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Ambassadors Group Inc. (NASDAQ:EPAX)

Q1 2008 Earnings Call

April 23, 2008 11:30 am ET

Executives

William Sennett - Director of Strategic Planning

Jeff Thomas - CEO

Chadwick Byrd - CFO

Analysts

Greg McKinley - Dougherty & Company

Mike Roarke - MWR

Sam Steinman - Cedar Creek Management

James Bellessa - D.A. Davidson

Mimi Noel - Sidoti & Company

Ken Cassidy - Cassidy Investments

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Ambassadors Group, Inc. earnings call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions)

I will now turn the call over to Mr. William Sennett, Director of Strategic Planning. Please proceed.

William Sennett

Thank you, J.D. Good morning. On the call with me today is Jeff Thomas, President and Chief Executive Officer of Ambassadors Group, and Chadwick Byrd, Chief Financial Officer of Ambassadors Group. First, before we proceed into the call, I will read a safe harbor statement regarding forward-looking statements.

Statements contained in this press conference and related comments by Ambassadors' group management which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These forward-looking statements include, without limitation, statements that relate to expectations concerning matters that are not historical facts. Words such as projects, believes, anticipates, plans, expects, intends, estimates and similar words and expressions are intended to identify forward-looking statements.

These forward-looking statements reflect our beliefs or current expectations with respect to, among other things -- trends in the travel industry; our business and growth strategies; our use of technology; our ability to integrate acquired businesses; future actions; future performance or results of current and anticipated sales efforts; expenses; the outcome of contingencies such as legal proceedings; financial results; and fluctuations in our results of operations.

Forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties are set forth in Ambassadors Group's most recent report filed with the SEC on Form 10-K, as it may be updated in our subsequent 10-Q and 8-K reports.

All forward-looking statements are expressly qualified in their entirety by these factors and to all related cautionary statements. We do not undertake any obligation to update any forward-looking statements.

With that, I will hand the call over to Jeff.

Jeff Thomas

Thank you. Good morning. This is Jeff Thomas, President and CEO of Ambassadors Group. We appreciate you joining us for our Q1 2008 earnings call. As stated in our earnings release in the quarter just ended, we traveled 3,365 delegates compared to roughly 3,000 one year ago.

As expected, we generated a loss for the quarter as we moved through the low part of our revenue cycle. During this quarter, we are primarily preparing for our busiest travel quarters of second and third quarters. This includes working to retain the delegates who have already enrolled on our summer programs. We are also continuing to develop and refine our marketing campaigns that will drive enrollments in 2009.

We now have over 45,000 delegates enrolled or already traveled compared to 56,000 delegates one year ago. The positive here is that we have continued to close the gap between this year and last year -- a gap that we announced last fall. In October, we were 30% behind in enrollments; the gap now stands at 20%. We are, of course, trying to narrow that gap even further.

At this point in the year, we are on par with last year in terms of retention of enrolled delegates in a more difficult economic environment. Our balance sheet remains strong with no debt, advanced deposits on future programs and over $27 million in deployable cash compared to approximately $19 million of deployable cash last year at this point in time.

We also continue to deploy capital back to our share owners in this quarter through our share repurchase and dividend programs. In total, we provided $6 million in capital with about $3.8 million through repurchases and approximately $2.2 million through dividends. Traditionally, I have turned the call over to Peg Thomas at this point. However, she is on maternity leave. Our CFO, Chadwick Byrd, will provide further details from here. Chadwick?

Chadwick Byrd

Thank you, Jeff, and good morning. Today, I will start out discussing our current operations then the quarter's financial results, before I provide an update on our guidance for 2008. During the first quarter, we traveled 3,365 delegates compared to 3,000 delegates one year ago. Over 90% of our program participants took part in our leadership programs in Washington, D.C.

In addition to executing upon our travel and marketing plans to drive additional enrollments for 2008, we have focused on retaining those already enrolled on our programs through a new post-enrollment website and targeted and personalized communications to parents and students separately. Financings have, in the recent past, been the number one reason for withdrawal and this year is certainly no exception.

The current state of the economy and its reflection on the personal finances of our families is a big concern for us, as we begin collecting final payments ahead of this coming summer's travel season. However, our revised payment plans and the $95 initial deposit implemented last fall continues to show promising net results.

The combination of these enrollment and retention efforts have brought our net enrollment shortfall from 30% in October to 25% in January and now 20% in April. Current enrollments stand at 45,388 versus 56,443. The first 2008 international students traveling from Baton Rouge, Louisiana, to England, France, Belgium and Netherlands are set to depart in just 40 days.

