Travelzoo (TZOO) 2012 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Travelzoo First Quarter 2012 Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. Today's call is being recorded.

I now have the pleasure to turn the floor over to your host, Mr. Chris Loughlin, Travelzoo's Chief Financial Officer. Sir, you may begin.

Thank you, Operator. I'm glad -- I'm not the Chief Financial Officer, I'm, in fact, the Chief Executive Officer. Good morning, everybody, and thank you for joining us today for Travelzoo's First Quarter 2012 Financial Results Conference Call. I'm Chris Loughlin, the Chief Executive Officer. Today, with me, is our Chief Financial Officer, Glen Ceremony. 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 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 today's format of the call, I will review our first quarter 2012 financial results, and then Chris will provide an update on our strategy. Thereafter, we will conclude with the question-and-answer session.

Now, please open our management presentation, which is available at www.travelzoo.com/earnings. Turning to slide four, this provides you the key financial highlights for the quarter. We achieved record revenues of $39.3 million this quarter, which is up 12% over prior quarter and up 6% year-over-year.

We also achieved record non-GAAP earnings per share of $0.42, which is up 14% from the $0.37 non-GAAP earnings per share for the same period last year.

And we maintained steady growth in new subscribers, helping the Travelzoo brand eclipse the 25 million subscriber milestone, worldwide. We continued our profitable growth and made further progress with subscriber growth despite a competitive environment exhibiting unsustainable, loss making business practices.

On slide five, we look at revenue by segment. Revenue in North America was $28.6 million, representing a year-over-year growth rate of 4%.

In Europe, revenue growth rate was 14% year-over-year, which is lapping explosive growth from last year. In local currency, Europe revenue growth was 60% year-over-year. We will provide some more insights on revenue in the next few slides.

Turning to slide six --we break out our revenue by type. The first category of revenue is Travel. This includes the products our subscribers and advertisers have enjoyed 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, our travel revenue includes our Getaway voucher-based format. This aligns with the way we manage Getaways and makes sense, as Getaways includes hotel stays, which our existing advertising products cover as well.

The second category of revenue is Search. This includes both our search products; 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 includes both local deals, voucher-based format, as well as our entertainment business, which contains a mix of voucher-based and non voucher-based deals. We view these revenues as one category, as they represent our efforts to provide subscribers with high-quality local deals, whether it is restaurant, spa, activity, show or concert event.

Now, let's take a look at the revenue by type for each segment for this quarter,starting on slide seven. North America first quarter revenue broken down by type shows Travel increasing sequentially by 8%, and declining by 4% year-over-year. The sequential increase is due to seasonality.

The year-over-year decline was due to a reduced spending by certain online travel agency customers, airline consolidation and competition. This was offset be our continued strong growth in our hotels business, which includes Getaways. We're very pleased with the continued roll-out of Getaways as it provides us with the opportunity to participate in more of the potential upside, compared to our flat rate advertising products.

North America Search first quarter grew 29% sequentially due to seasonality, and grew 1% year-over-year, which was impacted by challenging market pricing for traffic acquisition.

North America Local revenue increased sequentially, and continued to show growth year-over-year at 30%. We continue to focus on building out our management of this business. We are seeing positive signs , such as increasing sales force productivity in each region of the US, stable take rates and consistent average number of deals. We continue to focus on growing profitably and are confident that this format is an attractive long-term growth opportunity.

Turning to slide eight;you see the breakdown of revenue for our Europe segment. Europe Travel is showing a 20% sequential growth and a 1% year-over-year growth. Europe revenues grew year-over-year for revenue type -- for each of the revenue types, despite the challenging economy. Although we expect it seasonally up first quarter, we were impacted by certain advertisers going out of business and competition.

Europe Search grew 13% sequentially due to seasonality, and grew 35% year-over-year with continued growth of Fly.com.

Europe Local declined by 11%, sequentially, yet grew at 82% year-over-year. The sequential decline was driven by seasonality, including an early Easter, which affected the last weeks of trading amid the Europe's uncertain economy.

We believe there is still many untapped opportunities, yet we are still focused on seizing these opportunities with profit in mind. You can see further history of our quarterly revenue by type in the appendix to this presentation.

