Travelzoo Stock

Good morning, and welcome to the Travelzoo Second Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions]

The company would like to remind you that all statements made during this conference call and presented in the slides that are not statements of historical facts constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of the conference call will be made available on the company's Investor Relations website at travelzoo.com/ir.

Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; its Chair, General Counsel and CEO of Jack's Flight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman. Jeff will start with an overview.

Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management's presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir.

Let's begin with Slide 4. Consolidated revenue was $23.2 million, down 3% year-over-year. In constant currencies, revenue was $23.1 million. International conflicts negatively impacted all business segments. Management considers this a temporary effect. In Q2, we continued to invest significantly in growing Club Members. This led to a reported loss. The Q2 reported loss was $2.8 million compared to reported operating profit of $2.1 million in the prior year period.

Slide 5 explains that we decided to accelerate the shift toward recurring membership revenues by more quickly growing paying Club Members. On the right side, you see the number of Club Members has steadily increased, and we estimate further growth this year and in 2027.

Please turn to Slide 6. We are scaling member acquisition to the point where payback still occurs quickly. On the left side, you see that the average acquisition cost of a Club Member was $62 in Q2. On the right side, you see that, even at this level, there is an attractive return on investment. The member pays in the U.S. case here their $50 annual membership fee right at the beginning of the membership period. Additionally, we generated an average of $15 per member in revenue from transactions in Q2. This doesn't even consider an increase in advertising revenues and future membership fees and other revenues in Q3 and future periods.

Slide 7 explains, as a reminder, that with subscription businesses, membership fee revenue is recognized ratably over the subscription period, whereas acquisition costs are expensed as marketing costs immediately when incurred.

Slide 8 shows that marketing costs reduced reported quarterly EPS in the short term but are projected to drive better results in 2027 and beyond. While marketing costs will negatively impact EPS this year, we now estimate for 2027 EPS of $1.20.

On Slide 9, we break down our main categories of revenue. Advertising and commerce revenue was $18.2 million for Q2 2026. Revenue from membership fees increased to $5 million. Membership fees, which are more stable and predictable, are adding revenue and becoming a larger share, which we anticipate to increase further. This year, we expect them to account for over 20% of revenue.

Please turn to Slide 10. International conflicts affected revenue in all reporting segments.

On Slide 11, you can see that our reported GAAP operating margin for Q2 was negative 12%. Accelerated growth of Club Members reduces operating margin in the short term. As the number of membership renewals, which do not have acquisition expenses, grows, operating margins are expected to become more attractive over time.

Slide 12 shows that investments in Club Members of Travelzoo occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them.

On Slide 13, we provide information on non-GAAP operating profit and operating loss as we believe it better explains how we evaluate financial performance. Q2 '26 non-GAAP operating loss was $2.1 million compared to non-GAAP operating profit of $2.4 million in the prior year period.

Slide 14 provides information about the items that are excluded from the calculation of non-GAAP financial information.

Please turn to Slide 15. As of June 30, 2026, consolidated cash, cash equivalents and restricted cash was $7.6 million. Our cash balance decreased but not because of increased member acquisition. We reduced merchant payables by $2.7 million and repurchased $1.9 million of shares of our common stock. The increase in marketing doesn't affect cash significantly. We expect our cash balances to rebound next quarter.

Now looking ahead, for Q3 2026, we expect year-over-year revenue growth. We also expect revenue growth in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months and as we acquire new members and as more Legacy Members become Club Members. Over time, we expect profitability to increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are likely.

Now I'll turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brand and our strong relationships with top travel suppliers to negotiate more Club Offers for Club Members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do.

Please turn to Slide 17. Membership empowers travelers to live their life of a travel enthusiast to the fullest while respecting different cultures. Membership provides access to high-quality and high valuable Club Offers. Our global team negotiates and vets them rigorously. Club Offers cannot be found anywhere else. Membership also provides complimentary access to airport lounges worldwide in case of flight delays.

In Q1 2026, we launched in partnership with Allianz, the first Travel Enthusiast Hotline. It provides 24/7 complimentary assistance wherever you travel. Culinary journeys curated for the travel enthusiasts are coming soon.

Slide 18 shows a few of the many exclusive Club Offers that we created for Club Members during the quarter. For example, a trip to Rome at a luxury hotel with flights from the U.K. for GBP 249 per person; a vacation in Hawaii with 3 nights at the Hilton resort, including flights, for $499. One of the hottest musicals in London right now is Paddington. It's very difficult to get tickets, but Travelzoo Club Members who go to London and travel there, we have a deal for you, GBP 89 per person and even includes dinner. Or a fourth example, the Mexico, St. Regis in Punta Mita, where we have an ocean view escape for 2, with butler service that saves Travelzoo members over $2,000 over the regular price.

Slide 19 shows the worldwide complimentary lounge access in case of flight delays. It is perfect for the travel enthusiasts, and it's good on any flight that you take, not only on trips that you booked with Travelzoo. Any flight that you book anywhere on an airline website or any travel agent, wherever in the world you are, you benefit from this lounge access.

Slide 20 provides information about sentiment and demographics of members. Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences. 90% of our members state that they are open to new destinations and travel ideas. Almost 70% plan to take 2 or more international trips in 2026. And information about their median household income shows that they have the means to do so, especially given the outstanding value of our Club Offers.

Slide 22 provides an overview of management's focus. We are working to grow the number of paying members and accelerate revenue growth by converting Legacy Members and adding new Club Members. Retain and grow our profitable advertising business from the popular Top 20 product. Accelerate revenue growth, which drives future profits in spite of temporary lower EPS. Grow Jack's Flight Club's subscription revenue. And launch Travelzoo META with discipline.

Now Christina will provide an update on Travelzoo META and Jack's Flight Club.

We expect the first Travelzoo META experiences to become available in Q3 2026. Access to Travelzoo META will be an exclusive benefit of Travelzoo Club Membership. For Jack's Flight Club, to align with Travelzoo and other investment priorities, our focus is on revenue growth by growing members.

I'm now handing over to the operator for questions for Jeff, Holger and me.

[Operator Instructions] Our first question comes from Theodore O'Neill from Litchfield Hills Research.

So Holger, if you could give us some more detail on what's happening with the advertisers and travelers? You say in the prepared remarks here that conflicts are creating uncertainty, and at the same time, at least in the U.S., we're seeing more people traveling. So are they spending less money? Is it a reduction in purchasing power? Or are they doing something different that causes them to spend less? What's your sense that's going on there?

Theo, so at the beginning of the quarter, and I would say it lasted probably in April and May, we definitely saw travelers to be more hesitant to book trips. Some were cutting back, some were changing destinations, and it just affected the sentiment among our members and also among the advertisers who became a bit more careful. That trend already changed a bit towards June. And today, we see more people traveling, and we definitely see this sentiment decreasing, which is why we said we look at this as a temporary situation and advertising revenues increasing again in the future.

And while we're on the subject, what about the fires in Spain and France? Is that going to have an impact, do you think, in sort of a general way, like we're seeing here with conflicts?

They are very specific -- they are in very, very specific areas that are not major destinations for our members, from what I remember. I don't think we have promoted offers to these destinations. But sure, it just makes people more aware that they have to think about where they want to travel and then just potentially change the destination where they are going to.

