Travelzoo (TZOO) 2011 Q2 法說會逐字稿

Good morning, everyone. And welcome to the Travelzoo's 2nd Quarter 2011 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be 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 for joining us today for Travelzoo's 2nd Quarter 2011 Financial Results Conference Call. I'm Chris Loughlin, Chief Executive Officer.

With me today is Glen Ceremony, the Company's Chief Financial Officer. Glen will walk you through today's format.

Thank you Chris, and good morning, everyone.

Before we begin our presentation, we would like to 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 from those contained in the forward-looking statements, materially. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in 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 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, I will review our Q2 2011 financial results. And then Chris will provide an update on our strategy. We will then conclude with a question-and-answer session.

Now, if you will please open our management presentation, which is available at www.Travelzoo.com/earnings.

Turning to Slide 5, we achieved record revenues of $37.6 million in Q2 2011; up 34% on the same period last year. We also achieved EPS of $0.30; up from $0.20 in the same period last year. And we continued our growth in new subscribers; adding approximately 800,000 new subscribers. That's almost 300,000 more than in Q2 2010.

On Slide 6, this provides more detail on our operating income. Operating income for the Company in Q2 2011 was $7.6 million. $6.5 million came from our North America business, while Europe contributed record profits of $1.1 million, and its fourth consecutive quarter of profitability.

Our income-tax expense was $2.8 million; resulting in net income of $4.9 million.

Turning to Slide 7, we look at revenue-by-segment. Revenue growth in North America was 25%; our highest quarterly growth rate in four years.

In Europe, revenue growth accelerated to 67% year-over-year. And in local-currency terms, we increased by 53% -- ahead of our Q1 pace.

Turning to Slide 8, we present our operating income. North America operating income was stable year-over-year, and Europe increased 2-fold, as it continued its profitability.

This resulted in operating income of $7.6 million, representing a year-over-year growth rate of 29%; despite a $2 million television-advertising test, and investments in Local Deals to fuel future growth.

Slide 9 gives us more insight into operating expenses.

Operating expenses in North America increased due to our investment in Local Deals, and our $2 million television-advertising test. In Europe, operating expenses increased due to our investment in Local Deals, as well.

Yet, as we scaled in Europe, as a percentage of Europe revenues, expenses decreased from 109% to 84%. So despite our investments in both North America and Europe, because our total revenues increased 34%, as a percentage of total revenues, total operating expenses year-over-year remained stable, at 73%.

Slide 10 shows that our headcount increased from 296 in Q1 of 2011 to 343 this quarter. Our highest-ever sequential growth-rate in new employees. The majority of our new hires during Q2 were in Local Deals.

As you can see, our productivity declined as our new staff came up to speed. We are investing for future growth, to bring the best deals to our subscribers, and we intend to increase the productivity as revenue grows.

Turning to Slide 11, we take a look at our cash-management. DSOs, or days-sales-outstanding, decreased to 40 days, compared to 41 days in Q1 2011 -- and improved by 5 days when compared to 2010.

We ended the quarter with $40.1 million in cash and cash-equivalents. This was down from prior-quarter as a result of the Q1 2011 one-time $20 million State of Delaware settlement.

As we continue to grow the Local Deals portion of our business, the cash will increase, as consumers pay us immediately and then we pay the merchants their share at a later date.

We summarized the financial results for the quarter on Slide 12. We had a strong quarter, with record revenues. The fastest year-over-year growth rate in 4 years.

We had strong year-over-year growth in operating income despite investments in Local Deals, and a $2 million television-advertising test in the US. We also had our second-best Q2 ever, in terms of subscriber growth.

Now Chris will cover the second part of our presentation; Travelzoo's growth strategy.

Thank you, Glen.

On Slide 14, I summarized our growth strategy. Along the X-axis, we're growing the number of subscribers that engage with the Travelzoo brand. We're accelerating the number of subscribers, and introducing new distribution methods, including social media, the iPhone and distribution partnerships with other publishers.

On the Y axis, we're growing the revenue-per-subscriber. Local Deals has become a substantial driver of revenue-per-subscriber growth.