Slide nine provides more detail on our operating income. I would like to point out that this excludes the impact of the $3 million charge this quarter related to our unexchanged merger share contingency. This contingency was previously disclosed in our Form 10-K filing. We settled a portion of this similar contingency with the State of Delaware during last year's first quarter. However, we still have some potential exposure to resolve with claimants that never exchanged their shares during our 2002 merger, or to settle with various states that may seek for us to pay them for this matter as unclaimed property.

We excluded this quarter's $3 million charge and last year's $20 million settlement with Delaware in our non-GAAP results, due to the unique nature of this matter and to allow for a better comparison to our actual results. The appendix to this presentation includes the reconciliation of our GAAP and non-GAAP measures.

Non-GAAP operating income for the quarter was $9.5 million. Of this total, North America contributed $7.1 million, while Europe contributed record profits of $2.4 million. This was our fourth consecutive quarter of profitability in Europe.

Our income tax expense was $2.9 million. And all these components led to record quarter non-GAAP net income of $6.7 million, and record quarter non-GAAP EPS of $0.42.

Turning to slide ten. You can see our cost of revenue on the left-hand side. Since last year, our cost structure has changed, due to the build out of Local Deals and Getaways. Quarter-over-quarter, cost of revenue remains stable as we have established the key components needed to operate the voucher-based format.

On the right, you can see our non-GAAP operating margin sequentially increased, driven by increased revenues and our continued focus on profitability.

Slide 11 captures our operating expenses. As a percent of revenues, North America decreased due to the build-out of Local Deals and legal defense costs. Europe operating expenses, as a percent of revenue, decreased as Europe has continued to scale.

Moving to slide 12. This shows that our head count increased from 350 last quarter to 360 this quarter. Our hiring was is net of attrition and was weighted toward the end of the quarter.

We did resume hiring this quarter and began to see productivity improvements. We intend to continue to hire while focusing on productivity, in order to invest in opportunities for future growth.

Turning to slide 13. You can see that we are maintaining our strong collections and growing cash balance. We ended the quarter with $48.6 million in cash and cash equivalents. This is up from prior quarter as a result of our operating cash flows of $9.8 million.

On slide 14, we summarized the financial results for the quarter. We achieved record revenue and record non-GAAP EPS, as well as the fourth consecutive quarter of profitability for our Europe business segment. Our focus continues to be on profitable growth and improved productivity. And we had a strong positive cash flow and cash position.

Well, that wraps up the financial summary for our first quarter. Now, Chris will cover some highlights regarding Travelzoo's growth strategy.

Thank you, Glen. I would like to start by highlighting our competitive environment. We believe our short-term growth opportunity may be hindered by competitors who continue to operate below cost and sustain huge losses. The Daily Deals industry ramped up quickly, withventure capitalists and corporations piling in huge amounts of investment and adopting a 'grow at any cost' mentality. Last year alone, the two leading market participants lost close to a billion dollars to drive unprofitable revenues.

This approach is clearly not sustainable in the long run. But it presents challenges in the competitive environment and puts pressure on us in the short-term. While we see competitors operating at significant negative margins, adding subscribers at almost any cost, signing up merchants on unprofitable terms, and managing the business with little regard for risk.

Despite the fact that we are hindered in the short-term by these industry dynamics, we believe our profitable, quality leadership strategy puts us in an excellent position for future growth and to take advantage of the impending shake-outs.

Moving to slide 17. I want to highlight our growth strategy, which consists -- sorry -- which we have also highlighted in prior quarters. Over the past two years, we have been focused on driving revenue per subscriber growth along the Y axis, largely driven by the introduction of Local Deals, starting in 2010, and Getaways, starting in 2011.

With Local Deals, we offer our existing subscriber base of now 25 million, deals for high quality restaurants, spas and activities and shows and concerts in their local cities and destinations they travel to. We are now in 111 markets across six nations,we're publishing .79 deals per week and we intend to increase the frequency to two deals over time, while also continuing to add more markets. At the end of February, we appointed Mark Webb, a seasoned executive from American Express and British Airways to lead this business as President of Travelzoo Local, such is our confidence in the future growth potential of this format.

