Travelzoo 2014 Annual Report Download - page 76

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Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with
sales, marketing and production staff, expenses related to our participation in industry conferences, and public relations
expenses. Sales and marketing expenses were $67.2 million, $74.9 million and $68.2 million for 2014, 2013 and 2012,
respectively. Advertising expenses accounted for 30%, 36% and 41%, respectively, of total sales and marketing expenses and
consisted primarily of online advertising, which we refer to as traffic acquisition cost and member acquisition costs. The goal of
our advertising was to acquire new members for our e-mail products, increase the traffic to our websites, and increase brand
awareness.
Sales and marketing expenses decreased $7.6 million in 2014 compared to 2013. The decrease was primarily due to a
$7.2 million planned decrease in Search traffic acquisition costs and a $3.4 million decrease in salary and employee related
expenses, offset by a $2.3 million increase in member acquisition cost. The increase in member acquisition cost was intended to
drive future growth, increase the reach of our audience, both in terms of the size of our audience and from growing sources
such as mobile devices and social media.
Sales and marketing expenses increased $6.6 million in 2013 compared to 2012. The increase was primarily due to an
$8.8 million increase in salary and employee related expenses due primarily to an increase in headcount, offset by a $1.6
million decrease in Search traffic acquisition costs. These increases in salary and employee related expenses were aligned with
our investments intended to drive future growth, which were focused on increasing sales headcount, our analytic capabilities
and our audience, both in terms of number of member and the size of our audience from growing sources such as mobile
devices and social media.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative, executive, and product
development staff, fees for professional services, rent, bad debt expense, amortization of intangible assets, and general office
expense. General and administrative expenses were $43.5 million, $41.7 million and $38.7 million for 2014, 2013 and 2012,
respectively.
General and administrative expenses increased $1.8 million in 2014 compared to 2013. The increase was primarily due to
a $1.8 million increase in salary and employee related expenses due in part to an increase in product development headcount
and professional services costs.
General and administrative expenses increased $3.0 million in 2013 compared to 2012. The increase was primarily due to
a $1.9 million increase in salary and employee related expenses due primarily to an increase in product development
headcount, and a $1.2 million increase in rent, office and insurance expense due to the continuing expansion of our business.
Unexchanged Promotional Shares
On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to a
previously-announced unclaimed property review. The primary issue raised in the preliminary findings from the review,
received by the Company on April 12, 2011, concerned the shares of Travelzoo which have not been claimed by former
shareholders of Travelzoo.com Corporation following a 2002 merger, as previously disclosed in the Company’s report on Form
10-K. In the preliminary findings under the unclaimed property review, up to 3.0 million shares were identified as
“demandable” under Delaware escheat laws. While the Company continues to take the position that such shares were a
promotional incentive and were issuable only to persons who establish their eligibility as shareholders, the Company
determined that it was in its best interest to promptly resolve all claims relating to the unclaimed property review. Under the
terms of the agreement, the Company made a $20.0 million cash payment to the State of Delaware in April 2011 and received a
complete release of those claims from the State of Delaware. The $20.0 million payment was recorded as an expense in the
three months ended March 31, 2011.
Since March 2012, the Company became subject to unclaimed property reviews by most of the other states in the U.S.
that relate primarily to the unexchanged promotional shares, which were not covered by the settlement and release by the State
of Delaware. During the three months ended March 31, 2012, the Company recorded a $3.0 million charge related to this
unexchanged promotional merger shares contingency.