pay
for co-location services and depreciation and maintenance of network equipment,
payments made to third-party partners of the Travelzoo Network, amortization of
capitalized website development costs, credit card fees, certain estimated
refunds to members and customer service costs associated with vouchers we sell
and hotel bookings, and salary expenses associated with network operations and
customer service staff. Cost of revenues was $2.8 million and $3.0 million,
respectively for the three months ended March 31, 2022 and 2021.

Revenue cost decreased $186,000 for the three months ended March 31, 2022
three months ended March 31, 2021 was mainly due to $447,000
lower credit card fees and $243,000 lower professional services costs, partially offset by $485,000 increase in the cost of software licenses.

Functionnary costs

Sales and Marketing

Sales and marketing expenses consist primarily of advertising and promotional
expenses, salary expenses associated with sales, marketing and production
employees, expenses related to our participation in industry conferences, public
relations expenses and facilities costs. Sales and marketing expenses were $8.6
million and $6.8 million for the three months ended March 31, 2022 and 2021,
respectively. Advertising expenses consist primarily of online advertising which
we refer to as traffic acquisition cost and member acquisition costs. For the
three months ended March 31, 2022 and 2021, advertising expenses accounted for
18% and 6%, respectively, of the total sales and marketing expenses. The goal of
our advertising was to acquire new members to our email products, increase the
traffic to our websites, increase brand awareness and increase our audience
through mobile and social media channels.

Sales and marketing expenses increased $1.8 million for the three months ended
March 31, 2022 from the three months ended March 31, 2021 The increase was
primarily due to $1.1 million increase in member acquisition costs, $390,000
increase in other marketing expenses and $195,000 increase in depreciation and
amortization expenses.

Product Development

Product development costs mainly include remuneration of software development personnel, fees for professional services, software maintenance, depreciation and installation costs. Product development expenses were $453,000
and $683,000 for the three months ended March 31, 2022 and 2021, respectively.

Product development spending decreased $230,000 for the three months ended
March 31, 2022 three months ended March 31, 2021 mainly due to lower installation costs.

General and administrative

General and administrative expenses primarily include compensation for administrative and management personnel, bad debts, professional services fees for audit and tax preparation, legal fees, amortization of intangible assets, general office and facility costs. General and administrative expenses were $4.7 million and $4.6 million for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses increased $108,000 for the three months
ended March 31, 2022 from the three months ended March 31, 2021. The increase
was primarily due to $503,000 increase in payroll expenses and payroll related
expenses, offset partially by the decrease of $340,000 decrease in stock-based
compensation.

Other Income (Loss)

Other income (loss) consisted primarily of foreign exchange transactions gains
and losses, our share of investment gains and losses and amortization of basis
differences, sublease income, gains on extinguishment of PPP loans, interest
income earned on cash, cash equivalents and restricted cash as well as interest
expense.

Other income (loss) was $1.4 million and ($166,000), respectively, for the three
months ended March 31, 2022 and 2021. The increase for the three months ended
March 31, 2022 from three months ended March 31, 2021 was due primarily to the
$1.2 million German federal government funding for COVID pandemic relief and
$195,000 escrow payment for WeGo sale the Company received in the three months
ended March 31, 2022.
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Income taxes

Our income is generally taxed in the U.S., Canada and U.K. Our income tax
provision reflects federal, state and country statutory rates applicable to our
worldwide income. Income tax expense was $968,000 and $742,000, respectively,
for the three months ended March 31, 2022 and 2021. Our effective tax rate was
29% and (80)%, respectively, for the three months ended March 31, 2022 and 2021.

Our effective tax rate changed for the three months ended March 31, 2022 from
three months ended March 31, 2021 primarily due to pre-tax book income in the
three months ended March 31, 2022 versus a pre-tax book loss in the three months
ended March 31, 2021 and a decrease in non-deductible stock compensation in the
three months ended March 31, 2022. We expect our effective tax rate to fluctuate
in future periods depending on the geographic mix of our worldwide income or
losses mainly incurred by our operations, statutory tax rate changes that may
occur, existing or new uncertain tax matters that may arise and require changes
in tax reserves, the use of accumulated losses to offset current taxable income
and the need for valuation allowances on certain tax assets, if any. See "Note
5: Income Taxes" to the accompanying unaudited condensed consolidated financial
statements for further information.

Travelzoo North America

                                            Three Months Ended March 31,
                                            2022                         2021
                                                   (In thousands)
Revenue                              $       11,696                   $ 9,819
Operating profit                     $        1,718                   $    39
Operating profit as a % of revenue             14.7   %                   

0.4%


North America revenues increased by $1.9 million for the three months ended
March 31, 2022 from the three months ended March 31, 2021 (see "Revenues"
above). North America expenses increased by $198,000 for the three months ended
March 31, 2022 from the three months ended March 31, 2021. The increase was
primarily due to $561,000 increase in software license costs and $249,000
increase in marketing expenses, offset partially by $477,000 decrease in credit
card fees.