With Getaways, we negotiate deals on behalf of our subscribers that typically include dining or spa opportunities, as well as an overnight stay. Getaways has proved very positive to our overall business. In many cases, we are driving significantly more room nights to our hotel partners, who appreciate the commission model, and as such, we are able to achieve significantly greater revenue per hotel campaign than our fixed advertising model. In Q2 -- in Q1 for example, we generated over 5,000 room nights for a hotel and Travelzoo benefited with a $200,000 net revenue from that campaign. Previously, we he would have achieved an advertising fee of approximately $7,500. We feel good about the future potential of our Getaways opportunity.

With these new formats now part of our DNA and plenty of room for growth, we are turning our attention to our four strategic elements. And these are; sales force ramp, reacceleration of subscriber growth, subscriber engagement, and mobile with syndication.

Turning to slide 18, you can see that after an increase in Q1, our sales force remained relatively flat over the next year. While we already led the industry in sales force productivity, we wanted to make sure that our sales organization and processes were honed before we commenced with the next ramp. We also wanted to ensure that we had adequate management talent in place so new sales managers were well taken care of and could become productive quickly. In addition to Mark, this quarter we added Richard Singer from the Telegraph Group as our 'Number Two' in Europe.

With our productivity turning the corner this quarter, as Glen showed you on slide 12, and with clear structure, process and experienced management now in place, we intend to immediately ramp our sales force, adding 50 sales staff to the Business. You can see we've already made some progress in Q1, adding 19 new sales managers, but we also released some less productive people.

Turning to slide 19, I'd like to talk about our next strategic element; to reaccelerate subscriber growth. You can see over the past 12 months, we made huge efficiency gains in subscriber acquisition. This was driven by a stronger focus on conversion and a positive lift from our new Local Deals format, where 34% of purchases were not subscribers before they purchased.

We're thrilled that the Travelzoo brand now has 25 million subscribers, but we still see plenty of room for growth. Now the competition for media is cooling off and we have significantly enhanced our product offering, we feel that we can resume a more aggressive growth trajectory.

Turning to slide 20,I want to touch on our third strategic element; subscriber engagement. As we publish outstanding deals, like this offer in Westlake Village at the Four Seasons, we attract a very high-quality audience. In this case, if you look at the pie chart, you can see that 58% of subscribers what are Experion calls the Power Elite. These are the wealthiest people in America. When these high-quality people turn up to these high-quality establishments and have a great experience, not only do the subscribers tell their friends, which attracts more subscribers, but the businesses tell other businesses and word spreads.

Great brands rise not because of their name or logo, but because the experience people have through them. And we are finding that through our quality leadership, we are having a very positive lasting impact on the brand.

One measure of brand equity is subscriber engagement through repeat purchase. In Q1, over 30% of subscribers who purchased a Local Deal were already repeat buyers. We did not employ discount tactics to provoke this repeat purchase behavior. We simply provided outstanding deals at high-quality establishments and people were obviously happy first time around.

With Local Deals and Getaways, we are now getting to know our subscribers a bit better, too, and you can see that in the chart. This is a demographic summary of that particular deal. Once a subscriber purchases from us, we can start to build a better picture of who is that person is, and then build products and provide content that's more tailored to their lifestyle. We see subscriber engagement and analytics as a key strategic element for future growth.

Turning to slide 21. I want to share with you our fourth strategic element, which is the expansion of deal delivery beyond our core e-mail format, to include mobile, social media and syndication.

We are very excited about the early progress we are seeing in mobile. In the past 12 months, mobile access to our deals increased from 10% to 20% in the US, and from 7.5% to 20% in the UK, our two largest markets. In the US alone, our subscribers purchased approximately $700,000 worth of Local Deals and Getaways vouchers through the mobile devices in March.

We now have 0.5 million downloads to our iPhone app and are getting good traction with Android. Relative to our competitors, we are quite some way behind in terms of mobile penetration, but we believe this is a tremendous growth opportunity for the future. Especially given that we have travel, local and entertainment content, which is perfect for this medium. We see a future not just of apps under the Travelzoo brand, but other single form apps that leverage our outstanding content.