As we turn on new markets and become more productive in existing markets, we see significant incremental revenue-per-subscriber gains.

Other important drivers of revenue-per-subscriber along the Y axis include revenues from Fly.com, our flight-metasearch business, sales-team optimization and time-in-market.

Turning to Slide 15, you can see that we've now reached 20.7 million subscribers in Europe and North America. In Q2, we added approximately 800,000 new subscribers; 300,000 more than the same period last year.

During the quarter, we experimented with new methods to attract new subscribers, including a previously-announced television-advertising test, social-media campaigns, website optimization, deal referral and third-party distribution, on websites like the Chicago Tribune and Kayak.com by the Travelzoo network.

One of the most encouraging developments we continue to see is that approximately 1/3 of customers buying a Travelzoo Local Deal are entirely new subscribers. So as we ramp up Local Deals, we attract new customers who may not have thought to use Travelzoo before.

Slide 16 speaks to the Local Deals opportunity. That's the same slide that I showed you last quarter, but with updated numbers for Q2.

If we start at the top of the chart, you can see that we launched Local Deals just a year ago, when we generated $800,000 in gross revenue. This quarter, we generated $26 million in gross revenue.

As a reminder, this gross revenue is the amount paid to us by customers for the vouchers. We present our revenues on the income statement on a net basis -- which is gross revenues less the share we pay those merchants.

In Q2, our strategy was to quickly extend the service into 27 new markets. Well ahead of the 18-per-quarter pace of the previous two quarters. By the end of Q2, we were offering Local Deals in 75 markets, across 6 countries.

You can see that our average deals-published-per-week did not improve significantly, compared to Q1. That's largely because newer markets still have relatively under-developed sales activity. As sales managers spend more time-in-market, we see the productivity increases.

Gross revenue-per-deal remains stable, at $33,000; and overall, Local Deals is now annualizing more than $100 million in gross revenue.

If we look below, we can see the opportunity ahead. Assuming we penetrate 100 markets and consistently publish two high-quality deals per week at $30,000 in gross revenue-per-deal, we would generate $312 million in gross revenues.

If we fast-forward to 200 markets and assume that per-deal revenue increases to $37,500 -- given an audience increase of 50% -- we see a business that could generate $750 million in gross revenue. We're quite excited about the future opportunity with this business.

For Travelzoo, the pace of market launches is restricted only by talent. If we onboard and train talented individuals who can call on high-quality businesses and secure deals, we're able to scale the market relatively quickly.

Moving on to Slide 17, you can see how we invested during the quarter, to fuel future growth. We ramped up headcount at the fastest rate in our history, adding 47 new employees during the quarter -- mostly within Local Deals.

We accelerated the number of new market launches, adding 27 new markets in Q2, compared to 18 in the prior quarters. We began to roll out Getaways across the world. These are hotel deals that also include a Local Deal, and leverage on the voucher model.

We invested our previously announced $2 million television-advertising test, and we built a robust customer-services and a merchant-services organization. That included hiring senior executives.

On Slide 18, I'd like to share with you one of the biggest wins of the quarter. Travelzoo was selected as the exclusive Local Deals partner for Sysco iCare. Sysco iCare is the marketing organization for Sysco Corporation; the largest food-services distributor in the United States, with approximately 17% market share, and which supplies over 250,000 restaurants.

Travelzoo was selected as the exclusive Local Deals publisher by Sysco iCare because of the quality of our audience and the level of our professionalism.

Under the terms of the agreement, Sysco's team of thousands of sales representatives will now recommend Travelzoo as the go-to publisher for Local Deals in North America. To put this opportunity into perspective, you can see here that the initial test deal for Sysco iCare-affiliated restaurant E&O Trading Company in San Francisco, generated $130,000 in gross revenue.

We look forward to working with Sysco iCare to roll out this exclusive partnership over the coming months and years.

The next slide gives you a sneak preview of Travelzoo's new iPhone application. We've been quite busy in this area.

