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Operator: 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.
Jeff Hoffman: 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.
Holger Bartel: 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.
Christina Ciocca: 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: [Operator Instructions] We'll take our first question from Theodore O'Neill from Litchfield Hills Research.
Theodore O'Neill: 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.
Holger Bartel: 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.
Theodore O'Neill: And looking at the membership numbers, which are clearly increasing here, is that -- how does that reconcile with your expectations for that growth?
Holger Bartel: 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.
Operator: Our next question comes from Michael Kupinski from NOBLE Capital Markets.
Michael Kupinski: 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?
Holger Bartel: 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.
Christina Ciocca: 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.
Holger Bartel: 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.
Michael Kupinski: 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?
Holger Bartel: 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.
Operator: Our next question comes from Patrick Sholl from Barrington Research.
Patrick Sholl: 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?
Holger Bartel: Really good question. Christina, do you want to respond to that one?
Christina Ciocca: 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.
Patrick Sholl: 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...
Christina Ciocca: 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.
Holger Bartel: 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.
Patrick Sholl: 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?
Holger Bartel: 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.
Patrick Sholl: 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?
Holger Bartel: Yes.
Patrick Sholl: 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?
Holger Bartel: 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.
Operator: Our next question comes from Steve Silver from Argus Research.
Steven Silver: 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?
Holger Bartel: 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.
Steven Silver: 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?
Holger Bartel: 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.
Operator: Our last question comes from Ed Woo from Ascendiant Capital.
Edward Woo: 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?
Holger Bartel: 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.
Edward Woo: 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?
Holger Bartel: 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.
Operator: 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.
Holger Bartel: 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.
Operator: 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.