Our next question comes from Michael Kupinski from NOBLE Capital Markets.

I kind of want to go back to the marketing spend. I know, obviously, it has doubled and you say that it's expected to continue over the next several quarters. What metrics will determine when marketing investment begins to normalize? And I know that your assumption of $1.20 in EPS in 2027, how much does that assume in the delta in marketing expenses for 2027?

So look, as Jeff explained earlier, we made a very decisive shift this quarter to invest more in marketing and acquiring members because it's the right thing to do. We spent $4.6 million in marketing this quarter, as you say, substantially more. But on the other hand, we had more trial start this quarter than at any time since we introduced the membership. This will result in more Club Memberships going forward, in more revenue going forward.

Yes, it doesn't generate a lot of revenue this quarter because most of these members start with a trial. The trial is for $1 in the U.S. for 30 days. So revenue will only materialize over time. And at the same time, we have to expense the $4.6 million right away. That explains why we have this negative EPS this quarter. But look, $4.6 million with minimal revenue this quarter, you can do the math yourself, as a tax benefit and divided by the 10.5 million outstanding shares, it's a difference in EPS of $0.40. So why would we not go for the earnings and report $0.20 and instead report a loss? Because it's the right thing to do. We would like to shift more aggressively into memberships and into membership revenue.

Your question, what is the level? As we explained, as long as our investments provide positive ROI and a relatively quick payback, we will continue to invest at these levels. To what level that will increase or decrease is simply determined by market conditions. But we will stay conservative. We will not spend more than this target that we have set ourselves. But anything that we spend below that target is just the right thing to do. It's rational, and we believe it's the right strategy for the company to shift over to a membership model more quickly and for even brighter results in 2027.

Yes. And just to be clear, Holger, that $1.20 then is just illustrative for 2027?

It's not a projected EPS. It's the -- as the slide says, it's the incremental difference in EPS that we are seeing. So we see -- indeed, we see the decrease incrementally of $0.60 this year. And on the other hand, because we see the revenue coming in with no marketing expenses next year because a lot of these people will renew their memberships, we will see an incremental increase of $1.20 next year just from that investment.

Got you. And as my follow-up question, North America experienced your largest decline in profitability. Can you quantify how much of that decline resulted from the incremental marketing spend versus maybe weaker travel demand that you had in April and May or weaker advertising demand or even changes in conversion rates?

We don't break it out by segment. But as you see, North America had the largest share of our marketing expense, and that's why we had the largest decrease nominally in earnings there. Marketing investments, as I explained, they are smart. They are right things to do. They have a larger impact on EPS than the temporary reduction of revenue that we saw in Q2.

Our next question comes from Patrick Sholl from Barrington Research.

Just maybe some follow-up questions on the marketing investments. Can you sort of break out how you kind of classify those between, like, say, the marketing and sales expenses versus what goes into like cost of revenue? And what are some of the kind of the drivers within that marketing investment to either secure revenue or secure membership growth or retention of members?

Almost all of the $4.6 million in marketing expenses are targeted towards increasing the number of members. We are not spending any money on retention. And as I said, we could have just not spent anything this quarter, we would have the same revenue, but we would have obviously a positive EPS. So the spend is not contingent on keeping the existing business going. I think that's what your question is. The spend is really incremental to drive new members, to acquire new members and to drive the member base. And to convert Legacy Members into Club Members, that's where we're using offers where sometimes we have a temporarily higher cost of revenue, which you also asked about. So that's why you're seeing that.

Okay. So the acquisition cost also goes into the cost of revenue? That's -- is that what you're saying?

Indirectly, because some of the offers we are creating for member acquisition, offers that we then turn into Club Offers, they still are very profitable, but the way we account for them is with a certain amount of the expenses going to the cost of revenues. But they are not expenses for acquiring new members. Sorry if that was misunderstood.

Okay. And then just on advertising and commerce, could you maybe just sort of break out like the commerce revenue and what is sort of unrelated from Club Offers and just the overall advertising environment -- advertisers are coming back in to match that increase in traveler interest?

Yes, it decreased in Q2, as I mentioned, but it improved throughout the quarter. We saw better results in June, and now we are seeing better -- even better results again in July. So we are seeing more of the advertisers lifting their hesitations and also we are seeing more members book more offers and travel more than before, I would say, a quarter ago.

Our next question comes from Steve Silver from Argus Research.

Holger, it sounded like you just said that there's been no marketing spending on Club Member renewals to date. So I just want to make sure I heard that correctly and just whether that means that all renewals that have come through to date have been organic and not requiring any further incentives to get members to renew.

That's correct.

Okay. Great. And so I'd love to hear your thoughts on the current state of the balance sheet. Obviously, cash was lower from share repurchases and the paydown of merchant payables, but then the prepared remarks said that you expect cash to rebound in this current quarter. So I'd just love your thoughts in terms of the current state of the balance sheet, particularly as it might relate to future share repurchases.

Also correct. We would like to see the balance -- the cash balance be higher. It's a bit too low at the end of Q2, and it will increase in Q3, and we're working on various actions to increase that cash balance. But it's important to understand that decrease is not an effect of our increased marketing spend because the marketing spend comes back quickly within a couple of months. It was just a result of the 2 items that you quoted.

Our last question comes from Ed Woo from Ascendiant Capital.

My question is, the margins on your Club Members, is it -- how profitable is it? And as you start to add more benefits such as the club access for delayed flights and other benefits, is that going to impact your margin for Club Members?

The major expense for Club Members -- I mean, not all Club Members are acquired via paid marketing, of course. We also have Legacy Members that convert. We have also new Club Members that come because word of mouth. The only major expense is really at the beginning for the ones we pay for the member acquisition cost. When renewal comes up, there's no cost associated with it, so it becomes very profitable. Indeed, it becomes incrementally profitable, close to 100%. The benefits that we have picked and that we are offering to Club Members have been selected very carefully. They are very much loved by the members, but the expense for them is relatively low compared to the value that the members see in them. So yes, it is an expense, but it's not a substantial expense.

Great. And then my last question is, in terms of Club Members, do you find that the Club Members in Europe have a similar profile to the Club Members in North America in terms of either income, ability to travel and also renew and sign-up rates?

Yes, absolutely. The common theme is that they all love to travel. That's why we call ourselves travel enthusiasts. There's no difference there. In general, I would say the only difference you see between Europe and the U.S. is that people in Europe have more vacations. So their trips are a bit longer. They spend less per day. Americans, on the other hand, when they travel, they like to splurge. So the most successful offers and the most sought-after offers in the U.S. and Canada are offers at 5-star hotels. So that shows us that the income levels in the U.S. are very much supporting these high-end offers like the St. Regis that I spoke about earlier.

Okay. This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Thank you, everyone. Dear investors, we thank you for your time and support, and we look forward to speaking with you again next quarter. Have a great day.

This concludes Travelzoo's Second Quarter 2026 Earnings Call and Webcast. You may now disconnect your lines at this time, and have a wonderful day.

Good morning, and welcome to the Travelzoo's First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions]

The company would like to remind you that all statements made today during this conference call and presented in the slides that are not statements of historical facts constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ -- could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Form 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir.

