Travelzoo (TZOO) 2011 Q1 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. Our presentation will fall into two parts this morning. First, our review of Q1 2011 financial results, and then I'll provide a brief update on our strategy.

Turning to slide 5, we achieved record revenues of $37 million in Q1 2011, up 30% on the same period last year. We also achieved record adjusted operating income, which resulted in non-GAAP EPS at $0.37, up from $0.15 in the same period last year. And we had our second-largest quarter ever in terms of new subscriber growth, adding over just over 1 million subscribers. These are outstanding results, and we are very delighted with our progress.

Turning to slide 6, I'd like to explain why we are reporting non-GAAP and GAAP results this quarter. Travelzoo entered into an agreement with the state of Delaware to resolve all claims relating to a previously announced unclaimed property review. Under the terms of the agreement, which was signed this morning, Travelzoo will make a one-time payment to the state of Delaware for $20 million in cash, and Travelzoo will receive a complete release of those claims.

The $20 million payment will come from cash on hand. As a result, we are recording a one-time expense of $20 million in Q1 2011. As the only difference between the GAAP and non-GAAP measures is the one-time expense related to the state of Delaware settlement, today's reporting should not be viewed as the Company's intention to report non-GAAP measures in future periods.

Moving on to slide 7, we'll provide more detail on our adjusted operating income. Adjusted operating income for the Company in Q1 2011 was $10 million. $9.3 million came from our North America business while Europe contributed $700,000, our first significant contribution from Europe.

Our income tax expense was $4 million, resulting in adjusted net income of $6 million.

Turning to slide 8, we look at revenue by segment. Revenue growth in North America was 23%, our highest quarterly growth rate in four years. In Europe revenue growth accelerated to 53% year-on-year, and local currency terms were increased by 49%, ahead of our Q4 pace.

Moving on to slide 9, I illustrate the improvement in adjusted operating income. North America adjusted operating income increased 51% year-on-year, and Europe made significant headway into the black. This resulted in operating expenses of $10 million.

On slide 10, we provide more insight into our operating expenses. Operating expenses in North America increased by $1.4 million compared to Q1 2010 primarily due to new hires within our new Local Deals business, and increase in legal and professional expenses. However, because our revenues increased by 23% as a percentage of revenue adjusted operating decreased from 67% to 59%.

In Europe, operating expenses increased by $1.5 million, as we staffed up for Local Deals and invested aggressively in building our subscriber base. But as a percentage of revenues, expenses decreased from 111% to 89%.

Slide 11 shows that our headcount increased from 255 in Q4 2010 to 296 this quarter. And revenue per employee increased to $499,000. The majority of new hires during Q1 were in Local Deals, and we intend to increase productivity as revenue grows.

Finally, slide 12 takes a look at our cash management. DSOs, day sales outstanding, decreased to 41 days compared to 44 in Q4 2010 and improved by three days when compared to Q1 2010.

We ended the quarter with $51.7 million in cash and cash equivalents, not taking into account the $20 million cash payment to the state of Delaware. The 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 at a later date.

Let's now move on to Travelzoo's growth strategy. On slide 14, I summarize the growth strategy. On the X axis, we are growing the number of subscribers that engage with the Travelzoo brand. We show our second-highest increase in new subscribers in Q1 2011 and now have just under 20 million subscribers to our publications in Europe and North America.

Along the Y axis, we are growing the revenue per subscriber, and Local Deals has become a substantial driver here. You can see already that we increased our revenue per subscriber from $6.70 to $7.80 from Q4 to Q1.

As we launch new markets and become more productive in existing markets, we see significant incremental revenue per subscriber gain, and I'll talk about this in a moment.

Other important drivers in revenue per subscriber on the Y axis include revenues from Fly.com, our flight metasearch business, sales team optimization, as well as time in markets, especially in our new markets in Europe.

