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Executives

Tiffany Fox - Communications Director

Matthew J. Roberts - Chief Executive Officer, President, Director and Member of Equity Incentive Committee

I. Duncan Robertson - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Stephen Ju - Crédit Suisse AG, Research Division

Blake T. Harper - Wunderlich Securities Inc., Research Division

Jed Kelly - Oppenheimer & Co. Inc., Research Division

Kaizad Gotla - JP Morgan Chase & Co, Research Division

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Andrew D. Connor - Piper Jaffray Companies, Research Division

James Cakmak - Telsey Advisory Group LLC

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

OpenTable (OPEN) Q1 2013 Earnings Call May 2, 2013 5:00 PM ET

Operator

Good afternoon, everyone, and welcome to the OpenTable First Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Matt Roberts; Chief Financial Officer, Duncan Robertson; and Senior Director of Corporate Communications, Tiffany Fox.

At this time, I would like to turn the call over to Tiffany. Please go ahead.

Tiffany Fox

Good afternoon. Thank you, and welcome to the OpenTable Earnings Conference Call. Joining me today to talk about our first quarter results are Matt Roberts, our President and CEO; and Duncan Robertson, our CFO.

Before we begin, I would like to take this opportunity to remind you that during the course of this conference call, management may make forward-looking statements, including guidance regarding our expectation of future financial performance, which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations. A discussion of such risks and uncertainties is contained in our filings with the Securities and Exchange Commission, and we refer you to these filings.

Also, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures in talking about the company's performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release.

This conference call is also being broadcast on the Internet and is available through the Investor Relations section of the OpenTable website.

And now I'll turn it over to Matt.

Matthew J. Roberts

Great. Thank you, Tiffany, and welcome to our conference call. This afternoon, I'll provide you with a high-level overview of Q1 performance, and then I'll turn it over to Duncan to walk you through the detailed financials.

OpenTable had a strong first quarter. Revenue for the quarter totaled $45.5 million, a 16% increase over last year. And in the first quarter, our adjusted EBITDA profit margin was 40% on a consolidated basis and 50% in our North America business.

Now let's take a look at our key metrics by geography. In North America, which includes the U.S., Canada and Mexico, seated diners grew to 34.3 million in the first quarter, a 24% increase over last year. And worth noting, in the first quarter, approximately 36% of the seated diners in North America originated on a mobile device. To add some additional context to our seated diner growth, during the first quarter, North America industry diner counts were down approximately 1.5% year-over-year.

Turning to our installed base of restaurants in North America. We exited the quarter with 20,128 restaurants, representing a 13% year-over-year increase. This total includes 17,550 restaurants using our core Electronic Reservation Book product, or ERB, and 2,578 restaurants using our Connect product, which is designed primarily for walk-in restaurants that accept reservations.

In our International segment, which includes the U.K., Germany and Japan, seated diners grew to 3.1 million in the first quarter, a 37% increase over last year.

Looking at our installed base of international restaurants, we exited the first quarter with 7,829 installed restaurants. This total includes 3,404 ERB restaurants and 4,425 Connect restaurants.

Now I'd like to provide you with a few updates on the business. We continue to focus on enhancing the diner experience by helping people discover and book the perfect restaurant table. Our vibrant diner community continues to be delighted by how fast and easy we make it to find and book reservations at an ever-expanding network of the world's finest and most popular restaurants. Diners also love the rich content that we're uniquely suited to provide, such as verified diner reviews, best of lists, beautifully formatted online menus and more recently, dish photos that have been integrated into the mobile and web experiences through our acquisition of Foodspotting.

Another way we're working to enhance the dining experience is through better social integration. In this area, we continue to make progress on laying the foundation for marrying our rich data with the social graph. For example, in addition to our Facebook Connect log-in feature, we launched a Facebook app called Places I've Eaten, which makes it fun and easy for people to share their dining history, favorite restaurants and wish lists with their friends on Facebook. And now our new Google+ sign-in feature, which was showcased by Google, makes it easy for those who sign in on Android or the web to share their OpenTable restaurant picks and menus with their friends on Google+.

We're also making good progress in our development effort behind our next-generation cloud-based products for our restaurant customers. After successfully launching a pilot in December, we're now in the alpha phase, and we're on track to start selling the product to new customers by the end of the third quarter. As a reminder, the key benefits of this cloud platform include the opportunity to consolidate the current distributed data in one place and deliver new features faster to our restaurant customers. This will enable us to provide greater insights to help our restaurant customers optimize their business and provide more personalized hospitality for diners.