Now it is my pleasure to turn over to Travelzoo's Global CEO, Holger Bartel; its Chair, Chief Membership Officer and General Counsel; and CEO of Jack's Flight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman.

Jeff will start with an overview. Jeff, you may begin.

Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir.

Let's begin with Slide 4. Revenue increased 5% year-over-year. Even though we invested more in the growth of club members, operating profit remained stable. Q1 consolidated revenue was $24.3 million. In constant currencies, revenue was $23.6 million, up 2% from the prior year period. Q1 operating profit was $3.4 million or 14% of revenue compared to $3.8 million in the prior year period.

Let me explain the rationale for our significant increase in marketing expenses. Slide 5 shows that investments in the acquisition of club members are attractive as they have a quick payback. On the left side, you see that the average acquisition cost of a club member was $28 in Q1 2025, $38 in Q2, $40 in Q3, $34 in Q4 and $27 in Q1 2026. On the right side, you see that we get this money back fast. The member pays in the U.S. case here, the $50 annual membership fee right at the beginning of the membership period.

Additionally, we generated an average $14 per member in revenue from transactions in Q1. This full payback doesn't even consider an increase in advertising revenues and future membership fees and other revenues in Q2 and future periods.

Now Slide 6 shows, as a reminder, that with subscription businesses, membership revenue is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred.

Slide 7 shows the effect. Higher member acquisition expenses, coupled with only a small portion of revenue recognized in the quarter, reduces EPS in the same quarter. In the case of Q1, that effect was a reduction of approximately $0.13. We expect EPS to increase over time.

As shown on Slide 8, our strategy is fueling member growth at a rate of 112% year-over-year. New club members come roughly half from legacy members and half from those new to Travelzoo.

On Slide 9, we break down our main categories of revenue, advertising and commerce and membership fees. Advertising and Commerce revenue was $19.7 million for Q1 2026. Revenue from membership fees increased to $4.6 million. Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. This year, we expect them to account for over 20% of revenue.

On Slide 10, you can see that revenue growth came from all reporting segments. With attractive ROI and member acquisition, we invested both in North America and Europe segments. Operating profit of our North American segment was lower. Operating profit on our Europe segment was higher. Operating profit on our Jack's Flight Club segment remained flat.

On Slide 11, you see that our GAAP operating margin for Q1 was 14%. Acquiring more club member reduces operating margin in the short term. As the number of membership renewals, which do not require the acquisition expenses, grows. Operating margins should increase again over time.

Slide 12 shows that the investments in club members of Travelzoo Car occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them.

On Slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate operating -- how we evaluate financial performance. Q1 2026 non-GAAP operating profit was $3.5 million or 14% of revenue compared to non-GAAP operating profit of $4.4 million in the prior year period.

Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit.

Please turn to Slide 15. As of March 31, 2026, consolidated cash, cash equivalents and restricted cash was $11.3 million. Cash flow from operations was $3.9 million. Our cash balance increased even though we repurchased 500,000 shares of our common stock.

Now looking ahead, for Q2 2026, we expect year-over-year growth to continue. We also expect continued revenue growth in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months as we acquire new members and as more legacy members become club members. Over time, we expect profitability to increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing. As a reminder, we expense marketing costs immediately.

Now I turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brand and our strong relationships with top travel suppliers to negotiate more club offers for club members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do.

Please turn to Slide 17. Membership empowers travelers to live the life of a travel enthusiast to the fullest, while respecting different cultures. Membership provides access to high-quality and highly valuable club offers.

Have a look at Slide 18. A trip to the Azores for $299, including 4 nights hotel and flights from the U.S., a week at a Tuscan Castle with Car Hire for GBP 299 per person or special member rate at one of the most iconic resorts in the U.S., where 23 presidents have stayed, all the way to a 5-star luxury trip to Anguilla, which was voted the best island in the Caribbean for 40% off, especially for Travelzoo club members.

Club offers cannot be found anywhere else. Our global team negotiates and bets them rigorously. Membership also provides complementary access to airport lounges worldwide in case of flight delays. In Q1 2026, we also launched, in partnership with Allianz, the first travel enthusiast hotline. It provides 24/7 complementary assistance wherever you travel. Culinary journeys curated for the travel enthusiasts are coming soon.

Slide 19 shows the worldwide complementary lounge access in case of flight delays. It is perfect for the travel enthusiasts. Slide 20 provides information about sentiment and demographics of new members. Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences. 90% state that they are open to new destinations and travel ideas. Almost 70% plan to take two or more international trips in 2026. An information about their median household income shows that they have the means to do so, especially given the outstanding value of our club offers.

Finally, Slide 22 provides an overview of our management focus. We are working to grow the number of paying members and accelerate revenue growth by converting legacy members and adding new club members, retain and grow our profitable advertising business from the popular Top 20 product, accelerate revenue growth, which drives future profits in spite of temporary lower EPS, grow Jack's Flight Club subscription revenue and develop Travelzoo Meta with discipline.

Now Christina will provide an update on Travelzoo Meta and Jack's Flight Club.

Thank you, Holger. We're excited to announce that we now expect the first Travelzoo Meta experiences to become available in Q2 2026. We're planning to incorporate access to Travelzoo Meta as a benefit of Travelzoo Club membership.

For Jack's Flight Club to align with Travelzoo and other investment priorities, our focus is on maximizing revenue growth. To achieve this, we're working to significantly lower the average cost per acquisition for new members and targeting acquiring into higher subscription fee, lower attrition membership plans like annual.

I'm now handing over to the operator for questions for Jeff, Holger and me.

[Operator Instructions] We'll take our first question from Michael Kupinski with NOBLE Capital Markets.

Congratulations on a great quarter. First, I just want to ask a little bit about just the current tone of the business right now in terms of -- in light of the geopolitical issues that are going on in the world. And if you could just give us an update on that. Then obviously, we saw a significant sequential improvement in the margins in the quarter. How should we think about the cadence of margin recovery over the next couple of quarters? And then I just have one quick follow-up.

Hi, Michael. So for sure, the war in Iran and the effect on fuel prices, consumer sentiment, airline ticket prices is affecting us. Towards the end of Q1, we saw advertising indeed slow down. We didn't see as much of a decline in response among our members because as travel enthusiasts, they will just pick other destinations to travel to. But sure, at the end of Q1, we saw lower advertising revenue than we expected at that time. Quarter would have even been better if the war had not happened. We continue to see that a bit at the beginning of Q2 as well, but things are normalizing, but with the news changing daily. The most important thing is that we have not seen much of an impact on member acquisition. We still see consumers signing up for Travelzoo Club membership. So that's good. But on the advertising side, yes, we are seeing a weakness and hope the war with all its consequences will be open -- will be over soon.

Regarding the margins, look, it is, as we have always explained it, on one hand, if we substantially increase member acquisition that in the short run has a negative impact on margin. It lowers the margins because we expense member acquisition right away. We recognize the revenue only over the period of 12 months. On the other hand, what we started seeing this quarter is we have more renewals -- membership renewals. Our membership with Travelzoo is for 1 year. So we have a substantially larger number of membership renewals coming up this year. And membership renewals have a positive impact on the margin because they are not associated with member acquisition expense.