Let's turn to slide 15 and look at the global subscriber footprint. It's very exciting that we had our second-best quarter ever in terms of new subscriber growth. But perhaps even more exciting for me is to see that one-third of Travelzoo subscribers now reside outside of the United States. If we go back five years, we'll remember that Travelzoo only operated within the United States and principally all subscribers resided there, and we only published in English.

We believe that as we continue to grow aggressively in North America, we have a tremendous opportunity there, and Europe presents an enormous opportunity ahead.

Slide 16 speaks to Local Deals opportunity. And while I'm showing revenues and the opportunity on a gross basis, Travelzoo reports on a net basis; that is, net of payments to merchants. And let's start by looking at the chart at the top of the page.

This gives us an indication of how we're doing. We established the Local Deals business in Q3 2010 generating $800,000 in gross revenue. And, as you can see, we added 18 markets per quarter in both Q4 and in Q1, and by the end of Q1, we had published deals in 48 markets. And we generated $16 million in gross revenue.

You can also see on this chart, at the top, that as time passes, we are becoming more productive in each market. Average deals per market per week increased from 0.28 to 0.76, yet we are still some way behind the two deals per week that we set ourselves as a goal. So there's plenty of opportunity ahead.

Now let's look down below at the second part of the chart, and we'll look at that opportunity in a bit more detail and see how it could unfold.

Assuming that we penetrate 100 markets and consistently publish two high-quality deals per week and capture gross revenue per deal of approximately $30,000 in terms of gross revenues, we could be at $312 million in gross revenues. If we fast forward to 200 markets, keep the frequency of the deals the same but assume gross revenue slightly lower at $25,000, we will generate $520,000 in gross revenue. And, finally, fast forward to 200 markets and assume by that time the Travelzoo audience has grown by 50% to roughly 30 million subscribers, which, in turn would lead to a 50% increase in gross revenue per deal because the local markets would obviously be larger as well, we see that the opportunity could be as much as $720 million in gross revenue.

For Travelzoo, the pace of market launches is restricted only by talent. If we onboard talented individuals who can sell to local merchants, we are able to open markets relatively quickly. Recently we announced that Steve Savad, the co-founder of Restaurant.com joined as SVP of Business Development in North America, and Glen Drury, co-founder of UK Daily, the (inaudible) Keynoir, and former regional Vice President for Yahoo in northern Europe has joined as Senior Vice President of Local Deals in Europe.

With top-notch executives like Steve and Glen, we feel we are able to attract even more talented staff and scale faster.

To end the presentation, let's turn to slide 17. Travelzoo's strategy is to be the quality leader in travel, entertainment, and Local Deals. This deal, our one millionth deal, which was published on March 30, epitomizes our definition of quality leadership. For $899 per person, our subscribers were offered six nights in Ireland with stays at the Four Seasons, the Ritz Carlton, and the Conde Nast Gold List Hotel. And that deal included round trip airfare and rental car. Unlike $5 deals for $10 lunches or 50% off teeth whitening, deals like this are not easy to craft. They require a high degree of expertise and trust.

On slide 18, I summarize our focus for the remainder of 2011. We will continue to aggressively scale Local Deals in North America and Europe while keeping our eye squarely on quality. We'll maintain rapid growth, especially in Europe, of our subscriber base. As we scale, we want to improve efficiency and our operating margins; continue to leverage our global content opportunity; bring Fly.com to profitability; and further improve earnings per share.

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

This concludes our prepared presentation, and I'd like to turn back to the operator and open the question-and-answer session. Thank you.

Thank you. (Operator Instructions) Ed Woo, Wedbush.

Yes, great quarter, Chris and Wayne. The question I had is obviously it's tough to provide Local Deals information without giving out too much information to your competitors. But, qualitatively, would you be able to talk about how much it of draws the earnings growth and revenue growth this quarter?

Hi, Ed, thank you very much for your question. First, let me just apologize also -- on slide 9 I made an error there where if -- to -- operating expense. I obviously meant adjusted operating income.

