Hello, everyone. Thank you for joining us, and welcome to the Travelzoo third quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. 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 archive recording of this conference call will be made available on the company's investor relation website at travelzoo.com/ir. You can also download a copy of the Q3 presentation in the bottom right-hand corner of your screen. Now, it is my pleasure to turn the floor 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, we'll 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 relation site at travelzoo.com/ir. Let's begin with slide four. Revenue increased again year-over-year. Consolidated revenue was $22.9 million, up 3% year-over-year. In constant currencies, revenue was $23 million. We still reported a loss due to our investment in growing Club Members. The Q3 reported loss was $2.6 million, compared to reported operating profit of $0.5 million in the prior year period. Slide five explains that we decided to accelerate the shift toward membership fee revenue by more quickly growing paid Club Members. The reported quarterly loss came from higher investment in growing the number of Club Members.
Our objective is to increase recurring membership fees revenue. Please turn to slide six. More Club Members drive recurring revenue from membership fees. In Q3, we added the largest number of Club Members yet. The number of Club Members increased 65% year-over-year. 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. 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 when deferred revenues and recurring revenues increase profitability. While marketing costs are negatively impacting EPS this year, we still estimate a positive impact on 2027 EPS of $1.20. Please turn to slide nine.
Even though we invested even more than in Q2 and acquired more members, the average acquisition cost was lower, better in Q3. On the left side, you see that the average acquisition cost of a Club Member was $54 in Q3. 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 of $15 per member in revenue from transactions within 90 days. In addition, there will be revenue from transaction and advertising and future membership fees from recurring renewals in future period. We believe the total payback is attractive. Now, please turn to slide 10. Both the North America and Europe segments increased revenues. Jack's Flight Club reported a decline due to a decrease in deferred revenue from less members acquired in Q1 and Q2.
On slide 11, you will see the reported GAAP operating margins. As the number of membership renewals which do not have acquisition expenses grows, operating margins are expected to substantially improve. In the short term, fluctuations are likely. Slide 12 shows that investment of Club Members of Travelzoo occur in all key markets. 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. In Q3 2026, non-GAAP operating loss was $2.1 million, compared with non-GAAP operating profit of $1.1 million in the prior year period. Slide 14 provides information about the items that are excluded in the calculation of non-GAAP financial information. Please turn to slide 15. As of September 30th, 2026, our consolidated cash equivalents, and restricted cash was $8.8 million, an increase in $1.2 million compared with Q2.
We repurchased 256,898 shares of our common stock. Now looking ahead. For Q4 2026, we expect year-over-year revenue growth. We also expect revenue growth in the subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months, as we grow Club 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'll turn the discussion over to Holger.
Thank you, Jeff. We will continue to leverage Travelzoo's global reach, our trusted brand, and the 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. Our global team negotiates and vets them rigorously. Club Offers cannot be found anywhere else. Some examples, GBP 59 for stays for two at one of 15 cozy English inns, a 60-night Hawaii cruise for around $60 per day, which includes your cabin, food, drinks, entertainment.
Also exclusive offers like a cooking class with a Michelin star chef in Tuscany, or for those who want luxury and seclusion, an all-inclusive stay at a five-star private island in the Maldives. 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 24/7 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 members. Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. 90% state they are open to new destinations and travel ideas. Almost 90% are likely to book an unplanned trip with an attractive offer.
62% plan to take two or more international trips in 2027. Information about their median household income shows that they have the means to do so, especially given the outstanding value of our Club Offers. Travelzoo members also hold on to leisure travel longer than the general population if household spending had to be cut. Finally, on slide 27, we provide an overview of our management focus. We are working to grow the number of paying Club Members and accelerate revenue growth by converting legacy members and adding new Club Members, retain and grow our profitable advertising business, accelerate revenue growth, which drives future profits in spite of temporary lower EPS, grow Jack's Flight Club's subscription revenue, and launch Travelzoo META. Christina will provide an update on Travelzoo META and Jack's Flight Club.
We expect the first Travelzoo META experiences to become available in Q4 of 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. Now handing over to the operator for questions for Jeff, Holger, and me.
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Patrick Sholl at Barrington Research. Your line is now open. Please go ahead.
