Q2 2026 TRAVELZOO Earnings Call

July 28, 2026

Speaker #1: Good morning and welcome to the TravelZoo Q2 2026 earnings call. Today's conference is being recorded. Currently all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be opened for your questions.

Speaker #1: If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 1 again.

Speaker #1: At any time, if you should need operator assistance, press star 0. 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.

Speaker #2: Good morning, and welcome to the Travelzoo second quarter 2026 earnings call. Today's conference is being recorded. Currently, all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be opened for your questions.

Speaker #1: 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.

Speaker #2: If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 1 again.

Speaker #1: 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.

Speaker #2: At any time, if you should need operator assistance, press star 0. 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.

Speaker #1: 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.

Speaker #1: Now it is my pleasure to turn the floor over to TravelZoo's global CEO, Holger Bartel, its Chair General Counsel and CEO of JAX Flight Club, Christina Talka, and its Financial Controller, North America, Jeff Hoffman.

Speaker #2: 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.

Speaker #1: Jeff will start with an overview.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: In constant currencies, revenue was 23.1 million. International conflicts negatively impacted all business segments. Management considered this a temporary effect. In Q2, we continued to invest significantly in growing club members.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Jeff, we'll start with an overview.

Speaker #3: 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.

Speaker #2: 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.

Speaker #3: 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.

Speaker #2: 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.

Speaker #3: In constant currencies, revenue was 23.1 million. International conflicts negatively impacted all business segments. Management considered this a temporary effect. In Q2, we continued to invest significantly in growing club members.

Speaker #2: 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.

Speaker #3: This led to a reported loss. The Q2 reported loss was $2.8 million, compared to a reported operating profit of $2.1 million in the prior year period.

Speaker #2: 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.

Speaker #3: Slide 5 explains that we decided to accelerate the shift toward recurring membership revenues by more quickly growing paying club members. On members has steadily increased, and we estimate further growth this year and in 2027.

Speaker #2: Slide 7 explains, as a reminder, that with subscription businesses, membership fee revenue is recognized readily over the subscription period, whereas acquisition costs are expensed as marketing costs immediately when incurred.

Speaker #3: 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.

Speaker #2: Slide 8 shows that marketing costs reduce reported quarterly EPS in the short term but are projected to drive better results in 2027 and beyond.

Speaker #3: 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.

Speaker #2: While marketing costs are 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.

Speaker #3: 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, as well as future membership fees and other revenues in Q3 and future periods.

Speaker #2: Advertising and commerce revenue was $18.2 million for Q2 2026. Revenue for membership fees increased to $5 million. Membership fees, which were more stable and predictable, are adding revenue and becoming a larger share which we anticipate to increase further.

Speaker #3: Slide 7 explains, as a reminder, that with subscription businesses, membership fee revenue is recognized evenly over the subscription period, whereas acquisition costs are expensed as marketing costs immediately when incurred.

Speaker #2: 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.

Speaker #3: Slide 8 shows that marketing costs reduce reported quarterly EPS in the short term, but are projected to drive better results in 2027 and beyond.

Speaker #2: On slide 11, you can see that our reported gap operating margin for Q2 was negative 12%. Accelerated growth of club members reduces operating margin in the short term.

Speaker #3: While marketing costs are 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.

Speaker #2: 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 of club members of TravelZoo occur in all key markets.

Speaker #3: Advertising and commerce revenue was $18.2 million for Q2 2026. Revenue for membership fees increased to $5 million. Membership fees, which were more stable and predictable, are adding revenue and becoming a larger share which we anticipate to increase further.

Speaker #2: Over time, we expect margins to return to previous levels or even exceed them. On slide 13, we provide information on non-gap operating profit and operating loss, as we believe it better explains how we evaluate financial performance.

Speaker #3: 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.

Speaker #2: Q2 26, non-gap operating loss was 2.1 million, compared to non-gap 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-gap financial information.

Speaker #3: 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.

Speaker #3: 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 of club members of Travelzoo occur in all key markets.