We already see that approximately 10% of our user-base accesses our deals from mobile devices. People, for example, will go to work on the West Coast, looking at our deals on their iPhone. The iPhone is, indeed, the most popular of these devices, and the first version of the iPhone application allows subscribers and new visitors to access all of our deals and purchase Local Deals.

Many of the deals can already be redeemed immediately. As adoption scales, we'll focus increasingly on addressing our subscribers' immediate needs, with on-the-go deals.

The US version of the application was uploaded to the iTunes store on Monday of this week, and it will be available in the coming days after Apple approves it, and then rolled out around the world as localized versions.

Finally, turning to Slide 20, I'd like to comment on the essence of our long-term strategy.

We fundamentally believe that as we continue to scale, we differentiate ourselves by focusing squarely on quality leadership. We believe that our deals, like this dinner at the Four Seasons in San Francisco, or the new Palmer House in Chicago, stand out from the myriad of $5 and $10 burger lunches that pollute email boxes around the world.

We are able to produce such high-quality content, because we have established a high-quality, affluent, travel-ready audience which is extremely desirable for high-quality local businesses.

To conclude the presentation, Slide 21 summarizes management's focus for the remainder of 2011. We will continue to aggressively scale Local Deals in North America and Europe, while keeping our eye squarely focused on quality and driving efficiency through that business.

We'll continue to grow our subscriber base, especially in Europe. As we scale, we want to improve efficiency and operating margins across the group. We'll continue to leverage our global content opportunity, plan to bring Fly.com to profitability, and further increase 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'll turn it back to the operator for the question-and-answer session.

Thank you.

The floor is now open for questions. If you do have a question, please press *, followed by the 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.

Thank you. Our first question comes from Fred Moran with Benchmark.

Thank you.

Chris, the $26.2 million of gross Local Deal revenue -- should we assume that the revenue-share or take-rate dropped meaningfully, and that's why the revenue came in lower than expectations?

Or did the core travel-advertising business see no revenue-growth in the quarter?

Hi, Fred. Thank you for your comment.

I stated previously, we didn't set these expectations. We're not managing toward numbers that the analyst community on the sell-side puts out. We obviously are not completely thrilled with the results, but this is a record quarter for Travelzoo, in terms of revenue growth.

The take-rate for the Local Deals business did not fundamentally change. And if you look back historically at Q2 versus Q1 for the last five years, you can see that the travel business remains relatively flat.

It seems that the sell-side analyst community thought it would grow this year, for some reason.

Okay. So what is your take-rate right now? And what is a reasonable range for that take-rate, going forward? And why did the core business growth disappear or flatten out in the quarter? And do you suspect that that will be the trend, going forward?

Well, as I just stated, if you look at the last five years at the operating of our business, it tends to be flat from Q1 to Q2. And I don't know why a number of analysts would think otherwise. So that's the first thing.

The second thing is, as I previously stated, our take-rate ranges from 30 to 40%, and that hasn't changed at all in the quarter.

One thing which we did this quarter, as you can see, we launched a product called Getaways, which we tested in March. That did create a little bit of cannibalization and confusion, where it moved hotel revenue from advertising to a voucher model.

But I think that was a smart idea, because what we see, for example -- we ran a Berlin hotel. Typically a Berlin hotel might spend somewhere in the region of $5,000 to $10,000 in advertising fees. But with one simple promotion, that Berlin hotel generated somewhere in the region of EUR30,000 or EUR40,000 for the company. And indeed, the hotel also got more business, because we had an incentive to deliver the media to a larger audience.

So I mean, we're doing a lot of things here, I would say. And we've got a lot of businesses. I would say that the Local Deals business was very good. And the other businesses were somewhat as expected. But there were certainly some areas where we improve; particularly in the hotel area.

Would you consider breaking out segment results for the core versus the local, going forward, so that we could better model that core business on an ongoing basis?

We are not doing that at this time.

Okay.

Is the $19 million of sales and marketing expenses in the second quarter a new, sustainable level? Or should we adjust downward the $2 million one-time test advertising?

We tested advertising. We clearly stated it was a test. We issued a press release that that was a test. And again, I reiterated that that was a test.