Social media and syndication of Local Deals and Getaways through the Travelzoo network, which boasts 55 million unique users each month, presents a further opportunity for deal distribution. As yet, we have not been distributing this content aggressively through the Travelzoo network.

You can see on the right, a test we recently ran with New York magazine, where they sent our Local Deal, a dinner at the famous Aquavit Restaurant in New York City, to their subscribers. This is not only revenue accretive, it is also a powerful brand extension and allows us to acquire new subscribers,essentially for free. We are now putting significantly more focus on this strategic element and are genuinely excited about the growth opportunity ahead.

To wrap up, we believe that our profitable approach and strong focus on quality leadership, combined with our four strategic elements that I just highlighted, positions us very well for future growth across our three content types, and in the way in which we approach business, we are setting the highest standards of excellence. As the competitive environment now starts to shake-out, we intend to fully capitalize on our position of strength.

Moving on to the last slide -- 23. I want to conclude by summarizing on our continued focus for 2012. And these are; maintain our quality leadership position by publishing outstanding high-quality deals and tightening brand control;reignite growth in our core travel business, with a larger, more effective sales force;continue to ramp our Local Deals offering, expand into additional US, Canadian and European cities, while increasing deal frequency and revenue per market;maintain rapid subscriber growth, especially in Europe, while extending profitability;significantly ramp our mobile product presence and audience; improve efficiency; and as previously stated, to further grow earnings per share.

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

Thank you. (Operator Instructions).

Our first question is from Dan Kurnos of The Benchmark Company. Your question, please.

Good morning, guys. Chris, let me start off by asking; is there any truth to -- that you are seeking an advisor to explore strategic alternatives?

Hi there. We provide no comment on this topic. And today would like to talk about the Q1 earnings and the future growth strategy.

Alright, so then in terms of the Local Deals business, I understand how you feel about the competitive nature and what your competitors are doing in that -- in the industry. I'm just curious how you feel overall about the strength of the industry? And how Travelzoo is performing within the industry?

And then in terms of competition, are you seeing any increased competition from Groupon in the high-end space?

I'm trying to frame your question, because there were two questions there. How do we perceive the industry? We perceive the industry that we are the only company that is serious about making profits, we have demonstrated this. And we are also very serious about being focused on quality. We saw that the industry participants are not -- the two largest participants lost a billion dollars last year. One participant's loss was $2 for every $1 of revenue, and that is not sustainable. We like to approach the business profitably.

We are the industry leader, in terms of average revenue per local deal published. I believe we are at $29,000 in gross revenue this last quarter, which was up from Q4. So we feel very positive about our position in the industry. But we are different.

We are not a daily deals site. We don't publish deals every day. And I think that is an important thing for everyone to start to understand.

Let me just turn then -- your North America operating margins were down pretty significantly year-over-year. Could you give us a little bit of color on what drove that?

Glen will answer that question, thank you.

Hi, Dan. I think the primary driver of that is that sequential down with -- from some of the online travel agencies not spending as much.

And so then just to follow-up on that. We saw that you had some pretty strong Getaways in the quarter, but you obviously had the travel weakness. Excluding Getaways, do you expect that weakness to persist in the near term, until you can re-ramp the subscriber growth, as you were talking about in your presentation?

May I just comment on that?I'm not sure it is function of subscriber growth. For example, in the UK, of the top 44 advertisers from Q1 last year, ten of them no longer exist. So what our sales force is doing is replacing business in the core. And in North America, we are seeing the same. It is not so dramatic that there are so many businesses folding, but businesses did cut back and they prefer to find a safe harbor and go for profitability rather than growth, which ultimately meant that they didn't spend as much with us this year versus last year. And that is what is happening.

We are ramping our sales force. I just said that we would be adding now 50 people, we added 19 people in sales. And we aim to replace that business, but also grow the Getaways and overall hotel business.