The focus of our operational travel teams right now is concluding our Spring 2008 student leader programs in Washington, D.C., while making final preparations for our international travel program this summer. This past weekend, we returned the last delegation from our Spring Washington, D.C., programs. Work continues on assisting students in obtaining their passports and visas and issuing thousands of final itineraries and airline tickets to our delegates and leaders.

Turning to our financial results for the quarter, the 12% increase in delegates traveling with us in the quarter led to a 14% growth in gross program receipts. Margins on our core D.C. programs remain strong year-over-year. The gross margin decrease from 44% to 39% is primarily due to cruise berth commitments on the Antarctica excursion that went unsold in addition to offering programs in the quarter, such as a California presidential primary program, at lower margins than our core D.C. programs.

Selling and marketing costs for the quarter grew just over 1% as we expanded our winter marketing campaigns, but are offset by reduced print costs from insourcing our print production and producing certain campaigns over a number of months. General and administrative costs grew 10% compared to the same quarter one year ago.

But we are on track to decrease quarter-over-quarter and year-over-year G&A costs starting in the second quarter of 2008. Most of these reductions will come in personnel costs. Since the third quarter of 2007, we have reduced our personnel by 12%.

Other income decreased approximately $200,000, or 19%, due to lower average cash and investment balances held during the quarter. The majority of the Company's investments are in high quality, tax exempt, municipal obligations or government-backed or insured auction-rate securities.

The underlying rating of all municipalities represented in the portfolio is investment grade. The Company does not have any CDOs. Our effective tax rate for the quarter was 32% compared to 33% one year ago, due to significant amount of tax exempt investments held during the quarter.

Total assets of $175 million are dominated by $115 million of cash and short-term investments. Participant deposits are down 19% year-on-year, which is in line with our current year enrollments. Despite the lower initial deposit required to enroll for our student programs and the higher program price in 2008, the average deposit per enrollee and percent paid of total tuition on our student programs is consistent with the previous year.

Deployable cash increased 43%, or $8.2 million, year-over-year after allocating $6 million back to our shareholders in the form of dividends and share repurchases. During the first quarter, we repurchased approximately 223,000 shares at an average purchase price of $17.11. Subsequent to the first quarter end, we repurchased an additional 42,000 shares at an average purchase price of $17.77. As of today, we have $15.3 million remaining on our share repurchase authorization.

In providing guidance for 2008, we still anticipate earnings to be between $1.05 and $1.15 based upon the enrollments we have to date and ongoing marketing efforts for 2008. We remain cautious in this guidance due to continued uncertainty around additional fuel surcharges assessed by airlines prior to ticketing, which in accordance with the Department of Transportation, we are not allowed to pass on to our delegates, withdrawal rates and the challenging economic times and interest rate on short-term investment.

I remind you that we are fully hedged for our currency needs for our programs which we are about to operate. The number of delegates traveling in the summer months will be evenly split between the second and third quarters, while our gross margin for all products and quarters combined is expected to be consistent with average historical rates of approximately 35%.

I thank you all for your continued interest and for your time today and will now turn the call back over to Jeff.

Jeff Thomas

Thank you, Chadwick. Operator, J.D., at this point we are ready to start the question answer session.

Question-and-Answer Session

Operator

Thank you.

(Operator Instructions)

Your first question will be from the line of Greg McKinley of Dougherty. Please proceed.

Greg McKinley - Dougherty & Company

Thank you. Guys, I wonder if you could talk to us a little bit about your operating expense plans here. Selling and marketing, I know you indicated, benefited from some lower print costs. I thought it would be higher, though, with your stepped-up January campaign efforts.

As you look towards sort of continuing your enrollment retention for this travel season and I know you've commented in the past you're still going to promote heavily and recruit aggressively for '09, how should we think about -- I'm sorry -- selling and marketing expenses for '08 relative to '07?

Chadwick Byrd

Greg, thanks. So as we look at our selling and marketing expenses, there's a number of things I want to point out -- certain things going on with the quarter, but also in general. 75% of our selling and marketing expenses incurred in one -- in a given year are really for the following year's travel.

So in the first quarter, it's not quite the 75%, but we do have certain costs related to our future year marketing plans incorporated in there. We did receive some benefits by insourcing our mail production facility and creating those pieces in-house, but we also spread out certain of our marketing campaigns, which are -- generally took place maybe in just solely in the first quarter and now they're going over to the second quarter as well.