So if we announce that we plan to run any further television advertising at that scale, we would obviously announce in a press release that we will run television advertising. At this time, I don't have any plans to run any television advertising.

Okay. Final question.

It looks like some of the larger, older, Local Deals markets saw some flattening out of growth in the quarter. Was that due to competition? Saturation? Maturity? Will that impact the take-rate? And can Travelzoo truly differentiate and compete and grow in those larger markets going forward?

I'm not aware of any decline, so I think the problem that you've got there is, first of all, I don't know where you're getting your data. Because we're not disclosing the data. Secondly, if for example, we offer a deal and then there's an upsell.

I mean, for example, the very first deal on the site right now -- it says the price is $149 for a stay in a Connecticut coastal hotel. But then there's a $179, a $239, a $299 option. And you have no visibility at all on what people are buying.

So I really don't know where you're getting your numbers from, but you can't have the numbers that I have.

Okay.

So you believe that your largest markets are still growing rapidly on a sequential basis, and you'll be able to offer more deals in those markets and continue to grow it meaningfully?

Yes. I mean why wouldn't we be able to grow? Continue to grow? We've demonstrated again and again and again for the last 12 years, we can continue to grow our audience.

On the one hand, we continue to grow the audience. And on the other hand, we can also segment the market.

If you look at Los Angeles, that's actually five markets for us. I'm sitting in the Bay Area right now, and we really only treat the Bay Area as two or three regions. But you could treat it as more.

So as you get more granular, your conversion rate may indeed go up on those deals. And you can become more productive.

But in the end, I'm afraid it's all about execution. And we have to do a better job in execution. This quarter was about laying the foundation. We brought a lot of people onboard. Obviously those people will not be as productive as the people who've been here for a long time.

So that's, of course, our intention.

Thank you, Chris. I appreciate the answers.

Thank you.

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

Thank you. Congratulations on the real strong growth there.

My question is, again, on the North American travel. I know you guys don't report it this way, but maybe a better way to ask the question would be for somebody like me, who models four different segments --

So I've got Travel and Local, North America and Europe. Would it be correct to say that if I saw a down year-on-year North American travel that the error in my model would be this Getaways? Would that be the likely explanation?

Yes. I think that's actually a reasonably good assumption. Obviously it's not the whole picture.

But we took the decision back in April. We ran the tests in March for the Getaways. And some folks will probably remember, there was a Napa Valley deal that all of a sudden went through the roof. We just said to ourselves, "Okay. Do we attack ourselves? Or do we just ignore this?"

And what we did was just said, "Right. Let's roll it out and see what happens." You'll notice that the content is quite different.

So Hotel Direct is straight into the hotels-booking engine. And what we find is that the large corporations that have best-price guarantees and [want to yield] manage are very interested in continuing to get that direct business.

And then there are smaller hotels and properties that are quite keen to get it either via the voucher or via the booking engine.

So we started to roll out this quarter. And you know, we have more than 30 people around the world focused on hotels. So as you're trying to disseminate a new product, often you create some cannibalization.

On the one hand, you create a little bit of confusion. And then you get back up to speed. So that's, in fact, what happened, Eric. And I'm confident that we can really get that thing moving again.

So is it fair to say then for your Top-20 email newsletter that the insertion rates have not seen a decline?

I really didn't look into that level of detail in the Top-20s, yet. But one thing that's interesting, when you run an advertising deal, of course you can recognize and you know the revenue upfront and immediately. When you run a Getaway, you don't know what happened until next week. Right?

Do you then say, "Okay. I'm willing to replace the hotel-advertising solution with this Getaway solution for a particular spot in the Top-20?" You honestly don't know the answer until a week from the day you do it.

So we're still early-days on that. But I'm encouraged, certainly, by the results and the feedback we're getting from the users on the Getaways.

Okay. And last question for me.

You had an acceleration in the number of new markets that you went after in Q2. My own model was building around 18-per-quarter. You had 27 in Q2.

