Travelzoo Reports Fourth Quarter and Year-End 2005 Financial Results

Fourth Quarter 2005 Financial Highlights:

-- Revenues of $13.9 million, up 32% year-over-year

-- Income from operations of $3.5 million

-- Operating margin of 25.2%

-- Net income of $1.7 million

"Travelzoo's Q4 2005 results were impacted by Sarbanes-Oxley Act(SOX) Section 404 compliance costs of $571,000, a loss of $584,000from our new U.K. business, and reported revenues were impacted by thebankruptcy filings of two airline advertisers," said Ralph Bartel,chairman and chief executive officer, Travelzoo. "In the future, we donot expect SOX compliance costs to remain at this high of a level. Ourreported loss for the U.K. business for Q4 2005 increased because ofthe hiring of additional staff and the acquisition of additionalsubscribers. With a large reach of 9.7 million subscribers in the U.S.and the U.K., a strong media brand, and a robust business model, webelieve that we are well positioned to take advantage of future growthopportunities."

Travelzoo reported revenues of $13.9 million for the fourthquarter ended December 31, 2005, an increase of 32% over revenues of$10.5 million for the prior-year period, and a quarterly sequentialincrease of 4% over revenues of $13.4 million for the third quarterended September 30, 2005. All revenues were generated from the sale ofonline advertising to travel companies.

Income from operations for the fourth quarter ended December 31,2005 was approximately $3.5 million or 25.2% of revenues, compared toapproximately $3.7 million, or 35.2% of revenues, for the prior-yearperiod.

Travelzoo reported a net income of approximately $1.7 million forthe fourth quarter ended December 31, 2005 compared to approximately$1.7 million for the prior-year period.

Cash flow from operations in the fourth quarter 2005 was $2.0million.

Reported net income for the fourth quarter of 2005 included a lossof $584,000 from Travelzoo's U.K. business. The loss was treated ashaving no recognizable tax benefit. Travelzoo U.K. began operations inMay 2005.

Travelzoo's U.K. business generated revenues of $380,000 in thefourth quarter 2005, up from $368,000 in the third quarter 2005.

Travelzoo's revenues for the year ended December 31, 2005 were$50.8 million compared to $33.7 million for 2004, a 51% increase.

Income from operations for the year 2005 was approximately $14.9million, compared to $11.0 million for the year 2004.

Net income for the year 2005 was approximately $8.0 million,compared to $6.0 million for the year 2004. Diluted earnings per sharefor the year 2005 were $0.45, compared to $0.33 for the year 2004.

Travelzoo will host a conference call to discuss fourth quarterresults at 11:00 a.m. Eastern Time today. A live Web cast can beaccessed through the company's investor relations Web site athttp://www.travelzoo.com/ir.

About Travelzoo

Travelzoo Inc. is a leading Internet media company. Travelzoo'smedia properties, which reach more than nine million subscribers inthe U.S. and the U.K., include the Travelzoo(R) Web site(http://www.travelzoo.com), the Top 20(R) e-mail newsletter, theNewsflash(TM) e-mail alert service and SuperSearch(TM), a travelsearch engine. Travelzoo publishes offers from more than 500advertisers. Travelzoo's deal experts review each offer to find thebest travel deals and confirm their true value.

Certain statements contained in this press release that are nothistorical facts may be forward-looking statements within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of theSecurities and Exchange Act of 1934. These forward-looking statementsmay include, but are not limited to, statements about our plans,objectives, expectations, prospects and intentions, markets in whichwe participate and other statements contained in this press releasethat are not historical facts. When used in this press release, thewords "expect," "predict," "project," "anticipate," "believe,""estimate," "intend," "plan," "seek" and similar expressions aregenerally intended to identify forward-looking statements. Becausethese forward-looking statements involve risks and uncertainties,there are important factors that could cause actual results to differmaterially from those expressed or implied by these forward-lookingstatements, including changes in our plans, objectives, expectations,prospects and intentions and other factors discussed in our filingswith the SEC. We cannot guarantee any future levels of activity,performance or achievements. Travelzoo undertakes no obligation toupdate forward-looking statements to reflect events or circumstancesoccurring after the date of this press release.

