Holger Bartel - Executive Chairman Christopher Loughlin - Chief Executive Officer Glen Ceremony - Chief Financial Officer

Daniel Kurnos - The Benchmark Company Edward Woo - Ascendiant Capital

Good morning, everyone, and welcome to the Travelzoo Third Quarter 2014 Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be opened for questions following the presentation. Today's call is being recorded. Before introducing you to your host and beginning the company's presentation, the company will like to remind you that all statements made during this conference call and presented in the company's slides that are not statements of historical facts constitute forward-looking statements and are made pursuant to the Safe Harbor provisions in 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 the company's forms 10-K and 10-Q and other periodic filings with the SEC. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Please note that this call is being webcast from the company's Investor Relations Web site at www.travelzoo.com/earnings. Please refer to company's Web site for important information, including the company’s 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 Web site at www.travelzoo.com/ir, beginning approximately 90 minutes after the conclusion of this call. Now, it is my pleasure to turn the floor over to your host, Holger Bartel, Travelzoo's Executive Chairman. Sir, you may begin.

Thank you, operator. Good morning everyone and thanks for joining us today on Travelzoo's third quarter 2014 financial results conference call. I'm Holger Bartel, Executive Chairman of Travelzoo. The company's board of directors appointed me as Executive Chairman a few weeks ago on September '12, after serving as a Chairman of the board for several years. As the previous Chief Executive Officer and a co-founder of Travelzoo, I am very excited to take on a more active role again in the company to help navigate through a transitional period and help us bring back to growth. Joining me today are also Chris Loughlin, our Chief Executive Officer, and Glen Ceremony, the company's Chief Financial Officer. Glen will walk you through today's format.

Thank you, Holger, and good morning everyone. For the format of today’s call, I will review our third quarter financial results and then Holger will provide an update on our strategy and how it impacts our financial performance in the short term. Thereafter, we will open the call for our question-and-answer session. Now, please open our management presentation which is available at www.travelzoo.com/earnings, to follow along with our prepared remarks. Slide 3 provides the key financial highlights for the quarter. Our revenue for the quarter was $33.5 million, down 10% year-over-year primarily due to declines in search and local revenue. Our non-GAAP earnings per share this quarter was $0.02, which is lower than the prior year period due primarily to the lower revenue, a higher non-GAAP effective tax rate and a significant increase in spending on subscriber acquisition which we had previously announced. Our subscribers grew 4% year-over-year along with continued mobile app downloads. Slide 4 highlights our revenue by segment. Revenue in North America was $22.6 million representing a year-over-year decline of 14%. And in Europe revenue was $10.9 million representing a year-over-year decline of 1%. In local currency, Europe revenue decreased year-over-year by 8%. The next few slides cover further detail on our North America and Europe segments. Slide 5 shows that North America year-over-year revenue decreased by $3.6 million, $1.3 million was due to our planned reduction of search product marketing spend, an additional $1.3 million was due to lower voucher sales for local and the remaining $1 million was due to travel. Our travel revenue was impacted by lower voucher sales for Getaways and hotel fixed fee placements and lower spend by some advertisers, including certain online booking engines and airlines. During the quarter we began running more deals through our hotel booking platform instead of the Getaways model, which affects revenue because in these cases revenues are recognized much later. In local, voucher sales coming from push promotions have decreased while we are increasing the number of deals that are available when our users want them. On Slide 6, the Europe year-over-year revenue was relatively flat with a slight decrease of $100,000. Travel revenue grew by $500,000, yet this was offset by declines in local and search. The FX changes during this quarter impacted how these revenues roll up in U.S. dollars as well. Slide 7 provides some detail on our operating income and net income. We generated $400,000 in overall non-GAAP operating income of which Europe generated $500,000. This was offset by North America's loss of $100,000. The operating income is lower due to a planned year-over-year increase of $1.8 million in spending on subscriber acquisition. The non-GAAP income amounts exclude income of $2.3 million from a release of reserve related to our anticipated settlement agreements in connection with disputes over unclaimed property audits with various remaining states. As you may recall, we took a $22 million charge in our third quarter of 2013 which created the majority of the reserve for this matter. As we have settled a number of the claims during this quarter, we adjusted the reserve accordingly. Slide 8 shows the cost of revenue and operating margin. The cost of revenue as a percent of revenue increased year-over-year. We launched our hotel booking platform to parts of our subscriber base which increase customer service cost in the short term. As we increase subscriber acquisition by $1.8 million, as I have previously mentioned, our operating margin decreased. Moving on to Slide 9. North America operating expenses decreased year-over-year by $1.5 million due primarily to our planned reduction of search product marketing spend and lower earned commissions and bonuses. This was offset by one-time charges of $600,000 related to several employee terminations as well as $500,000 related to our increased level of subscriber marketing. Europe operating expenses increased by $1 million as a result of our decision to increase subscriber marketing. Turning to Slide 10. This shows that our headcount increased this quarter by 11 employees. We selectively increased headcount to assist in our product development initiatives and to support our future hotel booking business. Slide 11 shows an increase in DSO, which is primarily driven by an expected longer collection cycle from one of our new partners in search. Our cash position was $57.2 million, down from $60.5 million in last quarter due primarily to the negative FX changes on the cash we hold in Europe. On Slide 12, to summarize. Revenue declined as expected in the areas of search and local. As we also planned, we spent significantly more on subscriber acquisition which impacted this quarter's profitability. Our cash position remains solid, yet was impacted by the negative FX translation on our European cash. Looking forward to this next quarter, we expect the following. We expect the recent year-over-year declines in revenue to persist. We expect the second half of the year including our fourth quarter to be seasonally lower than the first half of the year. We will continue our lower year-over-year spend on marketing for our search products, namely SuperSearch, which will result in approximately $2 million of lower search revenue year-over-year. We expect to continue our investment in hotel booking platform which will result in an approximate $0.07 EPS impact. In addition, we expect to incur increase levels of professional cost for various initiatives as well as increased levels of marketing cost. In regards to marketing, we intend to continue our increased level of spending on subscriber acquisition over the next two quarters by approximately $2 million year-over-year. We will moderate this investment subject to the performance of our business, so that we can meet our internal profit targets. This concludes the financial summary of our third quarter of 2014. Now Holger will provide you an update on Travelzoo's strategy.