Do you have any expectation for Q3? Or for those of us modeling at home, where you expect to end up for year-end? Is it back to 18 for Q3? Is it the same as Q2? Any help would be appreciated.

What we said at the beginning of the year is that ideally, it would be great if we could get into 100 markets. That would be fantastic.

We had a big debate internally, "Do we go hard-and-wide now? Or do we go deep?" And we went wide, and we brought on a lot of new folks.

The benefit of doing that is that you can train a lot of people up at the same time, rather than bringing onesy-twosies at a time. We're now starting to see that. If you look at Detroit, that's a new market. Actually, we're very excited about Detroit.

What's nice about a market like Detroit is, on the one hand, you've got the Local Deals. But you don't really have too many travel deals going in newsflash. So the media saturation or demand for the media is not necessarily as great as it is in a New York City or Los Angeles.

And so these markets like a Detroit, where we have a large group of subscribers, can be very, very attractive for us.

The goal now is obviously to improve the efficiency that we have in the business. Improve the conversion rate, and so forth. That comes from spending.

Literally, you need to spend a day at a time with the folks, and help them develop and understand the business very quickly.

The other thing I should point out, I talked at the end of the presentation about the quality of the deals that we're putting out there. When you're working with the Four Seasons, or when you're trying to get the Sysco iCare deal closed, it's very different to going and getting 50% off a happy hour at a local pub. Or half off a burger lunch.

I could publish those kinds of deals. I could publish 100 markets with those kinds of deals tomorrow. But that's not the direction we want to take this Company. We want to stay focused squarely on quality, and right at the top of the spectrum.

It might be a little bit more difficult in the beginning, but we think that's going to pay off in the long run.

Okay. So just to summarize, 100 is still the goal by year-end. I certainly appreciate the differentiation in your subscriber demographics. I just wanted to put a fine point on it.

It was kind of a batching of hiring in April, but still a goal for 100 would be terrific by year-end.

Yes. To those people who were monitoring the results of the Local Deals. Because often we see data coming out and saying, "This is what Travelzoo's doing." And so forth.

We're interested. We don't even know where you guys are getting the information from. But it is true that April was slower. That was an intense period of hiring and developing. And June was much stronger.

It seems that the analyst community picked up on that, "We need to capitalize on this, now."

Thank you.

Thank you.

Our next question comes from Ed Woo from Wedbush.

Congratulations on the growth, guys. But I think some of the investors are concerned with the core market.

I know you don't break out Local Deals and core revenue, but my rough estimate for Europe shows that revenues were down sequentially.

Could you comment a little bit about how the Europe growth outlook is, going forward? Either in core or Local Deals?

Ed, we don't break out the two businesses. Oftentimes, honestly, we think about it as one business.

I mean you think about, "What do you do?" Do you send out the newsflash for British Airways? Or do you send out the Local Deal for Gordon Ramsey?

These are decisions that happen within the business. We are not concerned about the growth rate within the European business. Some markets are growing phenomenally well. Some businesses have seasonal fluctuation.

The point in the business is, it's about you're bringing on all these people, introducing new products.

I mean let's think about what we did in the last six months. We took Local Deals across Europe. We put it into all of these different countries. We built teams around that.

We integrated it into new business. We also launched Getaways.

I mean there's a lot going on, and that consumes a lot of time. So we're of course not happy with the growth rate.

I mean even though it is our record growth rate, we would like it to be even stronger than that. But it's honestly about execution and that's it. There's no other ingredient. It's simply execution.

When you say you were happy or -- I'm not sure about the growth rate --is it for Europe in general? Or do you have specific answers for each specific region?

Well, no. I mean that's a phenomenal growth rate you're seeing there in Europe. In local currency, it's over 50%. And in dollars, it's over 60%. So it's great. It's a tremendous growth rate.

It's the first quarter we've surpassed $10 million in revenue in Europe, and the business is throwing off over $1 million in profit, now. But could we do better? Yes. Of course we could do better. How do we do better?

It's not necessarily a market issue. It's simply that we need to get more focused, and we need to digest this new business, and then pick up the pace again.

