OpenTable Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 1.13 | About: OpenTable, Inc. (OPEN)

OpenTable (NASDAQ:OPEN)

Q2 2013 Earnings Call

August 01, 2013 5:00 pm ET

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

Paul Judd Bieber - BofA Merrill Lynch, Research Division

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

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Aaron M. Kessler - Raymond James & Associates, Inc., Research Division

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

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

Michael J. Olson - Piper Jaffray Companies, Research Division

James Cakmak - Telsey Advisory Group LLC

Kaizad Gotla - JP Morgan Chase & Co, Research Division

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

Nathaniel Brogadir

Operator

Good afternoon, everyone, and welcome to the OpenTable Second 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'd 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 second 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

Thank you, Tiffany, and welcome to our conference call. This afternoon, I'll provide you with a high-level overview of Q2 performance, and then I'll turn it over to Duncan to walk you through the detailed financials.

OpenTable had a strong second quarter. Revenue for the quarter totaled $45.6 million, a 15% increase over last year. And in the second quarter, our adjusted EBITDA profit margin was 46% on a consolidated basis and 53% 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 35 million in the second quarter, a 25% increase over last year. And worth noting, in the second quarter, approximately 38% of seated diners in North America originated on a mobile device. To add some additional context to our seated diner growth, during the second quarter, North America industry diner counts were flat year-over-year.

Turning to our install base of restaurants in North America. We exited the quarter with 20,588 restaurants, representing a 12% year-over-year increase. This total includes 18,024 restaurants using our core Electronic Reservation Book product, or ERB, and 2,564 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 3.3 million in the second quarter, a 46% increase over last year. Looking at our install base of International restaurants, we exited the second quarter with 7,686 installed restaurants. This total includes 3,563 ERB restaurants and 4,123 Connect restaurants.

Now I'd like to provide you with up some updates on the business. First, let's talk about International. We had a very strong quarter, a 46% year-over-year growth in seated diners, up from 37% year-over-year growth rate in Q1. We're pleased to see our product and marketing initiatives delivering results. It's worth noting that the year-over-year growth in International seated diners was even stronger when we exclude bookings in the U.K. associated with promotional offers. And as we discussed in the past, transitioning the top table consumer base from a deal focus to a convenience focus, will drive broader adoption of online reservations overall.

As part of this evolution, we moved away from a flat fee for promotions and introduced a variable pricing model, which we believe is better aligned to a growing diner base. While the new plan sets us up for higher long-term growth, the transition to this variable pricing negatively impacted our Q2 revenue compared to our expectations and Q1 results for that product's revenue. We look forward to further progress and growth against this significant international market opportunity.

Now let's look at other areas of our business. We're making good progress on the next-generation of our products for restaurants. We are integrating our new design team into a development effort behind our cloud-based products and leveraging the team's expertise to completely reimagine the user experience.

We've also met key milestones in the process of consolidating our distributed data and building the foundational architecture necessary to support rapid feature releases. We cannot be more excited about the elegant design and nimble structure of our new hospitality solution, and we can't wait to put it in to more customers' hands.

While we'd expect to start selling the new products to restaurants in September, I'm going to take a little more time to incorporate the design work, along with feedback from customers using the alpha release. Rather than launch during the busy holiday season, we plan to begin the commercial rollout early next year. The monthly subscription fee will be $249, which is on par with the subscription fee for our current, most popular ERB bundle. Seated diner fees will remain the same.

Now let's turn to an update on the consumer side of our business. Our vibrant diner community continues to be delighted by how fast and easy we make it to find and book reservations in an ever-expanding network of the world's finest and most popular restaurants. Delivering an exceptional customer experience drives exceptional customer satisfaction. That, in turn, drives positive word-of-mouth, and this virtuous cycle continues to be the foundation of our marketing efforts and seated diner growth. In fact, historically, we spent very little on consumer marketing, relying largely on organic adoption to fuel growth. Now we're excited about building upon this strong foundation by investing more heavily to introduce more diners to the benefits of OpenTable.

During the quarter, we hired a number of domain experts in the area of acquisition, engagement and mobile marketing. The customer acquisition plan set forth by this talented new team members will be backed by an investment of $2.5 million to $3 million during the second half of the year.

Testing and learning from these campaigns is of strategic importance. When we find something that works, we'll be eager to increase our investment behind it, and when we find that some efforts are less effective, we'll rapidly adjust and iterate. You can expect us to invest heavily behind increasing the adoption of our mobile apps among new and existing customers. Mobile is an increasingly important part of our business and we know that once a diner starts using our app, then the propensity to use OpenTable increases. We are eager to learn from the results of this strategic marketing investment and look forward to updating you on our findings.

We also continue to invest in talent. We're looking to aggressively grow our engineering team. But like so many other technology companies, we're competing in a tough market for talent. In order to meet our hiring goals, we're going to significantly step up our investment in recruiting in the second half of the year.

Now I'd like to give you an update on some recent acquisitions. Yesterday, we announced that we have partnered with Urbanspoon to be the provider of restaurant reservations for the Urbanspoon site and mobile app in North America. We also acquired Rezbook, Urbanspoon's reservation management system for restaurants, and we look forward to welcoming the approximately 2,000 Rezbook customers to the OpenTable family.