Again, our marketing -- our expense management plans are really trying to decrease the G&A costs, while allocating those dollars back to our selling and marketing expenses. So year-on-year, we'll see a decrease in our G&A costs, but relatively flatter increased costs in selling and marketing.

Greg McKinley - Dougherty & Company

Okay. When you talked about -- I think you said you're cautious on your guidance, does that mean your guidance is cautious or is that you're cautious on the ability to achieve the guidance given all the moving factors around the economy and fuel surcharges, etcetra?

Chadwick Byrd

The latter part.

Greg McKinley - Dougherty & Company

Okay. And then, in terms of enrollments, you guys have made some nice progress around narrowing that shortfall. I've looked back the last couple of years. Is it fair to expect a modest, we'll call it, decline in travel or growth relative to enrollment growth for the full fiscal year versus where your enrollments are in Q1? The last two years that's narrowed a little bit and I don't know if that's a typical trend that you see.

Chadwick Byrd

Yes, I think what you're getting at is basically from this point on we had 6.7% of those enrolled, at this point, did not travel with us.

Greg McKinley - Dougherty & Company

Okay.

Chadwick Byrd

I think there's -- when we say we're cautious in our guidance, this is where we come in and say that for those individuals making their final payments, obviously, were that’s concerning for us. They've got their final two or their final payment now due and in economic and challenging times that we haven't been in before. So, we're a little cautious there. We'd love to keep it flat to where it was in the previous year, but still a little bit too early to tell on that piece.

Greg McKinley - Dougherty & Company

And then the last thing I'd like to hear about is, I know '09 is a long way off yet, but you guys, due to the launch of your marketing campaign, you start thinking about your '09 delivery costs and negotiating with your service partners. With the weakness of the dollar versus the euro and what's going on with jet fuel, what is the cost environment look for -- look like it's shaping up to be in '09?

And do you think the Company will be going back for some fairly aggressive price increases '09 versus '08 or would you look to do something with products, maybe trading down a shorter durations at lower price points to entice consumers? Can you give us any sense for that because I think those types of decisions are probably right out in front of you over the next month or two, if I'm not mistaken.

Jeff Thomas

Greg, yes, those decisions are right out on the table as we speak now. And I think the short answer is we're doing all of those things. We are looking at product. We are looking at some price increases. We are looking at a variety of strategies -- have not finalized anything yet. But obviously, with fuel prices the way they are and the dollar the way they are now, we are looking at making some changes.

One of the changes we did make is we brought in a new product management person and we've done a whole product audit the last couple of months and it really rationalized the number of itineraries we're offering and kind of rethought for the next couple of years where we want to go. And we're working with our overseas operators right now in terms of which programs to offer and at what volumes.

Greg McKinley - Dougherty & Company

Do you think that those discussions -- you're going to have some price pressures? Would we be able to count on a similar sort of gross program receipt per traveler growth again next year as you anticipate some of those costs? Or would you shorten-up the trips such that it's more affordable where we wouldn't necessarily see that per traveler revenue increase? Or is it too early to tell?

Chadwick Byrd

Yes, so again, all those decisions are on the table for us right now --

Greg McKinley - Dougherty & Company

Okay.

Jeff Thomas

Greg, but a little too early for us to tell.

Greg McKinley - Dougherty & Company

Okay.

Jeff Thomas

We have already started to negotiate with our overseas vendors. We have already put in place hedging currency needs for 2009. So, if you look at a basket of currencies in which we're purchasing from last year to right now, the market rates have increased for us about 11%, ranging from 1% on the Pound to 15% increase in the Euro. So, we've already tried to be proactive in hedging those amounts already, but to get a gross program receipts per delegate right now is a little too early.

Operator

Your next question will be from the line of Mike Roarke of MWR and we do ask that you limit yourself to one question. Thank you.

Mike Roarke - MWR

Hi. Chadwick, one question -- two parts, maybe. First, is there any way that you could double-back to the vendor relationship and maybe provide some more colors around that issue that it has been trouble-shot at this point?

Chadwick Byrd

I guess I don't fully understand the question.

Mike Roarke - MWR

Okay. The direct marketing vendor relationship that caused the net enrollment or was it contributor to the net enrollment decline? Is there any new information that you've developed over the last six months that could maybe be used to give more confidence around the fact that that issue has now been addressed and that it's not going to be repeated during the fall marketing season?

Jeff Thomas

There's really nothing new to report since our last call. We commented on that a fair amount. The long and short of it is that we're not using that vendor again, so it won't happen again.

Mike Roarke - MWR

Okay. And that vendor has been replaced or how has that been handled?