Speaker #2: 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.

Speaker #3: Over time, we expect margins to return to previous levels or even exceed them. On slide 13, we provide information on non-gap operating profit and operating loss as we believe it better explains how we evaluate financial performance.

Speaker #2: 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.

Speaker #2: We expect our cash balances to rebalance 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 readily over the subscription period of 12 months and as we acquire new members and as more legacy members become club members.

Speaker #3: Q2 26, non-gap operating loss was 2.1 million, compared to non-gap 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-gap financial information.

Speaker #3: 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.

Speaker #2: 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.

Speaker #2: Now I turn the discussion over to Holger.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: We expect our cash balances to rebalance next quarter. Now, looking ahead to Q3 2026, we expect year-over-year revenue growth. We also expect revenue growth in subsequent quarters as membership fees revenue is recognized evenly over the subscription period of 12 months, and as we acquire new members, and as more legacy members become club members.

Speaker #3: 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.

Speaker #3: 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-value club offers, our global team negotiates and vets them rigorously.

Speaker #3: Over time, we expect profitability to increase as recurring membership fee revenue will be recognized. In the short term, fluctuations in reported net income are likely.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Please turn to slide 17. Membership empowers travelers to live their life as a travel enthusiast to the fullest. While respecting different cultures. Membership provides access to high-quality and high-value club offers, our global team negotiates and vets them rigorously.

Speaker #3: For example, a trip to Rome at a luxury hotel with flights from the UK for £249 per person, a vacation in Hawaii with three nights at the Hilton Resort, including flights for £499.

Speaker #3: 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.

Speaker #3: 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: £89 per person, and it even includes dinner.

Speaker #3: It provides 24/7 complimentary assistance wherever you travel. Culinary journeys, curated for 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.

Speaker #3: Or a 4th example, the Mexico San Regis in Punta Mita, where we have an ocean view escape for two with butler service that saves TravelZoo members over £2,000 over the regular price.

Speaker #3: For example, a trip to Rome at a luxury hotel with flights from the UK for $249 per person, a vacation in Hawaii with three nights at the Hilton Resort, including flights for $499.

Speaker #3: 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.

Speaker #3: Any flight that you booked anywhere on an airline website or any travel agent wherever in the world you are, you benefit from this lounge access.

Speaker #3: 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: $89 per person, and it even includes dinner.

Speaker #3: 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.

Speaker #3: Or a fourth example: the Mexico St. Regis in Punta Mita, where we have an ocean view escape for two with butler service that saves Travelzoo members over $2,000 off the regular price.

Speaker #3: 90% of our members state that they are open to new destinations and travel ideas. Almost 70% plan to take two or more international trips in 2026.

Speaker #3: Slide 19 shows the worldwide complimentary lounge access in case of flight delays. It is perfect for travel enthusiasts, and it's good on any flight that you take—not only on trips that you booked with Travelzoo, but also on any flights that you booked anywhere, on an airline website, or through any travel agent. Wherever in the world you are, you benefit from this lounge access.

Speaker #3: And information about their medium household income shows that they have the means to do so. Especially given the outstanding value of our club offers.

Speaker #3: 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.

Speaker #3: Slide 20 provides information about the sentiment and demographics of our members. Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences.

Speaker #3: 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 check flight club subscription revenue, and launch TravelZoo Meta with discipline.

Speaker #3: Ninety percent of our members state that they are open to new destinations and travel ideas. Almost 70% plan to take two or more international trips in 2026.

Speaker #3: Now, Christina will provide an update on TravelZoo Meta and check flight club.

Speaker #3: And information about their median household income shows that they have the means to do so, especially given the outstanding value our club offers.

Speaker #4: We expect the first TravelZoo Meta experiences to become available in Q3 2026. Access to TravelZoo Meta will be exclusive benefit of TravelZoo club membership.

Speaker #4: 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.

Speaker #3: 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 launch Travelzoo Meta with discipline.

