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 know have the pleasure to turn the floor over to your host, Mr. Chris Loughlin, Travelzoo’s Chief [Executive] Officer. Sir, you may begin.

Thank you, operator. I am glad I am not the Chief Financial Officer. I am 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 am 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 Form 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 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 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…

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, the venture capitalists and corporations piling in huge amounts of investments and adopting a grow-at-any-cost mentality. Last year alone, the two leading market participants lost close to billion dollars to drive on profitable 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, where 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 regards 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 out. Moving to slide 17, I want to highlight our growth strategy, which consists -- which we also highlighted in prior quarters. Over the past two years, we’ve 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 the local cities and destinations they travel to. We are now in a 111 markets across six nations. We’re publishing 0.79 deals per week and we intend to increase the frequency to two deals overtime while also continuing to add more markets. At the end of February, we…

Thank you. (Operator Instructions) Your first question is from Dan Kurnos of the Benchmark Company. Your question please?

Chris, let me just start-off by asking, is there any truth to that you are seeking advisor to explore strategic alternatives?

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

Alright, so then in terms of the Local Deals business you know I understand how you feel about the competitive nature and what your competitors are doing in the industry. I am 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 on the high-end space?

Well, I am 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’s serious about making profits. We demonstrated this. And we are also very serious about being focused on quality with regard to the industry; participants are not the two largest participants lost $1 billion last year. One participant’s loss was $2 for every dollar of revenue and that’s not sustainable. So 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 $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 deal site, we don't publish deals everyday and I think that, that's an important thing for everyone to start to understand.

Okay, 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?

I think the primary driver of that, is that sequential down with the revenue side from some of the online travel agencies not paying as much.

So then just a follow-up on that. I mean we saw that you had some pretty strong getaways in the quarter but you obviously had the Travel weakness, I mean excluding Getaway, 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 mean I am not sure it’s a function of the subscriber growth, for example in the UK, of the top 44 advertisers from Q1 last year, 10 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's not so dramatic that there are so many businesses folding, but businesses they cut back and they prefer to find a safe harbor and go for profitability rather than growth which ultimately, they didn't spend as much for this year versus last year and that's what's 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 in overall hotel business.

And just finally, I mean, as you said you've got a lot of initiatives now and then intend to sort of reaccelerate the business here. It's seem like you could spend a lot obviously you want to run the business for profitability, I mean you know what sort of a balance that you want to strike between the two, I mean how much profitability you are going to sacrifice to ramp this and how, is the builds more of a steady build or is it something that you’re going to do you know relatively quickly and then you know and then increase the sale force effectiveness from there?

I think, you come to know as now we’re rational, reasonable people, we will invest at the right speed, if we see that productivity for employees start to dip, we pull back. If we see that revenue per subscriber starts to dip sufficiently we would pull back in that investment. And we’ll keep growing this business steadily for the long run and I think we’re very, very excited about our future opportunities. I think the mobile opportunity is one not to be lost, the conversion rates, the uptick that we are seeing in mobile is just such an untapped opportunity for this brand. And given that content and format we have, it's just perfect.

Our next question is from Naved Khan of Jefferies.

Just on the Travel side, you guys spoke about the weakness in the advertising the market and typically Q1 tends to be sort of peak season for that and a kind of depth from there so how should we be thinking about this business for the rest of the year? Do you think the trends will persist or some of the efforts you are making here, you think that might pay off two or three quarters down the line?

Sure. Yeah on the current quarter results, like I said some of the spends we have 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 and part of that we control. The other part is their decision on that. So kind of to be determined on that and what we are really pleased to see was just the strong activity in Hotels. When you look at that category, definitely growth in that category. So that includes the gateways and it seems to be going as planned or better than planned.

I mean Naved, it's just sort of a story of two haves, the asset holders, the hotels, the cruise lines, to some extent the TransAtlantic Airlines. We either are still 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 I know it’s not so important to them, if they drive up revenues or they have an empty room because they don’t own the rooms. So that's 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's the focus.

Okay, that's a different color. And to talk about increasing the sales force productivity and hiring more sales force people, what are the similar things you can do to increase productivity and basically also increasing the deal frequency?

We have conducted over the last three months, a strategic review of sales process, both well in all three divisions in Europe, in Local and in North America and the process is much more clear now and it's very defined. So as new people come in, they understand the process much faster and that allows us to get people to ramp. We also built some new systems that give us a greater visibility. You know for example if you take over a book of accounts, a 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 a recognition within the management team, that that's a key priority and 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 sort of target of 50, do you plan on sort of ramping up, sort of on the early side on this or is it going to at an even pace throughout the year or how do you sort of vision this?