Apart from breaking down the gross revenue in the number of markets, we felt that we really don't want to disclose any more information about Local Deals. And that's where we're at. We have stated in investor conferences and one-on-ones sometime where our margin sits, which is trading somewhere between the 30 to 50. We said that restaurants tend -- we tend to get a slightly higher margin than [finite] holders such as spas. But apart from that, we haven't disclosed any further information, and we haven't disclosed headcount. We choose not to disclose headcount, going forward.

Going back to the margin question, have they been stable in the quarter?

Yes.

Great. And then the other question I have is on Fly.com. I know Fly.com has kind of been under the radar of Local Deals. Are you able to -- are you guys gaining traction on that? Increasing the number of searches, et cetera?

Yes, actually, I met with the Fly.com team about two weeks ago to review the quarter. The chart actually looks pretty nice. On the one hand, we are seeing an increase in usage and productivity, and we also see that we are moving closer to our goal on profitability for that business. So it's still an important part of our business, we're pleased with the progress, we're not there yet, but we're headed in the right direction.

Frederick Moran, Benchmark.

Chris, if you could, could you break out the growth rate of the core advertising sales? And how is the travel advertising ramping up relative to your expectations? And then separately, on Local Deals, maybe you could steer us in a direction of how many markets you ideally want to be in over the course of this rollout through the rest of this year? Thanks.

Thanks, Frederick. So on the revenue, we don't break the revenue out. I am pleased with our progress on all areas of the business. We had very strong performance in the UK this quarter, and North America and Canada were also quite strong. We would like to see some improvement in the other European markets, and we see that coming as the audience scales. So we don't break out that revenue from the Local Deals, but that's how we feel about it.

We've stated all along that we would like to open up roughly 15 markets per quarter. And we've had 18 in the last two. So that's sort of an indication of where we'd like to be. But, for us, it was never about just going out and opening up markets as quickly as possible. It was always about finding really top, top quality deals.

If you look at a market like Dallas, for example, we just published an incredible deal at the Crescent. It's not just within the Crescent Hotel, it's actually within the private club within the Crescent. And they have such members as Ross Perot to that club.

That deal took a little bit longer than maybe just going and getting a diner deal or something like that. But, in the end, if you look at the productivity from that deal, it's outstanding. And from a brand perspective, it's also a great result.

So we'd like to keep that pace at 15. If it's faster, that's great. If it's slower, okay, it's a little disappointing. But when we do it, we really want to do it in a way that we produce outstanding quality deals.

And, Chris, just to follow up, can you talk a little bit about how you find incremental deals once you've been in the market for a number of months and how much leverage there is to add such incremental deals?

Yes, I mean, it's not just being within the market. If you look at a lot of the deals we've run, they've been with hotels who we're already working with -- the Shore Club in Miami, the Four Seasons. I mean, a lot of these deals are coming from existing relationships, so that's somewhat incremental.

But I'll tell you a story, we either run a deal today or we ran it yesterday or tomorrow for Nino's in New York City, which is just by Central Park South. Well, that will now be the second or third deal we've run for Nino's restaurant group. So it was a good experience the first time. He likes the customers. Our demographic tends to be slightly older. We are told our subscribers tip very well, and, of course, the restaurant is quite excited to get that kind of volume of business. So that's really much more than a couple of hundred thousand dollars from one relationship to stem from the very first restaurant. And it just extends beyond that, right, because word travels quickly if you're bringing in high-quality customers.

Justin Patterson, Morgan Keegan.

Good morning and congratulations on the quarter. Three quick questions, please. First, it looks like that travel industry is starting to face a little bit more pressure with rising gas prices. I know Europe's been decelerating (inaudible). Are you starting to see some, I guess, counter-cyclical effect where now that Travelzoo is kind of at a tipping point in subscribers; that you're starting to see more and more companies want to put deals up on your site in Europe?

Secondly, could you talk about just Fly.com and its competitiveness relative to Kayak at this point and now Google's acquired ITA software. So how are you thinking about Fly.com over the course of the year?

And then, finally, how should we think about customer acquisition costs, going forward? Obviously, two very strong sub-growth quarters or trends from North America and Europe? Are you really at a tipping point where we should see more efficiencies on customer acquisition, going forward? Thanks.