We also continue to make progress in helping our restaurant customers benefit from the growth in mobile by making it easy for diners to navigate and book reservations on restaurant websites using their smartphones. Last October, we introduced a free service, which provides our restaurant customers in the U.S., the U.K. and Canada with customizable mobile-friendly sites. At the time, less than 10% of our restaurant customers had mobile-optimized sites. Now that number has nearly doubled. Our progress in this area over the last 6 months underscores the important role we can play in improving the mobile experience for restaurants and diners.

Now let's turn to an update on the U.K. We like the momentum we're experiencing in the U.K. We continue to see improvements in conversion rates and accelerated growth in seated diners. We believe that our ongoing online marketing investment contributed to the lift in seated diners during the quarter. In addition, our first ever outdoor brand advertising campaign in London resulted in a 33% boost in unaided diner awareness of toptable, creating even more distance between toptable and our nearest competitor.

Turning to our U.K. restaurant base. The breadth and quality of our selection of restaurants in London is unparalleled. In fact, London represents our largest concentration of local restaurant customers anywhere in the world. To further optimize our restaurant customer base in the U.K., over the next few quarters, we plan to focus primarily on deepening our technology integration with restaurants by prioritizing ERB sales and upgrades, which will result in less absolute restaurant additions in the short term but will benefit the entire network by emphasizing the best availability at the best restaurants.

Finally, I wanted to share how excited we are about the progress we've made in building out our marketing and technology teams. In marketing, we're making some key strategic hires who will be responsible for our global acquisition, customer engagement and mobile marketing efforts. And on the technology side, we've grown our global tech team by 27% year-over-year with the addition of world-class developers across multiple disciplines, including mobile.

In order for us to enhance the experiences that are visible to diners and restaurants, we have been hard at work at our behind-the-scenes technology infrastructure. This effort will allow us to move faster and test a greater variety of new ideas. Our approach here is to rework the infrastructure even as we accelerate the pace of launching new products and features. And our expanded team has enabled us to make great progress on both of these efforts.

We've also added a talented new design team, which is focused on making the diner and restaurant experiences more elegant and inspiring. In fact, we've already made some great visual enhancements, especially to our mobile site and apps. I encourage you all to visit our blog today to see a roundup of these improvements. I think you'll find the before-and-after shots pretty dramatic.

In summary, we continue to make great progress across a number of key focus areas, and we're excited about the multiple opportunities in front of us to deliver long-term growth for the business.

And now over to Duncan.

I. Duncan Robertson

Thank you, Matt. Good afternoon, everyone, and thanks for joining us. Before I address the first quarter results, I want to remind you that throughout this call, my comments on growth rates will refer to year-over-year changes, unless I indicate otherwise. Also, all non-GAAP financial measures exclude stock-based compensation expense, amortization of acquired intangibles expense, acquisition-related expenses and the tax-related impact to these adjustments.

Now let's turn to the results. In the first quarter, the performance of our core operating metrics once again delivered strong financial results. Total Q1 revenues grew 16% to $45.5 million, and adjusted EBITDA grew 10% to $18.1 million. GAAP net income was $7.1 million or $0.30 per share. Non-GAAP net income was $10.7 million or $0.45 per share.

To provide further insight into our key financial results and metrics, it's important to segment the statistics by geography since we are at different stages of development in our North America and International operations.

First, let's look at North America. North America total revenues grew 17% to $39.4 million, which is made up of 3 main components. North America reservation revenue grew 22% to $23.5 million, which represents 60% of total North America revenue. The primary driver of reservation revenue is the total number of seated diners, which increased 24%. Related to reservation revenue, the revenue per seated diner was $0.69 in Q1.

Moving on to the next component. Subscription revenue in North America grew 8% to $12.9 million. The main driver of subscription revenue is the number of installed ERB restaurants, which grew 11% over the prior year. The ERB monthly attrition on a unit basis remained near its historical level of approximately 1%. Also related to our ERB subscription revenue, the average subscription price was $247. And lastly, the smallest component of revenue, disclosed as other revenue, increased 17% to $3.1 million.