In June, the acquisition of JustChalo -- we are now tapping in to the deep expertise of this talented team of engineers in the area of mobile payments, to develop an app-based payment solution that is integrated within the OpenTable experience. Just as we remove the pain point of calling restaurants for reservations, we aim to remove the pain point of settling the check.

This is a hard problem, but we're uniquely positioned to solve it. We believe there are 3 key factors to success, each of which we will address, leveraging the network we've already built connecting restaurants and diners.

First, restaurants need to adopt a solution. This is an underappreciated challenge, but it's a challenge we know well having put technology into the dining rooms of 28,000 -- more than 28,000 restaurants. We understand that we need to define a solution that fundamentally works for restaurants, that fits with their operational flow, that removes complexity and that complements their style of service. And we have the deep vertical expertise necessary to develop the winning solutions, get it in to the restaurants and deliver the essential training and support.

Second, restaurants need to see a consistent significant volume of diners using the solution. Servers need to encounter it frequently so that it's familiar. As the world's largest provider of online restaurant reservations, we're in a unique position to promote mobile payment usage as part of the booking process for participating restaurants, ensuring a steady flow of diners primed to pay with our solutions.

Finally, we need to provide a seamless experience for the diner. Because our solution will integrate with the ERB use to eat diners, we can automatically pass the table number to our mobile payment solutions and open the check.

We're learning a lot from the work the JustChalo team has already done, with the solution they have running in about 20 restaurants and we're getting critical feedback from our restaurateurs, so that we can create a solution that delivers great experience for their guests and is easily integrated into their operations. We anticipate piloting our integrated payments offering in San Francisco by the end of the year.

It's important to note that we don't plan to charge restaurants for adopting this solution, and our intent is for the associated transaction fees to be neutral or potentially less expensive for restaurants than what they're currently paying. We look at solving the check settlement problem as a strategic initiative that helps us further deliver on our vision of making the experience of dining out even better by removing the hassles that can get in the way and helping restaurants provide personalized hospitality.

To sum up, we're very excited about the opportunities ahead of us and pleased by the progress we're making against a number of key initiatives 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 second 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 second quarter, the performance of our core operating metrics once again delivered strong financial results. Total Q2 revenues grew 15% to $45.6 million, and adjusted EBITDA grew 20% to $20.8 million. GAAP net income was $8.3 million or $0.35 per share. Non-GAAP net income was $12 million or $0.50 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 15% to $39.7 million, which is made up of 3 main components. North America reservation revenue grew 20% to $23.8 million, which represents 60% of total North America revenue. The primary driver of reservation revenue is the total number of seated diners, which increased 25%. Related to reservation revenue, the revenue per seated diner was $0.68 in Q2.

Moving on to the next component. Subscription revenue in North America grew 8% to $13.3 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 $249. And lastly, the smallest component of revenue, disclosed as other revenue, increased 8% to $2.7 million.

Turning to our North America expenses. Non-GAAP operating expenses totaled $20.8 million, a 15% increase over the prior year. The main drivers were higher technology-related headcount expenses associated with a 36% increase in technology headcount, as well as increase facilities expenses associated with the relocation of our San Francisco headquarters.

On a sequential basis, our North America non-GAAP operating expenses decreased 3% from Q1, primarily driven by a decrease in professional services associated with orders and tax fees. Our resulting second quarter North America non-GAAP operating income totaled $18.8 million or 48% of revenue. North America adjusted EBITDA totaled $21.2 million or 53% of revenue.

Now let's review the results from our International operations. International revenue for the second quarter increased 15% to $5.8 million, which represented 13% of the company's total revenues.

International reservation revenue increased 52% to $3.9 million. Subscription revenue grew 6% to $1.8 million, and other revenue declined 82% to $151,000.

The decline in other revenue is primarily due to a change in the pricing of our promotional products in the U.K. from a flat rate, which was previously disclosed in other revenue, to a pay-for-performance model, which is now reflected in reservation revenue. Related to reservation revenue, the revenue per seated diner was $1.20 in Q2, after giving effect to the change in our U.K. promotional products.

Turning to expenses. Our International non-GAAP operating expenses totaled $6.9 million, a 10% increase over the prior year, associated with increased marketing expenses. On a sequential basis, there was an 18% decrease primarily driven by higher expenses in Q1 associated with the outdoor advertising campaign in London. Our result in Q2 International non-GAAP operating loss totaled $1 million. International adjusted EBITDA was a loss of $408,000.

Wrapping up our consolidated Q2 results, cash and short-term investments totaled $92 million at the end of Q2, which reflects the use of $15.3 million during the quarter to repurchase 265,000 shares under the previously approved share repurchase. On a non-GAAP basis, taxes were $5.9 million, which is an effective rate of 33%, and our quarterly stock-based compensation expense was $3.3 million.

Now turning to guidance for the third quarter and full year 2013. As it relates to yesterday's announcement with Urbanspoon, we don't expect the transaction to have a material impact on the financial guidance being provided today.