Okay, Glen. Thanks. Please turn to Slide 14. Our growth strategy continues to be built on two pillars. That hasn't changed. On one hand we are looking to grow our audience, in particular the number of our subscribers. This is shown on the X axis here. And at the same time we are also enhancing our products to serve our users better. We not only want them to receive deals from us by email and social media, but we also want to help them when they are actively searching for something specific. Like hotel room in a destination on a certain date. We believe that these product enhancements will result over time in high revenues per subscriber. As page 15 now shows, the strategy hasn't really fully translated into the kind of growth we are looking for. We have a solid subscriber base and audience which we are growing. Especially on the mobile and social fronts. But our products are still not easy and complete enough to help our users find what they need. Allow me to explain this a bit more. On Slide 16, we show that we have been very successful in the past 15 years to inspire our users by telling them about great deals at quality places. We would tell them for example, why not go on a five day trip to Iceland at an amazing price. But when they are simply looking to find a deal for an upcoming weekend getaway in New York, for example, we offer very little help. We believe there is an immense opportunity to serve our users and subscribers better by helping them find deals when and where they need them. How does this overreaching strategy translate into our business? As page 17 shows, we are investing right now into making our products easier to search and simpler to use. In particular, we have launched a hotel booking platform which allows users to find deals anytime and to book them easily on any device, including their mobile phone. We have rolled out this platform to parts of our audience but we are not happy with the content yet. We need to increase it. In the short-term, this means that our product related expenses are up as a percentage of revenues as shown here on the right side. Additionally, moving deal transactions from vouchers on to the hotel booking platform which has shown to increase revenues per deal to increase, so that's great, but it also comes with a delay in revenue recognition. Net revenues from bookings in that case are only recognized after the hotel stay has been completed, which is approximately 40 to 50 days after the booking. With vouchers on the other hand, revenues are recognized when the voucher is sold. On page 18, let me talk about our local deals. Like all others in the industry we are seeing a shift in consumer habits. Consumer purchase deals for restaurants, spas or fun activities less in advance but at the time when they need them. This shift from push to pull is also affecting us and we are responding in several ways. First, we are increasing the number of deals that are live on our sites and on our apps which can be purchased at any time. In our top markets in the U.S., for example, we more than doubled the amount of deals year-over-year. We intend to grow this further. Second, we are developing products that make it easy for our users to find deals close to them wherever they are. Whether at home or whether they travel. We are also experimenting with alternatives to the relatively rigid voucher format. You can see in the bottom right of the page that this strategy is starting to bear some fruit, as both mobile purchases and what I call pull purchases have increased year-over-year as a percentage of total sales. But the declining trend from push remains for the time being stronger than the upwards strength from pull. So we are still seeing a net decline. Let's now look at search, which I illustrate on page 19. In the past, we didn't manage these products always towards profitability. We often ran marketing campaigns which drove users to SuperSearch or Fly.com which didn't generate profits or didn't come back. We have now become more selective and reduced some of this overspending on marketing. But this affects the volume, so as a result revenue is decreasing but the good news is, profitability is up. Let's now move to the second pillar of our strategy, as I said before. Growing our audience and our subscriber base. In the past our subscriber acquisition has been relatively one-dimensional. We have been running online ads, some of them shown here, to drive users to our sites with the objective to turn them into long term subscribers. But we have now begun to explore new and different ways to augment our high quality audience. Both offline and online. As we test new forms of marketing, however, they can sometimes be less efficient at the beginning until we learn more and until we can optimize them. But we also believe that the greater opportunity lies in our loyal subscribers themselves. Millions of them love the brand and they love to take advantage of our deals. Leveraging their affection with the brand towards referrals represents not only a large but also highly efficient way to increase our audience. In addition, our Travelzoo network which publishes deals to partner sites such as the LA Times, Yahoo! Travel or Frommers, just to name a few examples, creates more awareness of our quality deals beyond our own site. As Glen mentioned and shown on Slide 21, we will continue to ramp -up subscriber marketing during the current quarter as well as early next year. This will continue to impact our profitability as well as earnings-per-share. But we believe it is the right investment into the company's future. We have found a lifetime value of a subscriber several times greater than their cost of acquisition. But it takes several quarters to bring the investment back because we have to expense the subscriber acquisition cost immediately while we are generating revenues over the term of the customer in the future. Turning to page 22. We are really proud to be the quality leader in this business. Day after day, our staff of over 100 producers and deal experts select, researchers negotiates and validates the very best deals. Whether it's the spa at the Four Seasons Hotel or dining at the top rated restaurant, our focus is always on quality. We do not want to recommend any deal to our subscribers which we would not use ourselves. And on top, our test booking centers in Europe and North America ensure that deals that we publish our real and valid and not just bait and switch. We believe that our passionate focus on the very best deals at the very best places drives loyalty in the long run and positions as well for long-term success. So let me summarize our management focus as shown on page 23. Maintaining and even strengthening our quality leadership is crucial. We also intend to resume topline growth in multiple ways via products that make pull equally simple as push, and by continuing to grow the number of people who use us. But as we invest on both fronts, we would like to remain profitable. Operator?

