Travelzoo (TZOO) 2010 Q4 法說會逐字稿

Good morning everyone, and welcome to the Travelzoo 4th Quarter 2010 Financial Results Conference Call.

At this time, all participants have been placed on a listen-only mode. The floor will open for questions following the presentation. Today's call is being recorded. It is now my pleasure to turn the floor over to your host, Chris Loughlin, Travelzoo's Chief Executive Officer.

Sir, you may begin.

Thank you, Operator. Good morning, and thank you all for joining us today for Travelzoo's 4th quarter 2010 financial results conference call.

I'm Chris Loughlin, Chief Executive Officer. And with me today is Wayne Lee, the Company's chief financial officer.

Good morning, everyone. Welcome to our conference call.

Before we begin, Wayne will walk you through today's format.

I would like to first remind you that all statements made during this conference call and presented in our slides that are not statements of historical fact, 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 on our Forms 10K and 10Q, and other periodic filings with the SEC.

Please note that this call is being webcast from our Investor Relations website, at www.Travelzoo.com/earnings.

Please refer to our website for important information, including our earnings press release issued earlier this morning, along with the slides that accompany today's prepared remarks. An archived recording of this conference call will be available on the Travelzoo Investor Relations website at www.Travelzoo.com/ir, beginning approximately 90 minutes after the conclusion of this call.

For the format of today's call, Chris will review management's prepared presentation, and we will then conclude with a question-and-answer session.

If you will please now open our management presentation, which is available at www.Travelzoo.com/earnings, I will now turn over the call to Chris.

Thank you, Wayne. So hopefully everyone has got that presentation. Again, it's Travelzoo.com/earnings.

Our presentation will fall into three parts this morning. I'd like to start by quickly providing an overview of our business. I'll then review our fourth-quarter 2010 earnings, and end by reviewing our growth strategy.

So let's all start on Page 5.

I'd like to highlight first of all that Travelzoo is not a travel agent, nor an OTA. We do not sell travel. We're a global Internet media company. And since 1998, Travelzoo has been in the business of researching, negotiating and recommending outstanding deals to our millions of subscribers around the world.

Through these deals, we've enabled millions of trips and experiences and brought our subscribers opportunities they may not have thought of, or could not normally afford.

This page really sums it up quite well.

On the left, you can see the incredible deal from the Ritz-Carlton in Dublin, with air from New York City. To put this deal into perspective, the cheapest return flights alone during this period would cost you $522 per person. But for $799, Travelzoo subscribers get their return flights, and six nights at the most luxurious hotel in town. Now that's one heckuva deal.

Deals like this don't just happen! Our staff of 200 deal experts around the world is continuously working on behalf of our subscribers to secure deals like this.

On the right, you can see how that deal DNA has parlayed into our new Local Deals business. With Local Deals, we are now publishing unbelievable deals at top-quality businesses like the W in New York City, Casa del Mar in Santa Monica, and the Spa at the Hilton Park Lane in London.

If you look at the right of these deals, you can see just how big the response has been from our subscribers for these Local Deals.

I'll talk a little bit more about Local Deals later.

On Slide 6, I want to highlight that Travelzoo's a global brand. Just five years ago, principally all of our subscribers were in the US. We only published deals in English, within the 50 states. Today, 7.6 million of our weekly subscribers live outside of the US, and we publish in 11 languages.

As we've scaled, we've maintained a strong focus on quality. On the right, you can see our demographics within the US. And the picture is generally the same everywhere you go in the world. Travelzoo subscribers earn well above-average, and they love to travel and experience life.

I'll now discus our fourth-quarter 2010 results. So let's turn to Page 8.

Here, I highlight the key performance metrics for Q4 2010. Revenues grew by 20%, to $28.5 million. Our earnings-per-share from continuing operations more than doubled -- from $0.09 to $0.23. And subscribers grew to 18.9 million.

Moving on to Slide 9, this provides more detail on our operating income. Operating income for the Company in Q4 2010 was $6.7 million. Principally all of our operating income came from North America, while our Europe business maintained a small profit for the second consecutive quarter.

Our income-tax expense was $3 million; resulting in net income of $3.8 million. And our effective tax rate for Q4 2010 was 44%. This is the highest quarterly net income since Q1 2007.

Turning now to Slide 10, we look at our revenue-by-segment.