Speaker #1: At this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 1 again.

Speaker #1: Please limit yourself to one question and one follow-up. Thank you. Our first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Speaker #3: Now, Christina will provide an update on Travelzoo Meta and Jack's Flight Club.

Speaker #1: Your line is open.

Speaker #2: Okay. Thanks very much. 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 US, we're seeing more people traveling.

Speaker #2: We expect the first Travelzoo Meta experiences to become available in Q3 2026. Access to Travelzoo Meta will be exclusive benefit of Travelzoo club membership.

Speaker #2: 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.

Speaker #2: 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?

Speaker #4: At this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 1 again.

Speaker #2: What's your sense that going on there?

Speaker #3: I see you also 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 somewhere cutting back, somewhere changing destinations, and it just affected the sentiment among our members.

Speaker #4: Please limit yourself to one question and one follow-up. Thank you. Our first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Speaker #4: Your line is open.

Speaker #5: Okay. Thanks very much. 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 US, we're seeing more people traveling.

Speaker #3: 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.

Speaker #5: 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?

Speaker #2: 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 general way, like we're seeing here with the conflicts?

Speaker #5: What's your sense of what's going on there?

Speaker #3: I see you also 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.

Speaker #3: Yeah, 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're going to.

Speaker #3: 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.

Speaker #3: 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.

Speaker #2: Okay. Thank you very much.

Speaker #1: Our next question comes from Michael Kupinski from Noble Capital Markets. Please go ahead. Your line is open.

Speaker #5: 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 the conflicts?

Speaker #5: All right. Thank you for taking my questions. 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.

Speaker #5: 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?

Speaker #3: Yeah, 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're going to.

Speaker #3: 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.

Speaker #5: Okay. Thank you very much.

Speaker #4: Our next question comes from Michael Kupinski from Noble Capital Markets. Please go ahead. Your line is open.

Speaker #3: We spent $4.6 million in marketing this quarter, as you see, substantially more. But on the other hand, we had more trials start this quarter than at any time since we introduced the membership.

Speaker #6: All right. Thank you for taking my questions. I 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.

Speaker #3: 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.

Speaker #6: 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 for marketing expenses for 2027?

Speaker #3: The trial is for $1 in the US. 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: At a tax benefit and divided by the 10.5 million outstanding shares, it's a difference in EPS of 40 cents. So why would we not go for the earnings and report 20 cents and instead report a loss?

Speaker #3: We spent $4.6 million in marketing this quarter—substantially more, as you say—but on the other hand, we had more trials start this quarter than at any time since we introduced the membership.

Speaker #3: 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?

Speaker #3: This will result in more club memberships going forward and more revenue going forward. Yes, it doesn't generate a lot of revenue this quarter because most of these members start with a trial.

Speaker #3: 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.

Speaker #3: The trial is for $1 in the US for 30 days, so revenue will only materialize over time. At the same time, we have to expense the $4.6 million right away.

Speaker #3: 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.

Speaker #3: But we will stay conservative. We will not spend more than this target that we have set ourselves. But anything that we spend below the target, it's just the right thing to do.

Speaker #3: At 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 the loss?

Speaker #3: 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.

Speaker #5: Yeah. And just to be clear, Holger, that $1.20 then is just illustrative for 2027.

Speaker #3: 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?

Speaker #3: 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 60 cents this year.

Speaker #3: 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.

Speaker #3: We will not spend more than this target that we have set for ourselves. But anything that we spend below the target, it's just the right thing to do.

Speaker #5: Gotcha. 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?

Speaker #3: 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.

Speaker #6: Yeah. And just to be clear, Holger, that $1.20 is just illustrative for 2027.

Speaker #3: It's not a projective 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 60 cents this year.

Speaker #3: We don't. 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.

Speaker #3: 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.

Speaker #3: Marketing investments as I explained, they are smart. They are right thing to do. Have a larger impact on EPS than the temporary reduction of revenue that we saw in Q2.

Speaker #5: Gotcha. Thank you for answering my questions.

