Travelzoo (TZOO) 2011 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Travelzoo fourth quarter 2011 financial results conference call. At this time, all participants are have placed in a listen-only mode, and the floor will be opened 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, and good morning, everybody. Thank you for joining us today for Travelzoo's fourth 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 facts 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 in our Forms 10-K and 10-Q 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 be available on the Travelzoo Investors website at www.travelzoo.com/ir, beginning approximately 90 minutes after the conclusion of this call.

For today's format of the call, I will review our fourth quarter and full-year 2011 financial results, and then Chris will provide an update on our strategy. Thereafter, we will conclude with a question-and-answer session.

Now if you will, please open our management presentation, which is available at Travelzoo.com/earnings. Turning to slide four, this slide provides you the key financial highlights for the quarter. We achieved revenues of $35.2 million this quarter, which is up 23% the same period last year.

This represents our fastest year-over-year revenue growth rate for our fourth quarter in four years. We also achieved earnings per share of $0.40, which is up 75% from the $0.23 for the same period last year. In addition, we maintain steady growth in new subscribers.

On Slide five, we look at revenue by segment. Please note that this is our first full quarter of comparing year-on-year quarterly revenues, where our new Local Deals format existed in the prior period. Revenue in North America was $25.6 million, representing a year-over-year growth rate of 16%, which has been accelerating growth rate compared to our last fourth quarter. In Europe, revenue growth was 48% year-over-year, and we believe was impacted by the economic uncertainty that played out in Europe during this quarter.

Turning to slide six, starting this quarter, we will provide a further breakout of our revenue by type, which is closely aligned with the way we view our business. We hope this will provide further insights into our business. The first category of revenue is Travel.

As you can see, this will include the products our subscribers and advertisers have grown to love over the years that present tested, high-quality deals coming primarily from our flagship products, such as Top 20, Newsflash, website and Network. In addition, Travel will include our Getaway voucher based format, launched earlier this year. This aligns with the way we view -- manage Getaways, and makes sense as they include hotel stays, which our existing products [cover] as well.

It probably is worth mentioning here that we are very pleased with the rollout of Getaways to date, as the majority of these deals are from new hotels and the business that has shifted from our existing products to Getaways has, on an overall basis, generated incremental revenue for us. These early signs continue to make us confident in the continued rollout of Getaways, even if there is some shifts from our existing products.

The second category of revenue is Search. This will include both of our search products we have developed over the years, Fly.com and SuperSearch. We continue to believe these tools are great complements to our business, as both provide an easy way for our subscribers to comparison shop for airline, hotels, and car rentals.

The third category of revenue is Local. This will include both Local Deals voucher-based format, which was new to us in the last 15 months, and entertainment. And entertainment is included in there, which was recently seen to mix some vouchers with non-voucher deals. We believe these revenues, as one category, represent our efforts to provide subscribers with high-quality local deals, whether it is a restaurant, a spa, or a Broadway play, and regardless of the form in which the advertisers choose, Vouchers or non-vouchers.

Now let's take a look at the revenue by type for each segment for this quarter, starting on slide seven. North America fourth quarter revenue broke down by type shows Travel growing at 12% year-over-year, which is higher than the 4% rate we saw for last year's fourth quarter. Getaways drove much of this growth, and offset some of the trends we continue to believe impact us, such as the airline consolidation and competition.

North America Search revenue declined in the fourth quarter sequentially due to our conscious decision to reduce the traffic acquisition spend in this area, as historically the fourth quarter has been a seasonally slower quarter for the search business. This search decline was the primary reason for the sequential decline in overall North America revenues.

North America Local revenue increased year-over-year, however declined sequentially. We believe this is due to some internal factors such as key salespeople moves, and other salespeople that were out due to extended sick leave. In addition, although this business is still very new to us and growing, we believe that there was some seasonality that played a part in the decline based upon merchants having less capacity and subscribers being busy with holiday preparations. We still remain positive about the Local opportunity and look forward to continuing to build out the sales and management team to try and further seize this opportunity.