Jeff Thomas

We are in the process of replacing that vendor. One of the things that came out, when you look at this stuff, we have, as we've talked about, a very thorough and rigorous vetting process in terms of testing and screening names. But one of the things that's predicated upon is that the names are used and collected in a similar manner year-over-year with different vendors.

And that's a spot we'll always be blind to with different mailing list vendors. And so, our suspicion is that that list was used or sold differently in the preceding year, basically what I call list fatigue; they oversold their lists. And so we've moved away from that, right now, and in the January campaign we tested a number of different list providers and we're making some decisions around them.

But I think I've been fairly clear that going into this fall, one risk we face is we will be sending a significant number of names from a vendor we've not tested on this scale before. We'll obviously be applying our typical due diligence that has worked well for more than a decade to the problem, but we still could be blind to an issue like we had with that particular vendor.

I would also like to add that about this year, sorry -- the year just ended, 2007, approximately half of our travelers came from our own lists, our own nominations, our own alumni -- things like that. The percentage will be a little higher in 2008 because of the list problem, but we are continuing to develop our own list as well. Thank you.

Mike Roarke - MWR

Okay, so -- okay, that helps and that's all I have.

Jeff Thomas

Thank you.

Operator

Your next question will come from the line of Sam Steinman of Cedar Creek Management. Please proceed.

Sam Steinman - Cedar Creek Management

Hi, guys. Your withdrawal rates have stayed flat, I believe you said, to last year and I guess there was some expectation that, with lower deposits and the tough macro environment, that we'd like to see some shifts there. I guess maybe some of it is the folks you got on in January probably are much less likely to withdraw, since it's later in the season. But can you just talk about what's going on with withdrawal rates and how you've succeeded in maintaining a flat line in a tougher environment?

Chadwick Byrd

Yes, well first of all, we don't think we're out of the woods yet, but we are really proud of our associates and the efforts that they've put towards the retention efforts. We've done a lot of streamlining of our communications to both parents and students through the web and also through email. We've focused our messages on the value of international travel and we've adjusted our payment plans to better align the value of what we're providing to when we're asking for a payment from the parents.

So all of those being said, we're not out of the woods. We're moving to final payments just now. For the $95.00 deposit, yes, there is an increased withdrawal rate expected for them in total. Not all of our enrollees came into us through the $95.00 deposit. As you know, we started that late in October. So all in total, we're happy with where we are. We'd like to see it continue. But again, not out of the woods. Thank you.

Sam Steinman - Cedar Creek Management

If you stretched out payment plans -- I think you made a comment that you said average deposits and average percent payments per delegate are fairly similar today? How does that work if you stretched out the payment plan?

Chadwick Byrd

But we didn't stretch out the payment plans; we modified our payment plans. And so actually, we brought more payments closer into the enrollment time period. Another thing that we did is we created an incentive, or we created an opportunity, for individuals to get on a monthly installment plan using their credit card or ACH. And those in the past have been -- have shown that they withdrawal at a lesser rate than those that are on the standard payment plan. So those are the strategies that we implemented this year that we'll continue to see the benefit of.

Operator

Your next question will be from the line of James Bellessa of D.A. Davidson. Please proceed.

James Bellessa - D.A. Davidson

Good morning. It sounds like congratulations are in order for the father.

Jeff Thomas

Thank you, Jim, and the mother.

James Bellessa - D.A. Davidson

Good.

Jeff Thomas

She's listening somewhere.

James Bellessa - D.A. Davidson

Say, if we're limited to one question, there may be some multiple parts of the same question. But you have indicated that your second and third quarter travel participant rates are going to be evenly distributed and last year, there was more in the third quarter than the second quarter. What causes the even spread this year versus last year?

Chadwick Byrd

Again, it's really about when the students get out from school, when we can provide the itineraries to a certain market area. It's the timing of Easter and -- because that also have an impact of when our Washington, D.C., programs -- some of those just traveled this month and so they'll be hitting the second quarter.

James Bellessa - D.A. Davidson

I see. And then, how about if they're evenly distributed between the two quarters, what about margins or average gross receipts per traveler, those kinds of things? Is it evenly distributed or is there one quarter that's more favorable than the other?

Chadwick Byrd

Right now, we would anticipate that they'll be evenly distributed as well because when you bring in the Washington, D.C., programs that are traveling in the beginning part of the second quarter we'll also have some of those at the end -- latter part of the third quarter.

James Bellessa - D.A. Davidson

And you talked about your investment portfolio. Is there any auction-rate market securities there?

Chadwick Byrd

There are. We do have certain auction-rate securities. At the end of the third quarter, it was about 10% of our portfolio. It's decreased in half since then as we've exited those positions or they've been called or they've just been up for auction.