Revenues accelerated in North America year-over-year to 14%. Within that growth rate, we saw excellent growth in our Local Deals business, where we far exceeded our expectations for the quarter. But we also saw a decline in revenues from SuperSearch from Fly.com versus the previous quarter, as we decreased marketing spend in these search businesses.

We did this in anticipation of greater investment in Local Deals. And this decreased marketing spend in SuperSearch from Fly.com resulted in lower revenues from those businesses. We feel that that was a prudent and cautionary approach.

Europe revenues increased 43% year-over-year, and in local currency terms, we increased by 47%; ahead of the Q3 pace.

And moving on to Slide 11, we illustrate the continued improvement in operating income. North America grew by 26% year-over-year, and Europe stayed in the black. As a result, operating income for the whole Company almost doubled, to $6.7 million.

Slide 12 gives us more insight into operating expenses. On the left, you can see operating expenses in North America increased, compared to Q4 2009, primarily due to new hires that were done within our new Local Deals business -- professional services and trade marketing. As a percentage of revenue, operating expenses decreased from 66 to 61%.

I'd like to note that the $7.8 million of sales-and-marketing expense reflects a $500,000 one-time reduction in expense, resulting from the reversal of previously accrued bonuses.

On the right, we can see that we kept our expenses in Europe flat, year-over-year. As a percentage of revenue, expenses decreased from 135 to 95%.

Moving on to Slide 13, we show that our headcount increased from 232 in Q3 2010 to 255 this quarter. And revenues-per-employee decreased to $447,000. The majority of our new hires during Q4 2010 were in Local Deals. We intend to increase productivity as revenues grow.

On Slide 14, I'd like to walk you through what's happening with our audience. In North America and in Europe, our audience grew from 16.8 million at the end of 2009, to 18.9 million by the end of 2010.

On the right, you can see that we added 900,000 subscribers, but we unsubscribed 700,000 subscribers. In order to maintain the quality of our subscriber base, we regularly unsubscribe e-mail addresses that we've identified as being no longer valid. So the quarterly gain was 200,000 subscribers.

Finally, Slide 15 takes a look at our cash management. DSOs -- Days Sales Outstanding -- decreased to 44 days, compared to 49 days in Q3 2010, and improved by 2 days compared to Q4 2009.

We ended the quarter with $41.2 million in cash an cash-equivalents. That significant increase is primarily due to the introduction of Local Deals. In that business, consumers pay us immediately with credit cards and then we pay merchants their share later.

Let us now move on to the final part of our presentation. Travelzoo's growth strategy.

On Slide 17, I summarize our two growth pillars. First, we're scaling the Travelzoo business in attractive international markets, building a global brand and publishing global content. We embarked on this strategy in 2005.

Second, we're expanding our content and product offerings into entertainment, Local Deals and metasearch through Fly.com.

We embarked on expanding our content and product offering in 2007, first with entertainment. And in mid-2010, we introduced Local Deals. At the beginning of 2009, we launched Fly.com, our metasearch engine, where we see great synergies with the Travelzoo publishing business.

Now, moving to Slide 18, we illustrate our growth opportunity.

On the Y axis, we have our revenue-per-subscriber. And on the X, we have the total number of subscribers. Today, we've got 19 million subscribers, and generate revenues of $6.70 per subscriber. If we're able to increase either of these metrics, we can increase our total revenue.

In order to increase revenue-per-subscriber, we need to achieve better sellouts as our sales teams become more efficient; particularly in new markets in Europe. And as previously mentioned, we're introducing new content and products, including entertainment, Local Deals and Fly.com.

We see plenty of headroom for subscriber growth on the X axis. And as outlined last quarter, given our penetrations in the US, it may be possible to reach a global audience of 40 million to 60 million subscribers in the future.

I'd now like to talk about Local Deals. The next slide gives you an indication of just how big Travelzoo already is within the Local Deals market.

On the left, you can see two deals that Travelzoo published, which Groupon and Open Table also published. In parentheses, you can see the number of vouchers sold by Travelzoo compared to Groupon and Open Table, in these two cities. In both cases, we outsold these competitors by 1,500 vouchers.

You'll note that our offers are at a higher price point, too, and provide better value for our subscribers. We're able to craft these outstanding deals by applying our high-quality production process, which we've established over the past 12 years.

On the right, you can see how some of the subscribers are reacting to Local Deals. Happy subscribers share their positive experiences, and so Local Deals and the Travelzoo brand get positive grassroots PR across the Internet.