So it's hard to predict what the impact will be over the next few quarters because it really depends on what we can invest on member acquisition, how much you can drive member growth even further. And on the other hand, what renewal rates among the upcoming renewals are. But so far, we are quite pleased with those.

Got you. And as far as my follow-up call, does the company have specific operational or financial milestones tied to the next 12 to 24 months that align with the recently passed CEO incentive structure?

My major objective is to grow the number of club members at Travelzoo as quickly as we can. That's really our #1 priority because that will ultimately drive the success and the financial performance of the business.

Your next question comes from the line of Patrick Scholl with Barrington Research.

You kind of touched on this with Mike's question. You had a lot more renewal activity this quarter. Could you maybe talk a little bit about like the renewal rate, churn and like what share of those members that renewed were at the price increase?

So Patrick, we are not disclosing the renewal rate. We are -- it is in line with our expectations. Our objective is to bring it up further. The membership fee in the U.S. changed to $50 at the beginning of Q1. And on February 1st, also legacy members had to pay the $50. So for starting February 1st, the membership fee was $50 for anyone who renewed after February 1st in the U.S. In the other markets, we did not change the membership fee during the quarter.

A very large chunk of renewals is actually coming up on April 1st because as you might recall, back in 2024, we offered members, an original legacy members an original incentive to receive 15 months of membership for the price of 12. We're very, very hesitant with any kind of promotions, but that's what we did back then in order to reward the loyalty of our legacy members. These memberships -- and it's a quite large number end on March -- ended on March 31, 2026. So on April 1, 2026, we had quite a large number of renewals. And as I said, we are not disclosing the renewal rate, but we are actually quite happy with what the renewal was.

Okay. Right, so with the -- you won't receive the inflow of cash until April 1st then for the renewal?

This large group of legacy members is renewing or has renewed on April 1st or the following few days, not in Q1 yet.

Okay. And then could you maybe talk about like just some of the features that you've added to the subscription service? And like what has sort of been helpful in kind of support -- what do you find helpful in supporting renewal activity?

Look, we have several features. Different members like different things, different members find different things important. What is common among all of them is that they love our offers. Our offers, as I previously said, we work very hard of them, and that's the #1 reason why members love our membership. They are travel enthusiasts. They want to travel, and we provide them offers to live that life of a travel enthusiast.

Your next question comes from the line of Steve Silver with Argus Research.

It's great to see the recovery in operating margins in Q1. Curious your thoughts on as you continue to expand the perks that you're offering under club membership, whether it's the lounge access or the -- now with rolling Meta into the club membership. I'm curious as to what the implications might be of adding new perks into club membership and the impact that might have on maintaining expanding operating margins going forward.

Most importantly, we do these things so that members get more out of their membership. We are very, very selective in what we find is valuable and exciting for travel enthusiasts. We weigh that very much. We like to also be innovative. So far, the benefits that we are offering associated with Travelzoo membership do not incur significant expenses for us, let me put it that way.

Great. And one more, if I may. Now that it's been a couple of quarters now since you've announced the lounge access among some of the other perks with club membership, how often are you tracking those just to see if it's generating the kind of traffic that you expected when launching these kind of features?

We monitor it continuously and our members really love it.

Your next question comes from the line of Ed Woo with Ascendiant Capital.

Also congratulations on the subscriber growth. My question, I know you mentioned that it slowed down right at the end of Q1 and a little Q2 because of the war. But after ticking that out, how was the overall travel industry doing? And how does the summer travel season looking? Are people kind of holding off to wait until the war is over, or are people still booking for the summer travel season as they are right around now?

Some are behaving like normal. They are booking their trips, others are hesitant. One of the benefits of our offers is that a lot of them come with full refundability. So we try to take a lot of risk out for the travel enthusiasts. We want them to dream about their next trip. We don't want people to just sit in front of the TV, hear negative news out of Iran. So we feel our members are excited to travel in summer, and we create the offers in a way that it really works well for them.

This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Dear investors, thank you for your time and support. We look forward to speaking with you again next quarter. Have a great day.

This concludes today's Travelzoo's first quarter 2026 earnings call and webcast. You may disconnect your lines at this time, and have a wonderful day.

Good morning, and welcome to the Travelzoo's Fourth Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] The company would like to remind you that all statements made during this conference call and presented in the slides that are not statements of historical facts, constituted forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today.

An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; its Chair, Chief Membership Officer and General Counsel and CEO of Jack's Fight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman. Jeff will start with an overview.

Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir. Let's begin with Slide 4. Travelzoo's consolidated Q4 revenue was $22.5 million, up 9% from the prior year. In constant currencies, revenue was $22.1 million, up 7% from the prior year. Operating income, which we as management call operating profit, decreased as expected as we invested more in the growth of club members.

Q4 operating profit was $0.6 million or 3% of revenue, down from $4.9 million in the prior year. Let me explain the rationale for a significant increase in marketing expenses, which lowered EPS. Slide 5 shows that investments in the acquisition of club members are attractive as they have a quick payback. On the left side, you will see that average acquisition cost for a full paying club member was $28 in Q1, $38 in Q2, $40 in Q3 and $34 in Q4. On the right side, you see that we get this money back fast. The member pays in the U.S. in this case here, their $40 annual number should be right away at the beginning of the membership period. Additionally, we generated $10 in revenue from transactions in the same quarter. This full payback doesn't even consider an increase in advertising revenue and future membership fees and other revenues.

Now Slide 6 shows as a reminder that with subscription businesses, membership fee revenue is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred. Slide 7 shows the effect. While we have a quick payback, the reported EPS is different. Higher member acquisition expenses, coupled with only a small portion of revenue recognized in the quarter reduces EPS. In the case of Q4, that effect was a reduction of approximately $0.08. As shown on Slide 8, our strategy is fueling membership growth at a rate of 180% year-to-date. New club members come roughly half from legacy members and half from those new to Travelzoo.

On Slide 9, we break down the main categories of revenues, advertising and commerce and membership fees. Advertising and commerce revenue was $18.3 million for Q4 2025. Revenue from membership fees increased to $4.1 million. Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. This year, we expect them to account for around 25% of revenue. On Slide 10, you can see that revenue growth came from all reporting segments. Investment in member acquisition in Europe led to a loss. G&A expenses increased primarily due to a onetime expense related to a global company meeting.

Operating profit on our North America and Europe segments was lower. Operating profit on our Jack's Flight Club segment remained flat. On Slide 11, you can see that our GAAP operating margin was 2% in Q4 2025. Work Club members has the effect of lower GAAP operating margin Still, given the favorable ROI, our goal is to further grow the number of club members to accelerate Travelzoo's growth. Slide 12 shows that the investments in club members occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them. On Slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate financial performance. Q4 2025 non-GAAP operating profit was $0.9 million or 4% of revenue compared to non-GAAP operating profit of $5.4 million in the prior year period.

Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 15. As of December 31, 2025, consolidated cash, cash equivalents and restricted cash was $10.8 million. Cash flow from operations was $1.5 million. Our cash balance increased accordingly. Now looking ahead, for Q1 2026, we expect year-over-year growth to continue. We expect continued revenue growth in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months. As we acquire new members, as more legacy members become club members. Over time, we expect profitability to increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing, and we expense marketing costs immediately. Now I turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage travels with global reach, our trusted brand and the strong relationships with top travel suppliers to negotiate more club offers for club members. Travel to members are affluent, active and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Please turn to Slide 17. Membership empowers travelers to live the life of a modern travel enthusiast to the fullest while respecting different cultures. Membership provides access to high-quality and highly valuable club offers.

Our global team negotiates and gets them rigorously. These offers cannot be found anywhere else. Membership also provides complementary access to airport launches worldwide in case of flight delays. And we just launched in partnership with Allianz, the first travel enthusiast top line, providing 24/7 complementary assistance, wherever club members travel. Culinary journeys created for the travel enthusiasts are coming soon. Slide 18 shows a few of the many exclusive club offers that we created for club members during Q4. Our members love luxurious trips. So on the left side, we had a Bali 5-star Jungle Spa Retreat for 2 people at an amazing price of $499. The lower Costa Rica 5-star resort with an upgrade for Travelzoo members to an Ocean View Room. A $499 Portugal trip that includes round-trip flights from the U.S. or in London, a top West End Show with dinner for GBP 75 per person.

Slide 19 shows the worldwide complementary launch access in case of flight delays. It's perfect for the travel enthusiasts. Slide 20 then provides information about Travelzoo members. As you see travel is loved by travel enthusiasts, who are affluent, active and open to new experiences. On Slide 22, we provide an overview of our management focus. We are working to grow the number of paying members and accelerate revenue growth by converting legacy members and adding new club members, retain and grow our profitable advertising business from the popular top 20 product, accelerate revenue growth, which drives future profits in spite of temporary lower EPS, grow Jack's Flight Club's profitable subscription revenue and developed travel Zometa with discipline. Now Christina will provide an update on Travel Zometa and Jack's Flight Club.

We are excited to announce that we now expect the first Travelzoo Meta experiences to become available in Q2 2026. We are planning to incorporate access to Travelzoo META as a benefit of Travelzoo Club membership. Project Flight Club, we focused in Q4 on profitability, while acquiring sufficient premium subscribers to offset attrition. This was due to other investment priorities. I'm now handing over to the operator for questions for Jeff, Holger and me.

[Operator Instructions] We will take our first question from Michael Kupinski with Noble Capital Markets.

Just a couple of questions on the revenues, particularly on the advertising and commerce, it decreased sequentially, and I was wondering if you can add some color on the reasons that, that was down. And then on membership fees, that increased only $0.5 million from the previous quarter, and that was a slowing of the cadence as well, which was 20% from the previous quarter. So just on the revenue trend. So if you could just add some color both on the membership fees as well as the advertising and commerce as well.

Yes, you are right. Revenue from advertising and commerce was a bit soft in Q4. So far, we see that softness to continue a bit more into Q1 as well. Really no specific reason that we can point out. We've been focused very much on membership and adding new members. And it's as I said, no -- really no specific reason I can point out why it was a little bit soft. And then membership fees, I think it's probably mostly a rounding issue the change from Q3 to -- Q2 to Q3, Q3 to Q4 was really not that substantial. We expect that to increase that quarterly revenue increase. We expect that to increase in 2026 as we are looking to spend more on member acquisition this year than in 2025 as long as we can maintain and achieve the positive return and quick payback that Jeff was talking about.

And if I can slip one in. G&A was a little higher than expected. Anything extraordinary in those numbers?

I think Jeff mentioned it, we had a onetime expense related to a global company meeting that we held in Q4. So it's not a permanent increase. It's just a temporary increase in Q4.

Your next question comes from the line of Patrick Sholl with Barrington Research.

Your comments around profitability and marketing expense. So I think marketing expenses were up like 30% just full year. Do you kind of see that as like the peak or like that you'd be able to leverage additional growth off of? Or do you kind of see that continuing to move higher? And I guess, can you maybe sort of like reconcile the comments on the payback with like the lower operating cash flow for each quarter in 2025 year-over-year?

As I mentioned, as long as we can maintain a good return and the quick payback that Jeff was talking about, we would increase member acquisition in 2026. So we are planning to increase it over 2025. And as we've now explained for a few quarters, that in the short term always impacts EPS. However, as we move throughout 2026, and we have now recurring revenue coming in for members that are renewing after the first year of membership. And for these members, we don't have to spend anything on member acquisition. They are simply renewing their membership. So that revenue will increase without expenses related to that. So that will, over time, improve EPS.

But as we said, cautiously in the last few earnings statements, we do not know in advance what the opportunities for member acquisition are. If we really see good opportunities, we might spend very aggressively, and that will certainly impact EPS in the short term as it has in Q3 and Q4.

Okay. And then just could you maybe talk a little bit about churn within that initial member cohort and how you're expecting that to go with the numbers that you added through 2025. I guess like the thing that kind of kicks that one off is just like the decline in the deferred revenue balance in the quarter.

It's too early to judge that because as you saw from that slide that showed the growth of club members, most club members joined in the first quarter of 2025. Their renewal is coming up now. So it's a bit too early to comment on that. As you also see, we are adding new benefits for our club members, and we hear that they are very much appreciated by the members, and that will lock these members in over a longer period of time even if they don't necessarily find a specific offer that they would like to buy in a certain quarter at a certain time. .

Your next question comes from the line of Steve Silver with Argus Research.

Holger, the slides early on mentioned the potential for additional advertising revenue from membership fees and -- or the membership revenues affecting potential advertising revenues from advertising, just curious as to where you think the member base -- the paid member base needs to be in order to reach a critical mass in terms of having an impact on that incremental advertising revenue?

Well, as we are adding new members, we are also -- this also allows us to increase or maintain our advertising rates. So that's -- I don't think there's a specific point where we can say it makes a huge -- it makes a big difference. So as we are growing, it allows us to also maintain and then improve our advertising business. But as I said, we are really looking to drive members' membership and the growth of members in 2026 more aggressively because debt revenue, which currently is around $ 4 million, as you saw, that revenue is recurring, very stable revenue while advertising and commerce revenues are always a bit contingent on the situation of how many offers we can source what these offers are, if they are good or very good and the appetite of our advertisers.

So that's less controllable while membership revenue is recurring, stable, and that's why we decided 2 years ago to move to a model of a subscription, a paid subscription and created Travelzoo.

That's helpful. Great. And one more, if I may. Can you just discuss a little bit about the underlying trends that led to the lower cost of new customer acquisition in Q4. I know you've mentioned seeing -- or taking advantage of opportunities as they arise, maybe being a little more aggressive in some periods versus others. But can you just talk a little bit about the underlying trends between Q3 and Q4 that led to the lower cost per acquired number?

Christina is overseeing this. So she will respond to this question, Steve.

Sure. So I think it's a combination of factors. So hard to pinpoint exactly what drove the lower cost per acquisition. But in general, actually Q4, we tend to see more difficult cost per acquisitions with certain channels like Meta and Google but we were able to manage that with kind of optimization that we made through the user experience. We had a member days in Q4 that helped to drive the lower CPAs and we were kind of cautious with spending as efficiently as possible. So I think that resulted in a lower CPA in Q4 as compared to Q3.