(Operator Instructions) Our first question comes from Dan Kurnos of The Benchmark Company. You may begin. Daniel Kurnos - The Benchmark Company: Holger, nice to hear from you. Just a few questions here and maybe just one high-level for you, Holger. It seems like you are obviously going to get more involved in the business. And the point that you have outlined is really not terribly different from what we have heard previously. Certainly there are a few additional factors impacting the business. I'm just curious, particularly from your vantage point, what you expect to bring to the table and how you think that you can impact our accelerate this transitional period as you put it.

Hi, Dan. Yes, you are right. About a little more than a year ago we outlined a strategy that we are successful on the push side of the business but we have to build a pull business. That a strategy is very very sound and the whole board and the company believes in it. However, what has happened and as I showed a little bit in these slides, it's a lot of work. It's just not going as fast as we had hoped. We launched the hotel booking platform a few months ago. We utilize it for some deals and to parts of our audience but the content is still not where we want it. Some functionality is not exactly where it is. In local deals we are working hard on some of the new products that we want to launch to allow users to find deals when they need them. So overall, we are just not making progress or we haven't been making progress as fast as we want. So the board felt that me and Chris and Glen, all working together will help accelerate things. One area I am particularly involved in is products, because it's something I'm very passionate about and it's something where I think we have a lot of room for growth and improvement. So in a nutshell, yes, the strategy doesn't really change but we sincerely hope that this augmented team will be able to execute the strategy more quickly than in the past. Daniel Kurnos - The Benchmark Company: Got it. That's helpful. And then just maybe for everyone's thinking in terms of timing of this. Since you say that you are pacing a little bit slower than you expected and it sounds like in order to get a lot of content up, it's going to take some time and investment. Could you give us maybe a broad brush, I'm not looking for any particular specifics, but any broad brush. Ideas of goals or milestones and how long you think it will take for you to have what you would consider an appropriately content rich experience.