Justin, thank you very much for your questions. On the travel industry, we tend to -- if I ever meet with investors always kind of draw the U-curve of a cycle. When things are bubbling out the top, Travelzoo does well because entrepreneurs open businesses and airlines and so forth. There is lots of activity on the way down. We do pretty well. At the bottom, it gets tough because the middle layer of decision-makers tends to freeze up. And then on the way up, it's good for us.

Oil prices, they don't necessarily have an impact on us. They'll have more of an impact on the airlines and cruise lines. I mean, for example, we just promoted tremendous fares to Europe for British Airways. Yes, there was a fuel surcharge on there, which was larger than the fuel surcharges last year. But the demand was still relatively strong.

We also -- a lot of our businesses, it's not just Local Deals but also hotel deals, and people don't necessarily need to consume lots of oil to get there. Because the price of oil has gone up as it has in the last 12 months, the incremental cost of a trip from New York City to Vermont is only going to cost $20 extra. So it's not as if it's such a huge burden.

If you say, you know, other trends, like the cost of grain and food, that's also going up. So then restaurants are somewhat under pressure to produce deals because prices -- and prices may be higher. But, anyway, deals are definitely [a flow]. And in Europe, I don't see anything significantly different.

Fly.com, our intention with Fly.com was always to build a metasearch engine that could support our need to provide our subscribers with outstanding airfare deals. More often we do that. For example, in the first quarter we told our subscribers in Los Angeles and in Houston about incredible fares to Barcelona and London. And we found those through Fly.com. And a lot of the traffic you're getting into Fly.com does come from Travelzoo.

There are often unpublished fares and sales that airlines don't necessarily buy billboards for, buy advertising for. And now with Fly.com, we have the opportunity to not only publish those but monetize those. Our intention wasn't to be a pure play metasearch business. It's rather complementary.

And then on customer acquisition -- no significant changes. We are perhaps spending more time focused on that as a point of optimization in the business, and we've been doing that since last July. That will continue and never stop. But, in the end, we really want to acquire high-quality subscribers. So we're not interested in just adding a database of e-mail addresses or anything like that. We're really interested in engagement with our subscribers.

Got it, thank you. And a quick follow-up, if I may. You've invested a lot in headcount the past few quarters, and you commented that you're really just focused on getting the right personnel into place. Obviously, Local Deals has had a fantastic result ramping over the past few quarters. Is it now at a point where we should see headcount start to moderate a little bit as you get, I guess, more inbound inquiries from entrepreneurs wanting to be featured on Local Deals?

I don't think so.

Atul Bagga, ThinkEquity.

Congratulations on a great quarter. I missed deals that you were showing on your slide 17. That would have been a wonderful deal for me.

I have a couple of questions for you guys. A, I just wanted to understand you are in 48 markets now, and you have about 20 million subs combined US and Europe. What (inaudible) are in these 48 markets that you are currently selling your Local Deals at?

Atul, we haven't disclosed that number yet.

I know in the past you have said that 100 markets are about 75%. Is it fair to say these 48 markets probably these are the markets where you had the low-hanging fruit or the next concentration of your (inaudible). Is that the right way to think about it?

I would look at it with maybe a slight pinch of salt. Because if you look at the 48, some of them, like Los Angeles, we have a constant flow of deals, and it's really at full speed there. And then other markets, like Austin, Texas, it's very, very early stage. So you could look at -- you could really start to look at the day-to-day how many subscribers got five or more deals; how many subscribers got two or more deals, et cetera.

We're a long way off full penetration is what I would say on this. There's just plenty of huge markets that we're not even touching yet. So that's kind of how I would disclose it. I don't really want to talk about what's the percentage of the subscriber base and so forth. But, look, we're not in Calgary, we're not in Montreal. We published one deal in Vancouver, one or two in Atlanta. We've hardly published any deals at all down in Miami recently, and that will start to [comp] as the salesforce kicks in.