Turning to slide eight, you will see the break down of revenue for our Europe segment. Europe Travel is showing 14% year-over-year growth, which we expected as seasonally sequentially down fourth quarter, but we believe that the uncertainty in European economy drove a decline in spending, and impacted our travel advertising sales.

Europe's Search grew 57% year-over-year. Again, we pulled back on the traffic acquisition spend for what we believe to be a seasonally slower quarter, which impacted the revenue growth sequentially.

Europe Local grew at 493%, as we are still embarking on our first full year of introducing the Local Deals voucher format in Europe. We learned a lot as we experienced different markets, and are excited about applying these learnings to future opportunities. So we hope this revenue breakout helps you understand our results and the way in which we view our business. We have provided three years of quarterly and annual information for your reference in the appendix of this presentation.

Okay, turning to slide nine, this slide provides more detail on our operating income. Operating income for the Company this quarter was $8.2 million, which is a record operating income for a fourth quarter. Our North America business contributed $6.5 million, while Europe contributed record profits of $1.7 million.

Our income tax expense was $1.9 million, which includes benefit from the resolution of favorable tax positions related to prior periods, totally approximately $600,000. All of this led to a record fourth quarter net income of $6.4 million, and strong fourth quarter EPS of $0.40.

Turning to slide ten, as you may recall last quarter, we explained the changing impact that the voucher format has had on our cost structure. You can see this again on the left-hand chart which shows local related and other costs. Cost of revenue decreased slightly improving gross profit by 40 basis points. And that was offset by the operating margin decrease of 60 basis points, due primarily to this seasonally slower fourth quarter.

Turning to slide 11, you will see our operating expenses. North America remained relatively stable as a percent of revenue, while Europe operating expenses as the percent of revenue decreased as Europe has continued to scale since last year's fourth quarter.

Slide 12 showing that our headcount slightly decreased from 357 last quarter, to 350 this quarter. We did not aggressively hire, given the seasonally slower quarter. This slight decrease is the attrition net of hiring. We plan to continue to hire while focusing on productivity in order to invest in opportunities for future growth.

Turning to slide 13, you will see that we are maintaining our strong collections and growing our cash balance. We ended the quarter with $38.7 million in cash and cash equivalents, and this is up from prior quarter as a result of our operating cash flow of over $7 million.

On slide 14, we summarize the financial results of the quarter. We achieved the highest fourth quarter revenue growth in four years. We maintained steady subscriber growth for a seasonally slower Q4, and we had record fourth quarter operating income and record profitability for our European business segment. With that, it's probably a good time to pause and reflect on the highlights for the full year 2011.

On the next slide, slide 15, this captures some of the key highlights of what we believe was an excellent year of growth for our Company. Full year revenue grew at 32% year-over-year, reaching a total of $148.3 million. Full year, non-GAAP EPS reached a record level of $1.42, and subscriber growth remains strong at 14%.

Turning to the next two slides, slides 16 and 17 capture our full-year revenues broken out by segment type, similar to the breakout I described earlier with the quarterly results. North America revenues grew overall by 24%, representing the fastest growth rate in four years. This was fuelled by Local, however, Travel revenues continued to grow despite the airline consolidation and stepped-up competition.

Turning to slide 17, this shows that Europe revenues increased by 58% year-over-year, driven by across the board growth in Travel, Search and Local, despite the uncertain European economy. So, overall, we are pleased with the mix and growth of revenue in 2011.

Slide 18 captures the full year record non-GAAP operating income of $35 million, with Europe contributing its first full year of profitability. This overall increase in operating income resulted in an almost 3 point increase in our operating margin. We are pleased with the financial results we were able to attain in 2011, and this is as we built out our new Local Deals and Getaway voucher formats. We look forward to the opportunities in 2012 to grow with profitability.

All right, that wraps up the financial part of our presentation. So now Chris will cover some of the highlights regarding Travelzoo's growth strategy.