The next slide shows how Local Deals is already making an impact on our revenue-per-subscriber metric. Please note that we report revenues from Local Deals as net, after payments to local businesses.

In Q4, we published approximately 30 deals in the Los Angeles area. We saw from this activity that, on average, we can generate an incremental $2.34 per quarter from those subscribers who receive two Local Deals per week.

If we annualize that, we can see that we could lift our revenue-per-subscriber in the Los Angeles area by $9.36 on an annualized basis, taking our overall revenue-per-subscriber to $16.06. $140 increase on the pre-Local Deals revenue-per-subscriber.

If we then look across the nation in Q4, and take a sample set of 100 deals, we can see that the significant improvement in revenue-per-subscriber is indeed consistent. So here, we're looking at just over 100 deals that ran to subscribers in 30 different cities across Q4. We assume that these subscribers would receive 2 deals a week, also.

The incremental revenue-per-subscriber from Local Deals is $1.90, or $7.60 per year; taking the national monetization up to $14.30.

Again, this analysis assumes that we're publishing two Local Deals per week. If we increase that to three, we believe we could even improve the monetization further.

Slide 21 illustrates how this could play out for Travelzoo. We know because we've got the zip codes of our subscribers in North America and Europe, that approximately 76% of our subscribers live within the top 100 cities. That works out to 14.5 million subscribers.

So if we're able to reach all of these subscribers in the top 200 cities across North America and Europe combined with two deals per week, we could possibly add approximately $110 million from Local Deals. Again, those numbers are net.

This simple analysis does not take into account any potential cross-selling between Travel and Local Deals. It also does not consider the fact that our audience continues to grow.

Turning to our penultimate slide, I'd like to highlight how our two growth pillars complement one another.

We grew our audience aggressively in North America and Europe over the last five years, adding more than 10 million subscribers as we entered international markets. Had we not done that, we could not have introduced new products as effectively as we've demonstrated here.

For example, our first London Spa deal, we sold 2,160 vouchers. That simply would not have been possible in 2005.

From this page, you also get a sense of the quality of our deals. Our objective is to continue to publish high-quality, high-value deals. We're not forced to publish a deal every day, so we maintain a strict focus on only the very best deals.

Finally, Slide 22 summarizes management's focus for 2011. And this has not changed now for some time.

Our international expansion is very successful, and we'd like to continue growth in Europe, while extending profitability. We want to continue to expand our coverage of Local Deals, very rapidly.

Indeed, just before today's call, and not outlined in this presentation, we launched Local Deals in Munich, Germany and Manchester, England. The immediate results, we are seeing are consistent with our experience with Local Deals in the rest of the world.

As we scale, we want to become more efficient and improve operating margins and our core business. We want to continue to publish and sell global content opportunities. We want to move Fly.com to profitability, and build on our SuperSearch profitability.

And finally, we intend to improve earnings per share as our revenues continue to grow.

Travelzoo's consistent practice is not to provide guidance for future periods, because of the dynamics of the industry.

So this concludes our prepared presentation, and I'll turn it back to the operator now for any questions, for the question-and-answer session. Thank you.

Thank you. The floor is now open for questions. If you do have a question, please press * followed by 1 on your touchtone phones, at this time. Once again, if you do have a question, ladies and gentlemen, that is * followed by 1 on your touchtone phone. Please hold while we poll for questions.

And our first question comes from Ed Woo, with Wedbush Securities.

Good morning, guys. Do you have a breakdown for what Local Deal revenue was for the quarter?

Ed, we have not broken the Local Deals revenue -- the net revenue -- down. Obviously, the gross revenue is visible on the site. We chose not to break it down simply for competitive reasons, because it discloses our margin.

Then the other question I have is, you mentioned how if you increase the productivity on Local Deals, to multiple deals per week, then your revenue would go up. But currently, some of your deals are less than a deal a week in certain cities. When do you think that you can actually get that much higher?

That's really a case of finding the right sales people. So I mean you live there in the Los Angeles area; I think we've been extremely productive in the Los Angeles area, and we've established a really great team. And we've done that also in a few other cities.

But we really wanted to enter this business cautiously, so we didn't go and hire 100 people. And I think the people that we've got are actually very, very productive.

So the answer to your question is, as soon as I get a very good person in the market, or calling on the market, then the productivity goes up.