In the last two or three quarters is -- definitely, you guys have done a great job on the Local Deals, and it seems like there is a very strong tailwind for this business as we Groupon (inaudible) they have been very aggressively rolling out new cities and having more sales reps. How do you see this competitive landscape evolving, let's say, a year from now? And do you think you need to be scaling up much more rapidly than what we have seen in the last two quarters?

Well, I don't think our scale is a problem, right? I mean, if you look at -- I mentioned the Crescent deal in Dallas. After, I think we put something like 2,600 reservations into that restaurant within -- I think it was 2,600, maybe 2,400 -- but it was within 20 to 48 hours. Well, the place can't take any more. So there is no need for further scale on that in terms of the audience. It's about the quality of the deals. And look at the relative base of the other deals we published in Dallas. They went to maybe a sub-sample or, in fact, exactly the same audience, and they didn't produce nearly as much in terms of revenue for us or for the establishment.

Could we have got 5,000 bookings into that establishment? I think we probably could have, but we had to cut it off because that was all they could handle.

So the key factor in all of that is quality. And I've said it again and again and again for the last nine months, it's all about quality. In publishing that's one point that you can compete on. And what I'm saying within the organization is if I was a magazine, which magazine would I want to be? I'd want to be Conde Nast Traveler, or I'd want to be Travel and Leisure. And I don't want to be the Wal-Mart stamp or coupon book. And these are very different value propositions. Both of them can be very, very successful, but they are very different value propositions. And Travelzoo, we know who we are, what we want to be, and that's what we're going to continue to do -- publish high-quality outstanding deals. And the other guys can go and do whatever they want to do, and I hope that they're successful as well. And I think there's plenty of space for everybody.

The other thing you have to think about, really, is about -- there's only 52 weeks in the year. We're only publishing two deals per week. That's only 104 deals in a given market. So we can be rather selective. And by being selective, you can actually squeeze the quality. If you only have to publish 104 instead of 365, you can be much, much more selective. And I think you'll start -- I think you already see that coming through on the content that we publish, and I hope we continue to do that.

That makes sense, that makes sense. Can you also talk about the synergy between your [code] business and the Local Deals business? I mean, you guys already have reservations with a lot of hotels and airlines and cruise operators. Do you foresee that some of those relationships also getting translated in the Local Deals that you're publishing?

Yes, they already are. I mean, that's already a tremendous overlap. What's interesting about a five-star hotel is that it has a restaurant that usually has to be open all day long. We never serviced that restaurant before. Today we can. Those conversations are happening. So we also have relationships with spas inside of the hotels. One of the most successful deals we published recently was there was a deal with the J.W. Marriott in Chicago. That's an extension of an existing relationship. If you draw the circle around the customer, let's say, the customer is the hotel. Previously, we had one conversation, one point of contact. Now you have three or four because there are three or four things we could do for you. And, of course, that's a much more productive relationship. So you have a more productive relationship with the subscriber and a more productive relationship with the hotel.

It makes sense. And so just so I better understand -- so does it means that some of the sales reps, they are doing both the jobs? They are doing -- working on the Local Deals as well as on the core advertising side of the businesses?

No, there would be a hand-off.

Okay, makes sense. And the last question from my side -- so the settlement you guys did with the state of Delaware -- what does that imply, what does it mean on your share count? How should we model the share count, going forward?

I'll let Wayne Lee answer that question.

Yes, hi, Atul. So the settlement with Delaware was for cash payment, so we're not issuing shares as part of the settlement. So it's just a one-time cash payment of $20 million.

Does it mean that the 3 million shares, which were unclaimed -- were these included in the share count? Should we take those 3 million out from the share count, or do they stay in the share count?

Those 3 million have not been in the share count.

Okay, those are not in the share count.

I have to say we're very pleased with the settlement. The claim, the potential claim, could have been much higher, and we could have also seen, had we issued those shares, a dilutionary effect. So settling as we did for $20 million in cash, I think, is a great result for the Company.

Okay, makes sense. Thank you, guys, and, again, congratulations on the great quarter.