                                                   Three Months Ended March 31,
                                                  2022                          2021
                                                          (In thousands)
Revenue                                     $       5,934                    $ 3,578
Operating profit (loss)                     $         178                    $  (696)
Operating profit (loss) as a % of revenue             3.0   %               

(19.5)%


Europe revenues increased by $2.4 million for the three months ended March 31,
2022 from the three months ended March 31, 2021 (see "Revenues" above). Europe
expenses increased by $1.5 million for the three months ended March 31, 2022
from the three months ended March 31, 2021. The increase was primarily due to
$899,000 increase in member acquisition costs, $171,000 increase in customer
retention costs, $169,000 increase in bad debt expenses and $141,000 increase in
marketing expenses.

Foreign currency movements relative to the U.S. dollar positively impacted our
local currency income from our operations in Europe by approximately $9,000 for
the three months ended March 31, 2022. Foreign currency movements relative to
the U.S. dollar negatively impacted our local currency income from our
operations in Europe by approximately $61,000 for the three months ended
March 31, 2021.

Jack's Flight Club

                                                    Three Months Ended March 31,
                                                  2022                            2021
                                                           (In thousands)
Revenue                                     $        823                        $  887
Operating profit (loss)                     $         23                        $ (110)
Operating profit (loss) as a % of revenue            2.8    %               

(12.4)%

                                       35
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Jack's Flight Club revenues decreased by $64,000 for the three months ended
March 31, 2022 from the three months ended March 31, 2021. Jack's Flight Club
expenses decreased by $197,000 for the three months ended March 31, 2022 from
the three months ended March 31, 2021 primarily due to an estimate for indirect
tax expenses the Company recorded during the three months ended March 31, 2021.

Cash and capital resources

As of March 31, 2022, we had $35.6 million in cash and cash equivalents, of
which $20.1 million was held outside the U.S. in our foreign operations. We also
had $1.1 million in restricted cash, of which $421,000 was held outside the U.S.
in our foreign operations as of March 31, 2022. If this cash is distributed to
the U.S., we may be subject to additional U.S. taxes in certain circumstances.

Cash and cash equivalents decreased $8.2 million from $45.0 million from
December 31, 2021 mainly due to $6.8 million cash used in operating activities and $942,000 cash used in investing activities mainly due to purchases of intangible assets.

As of March 31, 2022, the Company had merchant payables of $60.5 million related
to unredeemed vouchers. In the Company's financial statements presented in this
10-Q report, following GAAP accounting principles, we classified all merchant
payables as current. When all merchant payables are classified as current, there
is negative net working capital (which is defined as current assets minus
current liabilities) of $20.8 million. Payables to merchants are generally due
upon redemption of vouchers. The vouchers have maturities from April 2022
through December 2025 with the majority of vouchers expiring by the end of 2022
and the remaining primarily expiring in 2023; provided, that these expiration
dates may sometimes be extended on a case-by-case basis. Management believes
that redemptions may be delayed for international vouchers in the current
environment. Based on current projections of redemption activity, we expect that
cash on hand as of March 31, 2022 will be sufficient to provide for working
capital needs for at least the next twelve months. However, if redemption
activity is more accelerated, if our business is not profitable, or if our
planned targets for cash flows from operations are not met, we may need to
obtain additional financing to meet our working capital needs in the future. We
believe that we could obtain additional financing if needed, but there can be no
assurance that financing will be available on terms that are acceptable to us,
if at all.

The following table provides a summary of our cash flows from operating, investing and financing activities:

                                                                       Three Months Ended March 31,
                                                                        2022                    2021
                                                                              (In thousands)
Net cash provided by (used in) operating activities              $         (6,764)         $     9,064
Net cash used in investing activities                                        (942)                  (7)
Net cash used in financing activities                                           -               (1,583)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

                                                              (524)                 270

Net increase (decrease) in cash, cash equivalents and restricted cash

                                                             $         

(8,230) $7,744


Net cash provided by (used in) operating activities is net income (loss)
adjusted for certain non-cash items and changes in assets and liabilities. Net
cash used in operating activities for the three months ended March 31, 2022 was
$6.8 million, which primarily consisted of $8.8 million decrease in cash from
changes in operating assets and liabilities and $366,000 decrease in non-cash
items, offset partially by net income of $2.4 million. The decrease in cash from
changes in operating assets and liabilities was primarily due to $8.0 million
decrease in merchant payables. Adjustments for non-cash items primarily
consisted of $1.4 million reversal of reserves from accounts receivable and
other reserves, offset partially by $574,000 for depreciation and amortization
and $542,000 for stock-based compensation.

Cash paid for income tax, net of refunds received, during the three months ended
March 31, 2022 and 2021 was $259,000 and $592,000respectively.

Net cash used in investing activities for the three months ended March 31, 2022
and 2021 was $942,000 and $7,000, respectively. The cash used in investing
activities for the three months ended March 31, 2022 was primarily consisted of
the $1.0 million for purchases of intangible assets. The cash used in investing
activities for the three months ended March 31, 2021 was due to the $7,000 for
purchases of property and equipment.