Now starting with North America guidance. We estimate Q3 revenue to be in the range of $39 million to $39.9 million and non-GAAP adjusted EBITDA to be in the range of $18.3 million to $19.5 million. For the full year 2013, we estimate North America revenue to be in the range of $160.6 million to $163.5 million and non-GAAP adjusted EBITDA to be in the range of $80.2 million to $83.6 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 ERB subscription rate to be $248 in Q3. Related to other revenue, we estimate North America other revenue will be approximately $2.8 million in Q3.

Our updated guidance on non-GAAP operating expenses in the second half of 2013 reflects the increased marketing investments, which Matt discussed earlier, as well as the costs associated with the employees added through the June acquisition of JustChalo.

Turning to guidance for our International operations. We estimate Q3 revenue to be in the range of $6 million to $6.4 million and non-GAAP adjusted EBITDA loss to be in the range of $0.6 million to $1 million.

For the full year 2013, we estimate International revenue to be in the range of $25.6 million to $26.6 million and non-GAAP adjusted EBITDA loss to be in the range of $1.7 million to $2.8 million.

Related to International reservation revenue, we expect the seated diner yield to be approximately $1.25 for the remainder of 2013, which now also reflect the reservation revenue from the U.K. promotional products. Our guidance for International non-GAAP operating expenses in the second half of 2013 reflects the increased marketing activities, as referenced by Matt earlier.

On a consolidated basis, we estimate Q3 non-GAAP EPS to be in the range of $0.38 to $0.42; and for the full year 2013, we estimate non-GAAP EPS to be in the range of $1.80 to $1.92.

Turning to a few housekeeping items. On a consolidated basis, we estimate that our diluted weighted average shares outstanding will be approximately 23.8 million shares in Q3 and 24 million shares for the full year. We estimate stock-based compensation expense will be approximately $4.9 million in Q3 and $17.3 million for the full year.

We estimate amortization of acquired intangibles will be approximately $1.1 million in Q3 and $4.1 million for the full year, which now reflects the amortization of acquired intangibles associated with the acquisition of JustChalo. And finally, our non-GAAP effective tax rate will be approximately 34% 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, thanks for your time. And we'll now take questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Justin Post with Bank of America Merrill Lynch.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

This is Paul Bieber for Justin. I was hoping you could comment on the acceleration of seated diner growth and give us some color on some of the key things that drove the acceleration in U.S. and International seated diners growth. And then secondly, on the incremental marketing spend, just wondering will that be the online or offline? And are you trying to increase the distribution of the app, or just increase brand awareness? What are the key goals of that -- or the key goals of the marketing campaign that we'll be able to kind of measure the success of?

Matthew J. Roberts

Sure. So seated diner, we had an -- another quarter of acceleration in Q2. I think it was 24% in Q1, went to 25% in North America. Part of that acceleration, I would say, in North America, is really more attributable to an industry benefit. We were 1.5% tail -- headwind, excuse me, industry-wise in Q1, which went to basically flat year-over-year in Q2. So that's more the driver of the 24% to 25%. We continue to make great progress on the marketing and the product iterations, but I would say for North America, it's probably mostly driven by industry -- slight industry improvement. But in International, going from 37% to 46%, there is -- it's absolutely continued improvement on the marketing and product execution. It's really strong sequential improvement. And really where the growth rate should be, given our penetration of the market. I mean, I think we've talked about it a number of times, we have a huge opportunity for growth in our international markets so it's nice to see the growth rates coming back up to a level that represents that. If you look at marketing spend, we talked about $2.5 million to $3 million in bringing the -- sort of the new team and it really just represents -- to start to get a more aggressive posture towards acquisition marketing in particular, but there's also some focus on engagement marketing. And I think that the way that we -- most of it is going to be applied towards more online and customer acquisitions, so mobile marketing than brand. There is an element of brand associated with some of -- even the online marketing that we plan to do, and the -- but the big, big focus is going to be in the next, certainly in the next quarter, but trailing into Q4 learning. What will work well for OpenTable and to -- the objectives are pretty clear, it's to drive an increase in usage visits by new users and repeat use by our existing users. And this notion of getting more people that have our app is really critical because we know, based on the data that we have already, that the frequency of our diner base increases when they have our app.

Operator

Our next question comes from the line of George Askew with Stifel, Nicolaus.

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

I just have 2 questions. First, you noted that Rezbook has about 2,000 restaurants in its network. I'm curious, how many of these restaurants are also on the OpenTable network?

I. Duncan Robertson

George, the answer to that, there's a couple of hundred out of the 2,000 that are on both OpenTable and the Urbanspoon network.

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

Okay, okay. And then secondly, obviously, your guidance for full year International adjusted EBITDA changed meaningfully, as you noted, the increased marketing spending in the U.K. My question is, what has happened there in the last 90 days that kind of has compelled you to ramp up spending in the U.K. so dramatically? I mean, I was just comparing the -- your full year guidance for International and after the first quarter compared to the latest, and it's a pretty big shift. Is there something material or the opportunity is just so huge?