Turning to our North America expenses. Non-GAAP operating expenses totaled $21.6 million, an 18% increase over the prior year. The main drivers were higher technology-related headcount expenses associated with a 22% increase in technology headcount, as well as increased facilities expenses associated with the relocation of our San Francisco headquarters. On a sequential basis, our North America non-GAAP operating expenses increased 10% from Q4, primarily driven by seasonal payroll-related expenses, as well as the new San Francisco office space.

Our resulting first quarter North America non-GAAP operating income totaled $17.9 million or 45% of revenue. North America adjusted EBITDA totaled $19.8 million or 50% of revenue.

Now let's review the results from our International operations. International revenue for the first quarter increased 7% to $6.1 million, which represented 13% of the company's total revenue. International reservation revenue increased 15% to $3.6 million. Subscription revenue grew 9% to $1.8 million, and other revenue declined 22% to $700,000. Related to reservation revenue, the revenue per seated diner was $1.15 in Q1.

Changes in foreign exchange rates negatively impacted Q1 revenue when compared to the prior year by approximately $200,000, and our Q1 foreign exchange neutral International revenue growth rate was 11%.

Turning to expenses. Our International non-GAAP operating expenses totaled $8.4 million, a 22% increase over the prior year, associated with the U.K. marketing activities that Matt discussed, as well as higher headcount-related costs. On a sequential basis, there was a 19% increase, primarily driven by marketing expenses and seasonal payroll-related costs. Our resulting Q1 International non-GAAP operating loss totaled $2.3 million. International adjusted EBITDA was a loss of $1.7 million.

Wrapping up our consolidated Q1 results, cash and short-term investments totaled $96.6 million at the end of Q1, which reflects the use of $8.3 million during the quarter to repurchase 138,000 shares under the previously approved share repurchase. And through close of market yesterday, we have repurchased a total of 357,000 shares for approximately $20 million and have approximately $30 million remaining under the current $50 million authorization.

On a non-GAAP basis, taxes were $4.8 million, which is an effective rate of 31%, and our quarterly stock-based compensation expense was $4.6 million.

Now turning to guidance for the second quarter and full year 2013. Starting with North America, we estimate Q2 revenue to be in the range of $39.1 million to $40 million and non-GAAP adjusted EBITDA to be in the range of $20.4 million to $21.2 million. For the full year 2013, we estimate North America revenue to be in the range of $159.6 million to $164 million and non-GAAP adjusted EBITDA to be in the range of $83.1 million to $86.6 million.

North America guidance takes into account the following factors. First, related to reservation revenue, it's important to remember that we forecast seated diner growth on an economically neutral basis.

Moving on to the subscription side. We expect the average subscription rate to be $247 in Q2. Related to other revenue, we estimate North America other revenue will be approximately $2.8 million in Q2.

Turning to guidance for our International operations. Given the magnitude of changes in the foreign exchange rates during Q1 2013, we have updated our International guidance to reflect current FX rates. As a result, we now estimate Q2 revenue to be in the range of $5.8 million to $6.2 million and non-GAAP adjusted EBITDA loss to be in the range of $400,000 to $800,000. For the full year 2013, we estimate International revenue to be in the range of $25.7 million to $26.9 million and non-GAAP adjusted EBITDA loss to be in the range of $0.6 million to $2.2 million.

Related to International reservation revenue, we expect that the seated diner yield to be approximately $1.15 for the remainder of 2013. This update of International guidance reflects current FX rates, which, when compared with the previous guidance, had an adverse impact on International revenue of $1.6 million through the remainder of 2013.

On a consolidated basis, we estimate Q2 non-GAAP EPS to be in the range of $0.45 to $0.49. And for the full year 2013, we estimate non-GAAP EPS to be in the range of $1.88 to $2.02.

Turning to a few housekeeping items. On a consolidated basis, we estimate that our diluted weighted average shares outstanding will be approximately 23.9 million shares in Q2 and 24 million shares for the full year. We estimate stock-based compensation expense will be approximately $4.6 million in Q2 and $16.8 million for the full year. We estimate amortization of acquired intangibles will be approximately $1.1 million in Q2 and $3.9 million for the full year, which now reflects the amortization of acquired intangibles associated with the acquisition of Foodspotting. And finally, our non-GAAP effective tax rate will be approximately 36% throughout the remainder of the year.

