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Acquisition | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Acquisition | Acquisition On January 13, 2020, Travelzoo entered into a Stock Purchase Agreement (the "SPA") with the shareholders of Jack’s Flight Club (the “Sellers”) for the purchase of up to 100% of the outstanding capital stock of Jack’s Flight Club (the “Shares”). Pursuant to the SPA, on January 13, 2020, the Sellers sold 60% of the Shares to the Company for an aggregate purchase price of $12.0 million, $1.0 million of which was paid in cash and $11.0 million of which was paid in the form of promissory notes. The promissory notes contain an interest rate of 1.6% per annum and a due date of January 31, 2020, with a one-time right to extend the maturity date up to April 30, 2020 with a principal payment of $1.0 million on January 31, 2020 which the Company exercised. The remaining 40% of the Shares are subject to a call/put option exercisable by the Company or the Sellers, as applicable, on or around January 1, 2021, subject to the terms and conditions set forth in the SPA. The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club. The acquisition has been accounted for using the acquisition method in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. The acquisition related costs were not significant and were expensed as incurred. Purchase Price Allocation The purchase price allocation is based on estimates, assumptions and third-party valuations and the allocation for customer related intangible assets is preliminary subject to obtaining additional information. The aggregate purchase price and allocation was as follows (in thousands):
Purchase Price | Jack’s Flight Club
Cash paid | $ | 1,000 |
Promissory notes issued | 10,931 |
Fair Value of Put/Call Option | 183 |
| $ | 12,114 |
Allocation |
Goodwill | $ | 13,054 |
Intangible assets |
Customer relationships | 3,500 |
Trade name | 2,460 |
Non-compete agreements | 660 |
Current assets acquired, including cash of $321 | 324 |
Current liabilities assumed | (40 | )
Deferred revenue | (881 | )
Deferred tax liabilities | (1,391 | )
Non-controlling interest | (5,572 | )
| $ | 12,114 |
The Company determined the estimated fair value of the put/call option by using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily by using the income approach. Non-controlling interests represent third-party shareholders and are measured at fair value on the date acquired. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the acquired subsidiary. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Due to the COVID-19 pandemic that started in the quarter ended March 31, 2020 and the impact it has had on the global economy, the Company determined that this was a triggering event requiring the Company to assess its long-lived assets including Goodwill for impairment. The Company performed an impairment test during the three months ended March 31, 2020 by comparing the carrying value of Jack’s Flight Club net assets to the fair value of the Jack’s Flight Club reporting unit based on an updated discounted cash flow analysis. The fair value of the Jack’s Flight Club reporting unit was determined to be less than the carrying value, and the difference between the estimated fair value of goodwill and the carrying value was recorded as goodwill impairment. The Company also performed an ASC 360 analysis for long-lived assets noting no impairment of such assets based on the undiscounted cash flows of the Jack’s Flight Club asset group. The Company first impaired indefinite lived intangible assets (Trade names) before impairing Goodwill. The following table summarizes the goodwill activity for the three months ended March 31, 2020 (in thousands):
Goodwill—January 1, 2020 | $ | — |
Acquisition | 13,054 |
Impairment | (2,110 | )
Goodwill—March 31, 2020 | $ | 10,944 |
Intangible Assets The following table represents the fair value and estimated useful lives of intangible assets (in thousands):
| Fair Value |  | Estimated Life (Years)
Customer relationships | $ | 3,500 |  |  | 5
Trade name | 2,460 |  |  | indefinite
Non-compete agreements | 660 |  |  | 4
The fair value of intangible assets of $6.4 million has been allocated to the following three asset categories: 1) Customer relationships, 2) Trade name, and 3) Non-compete agreements. These assets are included within “Intangible assets” on our consolidated balance sheets. Customer relationships and non-compete agreements are being amortized to operating expenses over their estimated useful lives using either the straight-line basis for non-compete agreements or on an accelerated basis for Customer Relationships. The following table represents the activities of intangible assets for the three months ended March 31, 2020 (in thousands):
| Fair Value
Intangible assets—January 1, 2020 | $ | — |
Acquisition | 6,620 |
Impairment of trade name | (810 | )
Amortization of intangible assets with definite lives | (215 | )
Intangible assets, net—March 31, 2020 | $ | 5,595 |
Amortization expense for acquired intangibles was $215,000 for the three months ended March 31, 2020. Expected future amortization expense of acquired intangible assets as of March 31, 2020 is as follows (in thousands):
Years ending December 31, |
2020 remainder | $ | 949 |
2021 | 1,215 |
2022 | 865 |
2023 | 515 |
2024 | 357 |
Thereafter | 44 |
| $ | 3,945 |
As previously discussed in Goodwill, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (Trade name) was impaired for $810,000 for the three months ended March 31, 2020. Pro Forma Information The acquired company was consolidated into our financial statements starting on the acquisition date. The unaudited financial information in the table below summarizes the combined results of operations of Travelzoo and Jack’s Flight Club, on a pro forma basis, as though the companies had been combined as of the beginning of the fiscal year presented. The debt was issued to finance the acquisition of Jack’s Flight Club. The unaudited pro forma information has been calculated after applying the Company’s accounting policies and includes adjustments to reflect the amortization charges from acquired intangible assets, adjustments to deferred revenue, interest expense and related tax effects. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the fiscal year presented. The following table summarizes the pro forma financial information (in thousands):
| Three Months Ended
| March 31, |  | March 31,
| 2020 |  | 2019
Revenues | $ | 20,448 |  |  | $ | 29,665 |
Net income (loss) | $ | (7,723 | ) |  | $ | 3,077 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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- References No definition available. + Details
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