It's contingent, though, Steve, on how much we invest in member acquisition, if we scale it as we are planning to do now in 2026, that normally makes CPAs go up a little bit. But from that slide, you see that we were still under the threshold of where we could spend because $34 then we get $40 back from the membership fee and we get additional revenue from these members, we could have spent more in Q4. And so our plan is going forward to get a little bit closer to that threshold. And so having said that, CPA on the one hand, as Christina explained, CPA, we have a positive impact on CPA to learning how to do things better. On the other hand, CPA will go up if we spend more. But as long as we are staying within that quick payback, we feel comfortable that we can maintain that.

Someone mentioned earlier a question about cash, maybe it was Pat or Michael. As you see, our operating cash flow in Q4 was positive. In general, member acquisition as long as we can maintain the numbers that we showed on this earlier slide, we are able to finance that member acquisition through the cash we are generating because the member has to pay their 12-month membership fee at the beginning of the membership. So that brings in this $40 and if we can acquire them below $40, the impact on our cash situation is basically neutral.

Your next question comes from the line of Ed Woo with Ascendant Capital.

My question is, what are you seeing out there in terms of the industry travel outlook for this year 2026?

I think in travel, we see a little bit the same as what Kipa seeing in the U.S. economy that it's diverging on the 1 hand, luxury travel is absolutely booming. In fact, you might have also read that hotel rates at 5-star properties around the world have reached the highest ever and the increase from 2024 to 2025 was also quite strong. While on the other hand, lower-end travel, cheaper travel is more challenging. However, you saw from the demographic that our members are generally more on the upper end. They are higher income. They can spend. They have the money to stay at 5-star properties and maybe that's also what was the -- what was explaining a bit the softness in Q4 and now the softness in Q1 in advertising and commerce, it is challenging. It's a bit challenging right now to get really very aggressive offers from luxury properties.

But I think that the supplier on these properties is increasing. There's many, many new hotels operating, so opening all around the globe and they need to fill their beds. We feel that, that will become better going forward. But that trend is similar to what I think we are seeing in the U.S. economy in general.

All right. And this is the same trend you're seeing in Europe and Asia? .

Yes. There's no big difference between the market. More pronounced in the U.S., I would say, just let me add that, yes, but the trend is the same, but it's a bit more pronounced in the U.S.

Your next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Holger, the new annual fees for 2026 or $50 per member and it looks like. And so existing members, will they -- who are paying $40, do they now pay 50%? Or does that apply -- $50 applies to new members only?

Good catch. Yes, I was talking about $40 because we were speaking about -- in the U.S., we increased the membership fee to $50, correct. We did not increase it in other markets. We increased it on January 1, but then we gave existing members an opportunity to renew at the old rate of $40 before the end of January. But anyone who didn't take advantage of the opportunity has to pay the $50 now going forward, whether that's someone new to Travelzoo or whether that is anyone who is renewing their membership that expires after February 1. .

Okay. And on the balance sheet, accounts receivable dropped. So it looks like your DSOs went up. Is that a happy coincidence? Or was there an active plan to try to bring receivables down?

I'm happy -- I was happy to see that our team is doing a better job collecting receivables. Jeff, do you have any more insight on that part of the balance sheet?

No, I would say that more aggressive outreach with our clients to ensure that we're getting paid on a timely basis is consistent with prior quarters. I think it was most likely a happy coincidence. .

This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Yes. Dear investors, thank you so much for your time and support. We look forward to speaking with you again next quarter. Have a great day. .

This concludes today's Travelzoo's Fourth Quarter 2025 Earnings Call and webcast. You may disconnect your lines at this time, and have a wonderful day.

Good morning, and welcome to the Travelzoo Third Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions]

The company would like to remind you that all statements made during this conference call and presented in the slides are not statements of historical facts constitute forward-looking statements and are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir.

Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; its Chair, General Counsel and CEO of Jack's Flight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman. Jeff will start now with an overview.

Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir.

Let's begin with Slide 4. Travelzoo's consolidated Q3 revenue was $22.2 million, up 10% from the prior year. In constant currencies, revenue was $21.9 million, up 9% from the prior year. Operating income, which we as management call operating profit, decreased as we invested more in growth of Club Members. Q3 operating profit was $0.5 million or 2% of revenue, down from $4 million in the prior year.

Let me explain the rationale for our significant increase in marketing expense, which lowered EPS. Slide 5 shows that investments in the acquisition of Club Members are attractive as they have a quick payback. On the left side, you see that the average acquisition cost for full paying Club Member was $28 in Q1, $38 in Q2 and $40 in Q3. On the right side, you see that we get this money back fast. The member pays in the U.S. case here, their $40 annual membership fee right at the beginning of the membership period. Additionally, we generated $15 in revenue from transactions in the same quarter. This full payback doesn't even consider an increase in advertising revenue and future membership fees and other revenues.

Now Slide 6 shows as a reminder, that with subscription businesses, membership fee is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred.

Slide 7 shows the effect. While we have a quick payback, reporting -- the reported EPS is different. Higher member acquisition expenses, coupled with only a portion of revenue recognized in the quarter reduced EPS this quarter. In the case of Q3, that effect was a reduction of $0.15.

As shown on Slide 8, our strategy is fueling member growth at a rate of 135% year-to-date. New Club Members come roughly half from Legacy Members and half from those new to Travelzoo.

On Slide 9, we break down our main categories of revenues, advertising and commerce and membership fees. Advertising and commerce revenue was $18.6 million for Q3 2025. Revenue from membership fees increased to $3.6 million. Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. Next year, we expect them to account for about 25% of revenue.

On Slide 10, you can see that revenue growth came from all reporting segments. With favorable ROI on member acquisition in the U.K., we invested heavily there. Jack's Flight Club revenue increased 12%. Operating profit was lower in both our North America and Europe segments and was slightly less in our Jack's Flight Club segment.

On Slide 11, you can see that GAAP operating margin was 2% in Q3 2025. Acquiring more club members has the effect of lowering GAAP operating margin. Still, given the favorable ROI, our goal is to further grow the number of Club Members to accelerate Travelzoo's growth.

Slide 12 shows the investment in Club Members occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them.

On Slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate financial performance. Q3 2025 non-GAAP operating profit was $1.1 million. That's approximately 5% of revenue compared to non-GAAP operating profit of $4.9 million in the prior year period.

Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit.

Please turn to Slide 15. As of September 30, 2025, consolidated cash, cash equivalents and restricted cash was $9.2 million. Cash flow from operations was negative $0.4 million. We reduced merchant payables by $0.7 million and repurchased 148,602 shares.

Now looking ahead, for Q4 2025, we expect year-over-year revenue growth to continue. We expect revenue growth to accelerate as a trend in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months, as we acquire new members and as more Legacy Members become Club Members. Over time, we expect profitability to substantially increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing. We expense marketing costs immediately.

Now I'm going to turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brand and our strong relationships with top travel suppliers to negotiate more club offers for Club Members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiast to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Today, I would like to share a bit more information about the Travelzoo Club membership.