To sum up the quarter, we're very pleased with the solid growth in our core operating and financial metrics. The business continues to deliver solid operating margins and cash flows even as we invest for the future.

And with that, thank you for your time. And we'll now take questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] So we'll take our first question from Heath Terry from Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

I was wondering if you'd just give us a sense, with all of the development in technology and sort of new service offerings around the core OpenTable products, what type of impact you're seeing? I know it's probably too early to really see it in the seated numbers. But whether it's user engagement or visits, however you want to define it, but what kind of an impact you are actually seeing from the investment in these areas?

Matthew J. Roberts

It's a couple of things, Heath. I mean, the biggest metric that probably -- obviously highly correlates to the seated diner growth is we look at the funnel of visitors into bookings, into reservations. And that's probably the highest level that -- and probably most impactful, obviously, for seated diner growth. And we've seen that the enhanced design and some functionality that we've put in, which, again, I'd agree with you, it's really early, we still have so many other ideas that we intend to implement. But we have seen some nice improvements on both sides, both visitor side. There have been expansion in a number -- the engagement level with the products, particularly in our mobile apps. And then also just the flow-through of that visitor traffic into bookings, so that would be what we would call like our main conversion point. So we've seen improvements in both. We've seen improvements in conversion on the platforms where we've enhanced the experience, and we've seen richer engagement on those platforms as well.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

And how much of that development, particularly around the mobile side, is being done in-house now?

Matthew J. Roberts

Oh, it's all being done in-house. We had -- originally had a lot of that development was outsourced when we were establishing the apps. But any meaningful development is all in-house at this point.

Operator

And our next question is coming from Stephen Ju from Credit Suisse.

Stephen Ju - Crédit Suisse AG, Research Division

Matt, anything you can tell us about the behavior of your users on mobile, how they might be different versus the PC? Do they tend to launch the app and engage for shorter periods of time, longer periods of time, and are their conversion rates different? And second, we're seeing in the seated diner, I guess, ARPU in North America, take a little bit of a sequential dip. If you can give us some color on what might be driving this.

Matthew J. Roberts

Sure. We've talked in the past about the behavioral differences of mobile. And remember, mobile for us is both the smartphone and tablet, and they're very different, those 2. So let's just do smartphone first, which is you'll see a lot more of the last-minute reservations taking place on mobile, which is -- obviously just makes a ton of sense. People now have the OpenTable solution and value proposition with them as they're walking around. And in the past, they did not. It was basically all desktop. So you'll see a lot more last-minute, that means that you'll see a little bit more of a concentration around weekends. Otherwise, I think that from a conversion perspective, we would not expect the conversion rates in any given platform to be identical because people use each of the platforms in different ways. They engage with the experience in different ways, but there are differences. We think each one of them have an opportunity for improvement, and that's what the team is chasing hard against is to enhance the experience, to test new things, learn about how we can iterate and build stronger engagement and ultimately more conversion into reservations. On the tablet side, it's much more -- from an experience perspective, there's a lot of browse and discovery that goes on in a tablet. Somebody who's sitting on their couch and they're watching TV at the same time. They're researching and using our amazing reviews product and now our -- more of our rich photo content to really determine, where do I want to go to eat? And they may browse a number of places and stop the session and then pick it up again later. So there's more of a browse element on the tablet than there is on the smartphone, for sure. As far as the seated diner...

I. Duncan Robertson

Yes, Stephen, related to the yield, which was $0.69 in Q1, I think that was really seasonally lower yield. If you look back to Q1 of 2012, it was $0.69 as well. What happens is that many restaurants reduce their participation in the 1,000-point program during peak dining days. And there are obviously 2 pretty important days in Q1: Valentine's Day and Easter. And then the second element that takes place in Q1 is that many restaurant weeks run throughout North America and some of the larger ones especially. So New York, D.C., San Francisco, Seattle, Denver, Boston and Chicago all had restaurant weeks in Q1, which typically suppress the 1,000-point program in that quarter.

Operator

And we'll take our next question from Blake Harper from Wunderlich.

Blake T. Harper - Wunderlich Securities Inc., Research Division

I just had 2 questions. I wanted to see and talk -- ask about the cloud ERB system and just wanted to see -- and you guys have addressed it, but just see how far along the -- how far along the rollout is, and then if there's any impact you're seeing from early customers and what that means for their business and what you think it could mean for the rest of your customers when you roll it out.