Thank you very much.

Eric Martinuzzi, Craig-Hallum.

You guys had a slide last quarter in your slide deck. I refer to it as the "Los Angeles slide." It was the one where you sort of laid out, hey, in a market where we've had Local Deals going for a while, here is how much the revenue per subscriber on an annualized basis is. You didn't include that slide in this deck. But I did want to ask a question, both on the example of Los Angeles as well as the other Local Deals markets. As you looked at Q1 versus Q1 a year ago, what was the incremental lift in Los Angeles? Did it hold for Q1?

If you actually go to slide 14, we just put a summary number in there. And, actually, the result is even better than the slide somewhat implies, because we say we had $7.80 -- this is not Los Angeles, not national but worldwide -- $7.80 per revenue per subscriber per year based on the Q1 numbers. That takes the beginning of the year subscriber count.

We compare that to Q4 2010, and that $6.70 is being based off the beginning of the 2010 subscriber count, which is about 2 million subscribers less. Is that correct, Wayne, about 2 million, yes?

Yes.

So, in fact, that division is being done off a much lower base, which, if you then think about that mathematically, productivity gain across the board is significant, right? The other way you can do it is just take the revenue, annualize it, and then divide it by the number of subscribers. And you can see the gain is significant. So we didn't feel it was necessary to break down an individual market.

And, of course, in Los Angeles, yes, we've had a significant incremental gain, but there are also other markets, like London, that have done very well as well.

I was curious. I expected the incremental gain. I was just wondering if the magnitude held as well where you saw a doubling in Q4. Did that sustain in that market in Q1?

I didn't actually look into that number specifically because you can now see it on the overall picture. And the reason we disclosed it in the previous quarter is because you couldn't really see it coming through. But now you can see it -- you can really see it on the overall picture. So we're not breaking down particular cities but, yes, I mean, it's significant.

Okay. As far as attacking the market, the competitive landscape or just the recent activity, Europe versus North America. Can you talk about the challenges in Europe versus North America of establishing a local footprint?

No. The challenges are actually exactly the same. One is you need excellent leadership, which we have. Then you need to hire outstanding salespeople who understand what a quality deal is. And getting a deal, honestly, that deal I've outlined on page 17 -- getting a deal like that, which actually comes from a tour operator here on the East Coast called SEPTA Tours. And then we work with the hotels, too. Four Seasons, Ritz Carlton, Conde Nast Gold List -- you can't just send in someone who has graduated from college and never stayed at a luxury hotel to try and get that kind of deal. And it's very, very different to save $5 on a $10 [Boga] lunch. And I think that that's what we have to understand about what we're doing here.

Getting a Pulitzer Prize in journalism is very different to writing a story in a local newspaper, right? I mean, it's just fundamentally different.

Okay. But, I mean, competitive landscape-wise, the household names in North America are Gilt Group, Groupon, LivingSocial. Are they equivalent competitors in Europe? Are there other competitors that I haven't mentioned?

Well, I mean, there are local -- there are local companies, but while we say they're competitors, they're going off to businesses, and they have subscribers. It's a little bit like saying that Expedia is a competitor. It's not necessarily -- we don't really pay much attention to it, to be honest with you. I think we just focus on what we're doing, and we try to produce the best we can. And if we do that, then we win.

There is this Groupon, LivingSocial, Brands for Friends -- there's lots of companies, and there are -- look, there are hundreds and hundreds of these companies, but you just don't spend time thinking about them. You just focus on what you're doing, and that's our strategy.

You guys are having terrific success with this strategy, and I don't mean to imply you're not. I checked because it's something that can change, and it's a good chance to check in.

There are different competitors in every market. You know, and every man and his dog is trying to publish Local Deals. But, in the end, we're just focused squarely on what we're doing. And that's been our philosophy at Travelzoo for more than a decade. I mean, let's not forget there was a period of time when Travelzoo was publishing something called the Travelzoo Top 20, and every man and his dog tried to copy that, too. And we succeeded in the long run because we just focused on quality, and that's exactly what we intend to do here. And we're not trying to go and attack the Groupon space or whatever space it might be. We just want to publish deals that are relevant to our subscribers and our audience, and we think that that works.

