Travelzoo Reports First Quarter 2011 Results.(Financial report)

NEW YORK -- Travelzoo Inc. (NASDAQ: TZOO):

* Revenue of $37.0 million, up 30% year-over-year

* Non-GAAP net income of $6.0 million, up 144% year-over year

* Non-GAAP earnings per share of $0.37, compared to $0.15 in the prior year period

* GAAP net loss of $14.0 million; GAAP loss per share of $0.85

* Cash flow from operations of $10.7 million

Travelzoo Inc., a global Internet media company, today announced financial results for the first quarter ended March 31, 2011, with revenue of $37.0 million, an increase of 30% year-over-year. Adjusted operating profit was $10.0 million. Adjusted net income was $6.0 million, with adjusted diluted net income per share (EPS) of $0.37, up from $0.15 in the prior-year period. Adjusted operating profit, adjusted net income and adjusted diluted earnings per share for the first quarter ended March 31, 2011 exclude a one-time expense item of $20.0 million related to the settlement of the State of Delaware unclaimed property review.

"We kicked off 2011 with record revenues and record adjusted operating income. Subscribers grew by over 1 million, the second best performance in our company's history," said Chris Loughlin, CEO of Travelzoo. "We doubled adjusted operating income year-over-year as we continued to ramp up Local Deals, which are now live in 48 markets in 6 countries. North America revenues grew at the fastest pace in over 4 years. Europe saw the highest quarterly subscriber growth ever and returned its first significant quarterly profit. We also reached a settlement agreement for a previously disclosed State of Delaware escheatment claim, incurring a one-time cash expense."

North America

North America business segment revenue grew 23% year-over-year to $27.6 million. Adjusted operating profit was $9.3 million, or 34% of revenue, up from $6.1 million, or 27% of revenue, in the prior-year period.

Europe

Europe business segment revenue grew 53% year-over-year to $9.4 million. In local currency terms, revenue grew 49% year-over-year. Adjusted operating profit was $741,000, compared to an operating loss of $951,000 in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of newsletter subscribers in North America and Europe of 19.9 million as of March 31, 2011, up 12% from March 31, 2010, and up 6% from December 31, 2010. In North America, total unduplicated number of subscribers was 14.8 million as of March 31, 2011, up 7% from March 31, 2010 and up 4% from December 31, 2010. In Europe, total unduplicated number of subscribers was 5.1 million as of March 31, 2011, up 29% from March 31, 2010 and up 11% from December 31, 2010.

Asset Management

During the first quarter, Travelzoo generated $10.7 million of cash from operating activities. Accounts receivable increased by $3.1 million quarter-over-quarter and increased by $3.0 million over the prior-year period to $16.4 million. Accounts payable increased by $3.7 million quarter-over-quarter and increased by $6.8 million over the prior-year period to $13.6 million. Capital expenditures were $699,000, up from $138,000 in the prior quarter and up from $396,000 in the prior-year period. Travelzoo exited the first quarter with $51.7 million in cash and cash equivalents.

State of Delaware Unclaimed Property Settlement

On April 21, 2011, Travelzoo entered into an agreement with the State of Delaware resolving all claims relating to a previously-announced unclaimed property review. The primary issue raised in the preliminary findings from the review, received by Travelzoo on April 12, 2011, concerned the shares of Travelzoo which have not been claimed by former shareholders of Travelzoo.com Corporation following a 2002 merger, as previously disclosed in the company's report on Form 10-K. In the preliminary findings under the unclaimed property review, up to 3.0 million shares were identified as "demandable" under Delaware escheat laws. While Travelzoo continues to take the position that such shares are issuable only to persons who establish their eligibility as shareholders, the company determined that it was in its best interest to promptly resolve all claims relating to the unclaimed property review. Travelzoo will make a one-time $20.0 million cash payment to the State of Delaware and is receiving a complete release of those claims. Travelzoo will provide the amount from cash on hand.

Non-GAAP Measures

To give an enhanced view of the company's operating performance, management has calculated, for this quarter, adjusted operating income, adjusted net income and adjusted diluted earnings per share by excluding the one-time expense related to the State of Delaware unclaimed property settlement. The company believes these metrics assist investors to assess certain business trends in the same way that these trends are analyzed by management. The discussion of adjusted operating income, adjusted net income, and adjusted diluted net income per diluted share are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. As the only difference between GAAP and non-GAAP measures is the one-time expense related to the State of Delaware settlement, today's reporting should not be viewed as the company's intention to report non-GAAP measures in future periods. Refer to the "Reconciliation of GAAP EPS to non-GAAP EPS" section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.