Please turn to Slide 17. The Travelzoo is becoming the must-have membership for travel enthusiasts. Membership empowers you to live your life as a travel enthusiast to the fullest while respecting different cultures. Membership provides access to high-quality and highly valuable club offers. Our global team negotiates and vets them rigorously. These offers cannot be found anywhere else. Membership also provides complementary access to airport lounges worldwide in case your flight is delayed. Culinary travel deals curated for the travel enthusiast coming soon.

Slide 18 shows a few of the many exclusive club offers that we created for Club Members during Q3. For example, Travelzoo members could head to an all-inclusive vacation in the Caribbean for $499 (sic) [ $399 ], which even includes round-trip flights or attend the Futuristic ABBA Voyage show in London at a special member price. In Rome, Travelzoo members would pay EUR 99 for 2 nights at the 4-star hotel while the general public would pay 3x as much. Trips to high-end luxury resorts like the Fairmont Mayakoba here are particularly popular with members. These are all offers that you can only get as a Travelzoo member. You will not find them anywhere else.

Slide 19 shows the worldwide complementary lounge access in case of flight delays. It's perfect for the travel enthusiasts.

Slide 20 provides information about Travelzoo members. Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences.

Slide 22 provides an overview of our management focus. We are working to grow the number of paying members and accelerate revenue growth by converting Legacy Members and adding new Club Members. Retain and grow our profitable advertising business from the popular Top 20 product. Accelerate revenue growth, which drives future profits in spite of temporarily lower EPS. Grow Jack's Flight Club's profitable subscription revenue, and develop Travelzoo META with discipline.

Now Christina, will provide an update on Travelzoo META and Jack's Flight Club.

Thank you, Holger. We continue to work on the production of the first Metaverse travel experiences. They will be browser enabled. As stated in previous earnings calls, we are conscious of developing Travelzoo META in a financially disciplined way. We will provide additional updates in due time.

For Jack's Flight Club revenue increased 12% year-over-year, and the number of premium subscribers increased 8%. We continue to invest in the growth of premium subscribers. We expect to see a greater increase in premium subscribers year-over-year in Q4 due to promotional activities that took place in Q3.

I'm now handing over to the operator for questions for Jeff, Holger and me.

[Operator Instructions] We'll take our first question from Theodore O'Neill from Litchfield Hills Research.

I'm looking at Slide 9. And it's clear here that if I look at the advertising and commerce revenue on a rolling 4-quarter basis, the numbers are rising. And obviously, the fees are rising on the same basis. So clearly, this is all working in your favor, and I was wondering what do you think is driving the popularity of these the options that you're providing out there for travel and experiences? Because in light of economic uncertainty, I think a number of us would have thought these numbers would be going in the other direction.

I think the slide that shows the offers that we are negotiating for our members shows that very well. The travel opportunities you receive from Travelzoo, and they are exclusive to our members are so much better than what the regular person can get that they motivate people to travel. They motivate people to travel even more. They make it also more affordable. And even they allow our members to go, as you saw with this example from Fairmont Mayakoba to go on luxury vacations, when they normally could only afford a relatively inexpensive trip.

So travel enthusiast are people who love to travel. They can't get enough of it. And I think the Travelzoo membership is what enables them to live that to the fullest. And I think that's why we are seeing the popularity of the membership continuing to increase.

And looking at the membership numbers, which are clearly increasing here, is that -- how does that reconcile with your expectations for that growth?

It's in line with expectations. And please remember that the number that's shown on this slide includes also Jack's Flight Club. Jack's Flight Club is not growing quite as fast as Travelzoo membership. Travelzoo membership is even growing much faster than what you might think when you look at this data on the right.

But in general, we're in line with what we are expecting. We obviously always want to grow faster, and we are very optimistic with the return that we are receiving on our marketing investments that we can even accelerate the growth more because as we say here, we expect next year membership revenue to account for at least 25%. Membership revenue is recurring, it's attractive and the combination of membership revenue and a continued strong advertising business will ultimately create a Travelzoo business that is more profitable than in the past.

Our next question comes from Michael Kupinski from NOBLE Capital Markets.

I see that the cost of customer acquisition has gone up a little bit. And I was just wondering if you could just talk a little bit about what's driving that? And at what price would you say that you're not getting the benefit? I know $40, you're still getting a benefit from the membership. But at what price do you think that you're not -- would not see an attractive return from that?

Sure. It didn't change that much from $38 to $40. I think it's just minor fluctuation, but I'll let Christina comment a bit more on what's driving the success in member acquisition.

Sure. So I agree with what Holger said. It hasn't gone up too much. The only reason that I believe it would have gone up even the $2 is just we're scaling and spending more and that's kind of just what naturally happens as you start to scale up and spend more on member acquisition on certain channels. But we are doing everything we can to counteract that by finding optimizations that will enable us to not have that kind of cost per acquisition go up to much more.

And yes, I think in general, we have been finding ways to optimize the channels that work for us. And it also helps that we have such strong club offers, to what Holger said previously, that's really what's working for us as people see these amazing club offers and they want to join, and that helps us to get to our efficiencies.

Also also, Michael, 4 times a year, we have Member Days. Member Days, what special about the offers on Member Days are these are offers that only Club Members can see. You could see other offers if you just get a preview of the offer, but these offers on Member Days are offers that you can only see once you are a paying Club Member. They drive member acquisition. But on the other hand, what's important here is these are offers that some of our travel partners like to create and make even more aggressive because they know these can only be seen by a very, very small select and very close group of members.

So put yourself into the shoes of this luxury hotel. And do you want to name out to millions of people on Expedia that you're offering a discount? No, you don't want to. Travelzoo provides the opportunity here for these luxury hotels and similar travel partners to create offers that are hidden away from the public but that can be enjoyed by people who love them. So that's why, for example, these Member Days have been quite critical in driving member acquisition and what we are seeing is that during those periods, and we are looking to boost these even more during those periods, CPA is even substantially lower than the $40 we see here.

So in short, it's really the strength of offers and the better the offers are, that's what's impacting the CPA. And of course, over time, our marketing efforts will also become more efficient. So we also think there's a good chance that we can drive CPA in certain quarters, even lower than the $40. But as long as we see this attractive payback, which we illustrated a couple of times before, we will continue to invest because if we get the money back within a quarter, if the profitability is there long term, even if it's in the short term -- even in the short term, we see a hit on profitability, it's the right thing to do, and we're actually quite happy that we are in this situation.

Thanks for the color there, Holger. Can you talk a little bit about the current advertising environment? I would have thought that it would have been a little bit stronger in the quarter. But can you just talk a little bit about how you see that and whether or not it might be improving, especially now in the North America given that we're seeing the Fed rate cuts and so forth. Do you anticipate that it will improve? Or do you think that -- just kind of give us your general thoughts about the advertising environment?

Look, we have a good eye, Michael. Yes, this quarter was a bit slower on the advertising revenue side as it normally be. Q3 is generally our slowest quarter, but yes, there were a couple of advertisers who pulled back. But we have these fluctuations from one quarter to the next all the time. Sometimes it's more, sometimes it's less.