Bill Lennon, Monness Crespi Hardt.

Two for me -- Chris, you mentioned something that's been on my mind a lot with Nino's, the restaurant in New York, repeat business. I know this is still a relatively young product for you, the Local Deals, but can you give us your thoughts on repeat business. What -- if you have a long-term goal, what you think that might be? And with or without an answer to that one, can you give us two extremes? Just some highlights -- the people who have expressed a desire to repeat with you say the following things, and the people at the other end to say, "No, once was enough for me." What are they saying? That's question number one.

Question number two -- in the instances where you do run into Groupon and LivingSocial -- when are you winning deals and when are you losing deals? What are the key attributes of those two scenarios? Thanks.

On the repeat, do you mean the businesses or the subscribers?

Oh. Good question. I mean the businesses -- a restaurant coming back for a second or third time like Nino's?

Well, the repeat is somewhat limited by the timeframe, right? I mean, if we publish Nino's restaurant, that particular restaurant, and he wants to run the same restaurant to the same audience, we probably need to put a delay in there of months. It could be six months, it could even be a year, because you can't tell people about the same story. And that's just an aspect of managing news, and that's how we think about it. So it would be perfectly fine for us if Nino's is working with another deals publisher in the meantime to service his need. That's also how it works with hotels. It's not like we have a monopoly on hotel deals.

And then we would repeat maybe -- whatever the publishing period is, and we model that. We've been modeling that since I've been here in 2001. I remember back in 2003, we tested how many weeks in a row we could publish a Las Vegas property to Chicago, and we found the point of diminishing returns. So we figured that out. It's not so much dependent on him, it's more dependent on us.

And the on the second case, once is enough. We really haven't run into that problem yet. What we might get is that we send so much volume to a particular business that they just don't any help because their capacity is now full for the next period of time. But I can't imagine that they would say, right, I'm not going to work with you ever again anymore. It's more a case of they just can't handle any more business.

On the second question, sorry, I've written a note down. I didn't get it. What was the second question, please?

Yes. On those occasions where you have run into Groupon and LivingSocial, and you've won business, and the flip side is you've not won the business, what are the key attributes in either scenario? When you beat them on a deal or -- ?

I honestly don't even -- I don't even -- I don't think we really encountered that situation very often. I mean, it's a massive market out there. This is an enormous market, and the chances of us speaking to a particular restaurant on a particular day in New York City when the Groupon or LivingSocial are speaking at the same time is very, very slim.

But what we have encountered, and it's rather minimal, is where a particular company in a particular restaurant or an entity might say, "Well, I can go and work with -- you've never heard the name -- DailyDeals.com -- because this is the local small incumbent, and he is willing to give me a 10% margin, and you're going to charge me "x." Then Travelzoo just walks away because we know the quality of our audience.

So I don't think we're at a point where so much that we're going head-to-head. There's a big, big market. There's plenty of opportunity. We're focused also on different priorities, right, and so far so good.

Okay. And I have one more -- I just want to throw one more in there. You talked about being constrained by hiring the right people. Travelzoo traditionally hasn't given out big slugs of equity to employees, and it's worked very well so far. Do you think, over the next two to five years, as you're trying to get some of the big numbers on your deck in Local Deals. If some of the competitors are offering equity slugs, is the lack of that policy at Travelzoo going to be a constraint?

No, I don't think so, not so far. We're absolutely fine. In the end, it's either going to be a cost to those companies in terms of recognizing that equity expense or a cost in cash. We pay in cash, we pay well, and you saw that we hired now Glen and Steve. We don't have problems in hiring great people. In fact, a lot of people also like the fact that their personal performance is immediately rewarded.

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

Ladies and gentlemen, we thank you very much for your support, and we look forward to speaking with you again next quarter. Have a nice day. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time and have a nice day.