Speaker #6: Gotcha. And 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?

Speaker #1: Our next question comes from Patrick Scholl from Barrington Research. Please go ahead. Your line is open.

Speaker #2: Hi. Just maybe some follow-up questions on the marketing investments. Can you maybe sort of break out how you kind of classify those between like say the marketing 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?

Speaker #3: 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.

Speaker #3: Marketing investments, as I explained, are smart. They're the right thing to do. They have a larger impact on EPS than the temporary reduction of revenue that we saw in Q2.

Speaker #3: 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.

Speaker #6: Gotcha. Thank you for answering my questions.

Speaker #3: 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.

Speaker #4: Our next question comes from Patrick Scholl from Barrington Research. Please go ahead. Your line is open.

Speaker #5: Hi, just maybe some follow-up questions on the marketing investments. Can you maybe sort of break out how you kind of classify those between, like, say, the marketing sales expenses versus what goes into cost of revenue?

Speaker #3: 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.

Speaker #3: 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.

Speaker #5: And what are some of the drivers within that marketing investment, to either secure revenue or secure membership growth or retention of members?

Speaker #3: So that's why you're seeing that.

Speaker #3: 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.

Speaker #2: Okay. So the acquisition cost also goes into cost of revenue. That's is that what you're saying?

Speaker #3: Indirectly because some of the offers we are creating for member acquisition are 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.

Speaker #3: And as I said, we could have just not spent anything this quarter. We would have the same revenue, but we would obviously have a positive EPS.

Speaker #3: 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 grow the member base, and to convert legacy members into club members.

Speaker #3: But they are not expenses for acquiring new members. Sorry if that was misunderstood.

Speaker #2: Okay. And then just on advertising and commerce, can 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 into match that increase in travel or interest?

Speaker #3: 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.

Speaker #5: Okay, so the acquisition cost also goes into cost of revenue. Is that what you're saying?

Speaker #3: Indirectly, because some of the offers we are creating for member acquisition are offers that we then turn into club offers. They still are very profitable, but the way we account for them is that a certain amount of the expenses go into the cost of revenues.

Speaker #3: Yeah. It decreased in Q2, as I mentioned, but it improved throughout the quarter. We saw better results in June and now we're seeing better, even better results again in July.

Speaker #3: 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.

Speaker #3: But they are not expenses for acquiring new members. Sorry if that was misunderstood.

Speaker #3: So I would say a quarter ago.

Speaker #2: Okay. Thank you.

Speaker #5: Okay. And then, just on advertising and commerce, can you maybe just sort of break out the commerce revenue and what is unrelated from club offers, and just the overall advertising environment? Are advertisers coming back in to match that increase in travel or interest?

Speaker #1: Our next question comes from Steve Silver from Argus Research. Please go ahead. Your line is open.

Speaker #4: Thanks, operator. And thanks for taking my questions. Holger, it sounded like you just said that there's been no marketing spending on club member renewals to date.

Speaker #4: 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.

Speaker #3: Yeah, it decreased in Q2, as I mentioned, but it improved throughout the quarter. We saw better results in June, and now we're seeing even better results again in July.

Speaker #3: That's correct.

Speaker #3: 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.

Speaker #4: 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 pay down of merchant payables.

Speaker #4: But then the prepared remarks said that you expect cash to rebound in this current quarter. So I just love your thoughts in terms of the current state of the balance sheet.

Speaker #5: Okay. Thank you.

Speaker #4: Our next question comes from Steve Silver from Argus Research. Please go ahead, your line is open.

Speaker #4: Particularly as it might relate to future share repurchases.

Speaker #7: Thanks, operator, and thanks for taking my questions. Holger, it sounds like you just said that there's been no marketing spending on club member renewals to date.

Speaker #3: 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 into three and we're working on various actions to increase that cash balance.

Speaker #7: So I just wanted to make sure I heard that correctly, and whether that means that all renewals that have come through to date have been organic and have not required any further incentives to get members to renew.

