Good morning, and welcome to Travelzoo’s First 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 open 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, please press star zero. The company would like to remind you that all statements made today during this conference call and presented in the slides that are not statements of historical facts, constitutes 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 Form 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of this conference call will be made available on the company's investor relations website at travelzoo.com/ir. Now it is my pleasure to turn over to Travelzoo's Global CEO, Holger Bartel, its Chair, Chief Membership Officer, and General Counsel, and CEO of Jack's Flight Club, Christina Ciocca, and its Financial Controller, North America, Jeff Hoffman. Jeff will start with an overview. Jeff, you may begin.
Excuse me. Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun Qi, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our investor relations site at travelzoo.com/ir. Let's begin with slide four. Revenue increased 5% year-over-year. Even though we invested more in the growth of club members, operating profit remained stable. Q1 consolidated revenue was $24.3 million. In constant currencies, revenue was $23.6 million, up 2% from the prior year period. Q1 operating profit was $3.4 million or 14% of revenue, compared to $3.8 million in the prior year period. Let me explain the rationale for our significant increase in marketing expenses.
Slide five shows that investments in the acquisition of club members are attractive, as they have a quick payback. On the left side, you see that the average acquisition cost of a club member was $28 in Q1 2025, $38 in Q2, $40 in Q3, $34 in Q4, and $27 in Q1 2026. On the right side, you see that we get this money back fast. The member pays, in the U.S. case here, their $50 annual membership fee right at the beginning of the membership period. Additionally, we generated an average $14 per member in revenue from transactions in Q1. This full payback doesn't even consider an increase in advertising revenues and future membership fees and other revenues in Q2 and future periods.
Now, slide six shows, as a reminder, that with subscription businesses, membership revenue is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred. Slide seven shows the effect. Higher member acquisition expenses, coupled with only a small portion of revenue recognized in the quarter, reduces EPS in the same quarter. In the case of Q1, that effect was a reduction of approximately $0.13. We expect EPS to increase over time. As shown on slide eight, our strategy is fueling member growth at a rate of 112% year-over-year. New club members come roughly half from legacy members and half from those new to Travelzoo. On slide nine, we break down our main categories of revenue, Advertising and Commerce, and Membership Fees. Advertising and Commerce revenue was $19.7 million for Q1 2026. Revenue for Membership Fees increased to $4.6 million.
Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. This year, we expect them to account for over 20% of revenue. On slide 10, you can see that revenue growth came from all reporting segments. With attractive ROI and member acquisition, we invested both in North America and Europe segments. Operating profit of our North American segment was lower. Operating profit on our Europe segment was higher. Operating profit on our Jack's Flight Club segment remained flat. On slide 11, you see that our GAAP operating margin for Q1 was 14%. Acquiring more club members reduces operating margin in the short term. As the number of membership renewals, which do not require acquisition expenses, grows, operating margins should increase again over time. Slide 12 shows that the investments in club members of Travelzoo occur in all key markets.
Over time, we expect margins to return to previous levels or even exceed them. On slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate financial performance. Q1 2026 non-GAAP operating profit was $3.5 million or 14% of revenue, compared to non-GAAP operating profit of $4.4 million in the prior year period. Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide 15. As of March 31st, 2026, consolidated cash equivalents, and restricted cash was $11.3 million. Cash flow from operations was $3.9 million. Our cash balance increased even though we repurchased 500,000 shares of our common stock. Now looking ahead. For Q2 2026, we expect year-over-year growth to continue.
We also expect continued revenue growth in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months, as we acquire new members, and as more legacy members become club members. Over time, we expect profitability to increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing. As a reminder, we expense marketing costs immediately. Now I turn the discussion over to Holger.
Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brand, and our strong relationships with top travel suppliers to negotiate more club offers for club members. Travelzoo members are affluent, active, and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Please turn to slide 17. Membership empowers travelers to live the life of a travel enthusiast to the fullest while respecting different cultures. Membership provides access to high quality and highly valuable club offers. Have a look at slide 18.