Thank you very much, Glen. If everyone would like to turn to slide 20, we summarize our growth strategy, which we continue to execute against. Along the X-axis, we're growing the number of subscribers who engage with the Travelzoo brand. We continuously attract new subscribers through word of mouth and through advertising. We're also reaching new subscribers through new medium, such as a new iPhone app, and the Travelzoo Network.

On the Y-axis, we're growing our revenue per subscriber. Local Deals and Getaways have become a substantial driver of revenue per subscriber growth. As we turn on new markets, become more productive in existing markets and extend the product offering, we see significant incremental revenue subscriber gains. Other important drivers of revenue per subscriber along the Y-axis include rate increases when our subscriber levels reach milestones in particular markets, our search related products, and sales team optimization.

Turning to slide 21, you can see we now reached 21.5 million subscribers in Europe and North America. We're excited to see that we continue to attract new subscribers as we introduce new content types, particularly in Europe.

Turning to slide 22, I'd like to talk a little bit about our subscribers. We've stressed for many years that we've attracted high-quality subscribers. In Q4, we had the opportunity to take 50,000 records of Local Deals purchases, so that's their credit card information, and we asked Experian to tell us more a little bit more about these subscribers. Experian confirmed that our subscribers are wealthier and older. And you can see on the left, these 50,000 subscribers index much higher in the $125,000 to $250,000 household income bracket. On the right, you can see that 80% of our subscribers in this sample set are over the age of 35.

We have been able to attract such high quality subscribers over the last 14 years because our content consistently comes with a high recommendation, and is absolutely an outstanding travel opportunity. It's content that defines an audience, it's not the other way around, and everyone has to understand that.

Given leisure travel, particularly international travel, is consumed by those with higher disposable income and more freedom, it makes perfect sense why Travelzoo has such a high quality audience. By having a higher quality audience, wealthier and slightly more mature people, we're able to attract higher quality establishments to work with us.

In the last six months, we published Local Deals in more than 150 top restaurants, including those owned by top celebrity chefs -- like Gordon Ramsay, and Ken Oringer in Boston -- as well as outstanding restaurants inside the likes of the Ritz Carlton, Rosewood and Four Seasons hotels. These new relationships at top flight establishments are only possible because of the quality assurance these brands have when addressing our audience. We continue to stay focused on attracting high quality subscribers.

Turning to slide 23, we're constantly thinking about how to further engage our subscribers, and adapt to new technology and media consumption behavior. Two initiatives in 2011 include the introduction HTML email formats for Local Deals and the new iPhone app. Our new HTML email format brought improved click-thru rates , and a positive lift to a brand perception among our subscribers and our advertisers.

Our new iPhone app, which now has over 300,000 downloads, allows subscribers to access our deals on the go, and purchase both local and travel deals directly on their phones. You really can bring up the iPhone app right now if you've got one, and book a holiday to Italy, a dinner in Midtown Manhattan, or a getaway to a stunning countryside property in Wales. As you can see, we're getting under the skin of our relationship with our subscribers, both in understanding more about them, and introducing new ways for them to interact with us.

On slide 24, I highlight the progress of our voucher sales business with Local Deals and Getaways, and the potential opportunity ahead, which was still very positive (Inaudible). We continue to grow the markets that receive Local Deals and Getaways. In Q4, our average deals per week decreased, while we maintain consistent average gross revenue per deal.

So, what happened in Q4, in particular in North America Local? Some internal factors impacted deal sourcing. We decided to move a few of our top producers and managers to other locations around North America to spur growth in those areas. So, for example, we took our top manager from the Southern California region, and now he is running the entire Eastern Seaboard. And that had some short-term impact on our business.

We also had some of our key sales folks out sick for extending periods of time. In addition, we consumed our (Inaudible) pipeline at the end of September which most of you who followed the (Inaudible) reports will have seen, and that caused a slow October.

Lastly, we believe there may be some seasonality in this business for us, because we focus mostly on travel and leisure pursuits. And this business could be subject to the same demand curve we see in travel, where Q4 is seasonally slower. We continue to believe in Local Deals and the Getaways opportunity, and plan to grow our team to capitalize on this opportunity. In fact, Mark Webb, a seasoned senior executive, with 30 years of experience leading large sales organizations at British Airways and American Express, is joining us in February as President Travelzoo Local, to lead our global efforts on Local. And you'll see a press release later today which will introduce Mark.