And have you noticed -- you did have very good examples of how you're able to differentiate yourselves between Open Table and Groupon. Have you noticed any other changes during the quarter in terms of the competitive state?

No. Nothing really has changed.

When we entered this business, we heard that margins were by 50%. The feedback from the field is that that's not really the case. I've always stated that it seems that the market is trading around 40 to 30%. And we're aiming in that range, as well.

So I mean nothing fundamentally has changed out there that we can see.

Thank you. Well, good luck.

And as a person living in LA, I'm definitely looking forward to more cost-saving opportunities out here.

Thanks, Ed.

Our next question comes from Eric Martinuzzi with Craig-Hallum.

Thanks.

Just wondering, as we're looking to model. I know you're not giving guidance, but I would expect -- and you've commented in the past -- that your subscriber growth comes in growth in the rate card.

On the core travel product, what sorts of increases are we seeing in North America and Europe?

So in North America, I don't believe that we put a rate-card increase in this year, Eric.

We did, however, put a rate-card increase in, in Europe; and it varies by market. Typically, when we're putting those rate-card increases in, we would put them inline with the audience growth.

So if the market grows by 40 or 50%, the rates will go up by maybe 40 or 50%. Or in some cases, it could even be a little bit higher. So the major rate increases you should expect are from Europe.

Okay.

All right, and then shifting over to the local side. Given that is such a key part of many investors' investment theses, I don't know that you actually or that we can actually back into that gross voucher number any more.

You do have -- I mean, we can get a good way there. But you're selling a number of deals direct. In other words, if it's a date-related, let's say a Broadway show, something like that -- that's coming to the user. The user's clicking through and then they're dealing directly with the theatre. And that's harder for us to capture.

So giving a net revenue number would be very helpful from an investor perspective. What's your thought there?

The reality is that these direct deals have been in the business for three years. The only thing that's happening there is, we've moved the distribution of those deals from Newsflash, which is really a product that's designed to announce travel sales. And we've moved those entertainment deals out of Newsflash into Local Deals, where the Local Deals publication is live.

So it's rather more a perception issue, Eric. And nothing really has changed for the fundamentals of the business. But it might look like oh, we're now sending lots of deals direct, and we weren't doing that in July or September when Local Deals first started. But actually, we were doing it; just running it through Newsflash.

I would probably just remove those from your analysis, because many of them were already in the business. I mean, we are seeing good growth in entertainment in general, but that's nothing new for the last three years.

Okay. Well, maybe another way I could back into this. I think you talked about on the Q3 call a $300,000 net revenue contribution from Local. And that was just a few. I think it was from an August 26th kickoff, with a margin implication of in that 30 to 40% range.

Maybe you could just -- if that implied a $900,000 number or something like that on the gross side, can you at least talk to what the growth in the gross was for Q4 versus Q3?

Yes. So that is public information.

So the growth in the gross is somewhere in the region of between 8- to 9-times. So just shy of 10-times growth, quarter-over-quarter. Just under 1,000% growth.

Okay.

All right. And then you mentioned getting paid. You guys get paid upfront on the vouchers sale. Has there been any pushback with some of your local vendors maybe that have a bigger footprint or a higher-ticket item? Where they want to get paid faster? Or there are different terms by merchant?

I mean yes, to some extent, there always is; regardless of whether you're selling advertising or you're selling this model. Everyone wants to negotiate. And we want to negotiate for a better deal, too. Right?

So, yes. But we have a set policy, which we abide by. In Q4, we had a payment schedule with merchants. I think there were probably one or two exceptional cases where we might have overruled that policy. But in general, in 99.5% of the cases, everyone adhered to the policy.

Our philosophy somewhat is, look, if a business is really screaming and shouting that they need the cash immediately now, that really sounds off alarm bells. Because why would a business need to have cash flow right away if the redemption occurs over the next year?

So we would probably run for the hills if a business really demanded such aggressive payment terms.

Yes. Okay.

And then as far as your operating expenses, you talked about what they were for Q4. You're obviously pulling a lot of levers here, trying to grow your subscriber base on the travel side, as well as expanding in local, as well as driving traffic to SuperSearch. What's the expectation for operating expense in Q1 versus where it finished out at Q4?

Well, we don't give any guidance, Eric, on that. What I would just say is that there were a number of events in Q4 that would not happen in Q1.

