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Good morning and welcome to the Travel Zoo 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. 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. 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. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's forms 10-K and 10-Q, and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of the conference call will be made available on the company's investor relations website at TravelZoo.com forward slash IR. Now, it is my pleasure to turn the floor over to TravelZoo's global CEO, Holger Bartel, its chair, general counsel, and CEO of Jack's Flight Club, Christina Ciocca, and its financial controller, North America, Jeff Hoffman. Jeff will start with an overview.

Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our chief accounting officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our investor relations site at TravelZoo.com forward slash 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 5 explains that we decided to accelerate the shift toward recurring membership revenues by more quickly growing paying club members. On the right side, you see the number of club members has steadily increased and we estimate further growth this year and in 2027. Please turn to slide 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. Slide 7 explains, as a reminder, that with subscription businesses, Membership fee revenue is recognized relatively over the subscription period, whereas acquisition costs are expensed as marketing costs immediately when incurred. 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. 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. On slide 11, you can see that our reported gap operating margin for Q2 is negative 12%. Accelerated growth of club members reduces operating margin in the short term. As the number of membership renewals, which do not have acquisition expenses, grows, operating margins are expected to become more attractive over time. Slide 12 shows that investments 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. Key 226, non-GAAP operating loss was 2.1 million compared to non-GAAP operating profit of 2.4 million in the prior year period. Slide 14 provides information about the items that are excluded from the calculation of non-GAAP financial information. Please turn to slide 15. As of June 30, 2026, consolidated cash, cash equivalents, and restricted cash was $7.6 million. Our cash balance decreased, but not because of increased member acquisition. We reduced merchant payables by $2.7 million and repurchased $1.9 million of shares of our common stock. The increase in marketing doesn't affect cash significantly. We expect our cash balances to rebound next quarter. Now looking ahead, for Q3, 2026, we expect year over year revenue growth. We also expect revenue growth in subsequent quarters as membership fees revenue is recognized readily over the subscription period of 12 months and as we acquire new members and as more legacy members become club members. Over time, we expect profitability to increase as recurring membership fees Revenue will be recognized. In the short term, fluctuations in reported net income are likely. Now I turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage Travel Zoo's global reach, trusted brand, and our strong relationships with top travel suppliers to negotiate more club offers for club members. Travel Zoo members are affluent, active, and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travel Zoo 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 as a travel enthusiast to the fullest while respecting different cultures. Membership provides access to high quality and high valuable club offers Our global team negotiates and vets them rigorously. Club offers cannot be found anywhere else. Membership also provides complimentary access to airport lounges worldwide in case of flight delays. In Q1, 2026, we launched in partnership with Allianz, the first travel enthusiast hotline. It provides 24 seven 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 £249 per person. A vacation in Hawaii with three nights at the Hilton Resort including flights for $499. One of the hottest musicals in London right now is Paddington. It's very difficult to get tickets, but travel-thru club members who go to London and travel there, we have a deal for you. 89 pounds per person, and it even includes dinner. Or a fourth example, the Mexico San Regis in Punta Mita, where we have an ocean view escape for two with butler service that saves travel-thru members over $2,000 over the regular price. Slide 19 shows the worldwide complimentary lounge access and cable 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 booked with travel, so any flights that you booked 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. Travels with love 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. And information about their median household income shows that they have the means to do so. especially giving the outstanding value of our club offers. Slide 22 provides an overview of management's focus. We are working to grow the number of paying members and accelerate revenue growth by converting legacy members and adding new club members. Retain and grow our profitable advertising business from the popular top 20 product, accelerate revenue growth which drives future profits in spite of temporary lower EPS, GrowJex Flight Club subscription revenue, and launch TravelZoo Meta with discipline. Now Christina will provide an update on TravelZoo Meta and Jax Flight Club.

We expect the first TravelZoo Meta experiences to become available in Q3 2026. Access to TravelZoo Meta will be an exclusive benefit of TravelZoo Club membership. For Jeff's flight club to align with Travel Zoo 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.

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.

Okay. Thanks very much. So, 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 U.S., we're seeing more people traveling. So are they spending less money? Is it a reduction in purchasing power? Are they... We definitely saw travelers to be more hesitant to book trips.

Some were cutting back, some were changing destinations, and it just affected the sentiment among our members and also among the advertisers who became a bit more careful. That trend already changed a bit towards June and today we see more people traveling and we definitely see this sentiment decreasing, which is why we said we look at this as a temporary situation and advertising revenues increasing again in the future.