We believe that as we open new markets, increase the deals per week, our opportunity expands, and that, based on our growing subscriber base and high quality dealer experience, we have a real opportunity over time. Please remember, we're trying to capture this opportunity while staying profitable. So it may take a bit longer than some others, but we feel confident in the long-term opportunity.

Moving on to slide 25, I would like to emphasize that our strategy is focused on quality leadership. Across our products, whether it's Local Deals, Getaways, or the Top 20 list, before daily deals companies were here, we were focused on high quality deals. We remain focused on high quality deals, and after many of these daily deals companies close their doors as they do not have profitable businesses, we will focus on high quality deals. We believe that, over the long run, our subscribers will remain engaged, and we will continue to attract new high quality subscribers if we continue to deliver outstanding high quality information.

For example, we recently published a dinner for two at the Mansion restaurant inside the Rosewood Mansion at Turtle Creek. It was $120 for the dinner for two people. The restaurant is well-known as Dallas's best restaurant. Zagat gives it a rating of 26 points, and calls it "extraordinary to perfection". And the property itself is listed among the very best in the world in the Conde Nast Gold List, and Travel + Leisure's Top 500 resorts in the world.

Indeed, many of the properties we run on Getaways are featured in these lists. In Q4, we worked with Bacara in Santa Barbara, one of Conde Nast's top resorts in the US. And so you can see that property here actually in the middle of the picture, if you look at the middle image at the top, that's Bacara. It was $299, believe it or not.

And let's not forget our flagship Top 20 list, offering the most outstanding deals of the week to many of the world's best destinations, and of course we publish that in all six countries. I met a UK hotel advertiser yesterday, who featured more than 10 hotels in 2011, and she told me that for every ten clicks to her website from the Travelzoo Top 20 page, she gets a booking. So those of you who are not familiar with internet clicks, or conversion rates, 50 to 1 or 40 to 1 would be considered very good, 10 to 1 is off of the charts. She also told me the average ROI from her Top 20 program was 9.5 to 1 in 2011, up from 7.5 to 1 in the prior year.

And this morning I met a UK tour operator who spent $0.5 million dollars with us last year in the UK, and the CEO told me he prefers the direct advertising business to Top 20 offers, selling vouchers for holidays doesn't work as well as it does for hotels and restaurants and spas, because it opens up a slew of complications around dates and traveling around borders. We've built an excellent family of products to support our quality leadership strategy. We feel our product offers an excellent geographic footprint, and we have different business models to create a sound and balanced portfolio, and a great opportunity for us to pursue in the future.

On slide 27, we conclude by summarizing what we were able to achieve in 2011, and we will continue to focus on in 2012. We will continue to aggressively scale Local Deals and Getaways in North America and Europe, while keeping our eyes squarely focused on quality and productivity. We'll continue to grow our subscriber base, especially in Europe. As we scale, we want to improve efficiency in operating margins. We'll continue to leverage our global content opportunity, and we intend to further improve earnings per share.

As a reminder, Travelzoo's consistent practice is not to provide guidance for future periods because of the dynamics of the industry. This concludes our prepared presentation. Now I'll turn it back to the operator for the question-and-answer session.

Thank you. The floor is now open for questions. (Operator Instructions). Our first question comes from Eric Martinuzzi of Craig-Hallum, your line is open.

Thanks for taking my question. I know you're not interested in giving guidance, however, you did talk about the seasonality of your business. If we go back a year, there was a significant step-up from the end of Q4 of 2010 to Q1 of 2011. Could you talk about how this year would be similar or different as far as both sides of the business? Well, I guess there's three segments to the business now, as well as the geographic.