So I mean that's the reality of what's going on.

Previously you said once you get to a million subscribers in a certain country, that you begin to really see accelerations in revenue and profitability. Is that still the case?

Well, it was 1%. So when I was building the UK business, 1% of the population, people start to take you somewhat seriously. 2%, 3% and so forth. In a market like Canada, we're very strong. There, approximately 6 or 7% of the adult population use Travelzoo.

So yes, of course, the stronger the market. It wasn't a million. It was only -- I think in that conversation, Ed, it was in relation to that particular market. And for example in Canada, 1.2 million subscribers gets you 6 or 7% of the adult population.

So that, of course, does help you take a dominant market position.

Great.

Then the other question is, you know, you made a lot of investment. You hired a lot of people and you ran that TV campaign. When do you think you're going to start to see leverage from that?

Is it with the subscriber growth? Is it immediately that you start charging for higher ad rates? Or does it take a little bit of cycle time to start to show up in ad rates that you charged advertisers?

Well, I mean, you introduce new, higher ad rates at a point. One is when the market can digest it. That's one. And two, when you have a significant increase in subscriber growth.

So for example, in a market like Spain, we did put in a rate increase that actually was put in probably in January, which we benefit from now. And there's obviously a lag of three months or so, before you get all advertisers onto the new rate.

In the UK, I think there was also a rate increase. Because I mean in the UK now, we're the sixth-largest travel brand in terms of traffic. And we have over 2.5 million subscribers. So advertisers are willing to pay for that opportunity, as well. That's a benefit there.

There is, of course, a stepping approach on media. You can't increase your rates every day. On Local Deals and also on our variable products -- so for example, Fly.com -- we can obviously benefit immediately from increases in subscriber base or audience size.

Great. Well, definitely, good luck!

Thanks, Ed.

Our next question comes from Justin Patterson with Morgan Keegan.

Thank you very much for taking my questions.

The first I'd want to dive into just kind of deals on that Local Deals tracking piece. I think the way that we're all monitoring that is just by tracking your website on a daily basis, and making an assumption just off of vouchers sold times the face value, and then taking our take rate.

Doing that, you do see somewhat of a softening in some of your core markets, like Los Angeles. Is there anything fundamentally wrong with doing that approach to tracking Local Deals? Are we incorrect to assume that's a valid indicator of the business?

I think it's an indicator. But you don't know, for example, how many subscribers received a specific offer. So you might say, "Well, that restaurant deal, they generated 3,000 vouchers." And then we run the same deal six months later, and you say, "Well, that deal they only generated now 800 vouchers. Oh, my gosh! Something must be wrong!"

But it simply could be that the first deal, we sent to 600,000 people. And the second deal, we sent to 30,000 people. And that's what you don't know.

The other thing you don't know is, when we put up sales in our cross sells, you don't know whether there is an up-sell or cross-sell. And I think you just need to think about that when you're taking these numbers.

I see numbers coming out during the quarter, and I honestly have no idea where they're coming from, because we didn't supply the numbers.

Right. Yes. That's just been kind of the general trend for estimation. So thank you for that clarification on the inability to capture the cross-sell part.

Now you did mention that you were seeing that roughly 1/3 of new Local Deals customers are becoming new to Travelzoo. Does that kind of, over time, help you cross-sell more on the deals front?

I guess are the demographics here kind of comparable to what the existing Travelzoo customer is like?

We haven't analyzed fully the demographics, yet. That's the first thing. We really haven't looked into whether these people are then buying travel. We will look into that, but it's not something we're focused on right now.

But you have to understand, our deals are -- our local deals are -- already relatively expensive. It's the $100 dinner-for-two at the Four Seasons, or even these Getaways can be priced at more than $199.

So I would think that the demographics are somewhat similar. And certainly, the feedback from the restaurants and so forth, they do praise the customers.

We've not had a situation where somebody's called up and said, "Your customers are awful!" That certainly hasn't happened, yet.

Got it. So when we look at some of the other providers that are actually kind of de-emphasizing restaurants to some extent, the reason you're succeeding is more a function of deal structure and your customer base?