Speaker #3: 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.

Speaker #3: That's correct.

Speaker #7: Okay, great. 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.

Speaker #3: It was just a result of the two items that you quoted.

Speaker #4: Great. Thanks very much.

Speaker #7: 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.

Speaker #1: Our last question comes from Ed Wu from Ascendiant Capital. Please go ahead. Your line is open.

Speaker #3: Yes. Thank you for taking my question. My question is the margins on your club members is it how profitable it is 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?

Speaker #3: 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 into Q3, and we're working on various actions to increase that cash balance.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: It was just a result of the two items that you quoted.

Speaker #3: 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.

Speaker #7: Great. Thanks very much.

Speaker #4: Our last question comes from Ed Wu from Ascendiant Capital. Please go ahead. Your line is open.

Speaker #3: 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.

Speaker #3: Yes, thank you for taking my question. My question is about the margins on your club members—specifically, how profitable is it? And as you start to add more benefits, such as club access for delayed flights and other perks, is that going to impact your margin for club members?

Speaker #3: 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.

Speaker #3: So yes, it is an expense, but it's not a substantial expense.

Speaker #3: 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.

Speaker #4: 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 income, ability to travel, and also renewal and sign-up rates?

Speaker #3: We also have new club members that come because of word of mouth. The only major expense is really at the beginning for the ones we pay for—the member acquisition cost.

Speaker #3: 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.

Speaker #3: 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 US is that people in Europe have more vacations.

Speaker #3: 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.

Speaker #3: 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 US and Canada are offers at five-star hotels.

Speaker #3: So yes, it is an expense, but it's not a substantial expense.

Speaker #7: 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 renewal and sign-up rates?

Speaker #3: So that shows us that the income levels in the US are very much supporting these high-end offers like this and reaches that I spoke about earlier.

Speaker #3: Yes, absolutely. Their 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 US is that people in Europe have more vacation time, so their trips are a bit longer.

Speaker #4: Great. Thanks for answering my questions. And I wish you good luck.

Speaker #3: Thanks. Sure.

Speaker #1: 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.

Speaker #3: 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.

Speaker #3: They spend less per day. Americans, on the other hand, when they travel, like to splurge. So the most successful offers—and the most sought-after offers—in the US and Canada are offers at five-star hotels.

Speaker #3: So that shows us that the income levels in the US are very much supporting these high-end offers like this and reaches that I spoke about earlier.

Speaker #7: Great. Thanks for answering my questions, and I wish you good luck.

Speaker #3: Thanks. Sure.

Speaker #4: 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.

Speaker #3: 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.

Speaker #4: This concludes Travelzoo's second quarter 2026 earnings call webcast. You may now disconnect your lines at this time, and have a wonderful day.

Speaker #2: If we took the holiday, just some time to celebrate—just one day out of life—it would be so nice. Everybody says the words: we're going to have a celebration.

Speaker #2: All across the world, in every nation, it's time for the good times. Forget about the bad times. Oh yeah, one day to come together to release the pressure.

Speaker #2: We need a holiday. If we took the holiday—just some time to celebrate—come on, let's celebrate. One day out of life, holiday. It would be so nice.

Speaker #2: You can turn this world around and bring back all of those happy days. Put your troubles down—it's time to celebrate. Let love shine.

Operator: Together to release the pressure. We need a holiday. If we took a holiday. Some time to celebrate. Come on, let's celebrate. One day out of life. Holiday. It would be. It would be so nice. We can turn this world around. Bring back all of those happy days. Put your troubles down. It's time to celebrate. Let love shine. We will find. A way to come together. Make things better. We need a holiday. We took a holiday. Holiday. Some time to celebrate. Come on, let's celebrate. One day out of life. Just one day out of life. It would be. It would be so nice. Come on, let's celebrate. We have got to get together. Holiday. Celebrate. Come on, let's celebrate. Holiday. Just one day out of life. Celebrate. It would be so nice. Holiday. Celebrate.