Hi, Eric. So this is rather looking back on what happened in the last ten years than what will happen in the next three months, because, of course, I can't predict -- I can't predict the future. But, classically, what happens in travel in Europe it's typically -- Q1 would be typically stronger, Q2 would be typically stronger, Q3 -- Q2 and Q3 would be rather more consistent -- you get to a lot of vacation in Q2 -- and so you see that sort of fluctuation. Q4 is obviously the worst quarter for travel demand, and then in North America -- and obviously that would apply to travel and search.

In North America, you see that towards the back of Q1 it starts -- you start to see very high search volumes for travel, demand is strong. That carries into Q2, and Q3 is reasonably strong. You have the sort of contrary issue with the cities versus the country in the summer, and also in the spring, so when people are in the city it's busy, and in the summer they're in the country, and then Q4 is a mixed bag, really. In local -- it's still too early for us to say. We start to think that there may be some seasonality, given that we are focused on leisure pursuits. It seems to make sense, but it's really too early for us to say what would happen there.

Okay.

The other answer -- the other answer -- and I think something we have always said, Eric, is that when the economy is firmly on the way up or down, it's an okay time for us. It's good. When you have got uncertainty and middle managers don't know whether they're going to have jobs tomorrow because of the economy, then that uncertainty can clog things up. So, if Europe gets a lot worse around uncertainty, that's obviously a problem for us, but fit clears up, that's positive for us.

Okay. Thanks. The expense side. Speaking specifically to slide 12, this is your headcount slide, you talk about it was down in Europe, it was relatively flat in North America. Your headcount being flat for three straight quarters in North America and then down sequentially in Europe, doesn't for me -- doesn't give me a lot of confidence that we're investing for future growth. Can you talk about the coming year, and what we can expect from headcount? Maybe not quarter by quarter, but just on an annual basis?

Well, no, we can't -- we're not really talking about what we'll do in the future, but I'll comment on what happened in the past. We hired a lot of people very, very quickly, and of course hiring people themselves doesn't mean that you generate revenues, you've got to train and develop those people. We manage very tightly, using a cohort analysis to look at productivity, and we see our productivity improving in certain areas, and we hire.

So, actually in -- in the UK this week, we hired, I know, three hotel salespeople. And I was personally involved in that. Why? Because we see that the Getaways product and the Hotel Direct product in the UK has a tremendous growth opportunity. So that's really how we look at it. We do have hiring quotas in the budget, and what you see is we would also pull back from a plan if we see that we're not getting productivity out of the people we have already hired. Also and let's not forget 2011 was a year where it was really the major startup year for Local. That business was started by Mike Stit in the middle of 2010.

We had our first group coming in in Q4 of 2010, 2011 it got into Europe, so when you think about the growth for the overall business, and of course, you can have some people that don't really fit. You are learning about people and managers and so forth, but we're really -- I think we have got a very solid structure now, in North American and in Europe. We have great leaders in Mike and Melanie, and we also now have Mark Webb joining the team, so I'm -- I'm pretty confident. And our strategy is a bit different, Eric, to the others. The other guys are satisfied to get $8,000 on a local deal, we would rather get $25,000 on a local deal. So we probably in the end have to hire people who are -- who may be from a slightly more classical advertising background, who may manage larger accounts, or travel accounts and so forth, not so much Yellow Page people.

Yeah, Eric maybe one thing to add on, this is Glen. We did say that the second half wasn't going to be a period of time where we aggressively hire and remember the context, right? Debt crisis in Greece, debt ceiling in the US. We just -- you know, based on all of those factors, I think wanted to just focus on getting people that we do have as productive as possible.

Yeah, and I wasn't looking for a specific quarter by quarter. But you add a hundred people last year, went from 255 to 350. It's a growth market. Something -- just any kind of color just when do we put our foot back on the accelerator, and then I'll drop it.

I'm putting my foot on the accelerator in the UK right now. You saw the press release, Richard Singer just arrived. I have to say, you know, that's a tremendous hire for this organization. You may not be familiar with the Telegraph Media Group in the -- in the US, but it is probably one of the most respected media groups here in the UK. Mark is joining also, that announcement we just made. That already points to some serious high quality people coming into this organization. And you have got to get it at the top.

