[Management View]
Travelzoo reported consolidated revenue of $23.9 million for Q2 2025, reflecting a 13% increase YoY. The company emphasized strategic priorities such as aggressive subscriber acquisition and marketing investments to drive future growth. The average acquisition cost per full-paying club member rose from $28 in Q1 to $38 in Q2, with immediate payback from membership fees and transaction revenue.

[Outlook]
Management expects continued year-over-year revenue growth in Q3 2025, with acceleration in subsequent quarters due to ratable recognition of membership fees. Profitability is anticipated to substantially increase over time as recurring membership fee revenue accumulates, despite short-term fluctuations in reported net income.

[Financial Performance]
Travelzoo's GAAP operating profit for Q2 2025 was $2.1 million, representing 9% of revenue, down from $4 million in the prior year. Non-GAAP operating profit was $2.4 million, or 10% of revenue, compared to $4.8 million in the prior year. The company cited higher marketing spend as the main reason for reduced operating profit and EPS.

[Q&A Highlights]
Question 1: I'm trying to understand the dynamics of profitability going forward. Does the improvement mean acquisition costs go lower, revenue goes higher, or both?
Answer: In Q2, we had marketing expenses of $2.7 million for membership acquisition. Revenue from these members will continue in future quarters without additional acquisition costs. This drives overall profitability as revenue from past acquisitions accumulates.

Question 2: What is the expected pace of club offers?
Answer: There are several per week, usually a few dozen. Press releases show examples of offers released over a period, not every new offer.

Question 3: Can you address the cost of revenues in the quarter?
Answer: We purchased distressed travel inventory at highly discounted prices to create strong club offers, which are important for member acquisition and conversion. These expenses are classified as cost of revenue.

Question 4: Should we look for more normalized levels of cost of revenue in the second half of the year?
Answer: It depends on opportunities. We expect to continue seeing these opportunities due to weaker demand in the travel industry.

Question 5: Are favorable dynamics in marketing spend still evident in the third quarter?
Answer: As long as acquisition costs remain favorable, we will continue to invest in member acquisition. The market will drive how much we can spend, making it difficult to predict exact spending.

Question 6: Can you talk about the strategy in Europe, particularly the focus on acquiring subscribers?
Answer: We acquired more club members in North America, but member acquisition in the UK went extremely well, driving income in Europe lower due to increased acquisition efforts.

Question 7: Are there plans for a premium subscription level?
Answer: We are not looking at it right now but may evaluate increasing the $40 annual fee for 2026 based on member feedback.

Question 8: Are you limiting subscriber acquisition costs to the annual membership fee?
Answer: We will limit acquisition activity based on ROI. If costs exceed $58, we will slow down or discontinue certain channels. Members value different benefits, with travel enthusiasts appreciating unique experiences and frequent travelers valuing lounge access.

Question 9: Have you learned anything about retaining subscribers?
Answer: Reliable renewal rate data will be available starting in 2026, as most current members converted in late 2024.

Question 10: What are you seeing in the travel industry in the US and Europe?
Answer: Prices for flights and hotels are coming down, indicating lower demand. This allows us to develop strong offers. We have not noticed affluent members trading down or spending less.

Question 11: Are travel suppliers concerned about weakening trends heading into 2026?
Answer: The environment is insecure, with short-term thinking prevalent. No long-term predictions are being made.

[Sentiment Analysis]
Analysts and management maintained a positive tone, focusing on strategic investments and subscriber growth. Management expressed confidence in the long-term profitability driven by recurring membership fees.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------------|---------------|---------------|
| Consolidated Revenue | $23.9 million | $21.2 million |
| GAAP Operating Profit | $2.1 million | $4 million |
| Non-GAAP Operating Profit | $2.4 million | $4.8 million |
| Member Acquisition Cost | $38 | $28 |
| Cash Position | $11.2 million | $10 million |
| Cash Flow from Operations | $1.3 million | $1 million |
| Share Repurchases | 172,088 | 150,000 |

[Risks and Concerns]
The main risks include fluctuations in reported net income due to immediate expensing of acquisition costs and potential challenges in maintaining favorable acquisition costs. The travel industry's softness may impact future opportunities and demand.

[Final Takeaway]
Travelzoo's Q2 2025 earnings call highlighted significant revenue growth driven by strategic subscriber acquisition and marketing investments. Despite short-term margin compression, management remains optimistic about long-term profitability through recurring membership fees. The company is well-positioned to leverage its global reach and strong supplier relationships to offer unique travel experiences to its affluent and active members. Investors should monitor the effectiveness of acquisition strategies and industry trends impacting future performance.