Matthew J. Roberts

Sure. We're incredibly excited about our new initiative on the restaurant, the hospitality solutions we do for prepare and -- I'm sorry, deliver for our restaurant customers. And really, the biggest benefit is that we'll have all of the -- what is currently distributed data in one place, which will allow us to provide some amazing insights from our -- to our restaurant customers for the benefit of greater hospitality for diners. It is a pretty significant upgrade in terms of -- it is the largest single upgrade we've done in our history. And so if you think about it from a restaurant customers perspective, it's a big deal to switch from one way of doing it and to a different solution. So we would expect that they're going to need some time to get used to the new system once we obviously start selling it. And we wouldn't expect that there is going to be a snap-your-finger adoption curve that all of a sudden, we wake up and our whole base is on the cloud-based product. It's going to take some time like -- but I think appropriately so. People want to make sure that they understand what all the features and the benefits are of the new system. We are going to start to sell it to new customers by the end of the third quarter, which is incredibly exciting because we'll start to put and get a broader experience with our customers on the new platform, new technology. And what's great about that -- another really positive benefit is that because we've changed the architecture, we can really tailor the front-end experiences for the different users within the restaurant. So the owner may have and does have a very different use case for our OpenTable System than the host or hostess versus the GM. And now because we've segregated the database and the structure from the user interface layer, we're actually able to do much more customized and thoughtful designs that are in alignment with each particular user. And we think that's going to just add a tremendous amount of value to our customer base.

Blake T. Harper - Wunderlich Securities Inc., Research Division

And then I just had one more question, if I may. Wanted to see, where are the majority of your new diner customers coming -- reservations customer coming from? Is that from downloading the app? Is that coming from online or directly from your website? Or is it coming from things like the Facebook apps that you have? Can you just talk about where that mix of new customers are coming from and how much traction you maybe have gotten from your Facebook app?

Matthew J. Roberts

So we have -- we're very excited that we're pretty much everywhere, and we're experimenting with a lot of different things right now to introduce OpenTable and our service to new users. We don't break down our acquisition of new users by source externally. Obviously, we look at all these things internally. But we have a pretty broad reach in terms of approach to acquiring and attracting new diners and introducing new diners to the restaurant -- to the OpenTable solution, and we're excited to have the social aspect now layered into it with both Facebook and with Google.

Operator

And our next question is coming from Jason Helfstein from Oppenheimer.

Jed Kelly - Oppenheimer & Co. Inc., Research Division

This is Jed Kelly on for Jason. Two questions, just to expand on that, on the cloud ERB process. You said you're going to start selling in 3Q. Is that what you're going to try to implement more in the U.K. as you try to get more ERB adoption? And then secondly, it seems like your marketing was pretty successful in the U.K. Are you going to try to do that in any other of your international markets?

Matthew J. Roberts

Sure. The cloud-based -- our new cloud-based architecture will be a global architecture. It is a global architecture, so we intend to have that rolled out in every geography that we currently do business in. So U.K. obviously would be a part of that and so would Germany and Japan and North America. So that's the intent. The focus in the U.K. of getting sort of deeper integration by focusing on the ERB or when we start selling the cloud-based version of our solution, that solution is really about making sure that we're capturing the full availability at restaurants and not partial availability so that we can provide a great experience for diners. And we believe that combination of great availability at the great restaurants is what drives the growth curve in any local market that we're in. Second, the international market...

Jed Kelly - Oppenheimer & Co. Inc., Research Division

International marketing, would you try that in any of the other international markets, Germany or...

Matthew J. Roberts

Sure, we absolutely would try it. I think -- we obviously experimented with it. We saw a nice lift in our unaided diner awareness and continued to separate ourselves from the nearest competitor. And we would look to do similar things as we -- it's really around timing, what timing do we think is right for the particular markets. And I would not exclude the U.S. from that consideration set either. We'll look to learn -- test and learn different marketing approaches as we go forward to just drive overall growth in the business. I'm very excited about the new additions that we've added to the team with really this mandate in mind, which is global acquisition, customer engagement and a real specialist in mobile marketing.

Operator

And we'll take our next question from Kaizad Gotla from JPMorgan.