It's a little bit like saying Mike and Melanie and other people who started this business are entrepreneurs, and now I'm bringing in seasoned executives to help support (Inaudible) the business. And I think that is the right thing. If we were a venture capital group, probably that's what we would also think to do. We still have people who came into the organization in the last three months who we would like to get more productive. So headcount itself isn't necessarily an indicator of productivity. I have some salespeople who generate $5 million, $10 million for the organization from single seat. So I wouldn't necessarily equate success and growth to -- simply to headcount, in this case.

Thank you.

To be clear Eric, we're definitely expecting to continue to hire when we -- we think it makes sense, right? To go after the opportunity.

Our next question comes from Naved Khan from Jefferies. Your line is open.

Yes, thanks. It is Naved Kahn from Jefferies. Chris, in the (Inaudible) Quarterly, you've spoken about some switching happening from the publishing side of the business to Getaways. Is it fair (inaudible) that that might have accelerated in the fourth quarter, or can you give us some color on that?

I'll let Glen answer this question.

Yeah, I think with -- with the new grouping we -- we put, we think that makes sense to put both the Getaways in our existing business in one bucket, right? On the Getaways, like I had mentioned in our remarks, you know, a couple of things. One, the majority of the Getaways are new customers, right? And two, the ones that were existing customers on an overall basis, we think the revenues of net upside for us. So we're excited about this. As far as further breaking out. I think that's part of what happened earlier this year. This is really an attempt to show you how we view the business. So if we're focused on one piece within these buckets, it gets a little hard, especially if you are just asking a Getaway-specific question versus our overall travel business. So, you can see the growth in travel and we feel good about -- confident in the rollout so far of Getaways.

And as far as the margins go on the Getaways, has there been any change in that in terms of margins coming down, or can you talk about it?

No significant changes. You know, there -- you know, there's a range that we trade in, right? So I would say on an overall basis no significant changes. You know, we can say what we're seeing out in the market is a lot of these other companies have dropped their margins fairly significantly, but like Chris and I have said in the past, our focus on high quality, if we're walking into an organization and talking only on commissions, we're -- there's probably not a match. They are not understanding our value that we're going to bring to the table.

I think, Naved, the other thing is -- we really think about -- we're a media business. Every press release we've ever put out, this is a global media business. And we think about the revenue that we generate per email that we send, and that's what we want to maximize. So, you know, yes Glen is absolutely right, It's no significant change, but that wouldn't even worry me. What would worry me is are we sending out emails that are generating the appropriate profitable revenue per email? And if we are, then I'm very, very happy.

It's interesting that our approach, because we do focus on high quality content, it allows us to publish deals that are at a higher price point, and so, you know, you can see, I think one of the Las Vegas properties we -- I think that was 6,000 vouchers sold. At the lower price point, but that could have made just as much as the Bacara deal that we put out at $299, and then so how do you think about the margin around that? So yes, it's a question for your model, but I just want to be clear we're thinking about it as an attractive revenue per email proposition.

Okay. And then on the Local side, this is the first time I think since you launched the business that the frequency of the deals have been down. And obviously you continue to expand into markets. Is it just sort of a function of the denominator or the number of markets running ahead and then you expect a catch-up, which means the newer markets where you make a launch more recently actually pick up in terms of number of deals per week? Is that the right way to think about it, or is there --?

It's certainly -- it's certainly our plan, when I said on the call, you know, we moved one of our top managers. This guy who runs the (Inaudible) business for us, actually he was in the UK two years ago. We moved him -- he helped Mike start the business then to Southern California, and you all know that was a very successful territory. He built a fantastic team, and he trained a fantastic manager, and then we are moved him to the East Coast and he has taken up the reins there. And of course the other thing that happened during that time when he moved, we then had some sickness back in California. That's honestly what happened during that period, and the second thing is we pushed very hard in September.

If you look at those external reports, you see that September was a bumper month for us, and then October our pipe was really worn out, and we had to rebuild. So this all came together. It was very unfortunate. Our plan is obviously to grow. I like that we have got great -- we've got this sort of network effect with the likes of the Four Seasons and the Ritz Carlton, and we're trying to leverage these, and other such relationships as we continue to grow, but we're certainly not planning to slow down at all.

