Travelzoo Reports Second Quarter 2011 Results

"We achieved record revenues and our fastest growth rate in 4 years. We accelerated our investment in future growth, adding 27 new Local Deals markets, 800,000 new subscribers and we grew our headcount faster than in any prior quarter"

Revenue of $37.6 million, up 34% year-over-year
Operating profit of $7.6 million, up 29% year-over-year
Net income of $4.9 million, up 51% year-over-year
Earnings per share of $0.30, compared to $0.20 in the prior year period

Travelzoo Inc., a global Internet media company, today announced financial results for the second quarter ended June 30, 2011, with revenue of $37.6 million, an increase of 34% year-over-year. Operating profit was $7.6 million, up 29% year-over-year. Net income was $4.9 million, with diluted net income per share (EPS) of $0.30, up from $0.20 in the prior-year period.

aWe achieved record revenues and our fastest growth rate in 4 years. We accelerated our investment in future growth, adding 27 new Local Deals markets, 800,000 new subscribers and we grew our headcount faster than in any prior quarter,a said Chris Loughlin, CEO of Travelzoo. aWe also ran a television advertising test, which negatively impacted earnings per share by approximately $0.07. We are pleased with our accelerated growth rate and confident that our investments will fuel future growth.a

North America

North America business segment revenue grew 25% year-over-year to $27.7 million. Operating profit was $6.5 million, or 24% of revenue, down from $6.7 million, or 30% of revenue, in the prior-year period.

Europe

Europe business segment revenue grew 67% year-over-year to $10.0 million. In local currency terms, revenue grew 53% year-over-year. Operating profit was $1.1 million, compared to an operating loss of $808,000 in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of newsletter subscribers in North America and Europe of 20.7 million as of June 30, 2011, up 13% from June 30, 2010, and up 4% from March 31, 2011. In North America, total unduplicated number of subscribers was 15.3 million as of June 30, 2011, up 9% from June 30, 2010 and up 3% from March 31, 2011. In Europe, total unduplicated number of subscribers was 5.5 million as of June 30, 2011, up 29% from June 30, 2010 and up 7% from March 31, 2011.

Asset Management

During the second quarter, Travelzoo used $11.2 million of cash for operating activities. Accounts receivable decreased by $473,000 quarter-over-quarter and increased by $2.4 million over the prior-year period to $15.9 million. Accounts payable increased by $2.1 million quarter-over-quarter and increased by $9.3 million over the prior-year period to $15.7 million. Capital expenditures were $356,000, down from $699,000 in the prior quarter and up from $355,000 in the prior-year period. Travelzoo exited the second quarter with $40.1 million in cash and cash equivalents.

Conference Call

Travelzoo will host a conference call to discuss second 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 23 million subscribers in North America, Europe, and Asia Pacific and 23 offices worldwide, Travelzoo� publishes deals from more than 2,000 travel and entertainment companies. Travelzooa�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 aexpect,a apredict,a aproject,a aanticipate,a abelieve,a aestimate,a aintend,a aplan,a aseeka 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					Six months ended
	June 30,					June 30,
	2011			2010		2011			2010
Revenues	$	37,565		$	28,106	$	74,525		$	56,624
Cost of revenues		2,499			1,616		4,918			3,270
		---------			---------		---------			---------
Gross profit		35,066			26,490		69,607			53,354
Operating expenses:
Sales and marketing		19,137			14,049		35,291			29,041
General and administrative		8,301			6,505		16,695			13,217
Settlement with State of Delaware		-			-		20,000			-
		---------			---------		---------			---------
Total operating expenses		27,438			20,554		71,986			42,258
		---------			---------		---------			---------
Income (loss) from operations		7,628			5,936		(2,379	)		11,096
Other income and expense:
Interest income and other income		43			45		75			87
Gain (loss) on foreign currency		(1	)		-		29			(209	)
		---------			---------		---------			---------
Income (loss) before income taxes		7,670			5,981		(2,275	)		10,974
Income taxes		2,752			2,734		6,762			5,253
		---------			---------		---------			---------
Net income (loss)	$	4,918		$	3,247	$	(9,037	)	$	5,721
		=========			=========		=========			=========

Basic net income (loss) per share	$	0.30		$	0.20	$	(0.55	)	$	0.35
Diluted net income (loss) per share	$	0.30		$	0.20	$	(0.55	)	$	0.35

Shares used in computing basic net income (loss)per share		16,462			16,444		16,456			16,444
Shares used in computing diluted net income (loss)per share		16,585			16,453		16,456			16,452

Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

	June 30,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents	$	40,086		$	41,184
Accounts receivable, net		15,936			13,290
Income taxes receivable		2,922			264
Deposits		206			129
Prepaid expenses and other current assets		1,625			1,489
Deferred tax assets		1,411			1,411
		----------			----------
Total current assets		62,186			57,767
		----------			----------
Deposits, less current portion		869			279
Deferred tax assets, less current portion		349			349
Restricted cash		3,126			3,124
Property and equipment, net		3,374			3,425
Intangible assets, net		881			1,058
		----------			----------
Total assets	$	70,785		$	66,002
		==========			==========
LIABILITIES AND STOCKHOLDERSa� EQUITY
Accounts payable		15,665			9,931
Accrued expenses		13,384			6,080
Deferred revenue		1,441			1,325
Deferred rent		212			218
Income tax payable		146			650
		----------			----------
Total current liabilities		30,848			18,204
		----------			----------
Deferred tax liabilities		160			-
Long-term tax liabilities		1,478			1,449
Deferred rent, less current portion		560			460