A trip to The Azores for $299, including four nights hotel and flights from the U.S., a week at a Tuscan castle with car hire for GBP 299 per person, or a special member rate at one of the most iconic resorts in the U.S., where 23 presidents have stayed, all the way to a five-star luxury trip to Anguilla, which was voted the best island in the Caribbean for 40% off, especially for Travelzoo Club members. Club offers cannot be found anywhere else. Our global team negotiates and vets them rigorously. Membership also provides complimentary access to airport lounges worldwide in case of flight delays. In Q1 2026, we also launched, in partnership with Allianz, the first travel enthusiast hotline. It provides 24/7 complimentary assistance wherever you travel. Culinary journeys curated for the travel enthusiast are coming soon.
Slide 19 shows the worldwide complimentary lounge access in case of flight delays. It is perfect for the travel enthusiast. Slide 20 provides information about sentiment and demographics of new members. Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. 90% state that they are open to new destinations and travel ideas. Almost 70% plan to take two or more international trips in 2026, and information about their median household income shows that they have the means to do so, especially given the outstanding value of our club offers. Finally, slide 22 provides an overview of our management focus.
We are working to grow the number of paying members and accelerate revenue growth by converting legacy members and adding new club members, retain and grow our profitable advertising business from the popular Top 20 product, accelerate revenue growth, which drives future profits in spite of temporary lower EPS, grow Jack's Flight Club subscription revenue, and develop Travelzoo META with discipline. Now Christina will provide an update on Travelzoo META and Jack's Flight Club.
Thank you, Holger. We're excited to announce that we now expect the first Travelzoo META experiences to become available in Q2 2026. We're planning to incorporate access to Travelzoo META as a benefit of Travelzoo Club membership.
For Jack's Flight Club, to align with Travelzoo and other investment priorities, our focus is on maximizing revenue growth. To achieve this, we're working to significantly lower the average cost per acquisition for new members and targeting acquiring into higher subscription fee, lower attrition membership plans like annual. I'm now handing over to the operator for questions for Jeff, Holger, and me.
Thank you. If you would like 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. We'll take our first question from Michael Kupinski with Noble Capital Markets. Please go ahead.
Thank you, and thanks for taking my questions, and congratulations on a great quarter. First, I just want to ask a little bit about just the current tone of the business right now, and in terms of in light of the geopolitical issues that are going on in the world, and if you could just give us an update on that. Obviously we saw a significant sequential improvement in the margins in the quarter. How should we think about the cadence of margin recovery over the next couple of quarters? I just have one quick follow-up.
Hi, Michael. For sure, the war in Ukraine and the effect on fuel prices, consumer sentiment, airline ticket prices is affecting us. Towards the end of Q1, we saw advertising indeed slow down. We didn't see as much of a decline in response among our members because as travel enthusiasts, they will just pick other destinations to travel to. Sure, at the end of Q1, we saw lower advertising revenue than we expected at that time. What would have even been better if the war had not happened. We continue to see that a bit at the beginning of Q2 as well, but things are normalizing. With the news changing daily, the most important thing is that we have not seen much of an impact on member acquisition. We still see consumers signing up for Travelzoo Club membership, so that's good.
On the advertising side, yes, we are seeing a weakness and hope the war with all its consequences will be over soon. Regarding the margins, look, it is as we have always explained it. On one hand, if we substantially increase member acquisition, that in the short run has a negative impact on margins. It lowers the margins because we expense member acquisition right away. We recognize the revenue only over the period of 12 months. On the other hand, what we started seeing this quarter is we have more membership renewals. Our membership with Travelzoo is for one year. So we have a substantially larger number of membership renewals coming up this year. And membership renewals have a positive impact on the margin because they are not associated with a member acquisition expense.
It's hard to predict what the impact will be over the next few quarters because it really depends on what we can invest on member acquisition, how much we can drive member growth even further, and on the other hand, what renewal rates among the upcoming renewals are. So far we are quite pleased with those.
Got you. As far as my follow-up call, does the company have specific operational or financial milestones tied to the next 12-24 months that align with the recently passed CEO incentive structure?