I think so. Some of the other guys will literally do 2-for-1, 2-for-1, 2-for-1. In ours, when you look at that Four Seasons deal, it's an experience. It's a holistic experience, and it's not a 2-for-1.

We do that in travel, and we have done that in travel for the last decade. Where we'll consult and say, "How can we make this really an engaging experience?"

I think that's quite different.

We really think of this business like publishers. And the other interesting thing about publishing is, the content itself attracts a certain demographic of audience.

So if we are publishing Four Seasons dinners in San Francisco, that's going to attract a certain type of person versus the $5 for a $10 burger lunch.

Got it.

Turning to headcount. Obviously, a lot of ads this quarter. Can you comment on the linearity? Was that more toward the beginning of the quarter or end of the quarter?

So when we're thinking next-quarter-out, should we expect kind of another bump-up after normalizing for TV expense in there?

And secondly, on headcount, how quickly should we get to kind of normal productivity or historic productivity levels with this recent batch of people? It sounded like that there's obviously some cycle time, in terms of getting everybody up to your desired level there.

I'll give Glen a chance here to speak and to answer that question.

Yes. I think the hiring for the quarter was fairly even throughout the quarter. Don't forget that we've been on a ramp for several quarters. Right?

And including the impact of just trying to get those people trained up. The things that Chris talked about, as far as focused on quality, and the types of deals we're doing -- that's not a situation to where you can get a sales person in and send them out on the street the same day. Right?

We have to make sure they're trained up properly. And so you're probably looking at a 5- to 6-week period of making sure they're focused on that.

And Justin, that does also depend on the person. If you have a star, you could go faster. If it's a person who's not a star, then it might take you a little longer to help them understand the brand and have confidence.

I mean walking into the Ritz-Carlton or Four Seasons and getting a deal -- I mean, you've got to have quite some confidence to do that.

Right. I appreciate that side.

So perhaps a better way to phrase the question would be, was I guess you kind of move from your Tier-1 markets into Tier-2 and Tier-3. So you've kind of hit all the big cities, at this point.

How do you see those new markets tracking? Kind of a comparable time basis versus some of your larger, more successful markets at those points in time, was well?

Well, I think the best two cases I can think of off the top of my head is -- first of all, look at Toronto. I think we put a press release out about Toronto. We have something in the region of 160,000 subscribers. And then the first two deals sold something like 3,000 vouchers, each. That's a phenomenal market that just keeps going for us.

Actually, you know, that was Vancouver; not Toronto. Sorry. It was Vancouver. And Toronto is the same.

But I mentioned Detroit earlier in the call. That's a new market for us. And I look for the results there.

I think, again, it all goes back to the quality of the content that we publish ultimately, will determine the result. We have the audience. And the Tier-2 markets, in some cases, maybe much more attractive for Local Deals than some of the Tier-1 markets because of the level of media saturation.

Got it. Thank you very much.

Thank you.

Our next question comes from Atul Bagga with Think Equity.

Hey, guys. Thanks for taking my questions.

A couple of questions for you. Chris, you touched a little bit on the cannibalization between the Getaway product you have on the Local Deals side, and the hotels business -- or your core business.

And you shared some metrics around how you have been able to uplift your merchant spend with you guys.

Can you give us some sense how big is that segment for Travelzoo? Now I'm not sure if you can be very granular, but even if you can give us some directional input on how big that market is for the core business, and how should we see this overall business growing from this segment in the next 6 to 12 months.

Well needless to say, it's a substantial part of our business. The hotel business. And this product, Getaways, we've run less than 200 Getaways, so far. So I mean it's really quite early, still.

What we see is, it seems to work very, very well for the local drive market. And that's a need we haven't really serviced in the past. So to some degree, there's cannibalization. But also, there's the traditional Travelzoo business that's about getting you to fly from San Francisco to New York and stay in a hotel. But what we're not going to do with Getaways is send a person sitting in San Francisco on a Getaway to New York. Certainly not yet. So that's why there is no cannibalization.