Matthew J. Roberts

Well the opportunity is huge, but if you go back to our last call too, we mentioned that we were investing in marketing, in particular sort of step 1 is bringing some focus into the team that have levels of expertise, domain expertise in the different areas that we wanted to focus on, to become more aggressive. And even mentioning in the last call that to the extent that those folks lay out a really compelling plan on how we can get going on more aggressive spending that we'd be excited to do that, and this is really -- they have done that and we are going to back it up with the investment. And the idea is -- the focus is on growth. Our International business, we're not optimizing for profitability. We've said this pretty consistently in the near term. Obviously, long-term, we -- absolutely, our belief is that there is a ton of profitability. But in the near term, there's a huge market opportunity for us. So we're not trying to rush to a break even state. We're trying to grow into a very, very large opportunity. So we have a talented marketing organization that we want to back with the marketing investment to drive that growth.

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

Okay. And then just to clarify, the $2.5 million to $3 million you're going to spend in the second half here, I mean that's total company, right, for domain...

Matthew J. Roberts

That's right, but it's split between North America and International as well.

I. Duncan Robertson

Yes, I mean, George, you can think of -- I mean if you're referencing specifically the guidance for the second half of the year, obviously, International revenue guidance we didn't change for Q3 and Q4. And what you're referencing is if you look at the midpoints of previous guidance for Q3 and Q4, they've come down about $1.1 million. And when Matt said, "We're going to spend between $2.5 million and $3 million in total, you can safely assume that close to the $1 million change in Q3 and Q4 is much of that is associated with the marketing that Matt's been talking about.

Matthew J. Roberts

Almost all of it, right?

I. Duncan Robertson

Yes.

Operator

Our next question comes from the line of Jason Helfstein with Oppenheimer.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

I'll ask 2 questions. The first just around the cloud ERB. Now that you've been kind of working with some potential customers and kind of getting feedback from what they want, what you want to do, can you just talk a little bit more about what the marketing strategy will be, as both of you try to convert existing customers to that and then, obviously, finding new customers? And the second, can you just talk about the integration of some of the acquisitions from a content standpoint and how they fit in to -- we'll call it the leveraging social more just to drive more usage of the product?

Matthew J. Roberts

Sure. So the marketing approach for our cloud-based product will be the same sales approach that we've taken to date, which is it's really a personal relationship that we have with all the restaurant customers. It's showing them the value of the new solution, and we believe it's compelling enough that they're going to want to switch over. There's no doubt in our mind that we're creating a very significant leap forward in terms of functionality for our customers and that they're going to see the benefits of those as we move forward. To just put a fine point on it though, this is our Version 1. The nice thing about this architecture is that we will quickly be able to get Version 2, Version 3, Version 4, et cetera, out the door. That's the benefit of this nimble architecture. So the -- aside from a really great new design and better flexible architecture, there's not a significant amount of new features included in Version 1. That actually we're going to develop as we move along and are able to track usage and get feedback from our customers. So it's really about getting the product in -- for existing customers, getting the conversation happening with each restaurant and showing the benefits of the new solution. For new customers, we are going to switch, that this is our default new product. We won't be selling the existing product to new customers unless there's a specific request to do so. It's a group that wants to add another restaurant and they want to stay on the traditional solution until at some point in the future, we'll obviously -- we will want to accommodate that. But as a default approach, it will be our standard new product offering. And as we mentioned, we've settled on the price point at $249 a month, which is in line with our current average subscription price. From an integration of the acquisition to a couple that I would say are more towards your point about improving the content of the site, Foodspotting, we've done a fair amount of integration with the Foodspotting content. If you look across all of our products and consumer-facing products, there's heavy -- much more heavy uses of imagery, pictures, and those have at its core the Foodspotting pictures. We also going to be looking to add other pictures, the establishments themselves, et cetera, but Foodspotting is already playing a really active role in the content that the diners experience. And you move forward to the payment part of the equation, we're just -- we're going to pilot that first and find out what the appeal is. We believe it's a very strong appeal -- will have a very strong appeal, but that's sort of too early to tell until the ultimate adoption.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Just a quick follow-up. I mean, I know there's only a limited amount you're going to say, prior to putting it on suppliers, but you can you talk about what you would call like the -- so those commercials at the beginning of next year. Can you just talk about the initial kind of financial implications? I mean, does it drive-up kind of your, I guess, sales and marketing expense? Because you have kind of reps reaching out to existing clients who they otherwise might not be reaching out to, offset by potentially you saving money, by not having to give customers hardware. Just -- if you could just generally talk about what the financial implications will be, initially, of the cloud ERB.

Matthew J. Roberts

Yes, we don't -- I mean -- so, we'll come up with a more specific answer for you as we get closer to the date, but our current look at that is that there isn't -- you shouldn't expect any material financial impact. There may be some puts and takes, as you mentioned, but we're not planning for it to be some material impact at all in terms of getting it out there. We just -- we talk to our customers all the time, day in and day out. So this isn't something that we would have to sort of staff up to do at an incremental level. We may want to push harder in certain areas and put money and resources behind that, but I wouldn't call that at any kind of material scale.

Operator

Our next question comes from the line of Shawn Milne with Janney Capital.

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Just a couple, first, on the housekeeping front. Duncan, could you talk a little bit about the lower revenue per seated diner? Was there something involved with the 1,000-point program on mix? And also just on -- the -- there was a question before about the 25% growth versus 24% and you talked about the industry comp. Your comps were certainly much easier in the quarter. As you look into -- I think your comp last year was 26% in the third quarter. Are you looking at a little -- a slightly lower seated diner growth number in Q3?