What they say is you know it's really a great opportunity for us right now, we are seeing a shakeout 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’s our intention, we would like to go as fast as we can.

So you mentioned about the sort of redistribution by the New York Times for your daily deal, is there a bigger opportunity there that you are exploring or 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, I mean its unique content. If you go to our website today and look at this deal to the Omni Hotel in Dallas, it’s a brand new hotel, it’s a beautiful spot that you would get on a plane from New York City to go to Dallas to go and enjoy that spa, its that beautiful. And when you've got content like that and if you look at this New York Magazine deal that's Aquavit. Aquavit is one of the best restaurants in New York. We also had Gilt. Gilt is a Two Michelin Star restaurant in New York City. When you've got that kind of content people want to write about it and include in their publications. So we see a tremendous opportunity for distribution and we have now focused on that yet. We are very focused on getting the deals, but we are excited that we can now start to look at that.

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

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

Yeah, I didn’t really get the question, but you repeat it as far as the stats or what we are seeing?

Yeah, 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 repeated; so it seems like those 30% account for roughly 70% of the money spend and therefore repeat buyers are spending almost double of the new buyers; is that the right….?

I am not sure that these two numbers are -- I am not sure that they are mutually exclusive right. So it could be just on the repeat 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 repeat buyer, but you could have also be new to us in January, you see. So I don’t think that you connect those two numbers like that.

Got it.

But the exciting thing is that we’re getting subscribers from operating this high quality deals, new subscribers and then the people who are buying the deals are having a good experience obviously these are coming back. So that’s really encouraging.

It’s actually, you see, I mentioned in the US, $700,000 of the voucher value of gross revenues as you would call it that’s coming from 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 report in terms of how much companies sell these vouchers and we really just got started there.

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

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

I don’t think we think that; there is no why we are doing it. We are doing it because it’s 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 at Nashville; 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 become normal, then it will become 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 reason. We 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 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 what the margins are, it’s 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 zero take rate and to give them a free Billboard. So that’s obviously not, that’s 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 ’98 through to 2002 and you saw that Travelzoo came out of that period as a very strong internet media company. We feel that we’re almost through it and we’re quite excited.

And then the other question I had is on Fly.com, I noticed recently that you guys expanded beyond the air fares; how is Fly.com working?

We are very pleased with Fly.com and Glen do you have any further comments?

No, we’re very pleased with Fly.com. I think in Europe they got launched later and we are pleased with the current progress on that as well.

The really cool piece of integration that is if you go to Travelzoo website and you look at today’s best fares, it’s really and we’re getting a lot of buzz for that tool. There is a fare that comes from Fly.com site; if you live in New York and you just want to say, okay, what the best fares today; you’re not necessarily departing today, but they are available in the airline systems today that’s why you would find these deals. And so that’s a great service; a lot of positive feedback. And as an example of synergy, 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 US, about 20% of the deals that we ran were inside hotels. So we are always thinking about that and Fly.com does provide synergy as at Local Deals or back to the core.

So you are pleased with their launch of the new hotel and a car rental product?

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 use redemption.

Great and the last question I have is you mentioned how the online travel advertising market was a little bit challenged, but how do you characterize the overall travel industry right now?

I don't know really, I mean it's actually a large question. I characterize it as uncertainty in Europe.

Let me repeat, do you see any issues with the economy, do you see bookings up, do you see people excited, do you see hotel’s bookings increases or it fits your anecdotal views of the travel world?

My impression is that, Ed, I have been out to quite a few client meetings recently. There's 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 could see there's more uncertainty in Europe on the road ahead. In North America it feels people are still rather pensive, but will travel and it's more a seasonal issue and also that maybe slightly slower growth expectations for some of the independent travel companies that are privately owned than a heavy growth and if you 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

Our next question is from Ryan Bergan of Craig-Hallum.

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

I think we will add people and we’re not going to see these people become productive immediately, that’s not realistic. But overtime they will become productive and we’ll launch the [COHO] group and we watch it very carefully and as we see green shoots, we continue to add and add and add. We know what the opportunities are. I mentioned Nashville but there is also Charlotte, we could still do a heck of 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 very excited, the 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’s sort of how we will approach it.

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

Well the revenue will come as you add the people, so it's 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.

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

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

Glen, would you answer that?

On the expense side you are referring to?

Yes.

Yeah. I mean, as a percent, as that business scales, the percent of revenue and other expenses will obviously go down, so we did see that. And as far as taking it, we are not active though we are trying to take out expenses; we are making sure we apply additional expenses where we feel like there is growth opportunity. So, 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 will now like to turn it back over to Mr. Loughlin.

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