Kaizad Gotla - JP Morgan Chase & Co, Research Division

Your North America seated diner growth showed some acceleration even when you sort of back out the Sandy impact from the fourth quarter. So I was wondering if there were 1 or 2 product improvements that you'd like to call out that drove that acceleration. And then second, just wondering about your Connect strategy going forward. It looks like you removed some restaurants in London in the quarter. But even in North America, you saw a decline in your Connect restaurant count.

Matthew J. Roberts

Sure. I'll start on the North America seated diner growth, which you rightfully noted an acceleration in the quarter, which we're very pleased about. I think if I were to point at one area of product enhancement or one sort of platform, I would have to talk about mobile. We've done some pretty amazing and thoughtful enhancements to that product. And again, I'd encourage you to look at our blog that came out today. You can see the before-and-after shots. But we absolutely have seen a nice improvement, sort of year-over-year improvement in our conversion rates on our mobile apps. So I'd probably focus mostly in on that area, though we continue to make good progress sort of across the board. But Duncan, do you want to talk about the...

I. Duncan Robertson

On Connect, I mean, specifically around our -- the way we think about selling Connect versus ERB, and you're right that you've noted the slight decline, sequential decline in Connect. It really gets back to the importance of getting the best availability at the best restaurants. And with thinking about what those restaurants represent, our ERB product is the best product for that and not necessarily the Connect product, which, as you know, is purely an allocation product. So as we moved into 2013, both in the U.K. and in North America, our sales team has been very much focused on how are we adding restaurants at -- with the concept in mind of best availability at the best restaurants. And the result is what you've seen around increasing growth in the ERB platform, both in the U.K. and in North America, and that sequential decline in Connect. The other thing I would point out is, obviously, Q1 is a seasonally high, slightly higher churn quarter for restaurants. Restaurants rush to install for the quarter and holidays in Q4. And then, generally, Q1 we've seen has been slightly higher churn. And obviously, that is impacting Connect restaurants, as well as ERB, but we saw a slight increase in Connect churn in Q1.

Kaizad Gotla - JP Morgan Chase & Co, Research Division

Okay. And how do you think about the impact from Click-to-Call on your seated diners, specifically when a user searches for a restaurant in Google on their mobile device?

Matthew J. Roberts

Yes, we've always looked at the phone as our primary competitor. And if you think -- and really if you look at the mobile use case, the phone got a little smarter with Click-to-Call, a little bit more effective with Click-to-Call. But the counterpoint of that is now we're also on our competitor's turf, we are -- and with more and more compelling products every day. So we obviously are aware of the fact that Click-to-Call is a convenient way to call, but we just think calling, regardless of whether you're clicking or you're having to dial the numbers yourself, is a far inferior way to make a reservation than using our service.

Operator

And we'll take our next question from Paul Bieber from Bank of America Merrill Lynch.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

This is Paul for Justin. A couple of quick questions. What are your expectations -- you briefly touched on it, I think, internationally, but what are your expectations for restaurant additions in the U.S. for the remainder of the year? And then secondly, if I do some math, the seated diner growth for mobile in the U.S. is pretty dramatic and that obviously drove some of the seated diner acceleration. How much room left do you think there is to improve conversion rates both on mobile and the PC product in the U.S.?

I. Duncan Robertson

Paul, I'll answer the question around U.K. sales. I mean, obviously, as I had said earlier, the focus of our team in the U.K. is to sell restaurants so that we have the best availability at the best restaurants on the network. And the team is going to continue to execute against that just as they have done in Q1. In terms of giving actual numbers of restaurant adds, that's not something that we guide to, either in the U.K. or in North America.

Matthew J. Roberts

And I'll talk to the conversion. I think we still have a lot of room. I think it's -- when I look at the list and I look at the travel board of ideas and things that we're working through on an active basis, and I see the impact that they can have or we believe that they can have, we think there's still a considerable amount of room for improvement on conversion across each and every platform that we're on, not just mobile, but on -- still on PC and on tablet. And our new infrastructure around technology is just allowing us to go much faster. I mean, we used to take about a month per consumer development cycle, and now we're down to 2 weeks. And I know the team has goals and ambitions that are even much more aggressive than that. And when you can move really fast, you can try a lot of things. And some of those things are not going to work out of all, but a lot of them -- hopefully, a lot of them will make differences to the conversion. And we just haven't seen nearly the tip of the iceberg, in my opinion.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Okay. And one quick follow-up. Have you guys pulled out of Germany and France? We noticed that the restaurant counts declined there. They're small numbers but still.