Thanks. That's helpful. And then just finally, as you said, you have got a lot of initiatives now in an attempt to reaccelerate the Business here. It seems like you could spend a lot. Obviously, you want to run the business for profitability. What is sort of the balance you want to strike between the two?How much profitability are you willing to sacrifice to ramp this? And is it more of a steady build? Or is it something that you will do relatively quickly, and then increase the sales force effectiveness from there?

I think you come to know us now. We are rationale, reasonable people. We will invest the right speed. If we see that productivity per employee starts to dip, we will pull back. If we see that revenue per subscriber starts to dip significantly, we would pull back in that investment. And we will keep growing this Business steadily for the long run. And I think we are very, very excited about our future opportunities.

I think the mobile opportunity is one not to be lost. The conversion rates, the uptake that we are seeing in mobile is just such an untapped opportunity for this brand. And given that content format we have, it is just perfect.

All right. Great. Thanks a lot, guys.

Thank you.

Thank you. Our next question is from Naved Khan of Jefferies. Your question, please.

Thanks for taking the question. This is Naved Khan from Jefferies. Just on the Travel side, you guys spoke about the weakness in advertising market. And typically, Q1 tends to be sort of the peak season for that and you kind of drift from there. How should we be thinking about this business for the rest of the year? Do you think the trends will persist? Or some of you are making here, you think it might pay off two or three quarters down the line?

Glen, would you like to answer the question first, and then I will add any further comments?

Sure. On the current quarter results, like I said, some of the spend was pulled back on the online travel agencies. We are working hard to see how we double back and make sure they are seeing the value. Part of that we control, the other part is their decision on that. So kind of 'to be determined' on that end.

And what we were really pleased to see was just the strong activity in hotels, when you look at that category. There was definitely growth in that category, that includes Getaways, and it seems to be going as planned or better than planned.

Naved, it's a story of two halves. The asset holders, the hotels, the cruise lines, to some extent the Trans Atlantic airlines, we either saw positive or no change. And then the intermediaries, we did see a pull back because these are people who are more focused on demand aggregation, and it is not so important to them if they drive up revenues or if they have an empty room, because they don't own the rooms. So that is something we are working on. And in that group of hiring -- we will be hiring people to continue to develop new business to replace the businesses that have failed. But ultimately, that is the focus.

Okay. That's helpful color. On the -- you talked about increasing the sales force productivity and hiring more sales people, what are some of the things you can do to increase productivity and also increasing the netting frequency?

We have conducted, over the last three months, a strategic review of our sales process, both in all three divisions in Europe, in Local, and in North America. And the process is much more clear now and it is very defined. So as new people come in, they understand the process much faster, and that allows to us get people to ramp. We also built some new systems that give us greater visibility. For example, if you take over a book of accounts, the new sales manager, you have much better visibility now than your predecessor, on who advertised this time last year. So simple wins like that.

And also just recognition within the management team, that that is a key priority. That means we need to bring in top quality managers. We demonstrated that with Mark and Richard, but we intend to bring in more top quality managers at the mid-level and continue to grow.

So this target of 50 -- do you plan on ramping up on the early side of this? Or is it going to be at an even pace throughout the year? Or how do you envision this?

It is a really great opportunity right now, we are seeing a shake-out in the industry. We just hired two people in Germany, who we think are top quality candidates, that came from one of the two larger participants. These people are leaving these companies now. So as soon as we can find the candidates, we will bring them on. And that is our intention. We would like to go as fast as we can.

Okay. The -- so you mentioned about the redistribution by The New York Times for your daily deal. Is there a bigger opportunity there that you are exploring? Or how should we think about this?

We are exploring many opportunities with syndication and distribution. I think the biggest opportunity for us is mobile. But our content is very, very attractive. It is unique content.

If you go to our website today and look at this deal for the Omni Hotel in Dallas -- it is brand new hotel. It is a beautiful spa deal. You would get on a plane from New York City to go to Dallas to go and enjoy that spa, it is that beautiful. And when you have got content like that -- and if you look at this New York magazine deal, that is Aquavit -- Aquavit one of the best restaurants in New York. We also had Gilt. Gilt is a two Michelin Star in New York City.