Hopefully, that sort of gives you an answer to the question.

Yes.

And Getaway -- is your revenue share roughly the same that you see for other lifestyle businesses?

Yes.

Okay. That makes sense.

And I don't know if you can share any more granularity on the gross revenue between North America and Europe. Can you talk about that?

Sorry; what was the question?

Gross revenue from Local Deals between North America and Europe?

We don't break that out, at this time.

I have two more questions. One on your TV campaign. Can you talk about how do you measure the effectiveness of this TV campaign? What are the metrics you might be looking out for in let's say 2 or 3 months? Is it the subscriber growth? Is it Local Deals sourcing? Where do you see the impact of the TV campaign?

Well, we did see that was we added 300,000 more subscribers than in the prior-year quarter. So there's some of that obviously that's related to the TV campaign.

But what we did see was, and it's more anecdotal again, when our sales team are walking into advertisers or into local businesses, the folks have seen the TV ad. The TV ad may even have been playing on the TV when they walked in. Or even just to mention the fact that we have a TV ad adds credibility.

Those are some of the benefits of running the TV ad.

We obviously would like to see a lift in subscribers. I don't think we really saw a lift to the extent we would've liked to from that commercial. I think it's probably the more the creative and how we purchased the media, rather than the fact that TV in general doesn't work.

So in general, it was positive in getting the word out about Travelzoo. If you actually looked at our Facebook site, there were new users who came and said, "I didn't know about this site before. It's great! But I saw your TV ad on the Cooking Network," or something like that.

And the last one.

Can you talk a little bit about longer-term, how do you see this deal space -- the local deal market -- trending?

Do you expect the next 12 to 18 months, given a number of new competition coming into this space, with Facebook, with Google, with American Express? Do you expect your revenue share or the margin remaining the same? Or do you think you guys might have to invest more in terms of marketing or sustaining the subscriber base?

And also in terms of your revenue share?

And the last, in terms of when you're talking about two deals per week per market. What is that timeframe? Is it something that you're looking for the next 2 years? 3 years?

Well, I mean it's not something we put a timeframe on. But of course we'd like to do that as soon as possible.

In the end, I've said this before. The natural limitation on the business for every player is 365 days of the year. That's the natural limitation.

And it's not so much that I have to worry about the competition. It's more that I have to think about that.

Then the second thing is, thinking about the quality. In publishing, there's a spectrum of quality. There's the Wal-Mart coupon book and then there's the New York Times and Wall Street Journal. And we're operating up at the level of the New York Times and Wall Street Journal in terms of content quality. We believe that that's a market that we can compete in.

But the only major threat there is indeed our own ability to execute. And it's not so much to think about the other guys.

As a consumer, consumers will choose which content is right for them. And given that most publishers can only send one message a day, it's not going to be that every single business in a particular city will run in every single publication every single day. I mean it's just not realistic.

Actually, if I can, please, one more. On this mobile app that you guys are launching. What is the kind of -- what is your expectation from all of that? Where do you see? What metrics you would expect to see improvement from mobile in the next 3 to 6 months?

Well, approximately 10% of our traffic comes from mobile devices today. So the first base is simply to service the need.

We also obviously are in the local space. So on the mobile app, you can just type in your zip code. In fact, you can hit a button that says, "Deals Near Me." Immediately, we can show you deals that are available for you.

The idea is that you could be in New York and you want to have lunch. We can find you a deal immediately for lunch. Most of our deals are already redeemable immediately.

Or if you're landing at an airport in London tomorrow, probably we could find a hotel for you, too. So it's simply a change in consumer behavior and we're adapting, as well.

On your mobile app, it seems like there is some Twitter integration. Are you guys also working something with Facebook, as well?

No, we haven't. I mean we have well over -- around the world -- over 150,000 fans on Facebook. People like to share our content all the time, and they like to use those mechanisms. So we obviously are just providing a link to that.

Thank you.

Okay. Thank you.

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

Thank you, Operator.

So ladies and gentlemen, we thank you for your support, and look forward to speaking with you again next quarter. Have a nice day.

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