Net cash used in financing activities for the three months ended March 31, 2022
and 2021 was $0 and $1.6 million, respectively. The cash used in financing
activities for the three months ended March 31, 2021 was primarily due to $1.6
million paid for common stock repurchase.
                                       36
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Although we have settled the states unclaimed property claims with all states,
we may still receive inquiries from certain potential Netsurfers promotional
shareholders that had not provided their state of residence to us by April 25,
2004. Therefore, we are continuing our voluntary program under which we make
cash payments to individuals related to the promotional shares for individuals
whose residence was unknown by us and who establish that they satisfied the
conditions to receive shares of Netsurfers, and who failed to submit requests to
convert their shares into shares of Travelzoo within the required time period.
This voluntary program is not available for individuals whose promotional shares
have been escheated to a state by us.

Our capital requirements depend on a number of factors, including market
acceptance of our products and services, the amount of our resources we devote
to the development of new products, cash payments related to former shareholders
of Netsurfers, expansion of our operations, and the amount of resources we
devote to promoting awareness of the Travelzoo brand. Since the inception of the
voluntary program under which we make cash payments to people who establish that
they were former shareholders of Netsurfers, and who failed to submit requests
to convert their shares into shares of Travelzoo within the required time
period, we have incurred expenses of $2.9 million. While future payments for
this program are expected to decrease, the total cost of this voluntary program
is still undeterminable because it is dependent on our stock price and on the
number of valid requests ultimately received.

Consistent with our growth, we have experienced fluctuations in our cost of
revenues, sales and marketing expenses and our general and administrative
expenses, including increases in product development costs, and we anticipate
that these increases will continue for the foreseeable future. We believe cash
on hand will be sufficient to pay such costs for at least the next twelve
months. In addition, we will continue to evaluate possible investments in
businesses, products and technologies, the consummation of any of which would
increase our capital requirements.

We are subject to risks and uncertainties as a result of the global pandemic.
Because of the global pandemic, many of our advertisers have paused, canceled,
and stopped advertising with us. Additionally, there have been a large amount of
cancellations for our hotel and travel package partners as well as refund
requests for our vouchers with the Company's restaurant and spa partners. We
have taken steps to adopt new policies and reduce expenses in an effort to
maintain our cash position, while we evaluate potential business options and
strategic alternatives that may be available.

Although we currently believe that we have sufficient capital resources to meet
our anticipated working capital and capital expenditure requirements for at
least the next twelve months, unanticipated events and opportunities or a less
favorable than expected development of our business with one or more of
advertising formats may require us to sell additional equity or debt securities
or establish new credit facilities to raise capital in order to meet our capital
requirements.

If we sell additional equity or convertible debt securities, the sale could
dilute the ownership of our existing shareholders. If we issue debt securities
or establish a new credit facility, our fixed obligations could increase, and we
may be required to agree to operating covenants that would restrict our
operations. We cannot be sure that any such financing will be available in
amounts or on terms acceptable to us.

If the development of our activities is less favorable than expected, we may decide to significantly reduce the size of our operations and our marketing costs in certain markets in order to reduce cash outflows.

The information set forth under "Note 4: Commitments and Contingencies" and
"Note 11: Leases" to the accompanying unaudited condensed consolidated financial
statements included in Part I, Item 1 of this report is incorporated herein by
reference. Litigation and claims against the Company may result in legal defense
costs, settlements or judgments that could have a material impact on our
financial condition.

We also have contingencies related to net unrecognized tax benefits, including
interest, of approximately $1.3 million as of March 31, 2022. See "Note 5:
Income Taxes" to the accompanying unaudited condensed consolidated financial
statements for further information.


                                       37
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Significant Accounting Policies and Estimates

Critical accounting policies and estimates are those that we believe are
important in the preparation of our consolidated financial statements because
they require that we use judgment and estimates in applying those policies.
Preparation of the consolidated financial statements and accompanying notes
requires that we make estimates and assumptions that affect the reported amounts
and classifications of assets and liabilities and the disclosure of contingent
assets and liabilities as of the date of the consolidated financial statements
as well as revenue and expenses during the periods reported. We base our
estimates on historical experience, where applicable, and other assumptions that
we believe are reasonable under the circumstances. Actual results may differ
from our estimates under different assumptions or conditions. Our critical
accounting policies include revenue recognition, reserve for member refunds,
allowance for doubtful accounts, income taxes and loss contingencies. For
additional information about our critical accounting policies and estimates, see
the disclosure included in our Annual Report on Form 10-K for the year
ended December 31, 2021 as well as updates in the current fiscal year provided
in "Note 1 Summary of Significant Accounting Policies" in the notes to the
condensed consolidated financial statements.

Recent accounting pronouncements

See "Note 1-The Company and Basis of Presentation" to the accompanying unaudited
condensed consolidated financial statements included in this report, regarding
the impact of certain recent accounting pronouncements on our unaudited
condensed consolidated financial statements.
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