My major objective is to grow the number of club members at Travelzoo as quickly as we can. That's really our number one priority because that will ultimately drive the success and the financial performance of the business.
Sounds good. All right. Thanks, Holger.
Your next question comes from the line of Patrick Sholl with Barrington Research. Please go ahead.
Hi. Thanks for taking the question. You kind of touched on this with Mike's question. You had a lot more renewal activity this quarter. Could you maybe talk a little bit about the renewal rate churn, and what share of those members that renewed were at the price increase?
Patrick, we are not disclosing the renewal rate. It is in line with our expectations. Our objective is to bring it up further. The membership fee in the U.S. changed to $50 at the beginning of Q1, and on February 1st, also legacy members had to pay the $50. For starting February 1st, the membership fee was $50 for anyone who renewed after February 1st in the U.S. In the other markets, we did not change the membership fee during the quarter. A very large chunk of renewals is actually coming up on April 1st, because as you might recall, back in 2024, we offered original legacy members an original incentive, to receive 15 months of membership for the price of 12. We are very hesitant with any kind of promotions, but that's what we did back then in order to reward the loyalty of our legacy members.
These memberships, and it's a quite large number, ended on March 31st, 2026. On April 1st, 2026, we had quite a large number of renewals. As I said, we are not disclosing the renewal rate, but we are actually quite happy with what the rate was.
Okay. Wait, you wouldn't receive the inflow of cash until April 1st then for the renewals?
This large group of legacy members is renewing or has renewed on April 1st or the following few days, not in Q1 yet.
Okay. Could you maybe talk about just some of the features that you've added to the subscription service, and what has sort of been helpful and what do you find helpful in supporting renewal activity?
Look, we have several features. Different members like different things. Different members find different things important. What is common among all of them is that they love our offers. Our offers, as I previously said, we work very hard on them, and that's the number one reason why members love our membership. They are travel enthusiasts. They want to travel, and we provide them offers to give that life of a travel enthusiast.
Your next question comes from the line of Steve Silver with Argus Research. Please go ahead.
Thanks, operator, and thanks for taking my questions. It's great to see the recovery in operating margins in Q1. I'm curious about your thoughts on, as you continue to expand the perks that you're offering under club membership, whether it's the lounge access or now with rolling META into the club membership. I'm curious as to what the implications might be of adding new perks into club membership and the impact that might have on maintaining, expanding operating margins going forward.
Most importantly, we do these things so that members get more out of their membership. We are very selective in what we find is valuable and exciting for travel enthusiasts. We vet that very much. We like to also be innovative. So far, the benefits that we are offering associated with Travelzoo membership do not incur significant expenses for us. Let me put it that way.
Great. One more, if I may. Now that it's been a couple of quarters now since you've announced the lounge access among some of the other perks with club membership, how often are you tracking those just to see if it's generating the kind of traffic that you expected when launching these kind of features?
We monitor it continuously, and our members really love it.
Okay. Fair enough. Thank you so much.
Your next question comes from the line of Ed Woo with Ascendiant Capital. Please go ahead.
Yeah. Also, congratulations on the subscriber growth. My question, I know you mentioned that it's slowed down right at the end of Q1 and a little Q2 because of the war. Absent taking that out, what's the overall travel industry doing, and how does the summer travel season looking? Are people kind of holding off to wait until the war's over, or are people still booking for their summer travel season as they are right around now?
Look, Ed, some are behaving like normal. They are booking their trips. Others are hesitant. One of the benefits of our offers is that a lot of them come with full refundability, so we try to take a lot of risk out for the travel enthusiasts. We want them to dream about their next trip. We don't want people to just sit in front of the TV, hear negative news out of Iran. We feel our members are excited to travel in summer, and we create the offers in a way that it really works well for them.
That sounds good. Thanks for answering my questions, and I wish you guys good luck. Thank you.
Thank you. Same to you, Ed.
This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.
Great. Dear investors, thank you for your time and support. We look forward to speaking with you again next quarter. Have a great day.
This concludes today's Travelzoo's First Quarter 2026 Earnings Call and Webcast. You may disconnect your lines at this time, and have a wonderful day.