I. Duncan Robertson

Sure. So Shawn, on the yield in North America, which was $0.68 in Q2, the change in $0.01 from $0.69 in Q1 to $0.68 in Q2 was associated with our points liability. If you look on the balance sheet, we have a $33 million liability for outstanding points at the end of June. And what we do is we, on a quarterly basis, we calculate based on historical redemption and expiration history the liability that we need at the end of the quarter. And obviously, that is a balance sheet adjustment, and the other side of that entry goes into reservation revenue. And so at the end of June, there was -- I would call it a discrete increase in the balance space on slight change, very slight changes in redemption and expiration history. And when we book that adjustment on to the balance sheet at the end of June, that resulted in a -- what rounded to $0.01 decline in revenue in the quarter. And if you look -- sorry, I mean, if you go back, I think, over the last 8 quarters, we've ranged somewhere between $0.69 and $0.70. There's nothing fundamentally different from that in Q2 other than the calculation of the points liability.

Matthew J. Roberts

The other question was around sort of industry comp and growth rates for the third quarter.

I. Duncan Robertson

Yes, just let me look and see what our...

Matthew J. Roberts

Yes, we haven't refreshed -- I'll speak to the refreshing of the industry growth rates for the third quarter to date. We haven't -- we've seen a little weakness relative to that versus the flat year-over-year that we saw in Q2. And so -- but we -- when we forecast the business, as Duncan talked about, we forecasted on an economically-neutral or industry-neutral basis, because we don't want to try to get into a forecasting where the industry is going to go on a quarter-in, quarter-out basis.

I. Duncan Robertson

And Shawn, if you look back to last year, which I think was your question, the industry -- from an industry perspective, growth rates were flat. So in Q3 last year -- impacting Q2 and in Q3 last year, we had neither -- the industry had neither a tailwind nor a headwind. So as you think about year-over-year in Q3, we're not lapping a quarter that either had positive or negative headwinds or tailwinds from the industry.

Operator

Our next question comes from the line of Aaron Kessler with Raymond James.

Aaron M. Kessler - Raymond James & Associates, Inc., Research Division

A couple of questions. First, on Open Connect business, I saw the restaurant count decline a little bit domestically and a little more internationally. If you could help us there and also maybe the forecast for maybe the Open Connect internationally, if that starts to stabilize. And then just on Urbanspoon, can you tell us if that was a competitive bidding process and maybe what you think that's -- the fact that they sold to you and they're probably the second largest player, what that says about the competitive environment?

I. Duncan Robertson

Sure, so I can give you some statistics and background around the changes in Connect. So in North America, the Connect install base was almost completely unchanged, it was -- it declined. I think it declined 14 quarter-over-quarter. And last quarter in Q1, it declined 17. And you know that we've been talking about really making sure that we're optimized for the best restaurants in the network as opposed to the sequential focus on adding restaurants by count. And so the result of that is that we've seen the Connect install base essentially, give or take 14 in the quarter, essentially flat. But the convert to that is that we saw the ERB install base, which is obviously the restaurants that are driving seated diners in the network. We saw an increase of 474 on a net basis from Q1 to Q2 in North America, and that was up from 344 in Q1. So essentially consistent with the strategy of adding better restaurants to the network, which is primarily associated with restaurants that will use the ERB product. In the International segment, reasonably consistent story there, although it's just more pronounced. So in our International segment, the connect install base declined 302 restaurants quarter-over-quarter to end up at just over 4,100, and we'd added 159 ERB restaurants in the quarter, which was up from 117 in last quarter. And again, 3 months ago and even 6 months ago that we told you, in the U.K. specifically, our focus is around optimizing the restaurants that we have in the top table network as opposed to adding new restaurants. And so that means making sure that restaurants are set up to seat diners, the volume of diners that we want to and expect to see flow through the network rather than just adding more. And so the sequential decline didn't come as a surprise.

Matthew J. Roberts

The question around our recent acquisition of Rezbook and partnership with Urbanspoon, we've been in discussions for a while and both companies just realized that it would be better for us and our businesses as a partnership. I mean, I think it's that straightforward. We look forward -- very much look forward to having and welcoming 2,000 Rezbook customers to OpenTable and sort of earning their business as we move forward to switch to and adopt OpenTable technology. But in the interim, we're -- they're going to continue on, on sort of existing terms and conditions and we'll go from there.

Operator

Our next question comes from the line of Mitch Bartlett with Craig-Hallum.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

Two questions for -- actually it's George Kelly on for Mitch as well. But 2 questions for you. First, wondering if you could give more detail. You mentioned that the pricing in Europe is a variable pricing model on the seated diners side. I'm wondering if you could give more detail there. And then secondly on Urbanspoon, Rezbook, you mentioned that it's an immaterial as far as revenue is concerned, but am I thinking about it wrong? Isn't their model set up similar to yours where it's about a $200 per month fee? I'm just thinking, if that's 2,000 restaurants, that seems like at least a contribution. So is the model the same as yours, I guess?