When you have that kind of content, people want to write about it and include it in their publications. We see a tremendous opportunity for distribution and we have not focused on that yet. We have really focused on getting the deals. But we are excited that we can now start to look at that.

Okay. And final question from me. I think some of the numbers you mentioned -- I hope I have them right, but you said that around 34% of the purchases are from subscribers who are new to Travelzoo. And you also said that in Q1, around 30% were from, basically, repeat buyers. It seems to me that the repeat buyers may be buying or spending more on Travelzoo almost double, in terms of spend. Is that the right way to look at it? Or do I have my figures wrong?

Glen, I don't understand the question really. Maybe, Glen, you could answer that. Do you understand the question?

I didn't really get the question. What you repeated, as far as the stats, are what we are seeing.

Yes, so if 34% of the purchases are being done by people who are new to the company or new to Travelzoo, and then at the same time, you said that 30% of the buyers were repeat, it would seems like those 30% account for roughly 70% of the money spent. And therefore, repeat buyers are spending almost double of the new buyers. Is that the right -- ?

I'm not sure that these two numbers are -- I'm not sure that they are mutually exclusive. So it could be that the stat on therepeat purchase -- it could be that you bought a deal in Q1 in January and then you bought a deal in March, in which case you are a repeat buyer. But you could have also been new to us in January. Do you see?I don't think you can connect those two numbers like that.

Got it.

The exciting thing is that we are getting subscribers from offering these high-quality deals -- new subscribers. And then the people who are buying the deals are having a good experience, obviously, because they are coming back. So that is really encouraging.

It is actually -- you see I mentioned in the US, $700,000 of the voucher value or gross revenues, as you would call it -- that is coming through mobile devices. And so I think our mobile platform alone would mean that we are somewhere in the region of the sixth or seventh largest publisher in this space in the entire United States, just through mobile, if you were to look at the reports, in terms of how much companies sell these vouchers. And we really just got started there.

Thank you.

Thank you.

Thank you. Our next question is from Ed Woo of Ascendiant Capital. Your question, please.

It is good to see that you are reaccelerating growth initiatives. Do you feel that that is something that will help your business, versus a lot of your much bigger competitors?

I don't think we think that. That is not why we are doing it, Ed. We are doing it because it is the right thing to do. And we want to continue to grow our business and grow our profitability and our revenues, but also to service our subscribers.

We have 100,000 subscribers in Nashville and we are not currently serving Local Deals. We would like to service them with Local Deals. And I think what will help us in the competitive landscape is once these businesses start to rationalize, then -- and become normal, then it would become a much more even playing field.

I give you a story -- we were trying to seek a candidate in one of our markets. The candidate currently works at one of the other companies. And we gave a reasonable offer, a very attractive offer, and the competitor responded with an offer that I think was somewhere in the region of five times greater, in terms of potential income for this individual. And it is almost -- that income level, the person was in his mid 20s, would have been equivalent to that of a top level executive at our Company. And that is just not sustainable, because we know that the margins are.

It is just not realistic. And so when you see that kind of behavior in an environment --or there was another example, we did lose a restaurant in New York City. Why? Because one of these competitors came in, and they offered the merchant a zero take rate and to give them a free billboard. So that is obviously not sustainable.

When that stuff stops, which it will, then we feel super confident about our ability to play aggressively on the field. We saw it back in 1998 through to 2002, and you saw that Travelzoo came out of that period as a very strong internet media company. We feel that we are almost through it, and we are quite excited.

Great. And then the other question I had is; on Fly.com, I noticed recently that you guys expanded beyond just airfares. How is Fly.com working?

We are very pleased with Fly.com. Glen, do you have any further comment?

We are very pleased with Fly.com. I think in Europe, that got launched later, and we are pleased with the current progress on that as well.

The really cool piece of integration, Ed, is if you go to the Travelzoo website, and you look at today's best fares, it is really -- and we are getting a lot of buzz for that -- for that tool. There is the fares that come from the Fly.com sites. If you live in New York, and you just want to say, what are the best fares today, not necessarily departing today, but available in the airline systems today, that is where you would find these deals. And that a is a great service with a lot of positive feedback.