And while we're on the subject, what about the fires in Spain and France?

is that going to have an impact do you think and in sort of a general way like we're seeing here it with the conflicts they are very specific they are in very very specific areas that are not major destinations for our members from what I remember I don't think we have promoted offers to these destinations but sure it just makes people more aware that they have to think about where they want to travel and and then just potentially change the destination where they're going to. Okay. Thank you very much.

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

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. 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 marketing expenses for 2027?

So look, as Jeff explained earlier, we made a very decisive shift this quarter to invest more in marketing and acquiring members because it's the right thing to do. We spent 4.6 million in marketing this quarter, as you see, substantially more. But 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. so revenue will only materialize over time and at the same time we have to expense the 4.6 million right away that explains why we have this negative EPS this quarter but look 4.6 million with minimal revenue this quarter you can do the math yourself at the tax benefit and divide it by the 10.5 million outstanding shares it's a difference in EPS of 40 cents so why would we not go for the burnings and report 20 cents and instead report loss because it's the right thing to do we would like to shift more aggressively into memberships and into membership revenue the question what is the level as we explained as long as our investments provide positive ROI and a relatively quick payback we will continue to invest at these levels to what level that will increase or decrease is simply determined by market conditions. But we will stay conservative. We will not spend more than this target that we have set ourselves. But anything that we spend below 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.

Yeah, and just to be clear, Holger, that $1.20 then is just illustrative for 2027.

It's not a projected EPS. It's the, as the slide says, it's the incremental difference in EPS that we are seeing. So we see, indeed, we see the decrease incrementally of 60 cents this year. And on the other hand, because we see the revenue coming in with no marketing expenses next year, because a lot of these people will renew their memberships, we will see an incremental increase of $1.20 next year just from that investment.

Gotcha. And this is 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 or May or weaker advertising demand or even changes in conversion rates?

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

Gotcha. Thank you for answering my questions.

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

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

Almost all of the 4.6 million in marketing expenses are targeted towards increasing the number of members. We are not spending any money on retention. And as I said, we could have just not spent anything this quarter. We would have the same revenue, but we would have obviously a positive EPS. 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 temporary higher cost of revenue, which you also asked about. So that's why you're seeing that.

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

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. But they are not expenses for acquiring new members. Sorry if that was misunderstood.

Okay, and then just on advertising and commerce, you know, continue to sort of break out like the commerce revenue and what is sort of unrelated from club offers and just the overall advertising environment advertisers are coming back in to match that increase in traveler interest.

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. 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.

Okay, thank you.

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

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, so 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. That's correct.

Okay, great.

And so I'd love to hear your thoughts on the current state of the balance sheet. Obviously, cash was lower from share repurchases and the pay down of merchant payables. 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, particularly as it might relate to future share repurchases.

also correct we would like to see the balance the cash balance be higher it's a bit too low at the end of Q2 and it will increase into Q3 and we're working on various actions to increase that cash balance but it's important to understand that decrease is not an effect of our increased marketing spend because the marketing spend comes back quickly within a couple of months it was just a result of the two items that you quoted Great, thanks very much.

Our last question comes from Ed Wu from Ascendant Capital. Please go ahead, your line is open.

Thank you for taking my question. My question is the margins on your club members. How profitable is it? And as you start to add more benefits such as the club access for delayed flights and other benefits, Is that going to impact your margin for club members?

The major expense for club members, I mean, not all club members are acquired via paid marketing, of course. We also have legacy members that convert. We have also new club members that come because word of mouth. The only major expenses we get at the beginning for the ones we pay for, the member acquisition costs, 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. So yes, it is an expense, but it's not a substantial expense.

Great. And then my last question is, you know, 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, you know, either income, ability to travel and also renew and sign up rates?

Yes, absolutely. The common theme is that they all love to travel. That's why we call ourselves travel enthusiasts. There's no difference there. In general, I would say the only difference you see in 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. So the most successful offers and the most sought after offers in the US and Canada are offers at five star hotels. So that shows us that the income levels in the U.S. are very much supporting these high end offers like this and reaches that I spoke about earlier.

Great. Thanks for answering my questions and I wish you good luck. Thank you, Ed.

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

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

This concludes Travel Zoo's second quarter 2026 earnings call webcast. You may now disconnect your lines at this time and have a wonderful day.

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 Oh yeah, one day to come together to live this