I. Duncan Robertson

Sure, so I can answer the first question around the U.K. promotional products. What we've done is previously restaurants were paying a flat fee to participate in promotional offers, and in Q2, we moved that, as Matt described, to a per diner fee, which was more in line with the overall strategy that we have in the U.K., and those prices are -- they range somewhere between GBP 2.50 and GBP 3.50 for diners seated through the promotional offer, as opposed to a flat fee that restaurants were paying. Hence, the increase in the per seated diner that we had in the U.K.

Matthew J. Roberts

Now just to be very clear, the -- what -- the promotional offer product was, was the -- is the ability for restaurants to highlight a particular offer that they're providing to the restaurant -- to the diners. So a fixed-price meal is a very common example of that, and it's almost sort of a featured listing, if you will. And there used to be a flat fee associated with that, which we move to a variable pricing model, which we think makes more sense with the anticipation of a growing diner base. The other question, the Urbanspoon in total, for -- our expectation is it's immaterial for the guidance that we provided. The revenue stream was similar in that there was a subscription piece to the business and a reservation revenue piece of the business, both of which were materially -- are materially lower than what our average customer is. So, yes.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

Okay. If I could follow up on that, will you be disclosing the number restaurants on Urbanspoon similar to how you broke -- you detailed toptable after you acquired it?

Matthew J. Roberts

We will look to see what -- if we -- basically, we think that the aggregate is immaterial for -- relative to the guidance that we gave you. If we find that lumping the 2 together, this [indiscernible] doesn't allow you to sort of track the metrics well, then we'll certainly provide that level of granularity. So it sort of depends. We have to look to see once we bring them in to the overall financial metrics, to see if it's confusing, then we'll segregate it out so it's not.

Operator

Our next question comes from the line of Heath Terry with Goldman Sachs.

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

Matt, certainly interesting to hear you talk about investing in the business like this. Can you give us a little bit more detail about the decision-making process on beginning to advertise? Does it have anything to do with the success of the U.K. campaign in Q1? And based on what you've seen either in that campaign or what your customer acquisition team is telling you, can you give us an idea of the timeframe that you're expecting to see an impact from the campaign on diner growth? Because that doesn't really seem to be reflected in your guidance. And then, as for the hiring, Duncan, if you could just give us an idea of where you would expect headcount to be by the end of the year and of the people being hired, what split you expect between engineering, sales, et cetera?

Matthew J. Roberts

Yes. So I'll talk about advertising and sort of the marketing, I would say advertising is too limited. As I've talked about in the comments, we've had an amazing model and have an amazing model where the customer satisfaction is driving really great word of mouth, which has been supporting the seated diner growth, and continues to support the seated diner growth and strong seated diner growth. The opportunity for us is just to layer on top of that and to add to the strong foundation with marketing programs that we think can make an impact, not just looking for sort of near-term transactional revenue, but really with an eye towards customer acquisition. And in some cases, lifetime value or increasing the existing lifetime value of a diner, and mobile is a perfect example of that. We do absolutely see a nice ride in frequency when people download and use our app. And so, we are going to be spending money against learning about how to accelerate that adoption by our existing base and adding new people to -- users of our app. So that you consider a pretty good chunk of money going there. The other areas of focus are some of the more sort of classical -- classic online vehicles, but we're also going to be working a lot on some social marketing initiatives and really a decent amount of testing across the board. And we're looking for places where we can double or triple down on with success to drive the metrics that ultimately will be the seated diner growth. I mean, that's the -- at the end of today, the metric that it will show up on is seated diner growth, which we feel we can influence with another layer of investment, which is in direct marketing. The specifics on the U.K., we did have -- that was very much a brand-focused campaign and we did like the increase in brand awareness that I think we shared, it was about 1/3 increase in brand awareness just from a one quarter campaign. The spend, as we have it articulated right now, our plan for right now, isn't heavily brand-based. It's more around acquisition marketing and engagement marketing activities. And so when you should start to see it show up in the numbers is a little bit premature to kind of go through with you, because we really are just launching the particular programs. But we'll be in much better position to talk to those and some of those successes that we're seeing in those in our next call.

I. Duncan Robertson

And Heath to answer your question about headcount, I think the most important take-away is to know that we're very heavily focused on adding people in our technology group. If you look at the number of people that we've added in that group over the last 6 months, I think 27 in total. And if you look at all of the other line items, they have been almost completely flat in terms of office and support, sales and marketing and G&A. And then if you tie that in to what Matt said about our real heavy focus on recruiting around the tech area in the second half of this year, you can safely assume that we would gladly add another 27 or 30 people, which is the same rate that we've added people in the first half, in the second half and know that that's the area that we're investing in as opposed to the others.

Operator

Our next question comes from the line of Mike Olson with Piper Jaffray.

Michael J. Olson - Piper Jaffray Companies, Research Division

You focused in recent quarters on driving seated diner growth and maybe less on kind of the new restaurant ads, which appears to be the right strategy. But going forward, how should we think about kind of how aggressive or not aggressive you'll be in adding restaurants in Tier 2 or Tier 3 cities where OpenTable usage or kind of restaurant adoption may be less saturated?