And can you give a sense of how -- what kind of trend you are seeing in January? And are you starting to see a pickup again or -- you know, just give us some color on that.

Glen would you like to answer that question? Glen?

Could you repeat the question.

Yeah, the question was about January trends and can you sort of talk about what you are seeing -- what you are seeing to date for the month?

Sorry in January? No, we're not going to get into these future periods after the quarterly results. All I can say is that we're pleased with Q4 with some of the challenges we had, but the -- as far as future guidance, no.

On the Search side, you know, this is -- the sequential decline can I understand it, there is seasonality there, but if I go back the last couple of years. In Q4 you have seen a year on year increase I think for the first time of the decline. So is that attributable to new products like the (Inaudible) flight search and all, or how do you explain it outside of --

Well, yeah, the majority of it is that we spent less, because we knew it would be a slower quarter. So there's kind of a direct relationship there. So we reduced our traffic acquisition spend during the quarter. We're -- it's an attempt just to allocate our resources on what we feel is going to be the best for the Company, and seasonally, this quarter has been slower for Search, so that was a conscious effort on our part.

And Naved, the history on that, about 18 months ago we were even running TV advertising for Search to get (Inaudible) and start the initial base. So we were not doing that in Q4. Obviously that will have an impact, but it's not -- yeah, the marketing input in these two periods is quite different.

Okay. But if we have to think about the search business and, you know, how it might perform in 2012, is this going to be an area that you look to grow, or is this something that you will be opportunistic about but not necessarily be pushing hard on? Can you talk about that?

On Search, we look to maximize the opportunity, both on the top line and the bottom line, and let's not forget our Fly.com tool is very useful for our Travelzoo subscribers, and often we're announcing sales that we find on Fly.com to Travelzoo subscribers. So that's really the position on those two.

Okay. Great. Thank you.

Thank you.

(Operator Instructions). Our next question comes from Justin Patterson of Morgan Keegan. Your line is open.

Thanks for taking the questions. Just a first housekeeping one to start with, I may have missed it in the prepared remarks. Can you explain the tax rate this quarter? It looks pretty favorable versus all of our expectations.

Yeah, on the tax rate we did have -- hi, Justin, this is Glen. We did have a favorable benefit from some positions that got resolved related to prior periods, like I mentioned. That was $600,000.

Thanks for that. Then, just turning more strategically, thinking the Local Deals question from a different route, obviously hiring's been, I guess, fairly flattish the last few quarters. It just seems kind of odd to me, given the growth opportunity you're talking about, to not necessarily be hiring and letting trends be a little softer from seasonality when people are sick. Can you talk about just how you are kind of viewing the market, long term? If there's anything else structurally different in the market at this point that you are seeing?

No, I mean there has been hiring, but there has also been some firing, so let's be clear about that. It's not like we just stood still. There have also been people who left voluntarily because they felt it wasn't the right thing for us. So we have been building a team. And this is -- we'd rather get to a high productivity levels from our teams and then continue to hire than have the -- sort of the famous dot-com approach of hire a hundred people and then lay everyone off. That's just how we like to run our business.

We are hiring now, I mentioned earlier. I was here in the UK, we spent a week here now with our new commercial director. This week, the UK team hired three people. Why? Because it's a very attractive opportunity. So that's the reality of what is going on. And we're coming off of Local Deals in particular, we're really coming out with the back of the startup phase. So now we hired Mark Webb to oversee and steer our growth for the future. So, I think we feel quite solid with what we've got and what we're doing, and we're quite -- yeah, it would be great to find another ten fantastic people who can go into the Rosewood Mansion and to the Ritz Carlton, but I can tell you that it's quite difficult to find that person compared to someone who can go into a kebab shop or something, it's just a different type of animal.

Right, I appreciate that point. I guess the framework I'm working from here is you talked about sickness being one of the factors in terms of productivity on -- excuse me, frequency per deal being down this quarter, and if you continue adding more and more markets, even with more hiring in place, it seems like there might be some challenges getting that productivity level -- or frequency level up to deals per market per week target that you have been searching for.