Travelzoo and Top 20 are registered trademarks of Travelzoo Inc.All other company and product names mentioned are trademarks of theirrespective owners.
Travelzoo Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)



Three months ended Year ended
December 31, December 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues $13,901 $10,509 $50,772 $33,679
Cost of revenues 249 166 878 695
--------- --------- --------- ---------
Gross profit 13,652 10,343 49,894 32,984
Operating expenses:
Sales and marketing 7,632 4,268 25,915 15,731
General and administrative 2,496 2,348 9,109 6,220
--------- --------- --------- ---------
Total operating expenses 10,128 6,616 35,024 21,951
--------- --------- --------- ---------
Income from operations 3,524 3,727 14,870 11,033
Other income and expense:
Interest income 304 106 961 126
Gain (loss) on foreign
currency (6) - (15) -
--------- --------- --------- ---------
Income before income taxes 3,822 3,833 15,816 11,159
--------- --------- --------- ---------
Income taxes 2,168 2,104 7,853 5,122
--------- --------- --------- ---------
Net income $1,654 $1,729 $7,963 $6,037
========= ========= ========= =========

Basic net income per share $0.10 $0.11 $0.49 $0.36
Diluted net income per share 0.10 0.09 0.45 0.33

Shares used in computing
basic net income per share 16,250 16,222 16,249 16,879
Shares used in computing
diluted net income per share 17,409 18,252 17,731 18,475
Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

Dec. 31, Dec. 31,
2005 2004
-------- ---------
ASSETS
Cash and cash equivalents $24,469 $26,435
Short term investments 19,887 10,032
Accounts receivable, net 9,020 5,327
Deposits 28 163
Prepaid Expenses and other current
Assets 631 674
Deferred tax assets 1,020 391
-------- ---------
Total current assets 55,055 43,022
-------- ---------
Deposits, less current portion 190 -
Deferred tax assets, less current
Portion 28 43
Property and equipment, net 159 108
Intangible assets, net 20 84
-------- ---------
Total Assets $55,452 $43,257
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 2,373 440
Accrued expenses 3,394 2,464
Deferred revenue 296 91
Income tax payable 856 -
-------- ---------
Total Liabilities 6,919 2,995
-------- ---------
Common stock 163 162
Additional paid-in capital 30,645 30,300
Accumulated other comprehensive income (38) -
Retained earnings 17,763 9,800
-------- ---------
Total Stockholders' Equity 48,533 40,262
-------- ---------
Total Liabilities and
Stockholders' Equity $55,452 $43,257
======== =========
Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

Three months ended Year ended
December 31, December 31,
2005 2004 2005 2004
-------- -------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,654 $1,729 $7,963 $6,037
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 41 40 167 161
Deferred income taxes (697) (181) (676) (181)
Provision for losses on
accounts
receivable 212 9 291 121
Tax benefit of stock option
exercises 39 989 435 1,932
Accrued income on short-term
investments 220 - (49) -
Changes in operating assets
and
liabilities:
Accounts receivable (943) (492) (3,993) (3,078)
Deposits (3) (1) (55) (24)
Prepaid expenses and other
current assets (256) (388) 40 (543)
Accounts payable 1,674 131 1,940 216
Accrued expenses (250) 725 938 1,136
Deferred revenue (16) (86) 205 69
Income tax payable 300 (205) 919 (1,311)
-------- -------- -------- ---------
Net cash provided by
operating
activities 1,975 2,270 8,125 4,535
-------- -------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment (39) (1) (156) (40)
Purchase of short-term
investments (19,809) (10,032) (49,500) (10,032)
Sale of short-term investments 19,620 - 39,693 -
Purchase of intangible assets - (2) - (2)
-------- -------- --------- ---------
Net cash used in investing
activities (228) (10,035) (9,963) (10,074)
-------- -------- --------- ---------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common
stock, net of related costs - 27,751 (124) 28,047
Proceeds from stock option
exercises - 371 35 371
Recovery of profit from
purchase
and sale of stock by employees - - - 34
-------- -------- --------- ---------
Net cash provided by
financing
activities - 28,122 (89) 28,452
-------- -------- --------- ---------
Effect of exchange rate on cash (13) - (39) -
-------- -------- --------- ---------
Net increase in cash and cash
equivalents 1,734 20,357 (1,966) 22,913
Cash and cash equivalents at
beginning of period 22,735 6,078 26,435 3,522
-------- -------- --------- ---------
Cash and cash equivalents at end
of period 24,469 26,435 24,469 26,435
======== ======== ========= =========
Supplemental disclosure of cash
flow information:
Cash paid for income taxes net
of refunds received 2,526 1,502 7,176 4,683
-------- -------- --------- ---------