In general, the feeling in the U.S. is quite good, where we really see hesitance is in the U.K. and not just us, and I'm hearing this from other companies as well, travel companies and any kind of consumer company in the U.K., there is probably an announcement about quite aggressive tax hikes at the end of November. But until people hear what exactly is going on, they are hesitant. The businesses are hesitant to spend. Consumers are hesitant to buy. So yes, there, I would say we are seeing a relatively soft advertising business in general. In all the other markets, what we are seeing, I would not overinterpret that, it's just a natural fluctuation from one quarter to the next.

Our next question comes from Patrick Sholl from Barrington Research.

Could you maybe talk a little bit on some of the retention efforts around subscribers that became paying members in either Q4 of last year? I realize that's a really small cohort or the legacy members that became paying members at the start of this year. Just any sort of like commentary around like retention metrics or how you would expect like the retention costs relative to initial acquisition costs?

Really good question. Christina, do you want to respond to that one?

Sure. Of course, we're constantly tracking retention and renewals. I will say that the volumes have not been massive just yet, and we expect much more renewals, especially for the Legacy Members that joined in Q4 of last year. They actually did not start their membership until January 1. So I think we'll be expecting to have many more renewals starting in Q1 of next year. So we're working on implementing different strategies to kind of ensure they renew.

But the main thing is just making sure we get them content and information about the club membership while they are a member and hit kind of their preferences so that they see value in the membership and want to stay. And so far, we are seeing fairly good renewal rates, especially coming from Legacy Members that became Club Members. So we're hoping that trend will continue next year when we have larger quantities of renewals.

So isn't like they're actively opting in to make sure that it's renewed because they wouldn't have -- they would have until end of year to cancel. I guess, how do you...

For the ones that joined -- that's a good point. For the ones that joined previously, not necessarily on any specific promotions, we're starting to see some renewals. I guess, many of them are not Legacy Members, but new to Travelzoo. But we are seeing other kind of conversion rates and things for Legacy Members that are trending in the right direction.

If I understand Pat's question might be about renewal itself. It's an automated renewal. They don't have to actively renew. So they will automatically renew unless they cancel. And then as you mentioned, Pat, as you mentioned very correctly, we have a very large group of renewals coming up at the end of this year and then again at the end of Q1. Those are really large numbers of renewals, and we can see already from like we can already see a little bit -- we can forecast renewals rates quite well because we can look at how many of these members have already deactivated their automated renewal. On these 2 groups it's actually very, very small because they've been with Travelzoo for a long time.

But the reason I also mentioned it at that point of time when they renew the membership fee comes in, and that's why we are expecting also quite a nice income of cash at the end of this year and then again at the end of Q1. We're also looking and will most likely increase the membership fee in certain markets next year, maybe already at the beginning of the year because the $40 just seems maybe a little bit too low. And people who use the membership really love it. And from what we are hearing is we have an opportunity to increase the membership fees there. It's not decided yet, just to be clear, but we are looking into it very seriously.

Okay. And then just on the advertising and commerce components of revenue, could you maybe talk about like maybe just how the mix of that has shifted maybe over the last 4 quarters?

It's really a relatively small portion where we have the opportunity to buy travel inventory, for example, hotel rooms in advance, which is where that then has an impact on cost of revenue, but it's a relatively small -- relatively small part, and it hasn't really changed dramatically nor do we expect it to change dramatically.

So like that goes into cost of revenues, and that was about like a $2 million increase year-over-year. So is that kind of like that component that we should be thinking about that as being relatively lower margin and that would kind of be the, I guess, delta on the advertising side then?

Yes.

Okay. And then just on like the overall travel environment, are you seeing like any like kind of difference between the types of travel services offered in terms of what's more, I guess, active in offering deals, whether it's like flights or hotels?

We are not seeing any changes. It's still the same. Consumers in general, and particularly our travel enthusiast, they're looking for value. They're looking for amazing offers, and they're looking for experiences and they want to do something new. They are not looking for something boring. They are looking for locations that reward them, that are exciting for them. But most of all, they are really looking for great value, as I said, and that's where the Travelzoo membership comes in and offers them exactly that and offers them more opportunity to travel because that's what they would like.

Our next question comes from Steve Silver from Argus Research.

Holger, the presentation cites additional advertising revenues as a potential incremental value driver over time. I'm curious whether there's any color you can provide on your thinking just in terms of the time line for reaching some of the thresholds to reach that critical mass or whether you think that those opportunities might be either more near, immediate or longer term based on the current member acquisition rate?

In the past, we've seen a roughly time delay of 1 year. It's difficult to predict this, Steve, and that's why we didn't put a number on it. So we just illustrated on the slide as, obviously, if I have more members, if I have a bigger audience, I can increase my advertising fees. But right now, it's not something we are so focused on incredibly, probably more maybe 2026 or 2027, because right now, our main focus is really on getting the number of Club Members up and providing them a service that they absolutely do not want to give up on.

That's helpful. And one last one, if I may. There's been a lot of chatter, particularly in North America, just in terms of flights being delayed, whether it's the shutdown or a shortage of air traffic controls, all of those types of issues. Curious as to whether there is the risk of any capacity issues at these airport lounges, if there was an increase in flight cancellations, those types of things? Or whether like airport lounges are equipped to take on a higher number of potential people if flights are delayed at that kind of pace?

So far, we haven't heard about any issues or problems. Our members would certainly let us know. Well, Thanksgiving is at the end of November is the big travel period. So hopefully, all these travel issues will be resolved by then and people can travel safely and without too much interruption. But it's nice for our members to know that this service and this benefit exists when they need it.

Our last question comes from Ed Woo from Ascendiant Capital.

Yes, a little bit more on what you're seeing out in the travel environment with all the economic issues and stuff. Are you seeing any change in the consumer, either they want to travel spending down or traveling less? And also on the supply side, are you steering much from your hotel or travel providers that they are having issues filling seats with consumers or they have to lower their prices?

Last week, I read a report that there's increasing disparity between more affluent consumers who continue to travel and travel even more. And those really, really have to watch their budget. Luckily, our luckily, our members, Travelzoo members are very affluent. I mean you saw like a really high percentage of them that have incomes over $200,000. So our members are not cheap. They are not on the low income side. So they are more in the group of people who travel more. So as long as we provide them with excellent opportunities and with fantastic offers they will continue to travel.

Great. Are you hearing any concerns from the travel suppliers, either that they feel like they have to advertise more to fill their rooms? Or are there any concerns? Or do they feel optimistic heading into the holidays and next year?

We haven't heard anything that really changes how they are looking at it. I think they are more focused now on keeping occupancy rates high compared to the COVID period when it was just normal that the hotel was not busy. So yes, I mean, I would not say it goes much more beyond what we seasonally have seen in the past. But the economy in the U.S. particularly is still doing well, and let's see what happens in 2026.

As we said in the past, if we have more travel suppliers for example, hotels, as you say, that have trouble being full, they come to us and they will create offers for us. And now that we have disclosed user group that allows them to do this very discretely we are really positioned to be a great partner for them.

Okay. This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Great. Dear investors, thank you again for your time and support today. We look forward to speaking with you again next quarter. Have a great day.

This concludes today's Travelzoo Third Quarter 2025 Earnings Call and Webcast. You may disconnect your lines at this time, and have a wonderful day.