(Inaudible) some markets, like Los Angeles, we break the market down into four or five markets (Inaudible). And others we're not. And, yeah, we -- we -- we would like obviously to be at two per week. I think some of those might come through broader relationships, rather than having one person calling into a single market, maybe one person's calling to a single account, and there's some ways you can get to these goals rather than just hiring another hundred people. So I think what we want to do is do it profitably and -- and not just throw a load of people out there and assume that that's going to work.

Okay. Thank you.

Our next question coming from Dan of Benchmark Company, your line is open.

Thanks for taking my questions. First starting on the Local Deals side. I don't believe I saw a gross Local Deals number in the quarter. So it's tough to gauge since you've given the new clarity you have on the Local Deals from a net perspective. But did you guys experience any take rate pressure in Q4? And do you expect that to continue if you did into 2012?

Glen will answer the question.

Yeah, I mean I think the take rate pressure has been out there for a while now. The second half. I think like we had mentioned, there's a lot of companies out there, so there's a lot of competition, and like I said, we haven't shifted those in any significant way. But I think that pressure will continue as the market tries to figure out who is going to actually deliver the value, and we're confident that we're going to be able to do that for the high quality deals.

So looking forward -- you know, when you look at your growth opportunity in Local Deals, do you think in the near term it's more going to come from new markets? And if it is coming from new markets, where do you see your market opportunities?

I think it's within the existing markets is where you're going to see the productivity gains. In a market like Chicago, we were under -- we weren't publishing as much, and Texas was still (Inaudible) mansion. But there's plenty of other great -- opportunities in Texas. So there's -- there's just lots of opportunity within the existing markets, and that's what we're focused on. Once we get through that, then we'll resume our expansion into new markets.

Great. And then turning more to the core -- or Search or Travel business, you know, we have seen some signs that there might be a slow down in terms of online spending, predominantly from Europe, and I know that you guys mentioned it in terms of your comments -- in your opening comments. Do you see that persisting into next year?

Well, I mean it's really too -- it's too difficult to tell. It's really up to what happens in these countries. So I think it's nothing we can necessarily predict.

Have you seen any -- you know, hesitancy on the part of advertisers to book with you? Or are bookings coming in late or anything of that nature?

(Overlapping speakers) Future periods.

In -- in Q4 we definitely mentioned that. We think the -- in particularly in Europe, the economy had impact on people's -- advertiser's willingness to spend. And if your question is going forward, I don't know how is Europe going to resolve their debt issues, and how that's going to play out? Right? I think they will be aligned with that.

And one more for me. I was just curious if you had color as to why your operating profit was down in North America year-over-year. Thanks very much.

On the operating profit, I think it's a slower quarter, so we have -- there are certain fixed components of our cost structure that when we hit those seasonally slower quarters, we would expect a bit of a drop there.

Great. Thanks again.

Yep.

Our next question comes from Naved Khan of Jefferies. Your line is open.

Just a follow up. Can you give out the gross sales number for Local and Getaways, as you have done in the past.

Naved, actually, we're not going to be doing that going forward. I think it has caused some confusion. I know a lot of you try to go on our website and count the amount, and that's -- that's not been a very accurate process, and so the way we've, you know, are disclosing our revenues now in the categories that we have chosen is the way we view our business, so hopefully that's going to help you look at it going forward.

Okay. But the -- on slide 24, do you have -- you do have a table. It's just that -- I think that table for gross revenue per deal includes the Getaways, right? It's just that, if I try to do the math, I'm off by -- you know, a couple of millions in the prior periods, which is what you have -- the number you had given out. So that's why I wanted more clarity, I can (inaudible). It's just off.

Yes, that's a per deal metric, just to give you an idea. You know, on our average kind of size of the deal.

But it's approximate. It's not exact, right?

Correct. Correct.

Okay. Okay. Thanks.

I'm showing no further questions at this time, I'll turn back to Mr. Loughlin.

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