Yes, Dan, it's a little bit early now to ask this question. I mean I came on board four weeks ago and we are very focused on reviewing what we have been doing and what can we do better to speed things up. So as I pointed out in the slides before, what is quite unfortunate with the strategy is that in the short run it really creates a lot of expenses in various areas without generating revenues immediately. One thing I highlighted in the presentation and which was actually quite exciting, is that we found with a few test cases if we actually run a hotel deal through the hotel booking platform rather than the voucher model, it actually generated significantly more revenue. So that's very positive. But hotel booking platform is quite an undertaking. You have to connect to various systems. I was quite surprised a few years ago when I learned about how complex the area of hotel distribution is. So we have made quite a good progress on the backend. But not all hotels that we want can yet connect with us in a very efficient manner. Daniel Kurnos - The Benchmark Company: Okay. That's helpful. Thanks for that color. So let me just ask a few a specific questions now, just about the company here. Clearly there is a lot of fear out there from the Ebola scare, I am just curious if you guys are seeing an impact either broadly on the travel industry are specifically as it relates to you guys from either your airline or your cruise company advertisers.

Yes. Very hot question for the moment. Chris, maybe you can respond to that?

No, it's a good question. We actually did a survey on Facebook with our fans two days ago and asked the question about how this would change the travel plans. Half of the audience, and you can go online you can actually see on Facebook, half of the audience commented, it's not going to change their plans. Another half were very concerned. People talked about doing more road trips. So we haven't heard yet from the travel companies we work with that there has been a pullback in bookings. We don't do an enormous -- and we don't do any bookings to West Africa but we don't do an enormous amount of business to South Africa or Kenya. These would be the two destinations we are really focused on. But we haven't heard any major pullback. I think what you will see as it gets worse and I predict it will get worse here, is you will get more people sticking to their car and more road trips, which we could benefit from as well because that's the larger side of our business.

Well, I remember actually, Chris, and you remember that probably as well. Back in 2001 after September 11, we actually had just two or three weeks later we had the highest number of clicks on top 20 ever because a lot of places were offering fantastic deals and hotels and airlines were afraid and cruise lines no one would book it. But as soon as we told our user about the fantastic deals that are out there, they were quite surprised by how much demand we could drive. So as Chris said, there is always the ones that fear and there is always the ones that take advantage of these opportunities. Daniel Kurnos - The Benchmark Company: And then, Glen, just some color on getaways since you have been kind enough to at least give us a little bit more granularity there. Just how, did it decelerate even further again in North America this quarter or internationally you have been launching some new geographies? Just any additional color on getaways.

Yes. So the trend continues on that but one highlight is that part of it is the shift to our hotel booking platform. So we are taking some of those deals that otherwise would have run on getaways and moving them on to the booking where we can. So that's part of the decline. But, yes, overall decline and in both regions. Daniel Kurnos - The Benchmark Company: Okay. And then just lastly from me. Look, it's good to see you guys follow through on the investment spending. It looks like you had a decent tick up in sub growth in Europe. So two questions or a two-part question, I should say is, first, what's kind of the ROI in your investment and sort of the expected payback period. I know, Holger, you talked a little bit about that in your prepared remarks. And are you doing any specific geographic targeting as you breakout this investment?

Glen, please?

Yes. So as far as the regions we are spending, we did spend more heavily in Europe because there is some great opportunities in Germany to increase our subscriber base there. But we actually spend in all areas to have that increase. As far as these levels, just to highlight, we haven't spent this much money in a quarter since probably late '09 early '10, right. And so it's a different market this many years later. So I would characterize this quarter that we just went through as a test at those levels. So we are -- it's online, majority of it's online, right, to bring in subscribers. But there is testing in there because we are looking at ways to keep the quality high of those subscribers coming in. So we could get really cheap CPAs and subscribers in the door but if they are low-quality, we don't really want them. We are interested in high-quality, engaged subscribers coming in the door. So that's part of what we will be looking at going forward with these increased levels of spend and we are pleased so far and we will continue to improve it.