And it's an example of synergy, Ed. We think about synergy a lot in our business. If you look at the Local Deals business in Europe, approximately 40% of the Local Deals that we ran in Q1 were inside hotels. In the US, about 20% of the deals that we ran were inside hotels. We are always thinking about that. And Fly.com does provide synergy, as does Local Deals, all back to the core.

So you are pleased with the launch of the new hotel and car rental products?

Yes, we are still testing these out. But we are pleased with the general progress of Fly.com. We are also testing calendars now, in the UK. We are quite pleased with that innovation. And we will continue to make progress with the product and user adoption.

Great. And the last question I have is, you mentioned about how the online travel advertising market was a bit of a challenge. How do you characterize the overall travel industryright now?

I don't really -- it is such a large question. Characterize it as uncertainty in Europe?

Do you see any issues with the economy? Do you see bookings up, do see hotels booking increases? Or just your anecdotal view of the travel world?

My impression is that -- I have been out to quite a few client meetings recently. There is clearly a great deal of uncertainty in Europe. There are some one-time events occurring in the UK this year, with the Jubilee and the Olympics. Spain did benefit last year from the trouble in North Africa. So actually that business was somewhat booming last summer in Spain. But let's see what happens now. And we all got the copy of the Journal this morning, we can see there is more uncertainty in Europe on the road ahead.

In North America, it feels people are still rather pensive but will travel. It is more a seasonal issue. And also maybe slightly slower growth expectations for some of the independent travel companies that are privately owned than heavy growth. And if we all go back to Q1 last year, and how the world was feeling Q1 last year, I think it was a little bit different to how people felt this year. It was perhaps more optimistic.

Great. Well, thank you and good luck.

Thanks, Ed.

Thank you. Our next question is from Ryan Bergan of Craig-Hallum. Your question, please.

I'm not sure what more there is to pick at here, but I wanted to get clarification on the headcount ramp. If you are seeing growth in your revenue or seeing a lack of more robust growth, like you saw in 2011 in revenue, do you still see the headcount growing at the pace you've outlined in the slide deck? Or is it more -- if there is a slower revenue, do you see it slowing the headcount hiring ?

We will add people and we are not going to see these people become productive immediately. That is not realistic. But over time, they will become productive. And we will watch the Cohort Group and we watch it very carefully, and as we see green chutes, we continue to add and add and add.

We know what the opportunities are. I mentioned Nashville and there is also Charlotte. We could still do a heck of a lot more down in Florida on the Local Deals side, but also in hotels.

And we need to spend more time focusing on developing new business. I was excited that last year we developed new business with the Atlantis Resort directly. They worked with us again in Q1 of this year. But these relationships take time to build and you need people focused on them. So that is how we will approach it.

So you are saying it is independent of any growth in the revenues -- or a growth rate in the revenue?

Well, the revenue will come as you have the people. So it is sort of a chicken and egg, right?You can't just grow revenue without adding the people or growing the subscribers or introducing products. Yes, we could do a better job than we did in Q1, I think with the existing group that we have. But, yes, we would continue to add people as we see productivity continuing to improve.

One thing I would add, Ryan, is we feel like we are in a much better positionthan this time last year. We were adding a lot of people through Q1 and Q2. I think there was a lot of learnings from that on tracking productivity and getting expectations, as far as what the productivity should be and how long the ramp is. We will use those learnings and monitor it along the way.

I'm going switch over to Europe operating expenses. It was down year-over-year. I think you had said it was more of a reflection of the slower core travel revenue business in Europe. Do you see any further expenses coming out of that, independent of any travel challenges that you see over there?

Glen, would you like to answer that?

On the expense side, you are referring to?

Yes.

As a percent -- as that business scales the percent of revenue of the expenses will obviously go down. So we did see that. As far as taking -- we are not actively you trying to take out expenses. We are making sure we apply additional expenses where we feel like there is growth opportunities. So that is -- there is no -- I would say the trend right now is just to cautiously invest and make sure we are making sure that we have those investments for future growth.

Operator, I think we have completed the call now.

Thank you, sir. I would now like to turn it back over Mr. Loughlin.

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

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect. And have a wonderful day.