Matthew J. Roberts

I think you mean France and Spain, not Germany and France?

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Sorry. You're correct, France and Spain. You're right.

Matthew J. Roberts

Yes, that was back in 2008 where we actually did that, that we had some restaurants that we continue to have use our service during that period of time. But that's probably just sort of a natural by-product of not continuing to invest in the market. As you mentioned, I think we're talking less than a dozen restaurants out of 27,000.

Operator

And our next question is from Mike Olson from Piper Jaffray.

Andrew D. Connor - Piper Jaffray Companies, Research Division

This is Andrew Connor on for Mike. I just sort of wanted to talk about what's implied by the International EBITDA guidance? Looks like you guys are sort of aiming for International EBITDA to swing potentially positive in the back half at some point, which is consistent with the previous guidance. Just curious what the expectations there are and sort of what leads to the EBITDA positive in the back half.

I. Duncan Robertson

So I can give you some insights into that. Really, I mean for us, the change in the guidance that we gave for the remainder of the year in the International segment was entirely associated with the update in the FX rates that we use currently versus we used 3 months ago when we prepared guidance last time. And so EBITDA was essentially a flow-through. What we did is we reduced our revenue guidance for the remaining 9 months of the year by $1.6 million. But because we're essentially or almost perfectly hedged from a revenue and expenses perspective internationally, there was no need to change our range of EBITDA guidance for the rest of the year.

Matthew J. Roberts

Yes. I think the bigger picture here is really what's our plan and what are we trying to accomplish internationally, and it's not to be EBITDA profitable. Of course, we -- in the next 9 months, right? We absolutely want to be EBITDA -- wildly profitable in international markets, and we believe we can be over the long term. But I emphasize the long term because this business -- if you just remember in our last update, we said the U.K. was really only at 3% penetrated against the market opportunity on reservations. And we're 15% in North America. And we believe that at least the majority of reservations will happen online everywhere so -- certainly in the geographies we have chosen to operate. So with that in mind, the focus of the team is how can we accelerate growth, how can we chase this big, big opportunity in front of us. And when we come up with good ideas on how to employ capital and make investments to accelerate the growth curve, we're going to do it. We're going to make those investments. We're going to spend behind the opportunity because the long-term opportunity for us is not really some limited EBITDA milestone over the next year. It's the value of the business that we can create when we're 50% of the reservations that are happening in the U.K.

Andrew D. Connor - Piper Jaffray Companies, Research Division

Yes. And I guess I would just follow up and ask if you feel like the success that you've had with the marketing initiatives, particularly in the U.K., suggests that you don't need to do incremental marketing initiatives through the remainder of 2013.

Matthew J. Roberts

Well, the guidance reflects our current operating plan effectively. We have our own plan. We say what do we set up to execute upon in the current period, and then we just share that with you. And we give that obviously within the context of range of outcomes. We have made some great progress recently adding to our team a marketing team, and those very talented folks have great ideas on how we can invest for growth. And so to the extent that they come up with some ideas and we can put very practical actionable plans behind them, then we'll spend behind those. It's just more the guidance right now reflects the current things that we have in the pipeline in terms of things we can execute on.

Operator

And our next question comes from James Cakmak from Telsey Advisory Group.

James Cakmak - Telsey Advisory Group LLC

Can you help us reconcile the decline in average subscription in North America, the $247? I believe you also guided to that for the June quarter. And as we look forward, I recognize that it's still too early to talk pricing right now as you roll -- begin to think about rolling out the cloud. But can you just help us understand how you're thinking about pricing as you do move to the cloud-based offering? And then secondly, you provided some color commentary on the cloud rollout and the implications and how you could optimize businesses, more personalization. But can you provide some examples perhaps on what type of data that you could draw from this to actually help the businesses and potentially deepen those relationships monetarily speaking?