Matthew J. Roberts

Yes. We're very focused on adding restaurants everywhere in each market that we're participating in. And I think there's a little bit of a risk of misunderstanding the sort of focus on making sure that we're adding the most popular restaurants as -- that we're not trying to grow the base from just an absolute number perspective too, we are. We just have a slightly different or a more focused approach in this last couple of quarters and we'll continue to have it through the balance of this year. But the team is working very aggressively towards sales goals and we're executing well against those and we continue to expect that we'll be able to do a great job adding restaurants through the back half of the year as well. So there's not a really kind of any type of implied strategy to take our foot off the gas on restaurant additions is all. It's just a little bit of a refinement of, I would say, more focused towards ERB than Connect customers.

Operator

Our next question comes from the line of James Cakmak with Telsey Advisory.

James Cakmak - Telsey Advisory Group LLC

Can you just provide some more detail around how you're thinking about the mobile product, as you think about rolling that out? Is this something -- you talked about one of the things was offering fees that would be less expensive for restaurants. Is this something that a consumer would load their credit card numbers for or fund in some way? Just, how are you thinking about that? And what, if you can walk us through, what -- how you envision the diner experience to be like.

Matthew J. Roberts

Sure. Happy to. The first thing that it would be -- it will be an integrated part of our overall experience, and this is important because I think that's one of the reasons why we believe we're uniquely positioned to be successful here, because we have that tie in to a system that's already in the restaurant and we can provide a sufficient volume of people using the service, so that the server doesn't -- never gets surprised by it once a month, the priority [ph] is it becomes more ingrained in the delivery of service on a day-to-day basis at -- for our restaurants. The way that we would anticipate it, and this is largely based on the way that the JustChalo team had already implemented the solution with the app that they've already built, which is the -- you would store -- you store in your credit card and we then -- you indicate, you make a reservation, you'll be given an opportunity to put the reservation on your tab upfront. Or you can decide when you're at the table whether or not you want to put it on your tab or not. And then you basically take the phone out when you're ready to pay and you click a button and review the details of the check. They will, eventually, probably not in Version 1, but eventually the ability to split the tab with whoever you'd like to. And then obviously, you can adjust the default tip and get up and walk away. I mean it's kind of that simple. There's no scanners or any type of weird things that you've got to do. You're basically just able to leave when you want to leave, split the check with whoever you want to split the check with. It's very akin to -- through the experience with Uber, I would say, where you get in the car and you go where you want to go. And then when you're done, you get out. And that's why we think that this solution has a lot of appeal for diners is that it's not introducing a complexity that actually doesn't solve a problem and actually is a superior way to pay where you don't have to wait for the check to be presented and then the credit card to go back and then the check to come back and then sign and treating somebody. You don't have to argue with people over who's going to get the bill this time. You can already have settled out the check with your mobile app and splitting. All of which has become a lot easier with the solution over time.

James Cakmak - Telsey Advisory Group LLC

Okay, got it. And as a follow-up, real quick. The -- one of the areas of expertise of the JustChalo team was with point-of-sale systems. Can you just provide us some insight on -- as to how you're thinking about the point-of-sale systems of potential integration on to that? Is that something that you're interested in? And if so, how would you see that benefiting you?

Matthew J. Roberts

Yes. I think the -- I mean, ultimately, the solution needs to integrate in to the restaurant's point of sales system to get the data necessary to settle out the check. And importantly, we need to have a way to clearly indicate to the restaurant service team that the check is going to be settled with our mobile payment app versus credit card. And all of those things, sort of visual notifications, as well as messaging, some of that will include integration and -- with point-of-sale systems. So their expertise in that area will certainly come into play here.

Operator

Our next question comes from the line of Kaizad Gotla with JPMorgan.

Kaizad Gotla - JP Morgan Chase & Co, Research Division

I was wondering if you could just elaborate a little bit more on the Urbanspoon partnership, maybe talk about the length of the partnership and how quickly you expect to integrate the OpenTable restaurants. And then as a follow-up to that, why wouldn't you expect a larger impact to your seated diner growth from the Urbanspoon integration? I think they're doing about 1 million diners per month with just 2,000 restaurants and, obviously, OpenTable brings a much larger network to it.

Matthew J. Roberts

So a couple things, sort of the specific terms of the agreement, just like all of our agreements, is confidential underneath those agreements. So sort of duration, et cetera, we'll not be able to get into for you. But the plan is to offer to the restaurants that are currently using Rezbook and to work hard to earn their business to have them move to our -- likely our cloud-based product, and that will take place over time and after choosing. Up until that point, they'll continue to use the Rezbook product and we'll honor the existing terms of their agreement. So that's the sort of -- I would call it the subscription side of the business. I would just say that their -- I can't really speak to the 1 million, which is a stat that was put out a while ago. I believe that stat probably had grounded in it all the seats that were filled through those systems, which would include walk-in and phone and any amount of online. So it's kind of -- it's pretty much an apples to oranges versus the online seated diner numbers that we quote. And what we can say pretty clearly is that both for subscription revenue and reservation revenue, which -- the foundation of which is the number of seated diners per restaurant and the rate, both of those numbers are materially lower for the Rezbook customers than they are for OpenTable customers. So sort of in aggregate, it just won't have the material impact on our guidance that we just provided you.