Conference Call

Travelzoo will host a conference call to discuss first 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 22 million subscribers in North America, Europe, and Asia Pacific and 23 offices worldwide, Travelzoo[R] 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 March 31,
			2011		2010
Revenues				$36,960				$28,518
Cost of revenues				2,419				1,653
Gross profit				34,541				26,865
Operating expenses:
Sales and marketing				16,154				14,993
General and administrative				8,394				6,712
Settlement with State of Delaware				20,000				-
Total operating expenses				44,548				21,705
Income (loss) from operations				(10,007)				5,160
Other income and expense:
Interest income and other income				32				42
Gain (loss) on foreign currency				31				(209)
Income (loss) before income taxes				(9,944)				4,993
Income taxes				4,011				2,519
Net income (loss)				$(13,955)				$2,474
Basic net income (loss) per share				$(0.85)				$0.15
Diluted net income (loss) per share				$(0.85)				$0.15
Shares used in computing basic net income (loss) per share				16,451				16,444
Shares used in computing diluted net income (loss) per share				16,451				16,452

Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
			March 31, 2011		December 31, 2010
ASSETS
Cash and cash equivalents				$51,698				$41,184
Accounts receivable, net				16,409				13,290
Income taxes receivable				-				264
Deposits				132				129
Prepaid expenses and other current assets				1,312				1,489
Deferred tax assets				1,411				1,411
Total current assets				70,962				57,767
Deposits, less current portion				848				279
Deferred tax assets, less current portion				349				349
Restricted cash				3,125				3,124
Property and equipment, net				3,735				3,425
Intangible assets, net				969				1,058
Total assets				$79,988				$66,002
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable				13,602				9,931
Accrued settlement with State of Delaware				20,000				-
Accrued expenses				9,653				6,080
Deferred revenue				1,362				1,325
Deferred rent				164				218
Income tax payable				479				650
Total current liabilities				45,260				18,204
Deferred tax liabilities				86				-
Long-term tax liabilities				1,463				1,449
Deferred rent, less current portion				527				460
Common stock				165				164
Additional paid-in capital				7,093				6,598
Accumulated other comprehensive loss				(816)				(1,038)
Retained earnings				26,210				40,165
Total stockholders' equity				32,652				45,889
Total liabilities and stockholders' equity				$79,988				$66,002

Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
			Three months ended March 31,
			2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)				$(13,955)				$2,474
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization				643				562
Deferred income taxes				86				-
Stock-based compensation				187				187
Provision for losses on accounts receivable				18				39
Tax benefit of stock option exercises				(268)				-
Net foreign currency effects				(31)				209
Changes in operating assets and liabilities:
Accounts receivable				(2,918)				(2,321)
Deposits				(561)				(8)
Income tax receivable				264				6,061
Prepaid expenses and other current assets				193				130
Accounts payable				3,436				38
Accrued settlement with State of Delaware				20,000				-
Accrued expenses				3,433				1,256
Deferred revenue				19				412
Deferred rent				13				34
Income tax payable				89				683
Other non-current liabilities				14				11
Net cash provided by operating activities				10,662				9,767
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment				(699)				(396)
Net cash used in investing activities				(699)				(396)
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				243				(95)
Net increase in cash and cash equivalents				10,514				10,349
Cash and cash equivalents at beginning of period				41,184				19,776
Cash and cash equivalents at end of period				51,698				30,125
Supplemental disclosure of cash flow information:
Cash paid for income taxes net of refunds received				$(3,558)				$(4,225)

Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
Three months ended March 31, 2011		North America		Europe		Other(a)		Elimination		Consolidated
Revenue from unaffiliated customers			$27,517				$9,443				$-				$-				$36,960
Intersegment revenue			101				5				-				(106)				-
Total net revenues			27,618				9,448				-				(106)				36,960
Operating income (loss)			$9,252				$741				$(20,000)				$-				$(10,007)
Three months ended March 31, 2010		North America		Europe		Other		Elimination		Consolidated
Revenue from unaffiliated customers			$22,367				$6,151				$-				$-				$28,518
Intersegment revenue			29				9				-				(38)				-
Total net revenues			22,396				6,160				-				(38)				28,518
Operating income (loss)			$6,110				$(951)				$-				$1				$5,160

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

Travelzoo Inc.
Reconciliation of GAAP EPS to non-GAAP EPS
(Unaudited)
(In thousands, except per share amounts)
			Three months ended March 31,
			2011		2010
Operating income (loss) as reported under U.S. GAAP				$(10,007)				$5,160
State of Delaware settlement(a)				20,000				-
Adjusted operating income (a non-GAAP measure)				$9,993				$5,160
Net income (loss) as reported under U.S. GAAP				$(13,955)				$2,474
State of Delaware settlement(a)				20,000				-
Adjusted net income (a non-GAAP measure)				$6,045				$2,474
Diluted earnings (loss) per share as reported under U.S. GAAP				$(0.85)				$0.15
State of Delaware settlement(b)				1.22				-
Adjusted diluted earnings per share (a non-GAAP measure)				$0.37				$0.15

(a)

Results for the three months ended March 31, 2011 includes $20.0 million of expense related to the settlement of the State of Delaware unclaimed property review.

(b)

Net charges on a per share basis includes an adjustment to diluted earnings per share utilizing diluted shares of 16,551 for the three months ended March 31, 2011. Given that the Company recorded a net loss under U.S. GAAP, shares utilized to calculated diluted earnings per share are equivalent to basic shares. Shares utilized to calculate adjusted diluted earnings per share reflect the number of diluted shares the Company would have reported if reporting net income under U.S. GAAP.