Travelzoo Inc. : Travelzoo Reports Fourth Quarter 2012 Results

Travelzoo Inc. (NASDAQ: TZOO):

• Revenue of $37.0 million, up 5% year-over-year
• Net income of $3.8 million, down 42% year-over-year
• Earnings per share of $0.24, compared to $0.40 in the prior-year period
• Cash flow from operations of $13.0 million

Travelzoo Inc., a global Internet media company, today announced financial results for the fourth quarter ended December 31, 2012, with revenue of $37.0 million, an increase of 5% year-over-year. Operating income was $4.4 million, down 47% year-over-year. Net income was $3.8 million, with earnings per share of $0.24, down from $0.40 in the prior-year period. For the full year, revenue was $151.2 million, an increase of 2% year-over-year. GAAP operating income was $25.5 million, up 70% year-over-year. Non-GAAP operating income was $28.5 million, down 19% year-over-year. GAAP net income was $18.2 million, with earnings per share of $1.14, up from $0.20 in the prior-year period. Non-GAAP net income was $21.2 million, with earnings per share of $1.33, down from $1.42 in the prior-year period.

"During the fourth quarter of 2012 we continued to execute our strategy of increasing Travelzoo's reach, expanding our sales force and developing our products, particularly in the mobile and hotel categories," said Chris Loughlin, chief executive officer. "We are pleased with our progress: The Travelzoo® brand now reaches 26 million subscribers, Getaway sales accelerated, and in Europe our Travel business grew 23% year-over-year. We continue to see strong adoption of the Travelzoo brand on mobile; 33% of users now access our brand through mobile devices."

North America

North America business segment revenue increased 3% year-over-year to $26.5 million. Operating income for the fourth quarter was $3.4 million, or 13% of revenue, down from an operating income of $6.5 million, or 25% of revenue, in the prior-year period. The decrease in operating income was a result of increased expenses related to sales force expansion and subscriber marketing.

Europe

Europe business segment revenue increased 10% year-over-year to $10.7 million. In local currency terms, revenue for the fourth quarter increased 8% year-over-year. Operating income was $969,000, or 9% of revenue, down from an operating income of $1.7 million, or 17% of revenue in the prior-year period. The decrease in operating income was a result of increased expenses related to sales force expansion and subscriber marketing.

Subscribers

Travelzoo had a total unduplicated number of subscribers in North America and Europe of 22.5 million as of December 31, 2012, up 5% from December 31, 2011. In North America, total unduplicated number of subscribers was 16.1 million as of December 31, 2012, up 3% from December 31, 2011. In Europe, total unduplicated number of subscribers was 6.4 million as of December 31, 2012, up 10% from December 31, 2011.

Income Taxes

Income tax expense was $692,000, compared to $1.9 million in the prior-year period. The effective income tax rate was 16%, compared to 23% in the prior-year period.

Asset Management

During the fourth quarter 2012, Travelzoo generated $13.0 million of cash from operating activities. Accounts receivable increased by $286,000 over the prior-year period to $13.6 million. Accounts payable increased by $7.0 million over the prior-year period to $28.7 million. Capital expenditures were $698,000, up from $558,000 in the prior-year period. Travelzoo exited the fourth quarter with $61.2 million in cash and cash equivalents.

Conference Call

Travelzoo will host a conference call to discuss fourth quarter results at 11:00 a.m. ET today. Please visit http://www.travelzoo.com/earnings to

• download the management presentation (PDF format) to be discussed in the conference call;
• access the webcast.

About Travelzoo

Travelzoo Inc. is a global Internet media company. With more than 26 million subscribers in North America, Europe, and Asia Pacific and 25 offices worldwide, Travelzoo® publishes deals from more than 2,000 travel and entertainment companies. Travelzoo's deal experts review offers to find the best deals and confirm their true value. In Asia Pacific, Travelzoo is independently owned and operated by Travelzoo (Asia) Ltd. and Travelzoo Japan K.K. under a license agreement with Travelzoo Inc.

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												Twelve months ended
			December 31,												December 31,
			2012						2011						2012						2011
Revenues			$		37,028				$		35,156				$		151,168				$		148,342
Cost of revenues					4,073						3,680						15,745						13,283
Gross profit					32,955						31,476						135,423						135,059
Operating expenses:
Sales and marketing					18,489						13,921						68,242						65,490
General and administrative					10,109						9,380						38,692						34,547
Unexchanged promotional merger shares					-						-						3,000						20,000
Total operating expenses					28,598						23,301						109,934						120,037
Income from operations					4,357						8,175						25,489						15,022
Other income					92						197						309						302
Income before income taxes					4,449						8,372						25,798						15,324
Income taxes					692						1,944						7,600						12,005
Net income			$		3,757				$		6,428				$		18,198				$		3,319
Net income per share:
Basic			$		0.24				$		0.40				$		1.15				$		0.20
Diluted			$		0.24				$		0.40				$		1.14				$		0.20
Weighted average shares:
Basic					15,659						15,962						15,866						16,315
Diluted					15,659						16,026						15,901						16,414

Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
								December 31,					December 31,
								2012					2011
	Assets
	Current assets:
	Cash and cash equivalents							$	61,169				$	38,744
	Accounts receivable, net								13,626					13,340
	Income taxes receivable								6,682					3,625
	Deposits								389					278
	Prepaid expenses and other current assets								2,260					2,123
	Deferred tax assets								2,194					1,754
	Total current assets								86,320					59,864
	Deposits, less current portion								1,107					776
	Deferred tax assets, less current portion								1,710					344
	Restricted cash								3,396					3,103
	Property and equipment, net								4,314					3,557
	Intangible assets, net								986					704
	Total assets							$	97,833				$	68,348
	Liabilities and Stockholders' Equity
	Current liabilities:
	Accounts payable							$	28,695				$	21,731
	Accrued expenses								11,993					6,311
	Deferred revenue								2,698					2,168
	Deferred rent								280					114
	Income tax payable								-					279
	Total current liabilities								43,666					30,603
	Long-term tax liabilities								10,030					2,225
	Deferred rent, less current portion								798					761
	Total liabilities								54,494					33,589
	Common stock								163					164
	Treasury stock								(7,898)					(15,123)
	Additional paid-in capital								8,863					7,656
	Accumulated other comprehensive loss								(737)					(1,422)
	Retained earnings								42,948					43,484
	Total stockholders' equity								43,339					34,759
	Total liabilities and stockholders' equity							$	97,833				$	68,348

Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
						Three months ended										Twelve months ended
						December 31,										December 31,
						2012					2011					2012					2011
	Cash flows from operating activities:
	Net income					$	3,757				$	6,428				$	18,198				$	3,319
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization					683					671					2,539					2,725
		Deferred income taxes					(2,174)					(546)					(2,178)					(337)
		Stock-based compensation					307					187					1,207					750
		Provision for losses on accounts receivable					46					76					162					52
		Tax benefit from exercise of stock options					-					-					-					(268)
		Net foreign currency effects					1					58					(4)					81
		Changes in operating assets and liabilities:
		Accounts receivable					1,784					576					(285)					(146)
		Deposits					(24)					(99)					(406)					(667)
		Income tax receivable					3,351					(1,061)					5,171					(3,093)
		Prepaid expenses and other current assets					328					188					87					(584)
		Accounts payable					5,211					4,620					6,403					12,074
		Accrued expenses					(630)					(4,737)					5,568					256
		Deferred revenue					190					585					513					853
		Deferred rent					25					30					45					209
		Income tax payable					(1)					(15)					(285)					(369)
		Other non-current liabilities					156					117					(35)					776
	Net cash provided by operating activities						13,010					7,078					36,700					15,631
	Cash flows from investing activities:
		Purchases of restricted cash					(272)					-					(272)					-
		Purchases of intangible asset					(677)					-					(677)					-
		Purchases of property and equipment					(698)					(558)					(2,744)					(2,460)
	Net cash used in investing activities						(1,647)					(558)					(3,693)					(2,460)
	Cash flows from financing activities:
		Cash used in purchase of common stock					(7,898)					-					(11,509)					(15,124)
		Proceeds from exercise of stock options					-					-					-					40
		Tax benefit of stock option exercises					-					-					-					268
	Net cash used in financing activities						(7,898)					-					(11,509)					(14,816)
	Effect of exchange rate on cash and cash equivalents						70					(209)					927					(795)
	Net increase (decrease) in cash and cash equivalents						3,535					6,311					22,425					(2,440)
	Cash and cash equivalents at beginning of period						57,634					32,433					38,744					41,184
	Cash and cash equivalents at end of period					$	61,169				$	38,744				$	61,169				$	38,744
	Supplemental disclosure of cash flow information:
	Cash paid (received) for income taxes, net						(631)					3,453					5,081					15,025

Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
	Three months ended December 31, 2012					North America									Europe									Elimination					Consolidated
	Revenue from unaffiliated customers					$					26,373				$					10,655				$	-				$	37,028
	Intersegment revenue										157									102					(259)					-
	Total net revenues										26,530									10,757					(259)					37,028
	Operating income					$					3,387				$					969				$	-				$	4,356
	Three months ended December 31, 2011					North America									Europe									Elimination					Consolidated
	Revenue from unaffiliated customers					$					25,500				$					9,656				$	-				$	35,156
	Intersegment revenue										124									42					(166)					-
	Total net revenues										25,624									9,698					(166)					35,156
	Operating income					$					6,504				$					1,671				$	-				$	8,175
	Twelve months ended December 31, 2012					North America									Europe									Elimination and Other (a)					Consolidated
	Revenue from unaffiliated customers					$					108,788				$					42,380				$	-				$	151,168
	Intersegment revenue										728									143					(871)					-
	Total net revenues										109,516									42,523					(871)					151,168
	Operating income					$					21,481				$					7,008				$	(3,000)				$	25,489
	Twelve months ended December 31, 2011					North America									Europe									Elimination and Other (a)					Consolidated
	Revenue from unaffiliated customers					$					108,549				$					39,793				$	-				$	148,342
	Intersegment revenue										466									134					(600)					-
	Total net revenues										109,015									39,927					(600)					148,342
	Operating income					$					30,110				$					4,912				$	(20,000)				$	15,022
	(a) Includes a charge related to unexchanged promotional merger shares for the twelve months ended December 31, 2012 and 2011.

Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)
				Twelve months ended
				December 31,
				2012						2011
GAAP operating income				$		25,489				$		15,022
Unexchanged promotional merger shares (a)						3,000						20,000
Non-GAAP operating income				$		28,489				$		35,022
GAAP net income				$		18,198				$		3,319
Unexchanged promotional merger shares (a)						3,000						20,000
Non-GAAP net income				$		21,198				$		23,319
Diluted net Income per share				$		1.14				$		0.20
Unexchanged promotional merger shares (a)						0.19						1.22
Non-GAAP diluted net income per share				$		1.33				$		1.42
(a) Includes a charge related to unexchanged promotional merger shares of $20.0 million and $3.0 million for the twelve months ended December 31, 2011 and 2012, respectively.

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