Operator: Holiday. Celebrate. Holiday. We've got to get together. Holiday. Take some time to celebrate. Holiday. Just one day out of life. Celebrate. It would be so nice. Holiday. Holiday. Celebration. Holiday. Come together in every nation. Holiday. Holiday. Celebration. Holiday. Come together in every nation. Holiday. Holiday. Celebrate. Holiday. Celebrate. If we took a holiday. Some time to celebrate. Just one day out of life. It would be. It would be so nice. Everybody said the word. We're gonna have a celebration. All across the world. In every nation. It's time for the good times. Forget about the bad times. One day to come together. To release the pressure. We need a holiday. If we took a holiday. Some time to celebrate. Come on, let's celebrate. One day out of life. Holiday. It would be. It would be so nice. We can turn this world around.

Operator: Good morning, welcome to the Travelzoo Q2 2026 earnings call. Today's conference is being recorded. Currently, all callers have been placed in a listen-only mode, following management's prepared remarks, the call will be opened for your questions. If you would like to ask a question at that time, please press star one on your telephone keypad. If you need to remove yourself from the queue, press star one again. At any time, if you should need operator assistance, press star zero. 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.

Operator: 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.

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'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 four. 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 considered 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 five explains that we decided to accelerate the shift toward recurring membership revenues by more quickly growing paying club members.

Jeff Hoffman: 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 six. 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's an attractive return on investment. The member pays, in the US 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.

Jeff Hoffman: Slide seven 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 eight shows that marketing costs reduce reported quarterly EPS in the short term, but are projected to drive better results in 2027 and beyond. While marketing costs are negatively impact EPS this year, we now estimate for 2027 EPS of $1.20. On slide nine, we break down our main categories of revenue. Advertising and commerce revenue was $18.2 million for Q2 2026. Revenue for 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.

Jeff Hoffman: On slide 11, you can see that our reported GAAP operating margin for Q2 is -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 of 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 2026 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.

Jeff Hoffman: As of 30 June 2026, consolidated 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 does affect cash significantly. We expect our cash balances to rebound next quarter. 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. I 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 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 highly 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.

Holger Bartel: 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 UK 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 The Musical. 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 it even includes dinner. A fourth example, the St. Regis Punta Mita Resort, where we have an ocean view escape for 2 with butler service that saves Travelzoo members over $2,000 over the regular price.

Holger Bartel: Slide 19 shows the worldwide complimentary lounge access in case of flight delays. It is perfect for the travel enthusiast, and it's good on any flight that you take. Not only on trips that you book with Travelzoo, any flights 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 two or more international trips in 2026. Information about their medium 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.

Holger Bartel: 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. Launch Travelzoo Meta with discipline. Now Christina will provide an update on Travelzoo Meta and Jack's Flight Club.

Christina Sindoni Ciocca: 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.

Christina Ciocca: 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: At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star one again. Please limit yourself to one question and one follow-up. Thank you. Our first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead. Your line is open.

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

Holger Bartel: Hi, Theo. 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, 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.

Theodore O'Neill: 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 the conflicts?

Holger Bartel: They are very specific. They are in 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.

Theodore O'Neill: Okay. Thank you very much.

Operator: Our next question comes from Michael Kupinski from Noble Capital Markets. Please go ahead. Your line is open.

Michael Kupinski: All right. Thank you for taking my questions. I 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? 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?

Holger Bartel: 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 see, substantially more. On the other hand, we had more trials 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 US for 30 days. Revenue will only materialize over time. At the same time, we have to expense the $4.6 million right away. That explains why we have this negative EPS this quarter.

Holger Bartel: Look, $4.6 million with minimal revenue this quarter, you can do the math yourself. Add the tax benefit and divide it by the 10.5 million outstanding shares, it's a difference in EPS of $0.40. Why would we not go for the earnings and report $0.20 and instead report a loss? 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. We will stay conservative. We will not spend more than this target that we have set ourselves.