Operator

Our next question comes from the line of Blake Harper with Wunderlich.

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

I wanted to ask about the -- both the cloud with some of the delays that you have there and with also the mobile payments. If you could kind of give us some more detail on what some of the timelines and the milestones are for rolling both of those products out, and if they are related at all to any recruiting efforts that you have going on in the second half of the year.

Matthew J. Roberts

Sure. So our cloud-based products, which we're very excited about it and is going on really well. If you think about it, it has really 2 main parts to it. One is the architectural side of it in the back, we'll call it sort of the back end side, the part that's sort of behind the curtains, and that architectural side is really going along great. The framework is in place, the structure is set up to be very nimble for us to put new versions out at a really quick pace. There's this front end part, which is the part that the consumer user -- that the restaurant user will interact with, and that has 2 main components, which has a front end that initially will be on iPad application, and there's also a web-based interface that goes along with the product. In that case, we've -- what we've done is we have hired -- very successfully, we've been building up a design team for OpenTable and they've been adding a ton of value, both on the consumer side of the equation and you can see that in many of the products that we're rolling out, particularly in our mobile apps. And now on the restaurant side of the products for us as well. And we have had that team basically going -- reimagining what the entire interface should look like. When -- I think when we last updated you, we had thought that there was at least some elements of our interface that, for our current iPad app, that we could repurpose for the new -- sort of as a foundation for our new service. And we just determined that they've just come up with a much better design. And so ultimately, what we've ended up doing is -- and what we're doing is we've completely rewritten and are rewriting entirely the front end of the product as well. And so that has, I think, in relative terms, produced a minor delay for our flagship product, and that put us sort of potentially starting to sell it for the first time right around the holidays, which didn't make any sense, considering restaurants are pretty busy right then and we didn't want to put ourselves in a position of trying to introduce something so fundamentally new right in the middle of the busiest season for them of the year. So that's the background on that. The payments product in terms of milestones, there we called out a particular milestone, which is to have an integrated solution -- just to be very clear about what we mean by that. When we purchased JustChalo, they had already created an application. It's a standalone payments application that has many of the functionalities I just talked about and it's actually live in 20 restaurants right now, which is proving very valuable for us that to get feedback from those restaurant customers about what's working, what's not working. So what the real opportunity is for OpenTable is to provide an integrated seamless experience for the diner, and that work is underway right now, very aggressive timeline for us because we want to try to pilot that in San Francisco by the end of the year so that we can be live with a solution that does more what I was mentioning to James, so that if somebody comes in, they don't actually have to do any extra steps as part of being able to use the payment solution. It's just very seamless and organic to the overall dining experience. Oh, you asked about recruiting. Well, yes, absolutely, a step up in recruiting. We have a lot of really great ideas to drive growth in the business, and there's a ton of growth to be had. So we, like most of our colleagues, are looking to add really great talented people into our development team. It is a reasonably difficult hiring market, from a company's point of view. And so we see that we have an opportunity and the desire to just step up the effort that we're putting around recruiting.

Operator

Our next question from Mark May with Citigroup.

Nathaniel Brogadir

It's Nat Brogadir in for Mark. Just a quick question on the guidance. You guys have been growing revenues 15% in 1Q, 15% in 2Q. And I think guidance implies another 15% in 3Q at the midpoint. If I take the full year, I'm getting a 20% growth rate implied in 4Q. Can you talk about what gives you guys the confidence for that reacceleration in 4Q?

I. Duncan Robertson

Sure. I think the way that we prepared the guidance for the second half of the year is no different than we have done previously, and it's really just taking a comprehensive look at our business and the activities that we've got in place and our plans to roll out and understand how some of the work that we've done historically is going to impact the revenue growth going forward. And so we've applied that to Q3 and Q4 no differently than putting the numbers together historically.

Nathaniel Brogadir

So what specifically is going to start ramping up in 4Q versus 3Q that reaccelerates revenue growth? Is it some of the Urbanspoon initiative, or is it the market initiatives? What, specifically, can we think about?

I. Duncan Robertson

No. I mean, as we've said kind of repeatedly on the call today, it's -- our assessment of the impact to guidance from the Urbanspoon business is not material, so it's not related to the Urbanspoon business. I think it's a combination of the marketing activities that we commenced internationally. We commenced last -- towards the end of last year, we had our outdoor campaign in London in Q1 and continue to spend against that in Q2, as you saw in the results today. And then in North America, we've been investing. If you look at just the tech headcount that we were talking about earlier, we've been investing in the products that we've got in the hands of consumers, and we continue to expect that, over time, those will have benefits to the business and the growth that Matt spoke about.

Matthew J. Roberts

Both in twofold, right, one is the conversion benefit and one is just the overall use, both frequency of existing diner base, but also new diners. And we're just -- we're seeing that, we're seeing that value, we seeing that benefit now, and we think there's a lot of that left. And so we're chasing hard after.

Operator

And at this time, I'm not showing any further questions.

Matthew J. Roberts

Okay, well, great. Thank you, everyone, for joining us for the call. I look forward to catching up with you next time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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