Hi. Thanks for taking the question. I guess just at this point, about a year and almost two years into having moved from the legacy members and bringing them to pay, I am just kind of curious if you could talk about anything you have seen in terms of main drivers of subscriber churn and kind of efforts around retention and what those have looked like as you have gotten more experience with the product. Thank you.
Hi, Patrick. What we are hearing from the Club Members is what is mostly driving their retention and renewal are the great offers, the exclusive offers that we provide them. I gave a few examples. That is really what is most important to our members. These are offers that you do not find anywhere else. Some others also, of course, value the benefits. We have added more benefits over time, just as I said, the Travel Enthusiast Hotline. These are also adding to continued interest in the membership. It allows us to grow the number of members. As we said earlier, this quarter in Q3, we added the most Club Members ever, so we are confident in the future.
Okay. I think earlier in the call you said that this was a record quarter for new member additions. Kind of looking at the cash flow statement, there was a deceleration in the increase in deferred revenue. I am just kind of curious if you could reconcile some of that disparity, if that is just the timing of member additions versus trial starts and just maybe just some of the factors that go into that.
Exactly. The quick answer is that most new members join with a trial, which in the U.S. is $1. In U.K., it is GBP 1. Only when they then convert after 30 days to the full membership, that is when we recognize the revenue and when it creates deferred revenue. So it is exactly what you explained.
Yeah. So would we be expecting a significant acceleration in deferred revenue in Q4, or is there just a difference between the conversion from that trial to a full year membership?
It's the 30-day delay. The more members we add, the higher and more fast deferred revenue will grow. It's exactly what you said.
Okay. Thank you.
Your next question is from the line of Michael Kupinski from Noble Capital Markets. Your line is now open. Please go ahead.
Thank you, and thanks for taking my questions. You highlighted a decline in average U.S. acquisition cost to $54 from $62 in the second quarter. What drove that improvement, and how sustainable is it that you can continue to accelerate membership growth at that rate? Is there an opportunity to bring those acquisition costs back down towards the $27 level that you reported in the first quarter?
You are correct, Michael. We added more members at a lower acquisition cost. We are very happy about that trend. Christina, do you want to add what is driving that?
Sure. I think the main driving factors of the efficiencies that we found in Q3 is a combination of we had a lot of great offers that we use on various channels like Facebook that drive a lot of interest in the membership. We were able to have large volumes of offers running, which allows us to scale our spend up, and then when we see that there is interest in those offers, it allows us to get the efficiencies down despite scaling up spend significantly.
Got you. It certainly worked for me. I am going on a trip next week. The follow-up, the Club Members increased an impressive 65%, as you mentioned, year-over-year. Can you provide more color on how much of that growth came from converting existing legacy members versus attracting entirely new members? Your presentation projected membership revenue increasing from approximately $17 million to more than $30 million in 2027. How much of that growth is already supported by existing paid memberships and deferred revenue versus assumptions for new membership acquisition and renewals?
Michael, the answer to your first question is it's typically about half-half. In Q3, it was more new members, a little bit more than half. And to answer your second question, that number of 30 million is based on members we have already, how many of them we are expecting to renew, and new members that we are signing up. As Patrick mentioned earlier, there is already substantial deferred revenue, around $13 million on the balance sheet. That will continue to increase. And then with all the new revenue and payments that are coming in, that's how we get to around $30 million. That's our expectation for next year.
Got you. Thanks for that color. That's all I have for now.
Your next question comes from the line of Ed Woo from Ascendiant Capital. Your line is now open. Please go ahead.
Yeah, thank you for taking my question. As we are heading into 2027, what's your travel outlook so far? What are you seeing out there? And there's a lot of news about unrest in Europe, a lot of protests. Do you think that's going to have any impact on your travel business?
What we are seeing in travel Ed is similar to what we are seeing in other industries. On the one hand, people who have money continue to spend. They are spending even more. On the other hand, people at the very low income end have to cut things. Fortunately, most of our members are on the upper end. I would even think most of them would pay a substantially higher membership fee than $50, but that's what we have set it at right now. With regards to the situation in Europe, in the past, we have always seen that this impacts travel behavior rather short term. Maybe someone might not be traveling to France right now, but it quickly changes, and then people travel again.