For example, we had an annual Company meeting in Q4. That was really important, because we're exploding as a business in terms of our growth rate is accelerating and we need to get everyone together. We're not going to have another Company meeting in Q1.

But in general, travel has always steered a pretty steady course. We're not interested in blowing up expenses. You saw there in Q4 that we actually slowed down on Fly.com and SuperSearch. That was because we really were sitting there at the beginning of the quarter, thinking, "Okay. If we don't hit that revenue number on Local Deals, and we've hired all these people, then we'll impact the bottom line." So what's the trade? And that was the trade that we made.

Maybe we were overly cautious, but in the end, the bottom line remained healthy and in-tune with our strategy.

So I think that it's sort of steady-as-she-goes on the cost side. We're not interested in blowing up on costs.

Thank you.

Thank you, Eric.

Our next question comes from Bill Lennon with Monness Crespi Hardt.

Hi. Good morning, Chris. Good morning, Wayne.

I think you published this in the proxy. I'm not sure where I've seen it before. But I wanted to ask you what your management goals are for 2001. I know a few years back, Ralph would put right in the bonuses for everybody you wanted to increase customer concentration, which you've apparently succeeded at doing very well.

But the business is far more complex now. So I'm trying to figure out how you structure a bonus pool for the management when you've got three or four really diverse businesses going on. So that's Part 1.

Part 2 is more of a small, tactical question. Did you have any impact from UK and Continental Europe bad weather on the quarter?

And then, 3, what's the emerging threat that you're most concerned about right now? Whether it's just, I'll just use the threat du jour of just say FaceBook. The quote-unquote -- "Everybody in the world is going to FaceBook for everything," kind of scenario. Including their travel advice.

So if you could take those three, I might even come up with a couple more, while you're answering.

Okay.

So the first one was on bonuses, Bill. And good morning to you, as well.

Of course, each manager and -- sorry, I should say executive -- has a plan that's designed for that executive. What we'll often do is, we'll put four components in. And whatever those four components are to guide the business.

And you know that most of our business is, and most business in the world, you can steer on the topline revenue. The income. And then whatever other core variables you have in the business.

With some of the other businesses; the ones where maybe it's more of a land-grab to grow revenue quickly, it could be heavier on the revenue. But in general, it's about the leaders that they can control.

So without disclosing all of the bonus plans, I would say that they're structured quite well. And we tend to get the results both on the topline and the bottom line because of those. But also because of the operating success of that executive and his or her group.

On Europe, no, we didn't see any significant impact on travel because of the weather in Q4. I mean we have a pretty robust business in the UK and Germany. If you look at the content, a lot of it's also domestic.

So it's not like every time someone books a trip with Travelzoo -- sorry -- through the deals that we publish, that they have to fly somewhere. And oftentimes when you get a crisis, a shock, that indeed could be good news for Travelzoo; not just bad news.

But nothing significant there.

The last point on the threats. What are we concerned about? The Number 1 thing I'm concerned about is that we consistently produce the most outstanding quality.

Yes, there are going to be new businesses. FaceBook and so forth. But I think we're already extremely relevant in FaceBook.

What we understand both in travel and also in publishing; you have to be at either end of the source.

You're either the guy producing the content. Well, we do that and we do a phenomenal job of that. Or you're the guy with the big audience or the big reach; the big distribution. And we happen to have that, as well. So we're quite fortunate.

So I would say the thing that I am most concerned about is just ensuring that we produce the most outstanding quality day after day after day. And then we will retain our audience.

I mean look at something like the New York Times. That's an outstanding newspaper. But the actual structure of that product, it's paper. The ink rubs off on your fingers. I mean it's not really how you would think we'd be looking at newspapers in 2011. But it is absolutely the best. And with new media, they have increased their distribution. I feel that we're very much the same way.

And then I was going to ask the question about taking some of the spend off of SuperSearch and Fly.com. I think you got to the answer.

But your answer -- you mentioned managing to the bottom line. Is that your internal bottom line? Or are you starting to pay attention to what Wall Street expects? Because I know with the stock up 10- or 11-fold from the lows, and the volume up and you're getting a lot more attention, the stakes are higher with respect to what you report every quarter.

So when you talk about managing to the bottom line, are you stating the strict internal targets? Or are you starting to pay attention to what Wall Street wants from you?

No. We have strict internal targets. And we set our budgets at the beginning of the year. So then we have to operate within those.

