Acquisition

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

On January 13, 2020, Travelzoo entered into the SPA with the shareholders of Jack’s Flight Club 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 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 results of Jack's Flight Club in 2020 did not meet the thresholds required for the put/call option to be exercisable.

On June 3, 2020, the Company renegotiated the SPA with the Sellers of Jack’s Flight Club and reached a negotiated settlement. The Company recorded adjustments accordingly, however, these adjustments are not considered measurement period adjustments to the purchase consideration since there is not a clear and direct link to the consideration transferred in the SPA entered into on January 13, 2020.

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. 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 using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily 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. The Company determined that the global pandemic 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 first quarter of 2020 and during the fourth quarter of 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 of $2.1 million. 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 name”) for $810,000 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—March 31, 2020	(2,110)
Goodwill—March 31, 2020	$	10,944

There has been no change in goodwill for the nine months ended September 30, 2021 and no changes since March 31, 2020.

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 $6.6 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 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 nine months ended September 30, 2021 (in thousands):


	Fair Value
Intangible assets—January 1, 2020	$	—
Acquisition	6,620
Impairment of trade name	(810)
Amortization of intangible assets with definite lives	(1,276)
Intangible assets- December 31, 2020	4,534
Amortization of intangible assets with definite lives	(284)
Intangible assets- March 31, 2021	4,250
Amortization of intangible assets with definite lives	(275)
Intangible assets- June 30, 2021	3,975
Amortization of intangible assets with definite lives	(275)
Intangible assets- September 30, 2021	$	3,700

Amortization expense for acquired intangibles was $275,000 and $333,000 for the three months ended September 30, 2021 and 2020, respectively. Amortization expense for acquired intangibles was $833,000 and $943,000 for the nine months ended September 30, 2021 and 2020, respectively. Expected future amortization expense of acquired intangible assets as of September 30, 2021 is as follows (in thousands):


Years ending December 31,
2021 remainder	$	274
2022	875
2023	641
2024	250
2025	10
	$	2,050

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 first quarter of 2020. The Company performed its annual impairment testing of Trade name during the fourth fiscal quarter and did not identify any additional impairment in 2020. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.

Unaudited 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		Nine Months Ended
	September 30, 2020		September 30, 2020
Revenues	$	13,787	$	41,239
Net loss	$	(1,226)	$	(15,247)

Jack's Flight Club Settlement

On June 3, 2020, the Company and the Seller renegotiated the SPA. Pursuant to the original terms of the outstanding Promissory Notes, the Company owed $10.0 million plus interest (the “Outstanding Amount”) to the Sellers on April 30, 2020. On June 3, 2020, the parties reached a negotiated settlement for the Outstanding Amount with the following terms: (a) $1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers; (b) $6.8 million, plus accrued interest, was paid to the Sellers by Travelzoo, and (c) the remaining $1.7 million to be paid by June 2021 pursuant to new promissory notes with each of the Sellers that contain a 12% interest rate. The Company recorded $1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan in the second quarter of 2020. The $1.7 million new promissory notes was paid off in October 2020. Total interest expense for the Promissory Notes of $142,000 was recorded in Other income (loss), net in 2020.

Travelzoo also agreed that the additional payment set forth in the SPA (equal to 20% of 2020 net income) would be payable to the Sellers regardless of whether EBITDA targets are achieved and the put/call is exercised in 2021. The Company estimated and accrued $448,000 in “General and administrative expenses” in 2020. $492,000 was paid to the Sellers during the first quarter of 2021 relating to this agreement.

The parties also agreed to a new put/call option exercisable in 2022 by the Sellers or Travelzoo, as applicable, only if the put/call option for 2021 as set forth in the SPA is not exercised, with a EBITDA threshold of $4.3 million and a purchase price equal to 40% of 2021 EBITDA multiplied by 3.5, and an additional payment equal to 20% of 2021 net income if the EBITDA threshold is achieved. The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach and determined that the extension of the one year period did not change the fair value of the put/call option materially.