Thank you. Our next question is from Ed Woo of Ascendiant Capital. You may begin. Edward Woo - Ascendiant Capital: And it's also good to talk to you, Holger. I had a question in terms of, touching a little bit about travel industry. How much of it should have helped you in the quarter just ended our how much of a headwind have you had either in the U.S. or in Europe?

Again, Chris, maybe you can shed some color on this because you are much closer or you have been close to this during the quarter.

Hi, Ed. I wouldn't say that there is major challenges in the industry for us. I mean we are going through a transition on the hotel side to new platform and I think we outlined how that revenue is delayed. It also means we've got to switch hotels two different platforms. So we have got to retrain our people and we are going through that process in North America in that quarter and year beginning that process in Europe now. So that's really related to us and not so much to the macro environment. We are seeing occupancy levels in certain cities reach a boiling point, in which case there would be no deals. But there is always a flipside, right. So I am looking at my report right now, and I see we are doing a really good job today in the English countryside but I'm not seeing many bookings in London because London prices are very high. That will continue. If things soften a little bit, it looks like there is this sort of a macro pullback here. Perhaps prices come down, there are more deals and will benefit from that. But it is quite choppy out there. You are getting $500 a night rates in many cities across America and so there wouldn't be many deals available in those cities until the prices come off. Edward Woo - Ascendiant Capital: And would that impact your hotel booking engines since that's more of a traditional booking or will it impact that as well?

Well, it's more focusing on deals, right. But I mean at $500 a night, many people will not book with us or with booking.com or with anybody. They will find an alternative arrangement. And we are rather focused on the deals. Our model is still primarily letting people know about deals where they can go, where the deal is. So I think we changed our direction from focusing on $500 a night rooms in New York City to right now we have $79 a night high-rise in Atlantic City or up in New England we have some great deals. And our traffic tends to follow our recommendation, our customers, so I should say, and so we benefit from that. I think, Ed, the thing you are seeing here, it's mainly on the hotel side and it's mainly around switching platforms. And this is a process that we think is the right thing for the long-term success of the business. Edward Woo - Ascendiant Capital: Okay. And you mentioned that the investment spend this quarter will be $0.07. I think that's an increase. Is it due to marketing costs or are you even going to see increased investment level spending for the technology.

Glen, maybe you can clarify that?

Yes. So that's both. So the technology as well as just building out what Holger had mentioned, you know there is a lot to the operations. So keeping those rates updated and making sure we are connected, that takes resources. So that was part of the headcount increase that you saw this last quarter. Edward Woo - Ascendiant Capital: As you guys roll it out, do you anticipate that number possibly getting bigger going forward, stabilizing, or eventually decrease after a while?

I think the nature of them are step cost, really. As you scale that business we will need to add a certain amount of step level to get to critical mass that we want in the markets, right. But then I think they should level off until you want to scale further up. Edward Woo - Ascendiant Capital: Great. And I think you previously, your goal I believe was to have 30 hotels per city after a certain amount of time. Is that still the near-term goal and what is your long-term goal for the hotel booking engine?

Let me take that, Ed. you know what we have found and actually you give us some feedback on the hotel booking engine in your last report where you used it. The challenge right now is just that even if you have 20 or 30 hotels in the city, on the specific dates where everyone wants to go half of these hotels might be sold out. So in order to really bring to our users the very best deals we probably have to increase that a bit. But in essence what's really most important for us and that's where we simply are not right now, is that we show our users the best deals that are available with these dates. And on a date when all hotels in New York cost $600 or $700 and if we tell our user and so them a deal for $400 and on top of that they get some extras, we thing that's great and they like that. But I also want to see, Ed, one thing that's very exciting over the last couple of weeks that I have really spend a lot of time with the teams and traveled to a lot of our offices. That the passion for the quality of our content really hasn't changed and we have an incredible amount of talented people in the company who are just eager to see our products get better and have our users find these deals. It's really right now a problem that we have the fantastic content, we have the users want it, but we're just not good enough at connecting the two sides. Edward Woo - Ascendiant Capital: Great. Definitely, welcome back Holger and good luck to you guys.

Thank you. I will turn back now to Mr. Bartel.

This concludes our call for today and I want to thank everyone again for participating and I look forward to speaking with you all next quarter. Bye.

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