I. Duncan Robertson

So, James, on the average subscription price in North America in the quarter, I mean, that's really when we've seen subscription pricing move historically, it's essentially associated with mix, where we have 4 price points in terms of the bundles that we're selling, and there is a mix of restaurants that are at the $249 price point or the $199 or $349 or $449. And so when we see $247 at the end of the quarter, it's essentially a mix of those price points. I would add that when we see, as Matt mentioned, we saw an industry headwind in Q1 of about 1.5%, and that's obviously total industry -- total seated diners in the industry. And so what that's signaling is that the industry had a reasonably tough quarter. We had 24% year-over-year seated diner growth, but the industry itself shrank 1.5% year-over-year. And you've got -- I think it's relevant to put that in the context of what we see with restaurants doing when they think about the pricing that they've got with us in terms of subscription pricing. And so I think you've got to look at those 2 things in concert. Matt can certainly talk about the pricing around the cloud-based ERB product.

Matthew J. Roberts

Which is really to say we haven't set the price yet for it. But as we mentioned in the last conference call, the cloud-based product is not about creating a light version or a skinnied-down functionality version of our solution. We intend to provide an equally robust functionality and features in the new version as -- new cloud-based version as we do in our current client-server environment. So that wouldn't lead you to believe that there's any reason to have a different price point, but we haven't set the specific price point in terms of the subscription rate. Duncan has provided some guidance for the balance of the year at the $247, which is also an indication that we don't anticipate significant changes in our pricing structure. The other thing I would say, you asked about the way that we -- the new cloud-based solutions will more deeply add value to our restaurant customers and, therefore -- and how would that maybe get surfaced in terms of monetization opportunities for OpenTable. We look at the opportunity to add value to our restaurant customers in a very holistic sense versus that it would just be an opportunity to charge more for some analytics product. We don't have any thoughts to do that. We think that providing these deep insights for our restaurant customers is part of our overall value proposition that we provide. And as importantly, it will allow us and our restaurant customers to provide great hospitality for diners. And it's that piece of the equation that, I think, is the most critical because to the extent that we've really differentiated the dining experience, working along with our restaurant customers, that's the real -- that's the win. So that when folks make a reservation on OpenTable, it's not simply the very powerful value of convenience, but it also embodies so much more the discovery aspect of it and with more rich data more easily available to the restaurants and enhanced in-dining experience.

Operator

And I'm showing our final question at the moment comes from George Askew from Stifel, Nicolaus.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Just a follow-up on the International profit question. Are you currently adjusted EBITDA breakeven or profitable in the U.K. specifically?

Matthew J. Roberts

We don't provide a country-by-country snapshot. We just provide the International segment.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then secondly, what kind of success have you seen with Connect restaurants converting to the ERB service? Is that -- what kind of trends have you seen there?

Matthew J. Roberts

We're actually doing very well. It's harder to -- it's just more -- I'd say, more time-consuming to take somebody from our Connect product, which is a very, very lightweight reservation management tool to a more robust feature-rich product, which is our ERB. It's more time-consuming. But we believe and the restaurants that are switching over, too, also believe it's a much greater value proposition for them in terms of being able to provide great hospitality to their guests and really get good insights in their business. So I think we're getting really good traction, very, very good traction with some high-profile marquee names in the restaurant field. And we have a lot of optimism that, that will continue.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Got it. Is there any kind of metric you can provide there, 1/4 of Connect restaurants have converted to ERB over the last 3 years or something?

Matthew J. Roberts

We haven't got a mix shift on that. We've -- and it would be a very different number because of the big push that we had right around the time of the conversion. A lot of folks that never would have sold our Connect product, we put on our Connect product to facilitate their ability to be on the website. So that was a big surge in terms of the number of folks in the U.K. that were on Connect. And therefore, the number of those customers, those U.K. Connect customers, we expect a very, very high percentage to migrate over to the ERB. So really, George, the easiest thing to look at is the growth of our ERB base over time.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Got it. But you're seeing the same trend in North America as well?

Matthew J. Roberts

Well, less pronounced because of the fact that we didn't have this big technology change where we first put people in North America on Connect, and now we're trying to migrate them over to the ERB. In North America, we've always had the ERB, always had that technology infrastructure. And Connect was very purposely aimed against a different customer segment, which is walk-in restaurants that will take reservations if you call them. So I would expect there to be very different sort of Connect-to-ERB upgrade paths for North America because of what I just said versus the U.K. based on the fact that, that was sort of the tool that we used to get the conversion completed.

Operator

Thank you. And I'm showing that is our final question. I would like to turn the call back to your hosts for any concluding remarks.

Matthew J. Roberts

Well, thank you, everyone, for participating in the call and look forward to talking to you next time.

Operator

Okay. Ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.

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