My one follow-up question would be, obviously, you benefit and you thrive when hotels or travel suppliers have issues filling the rooms. Is that a flip side? You guys are getting more calls of people worried because people can't fill the hotel rooms because of the news press, that you guys would be able to drive more deals?
Yes. That's the case. If the hotels are empty or are struggling, they come to us. When it's low season, they come to us, and that's where we help. As we've seen before, our travel enthusiasts are very open to going wherever we give them good deals. So that's the great flexibility about our club and our members, that they are not predetermined on where they want to go. They are open to new experiences, and that's what our entire business is benefiting from.
Great. Well, thanks for answering my question, and I wish you good luck.
Sure. Thanks, Ed.
Your next question is from the line of Steve Silver from Argus Research. Your line is now open. Please go ahead.
Thanks, operator, and thanks for taking my questions as well. In the quarter, there was a sizable reduction in accounts receivable that supported the operational cash flow. So it is now closer towards the levels that they were at at the end of 2025. I am just curious as to your thoughts on that level, whether it is kind of where you would expect it to be moving forward, or whether you think there is a little bit more leverage in accounts receivable to support cash flows in the near term.
Good observation. Yes, Steve, we stated in Q2 that accounts receivable were exceptionally high for very specific reasons. Now we are back to normal, and we expect to remain at this level.
Great, and one more, if I may. With the expected launch of META in this quarter, I am curious as to whether you guys have done any studies or just trying to size up if there is any pent-up demand for META ahead of its launch, or is it going to be the kind of thing where the product is going to launch within the Club membership and then you would market it after launch?
Christina?
We would include it as a part of Club membership and market it as we launch, essentially. But in terms of your question of pent-up demand, there is anything comparable to what we want to do with Travelzoo META and what the plan is for Travelzoo META. So it is hard to say, but obviously we have been working on this for some time and have been kind of assessing the market, and the products and services that are similar that are out there to optimize this as much as we could to make it a really valuable part of Travelzoo Club membership.
Look, Steve, we are travel enthusiasts. We obviously love to travel all the time, but we cannot. So we cannot travel, why not travel in the Metaverse? We feel it is very complementary to what we have right now, and that is why we made the decision to make it part of the Travelzoo Club membership. You can also purchase it separately, but our idea is really to make it part of the membership package for travel enthusiasts that comes with Travelzoo.
Okay, fair enough. Thanks for the extra color.
Your next question comes from the line of Theodore O'Neill from Litchfield Hills Research. Your line is now open. Please go ahead.
Oh, thanks very much. My question is about AI travel agents and Meta's Muse platform introduced an AI travel agent near the beginning of the month. It's had some impact on Expedia and Booking and less so I think for Airbnb and for Travelzoo. I was wondering a couple of things. Have you thought about integrating AI into your platform? Second is, are these AI travel agents like that Muse has, they can't see into Travelzoo, like they can't see into Airbnb because those offers are all contained within the platform itself. Am I understanding that correctly?
I see you. Obviously, AI is on top of our minds every day. We are integrating it in the business, in making it easier for our members to find offers, in customization. What's different between Travelzoo and OTAs, most of what you find with travel agents, OTAs, it's the same everywhere. We have stressed many times, offers from Travelzoo are exclusive. You cannot find them anywhere else. When some people say, Travelzoo is not needed anymore, I can just use AI to find deals, no, you can't, because we are creating and negotiating offers that you do not find anywhere else. With regards to your second question, yes, we are working on that very actively. There is a way to allow the AI agents to access Travelzoo offers, even though they are behind the wall of a paid membership.
Someone cannot access the full details of an offer, but AI agents like ChatGPT or Google are able and will be able even more so to alert people are searching for deals, that there are deals with Travelzoo, and it will explain that in order to take advantage of this deal, you just have to join the club. When you ask them whether it's worth joining Travelzoo, the overall resounding answer is yes. Most say it's worth it because once you are a member and you see what we are doing, you're very happy that you joined.
Right. Okay. Thanks very much.
There are no further questions at this time. I will now turn the call back to Mr. Holger Bartel for closing remarks.
Great. Dear investors, thank you again for your time and support. We look forward to speaking with you again next quarter. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.