Common stock		165			164
Additional paid-in capital		7,281			6,598
Accumulated other comprehensive loss		(835	)		(1,038	)
Retained earnings		31,128			40,165
		----------			----------
Total stockholders' equity		37,739			45,889
		----------			----------
Total liabilities and
stockholders' equity	$	70,785		$	66,002
		==========			==========

Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

	Three months ended						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	4,918		$	3,247		$	(9,037	)	$	5,721
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		666			585			1,309			1,147
Deferred income taxes		74			-			160			-
Stock-based compensation		187			187			375			375
Provision for losses on accounts receivable		24			(40	)		43			(1	)
Tax benefit of stock option exercises		-			-			(268	)		-
Net foreign currency effects		1			-			(29	)		209
Changes in operating assets and
liabilities:
Accounts receivable		462			(247	)		(2,456	)		(2,568	)
Deposits		(99	)		(77	)		(660	)		(85	)
Income tax receivable		(2,654	)		(797	)		(2,390	)		5,264
Prepaid expenses and other current
assets		(309	)		(169	)		(117	)		(40	)
Accounts payable		2,164			(308	)		5,600			(269	)
Accrued settlement with State of
Delaware		(20,000	)		-			-			-
Accrued expenses		3,752			400			7,185			1,657
Deferred revenue		78			(192	)		98			220
Deferred rent		82			1			95			34
Income tax payable		(607	)		(326	)		(519	)		357
Other non-current liabilities		14			17			29			28
		---------			---------			---------			---------
Net cash provided by (used in)
operating activities		(11,247	)		2,281			(582	)		12,049
		---------			---------			---------			---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(356	)		(355	)		(1,056	)		(751	)
		---------			---------			---------			---------
Net cash used in investing activities		(356	)		(355	)		(1,056	)		(751	)
		---------			---------			---------			---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		-			-			40			-
Tax benefit of stock option exercises		-			-			268			-
Proceeds from sale of Asia Pacific business segment		-			-			-			1,073
		---------			---------			---------			---------
Net cash provided by financing
activities		-			-			308			1,073
		---------			---------			---------			---------
Effect of exchange rate on cash and cash equivalents		(9	)		(176	)		232			(272	)
		---------			---------			---------			---------
Net increase (decrease) in cash and cash equivalents		(11,612	)		1,750			(1,098	)		12,099
Cash and cash equivalents at beginning of
period		51,698			30,125			41,184			19,776
		---------			---------			---------			---------
Cash and cash equivalents at end of period		40,086			31,875			40,086			31,875
		=========			=========			=========			=========
Supplemental disclosure of cash flow information:
Cash paid (received) for income taxes, net	$	5,918		$	3,857		$	9,476		$	(368	)
		---------			---------			---------			---------

Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)

Three months ended June 30, 2011	North America		Europe			Other			Elimination			Consolidated
Revenue from unaffiliated customers	$	27,588	$	9,977		$	-		$	-		$	37,565
Intersegment revenue		112		57			-			(169	)		-
		--------		--------			---------			-----------			-----------
Total net revenues		27,700		10,034			-			(169	)		37,565
		--------		--------			---------			-----------			-----------
Operating income (loss)	$	6,542	$	1,086		$	-		$	-		$	7,628
		--------		--------			---------			-----------			-----------

Three months ended June 30, 2010	North America		Europe			Other			Elimination			Consolidated
Revenue from unaffiliated customers	$	22,153	$	5,953		$	-		$	-		$	28,106
Intersegment revenue		42		55			-			(97	)		-
		--------		---------			---------			-----------			-----------
Total net revenues		22,195		6,008			-			(97	)		28,106
		--------		---------			---------			-----------			-----------
Operating income (loss)	$	6,743	$	(808	)	$	-		$	1		$	5,936
		--------		---------			---------			-----------			-----------

Six months ended June 30, 2011	North America		Europe			Other(a)			Elimination			Consolidated
Revenue from unaffiliated customers	$	55,105	$	19,420		$	-		$	-		$	74,525
Intersegment revenue		213		61			-			(274	)		-
		--------		--------			---------			-----------			-----------
Total net revenues		55,318		19,481			-			(274	)		74,525
		--------		--------			---------			-----------			-----------
Operating income (loss)	$	15,794	$	1,827		$	(20,000	)	$	-		$	(2,379	)
		--------		--------			---------			-----------			-----------

Six months ended June 30, 2010	North America		Europe			Other			Elimination			Consolidated
Revenue from unaffiliated customers	$	44,520	$	12,104		$	-		$	-		$	56,624
Intersegment revenue		71		65			-			(136	)		-
		--------		--------			---------			-----------			-----------
Total net revenues		44,591		12,169			-			(136	)		56,624
		--------		--------			---------			-----------			-----------
Operating income (loss)	$	12,853	$	(1,758	)	$	-		$	1		$	11,096
		--------		--------			---------			-----------			-----------

(a) Amount represents settlement of State of Delaware unclaimed property review

N@N

Travelzoo Reports Second Quarter 2011 Results