I mean the thing you have to remember is Local Deals.

If we go back one year ago today, we weren't even thinking about Local Deals. We launched that business in May. It wasn't in the overall budget. It wasn't in the overall plan.

And there's actually a really good example of what we've got. We got Local Deals live in London in December. And we still managed to bring Europe in with a very small profit. I think that's remarkable that we were able to do that.

There was a huge effort in this business to get Europe live. And it wasn't just building technology and finding a deal. It was also, itself, privacy issues that you have. Taking credit cards from customers in these different countries across Europe.

So of course if you're undertaking such an effort, there are costs associated with that. And we didn't want to exceed our internal goal. So we had to pull back somewhere. But we could foresee that.

And you know, Travelzoo has always been relatively cautious on costs. And maybe we over-cooked it a little bit. We probably could've spent a little bit more. But I think we made the right decision.

Okay. Thanks a lot.

Thank you very much.

Our next question comes from Jason Helfstein with Oppenheimer & Company.

Hi. Thanks. A few questions.

The first, to follow up on what everyone's trying to guess. At the deal revenue.

We could obviously look at your accounts payable. And just to clarify, is it fair to assume that you're trying to pay the vendors at the same type of schedule that we've heard Groupon pays them? Over three months?

And then my second question is, I think clearly there's a lot of focus again on the deal space. And I think the question people are asking themselves is, "Who's got a competitive advantage longer-term?" Right? Because everybody can't do this.

We can kind of think about what we think somebody like an Open Table's competitive advantage is. Maybe if you want to talk about what you think your sustainable competitive advantage is; particularly on the Local Deals. Thanks.

Okay. So on the first point, yes. We have similar payment schedules, I think, to the industry. I mean some are very different. I understand Living Social pays very fast, and Groupon pays at a slower rate. Ours is unique.

But I'm really not sure that that's how I would analyze it.

I've stated previously that we're operating somewhere between the 30 to 40% range. That's our target. Obviously we'd like to get above that. And that's probably how I would do the math.

On the second point; sustainable competitive advantage. Travelzoo has been through quite a few cycles. There was a period of time when we had a product called Top-20. It's our flagship product, and it's an e-mail that goes every Wednesday with all of our deals.

It came under massive attack by the big OTAs. By startups. And not just in the US; also in Germany and in the UK.

In the end, we prevailed, and not just by a little bit but by a heckuva lot. The reason for that is because we stay absolutely focused on quality. And if you go to business school, you'll hear, "Well, quality isn't a sustainable competitive advantage." But there's one "a-ha" in that. In publishing, it is.

So go and pick up the Economist. Go and pick up the New York Times and you'll find why. Why are they still able to do that after such a long time? And why has the Economist now got a million readers in the US? Because it's the best content.

And if you start sending people crummy deals day after day after day, they're going to unsubscribe. So that's one key competitive advantage, and sustainable long-term advantage.

The second thing is, Travelzoo's brand is trusted.

Look at the FaceBook pages we've got, and you'll see that people love Travelzoo. In fact, unprompted, you just go there and people do, "I love Travelzoo."

I actually do one thing where I just go on Google and I type in, "I hate Travelzoo. I hate --" and I type all the other brands in. I never find, "I hate Travelzoo." But I find lots of sites for, "I hate," these other brands.

So we need to make sure that whatever we're delivering to our subscribers is really the very best. That we're honest and straightforward with them. And we give them deals that we would want ourselves.

And I think that if we stick to that, we can continue to be very successful.

Just one quick follow-up. Could you just comment on, for those of us who are a little newer to the story, what does the restricted cash make up on the balance sheet, as well as the deferred revenue? Thanks.

Wayne Lee can answer that question.

Well, one thing on deferred revenue. It's on the traditional media model -- advertising model. Where we might get instances where you have advertisers who prepay their campaigns. So actually, get the cash. And the other side would be to deferred revenue.

On the restricted cash front, the balance is primarily for two items. One is for a letter of credit that acts as a deposit for our space in New York City. And the other one is a deposit that we had to put in place in order to get a merchant ID to get Local Deals up and running in London.

Thank you.

Thanks very much, Jason.

Okay. I'll turn it back now to Mr. Loughlin.

Thank you, Operator.

So, excuse me.

Thank you, ladies and gentlemen. That concludes today's conference call. We appreciate your support and look forward to speaking with you next quarter. Have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a nice day.