Holger Bartel: Anything that we spend below the 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.

Michael Kupinski: Yeah. Just to be clear, Holger, that $1.20 then is just illustrated for 2027.

Holger Bartel: It's not a projected EPS. As the slide says, it's the incremental difference in EPS that we are seeing. Indeed, we see the decrease incrementally of $0.60 this year. 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.

Michael Kupinski: Got you. 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?

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

Michael Kupinski: Got you. Thank you for answering my questions.

Operator: Our next question comes from Patrick Sholl from Barrington Research. Please go ahead. Your line is open.

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

Holger Bartel: 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. 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. 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. That's why you're seeing that.

Patrick Sholl: Okay. The acquisition cost also goes into cost of revenue. Is that what you're saying?

Holger Bartel: Indirectly, because some of the offers we are creating for member acquisition are 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 go into the cost of revenues. They are not expenses for acquiring new members. Sorry if that was misunderstood.

Patrick Sholl: Okay. Just on advertising and commerce, could you maybe just break out the commerce revenue and what is unrelated from club offers and just the overall advertising environment if advertisers are coming back in to match that increase in traveler interest?

Holger Bartel: Yeah, it decreased in Q2, as I mentioned. It improved throughout the quarter. We saw better results in June. Now we are seeing even better results again in July. We are seeing more of the advertisers lifting their hesitations, also we are seeing more members book more offers and travel more than before, I would say, a quarter ago.

Patrick Sholl: Okay. Thank you.

Operator: Our next question comes from Steve Silver from Argus Research. Please go ahead. Your line is open.

Steve Silver: Thanks, operator, and thanks for taking my questions. Holger, it sounded like you just said that there's been no marketing spending on club member renewals to date. I just wanted 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.

Holger Bartel: That's correct.

Steve Silver: Okay, great. I'd love to hear your thoughts on the current state of the balance sheet. Obviously, cash was lower from share repurchases and the pay-down of merchant payables. The prepared remarks said that you expect cash to rebound in this current quarter. 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.

Holger Bartel: Also correct. We would like to see 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. 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 two items that you quoted.

Steve Silver: Great. Thanks very much.

Operator: Our last question comes from Ed Wu from Ascendiant Capital. Please go ahead. Your line is open.

Operator: Our last question comes from Ed Woo from Ascendiant Capital. Please go ahead. Your line is open.

Ed Wu: Yes. Thank you for taking my question. My question is, the margins on your club members, how profitable is it? 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?

Ed Woo: Yes. Thank you for taking my question. My question is, the margins on your club members, how profitable is it? 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?

Holger Bartel: The major expense for club members. 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 is 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. Yes, it is an expense, but it is not a substantial expense.

Ed Wu: Great. 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 renewal and sign-up rates?

Ed Woo: Great. 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 renewal and sign-up rates?

Holger Bartel: 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 US 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. The most successful offers and the most sought-after offers in the US and Canada are offers at five-star hotels. That shows us that the income levels in the US are very much supporting these high-end offers like the St. Regis that I spoke about earlier.

Ed Wu: Great. Thanks for answering my questions, I wish you good luck.

Ed Woo: Great. Thanks for answering my questions, I wish you good luck.

Holger Bartel: Thank you, Ed.

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

Operator: This concludes Travelzoo's Q2 2026 earnings call webcast. You may now disconnect your lines at this time, have a wonderful day.

Operator: If we took a holiday. Took some time to celebrate. Just one day out of life. It would be so nice. Everybody spread the word. We're going to have a celebration. All across the world. In every nation. It's time for the good times. Forget about the bad times. Oh, yeah. One day to come together. To receive celebration. We need a holiday. If we took a holiday. Ooh. Some time to celebrate. Come on, let's celebrate. One day out of life. Holiday. It would be so nice. We can turn this world around. Bring back all of those happy days. Put your troubles down. It's time to celebrate. Let love shine. We will find. A way to come together. Make things better. We need a holiday. If we took a holiday. A holiday

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