So -- but we stay away from asset-backed and mortgage-backed auction-rate securities. They're in high quality, high investment-grade auction-rate securities and we've benefited a little bit on getting some higher interest rates, but we continue to be conservative in that arena.

James Bellessa - D.A. Davidson

Thank you very much.

Chadwick Byrd

Thank you, Jim.

Operator

Your next question will be from the line of Mimi Noel of Sidoti & Company. Please proceed.

Mimi Noel - Sidoti & Company

Hi, Chadwick. Hi, Jeff.

Jeff Thomas

Hello.

Chadwick Byrd

Hi, Mimi.

Mimi Noel - Sidoti & Company

Congratulations to you and Peg, Jeff.

Jeff Thomas

Thank you very much.

Mimi Noel - Sidoti & Company

I'll keep it to one question. For the international programs scheduled for this summer, can you tell me at this point what percentage of the total expected tuition has been paid, if you don't see the withdrawal rate change anymore?

Chadwick Byrd

It's over 50%.

Mimi Noel - Sidoti & Company

Okay. I'll leave it at that and if I have any more I'll follow-up with you, Chadwick. Thank you.

Chadwick Byrd

Okay, thank you.

Operator

Your next question is a follow-up from the line of Sam Steinman of Cedar Creek Management. Please proceed.

Sam Steinman - Cedar Creek Management

Hi. Sorry. I just wanted to follow-up on a question I think Greg asked earlier. At this point last year, there was -- I guess you saw 6.7% degradation over the year in enrolled delegates. In 2006, that was about 90% -- you saw about 4.9% and in 2005 it was about 0.5%. So can you just maybe talk about why over the years what you've seen cause the reduction from the number you put out at the end of Q1 and the final delegates traveled, why that spread has widened?

Jeff Thomas

Sam, so I think what you're asking is about if you take the number of enrollees we have right now, is it likely to move up a little bit, move down or stay flat and what's caused it to change a little bit in past years? Probably, the number one driver of the change in past years has been the addition of our student leader programs and the timing of their marketing. The overall international out-bound student programs have been fairly consistent over the years in terms of what happens to their numbers.

What's changed, though, is the timing of the campaigns and when people withdraw who go out on the student leader programs. And because we've done things like we ran a presidential primary program this year and Chadwick talked about when the timing of Easter was, which moves a few different things around, you'll see some different movement in there that's not necessarily strategic as much as it is it's just reflecting some operational realities of when we need to put programs out there.

Sam Steinman - Cedar Creek Management

So if I look back to 2005, at the end of Q1 on your Q1 call you said you had 38,000 enrolled delegates and you traveled 37,800 delegates for the full year 2005. So basically what you had today was what you traveled. Then last year you had a 6.5% decline from what you announced at the end of Q1 to the end of the year. And so that's really just a function of when trips take off and what kind of trips? Does that imply that there's a higher withdrawal rate for some of these trips?

Jeff Thomas

No. It's really not. I mean, I guess as you back a few years to '03 with the Iraq war, when that broke out, and SARS at the same time, that impacted the numbers quite a bit. But in general, it's not the withdrawal rate moving around as much as it is the timing of our marketing when programs are being offered.

Operator

Your next question will be from the line of [Ken Cassidy] of [Cassidy Investments]. Please proceed.

Ken Cassidy - Cassidy Investments

Yes. The fuel surcharges -- are most of your travelers going by commercial or by charter?

Chadwick Byrd

100% by commercial.

Ken Cassidy - Cassidy Investments

When do you buy the tickets? After I say --

Chadwick Byrd

We purchase tickets anywhere from 30 to 60 days prior to travel.

Ken Cassidy - Cassidy Investments

Do you think, you've been fixing the price ahead of time, and so therefore you would bear any price increase? Like United, I guess, has raised their prices four times this year, I think, so far.

Chadwick Byrd

That's correct.

Ken Cassidy - Cassidy Investments

Are you eating all that stuff, if you were flying United?

Chadwick Byrd

I'm sorry?

Ken Cassidy - Cassidy Investments

Would you be eating all those -- because you're telling me, last fall or just like Christmas or something like that, that it's going to cost me $2,000 -- whatever the number would be for the trip, the entire trip. And I'm going to fly in June, so you'd be buying the tickets in April or May, somewhere in there. So that being the case, you would have seen price increases of a lot of money.

Jeff Thomas

Well, let me add a couple of things. One, in many cases we've built in and anticipated fuel surcharge, that's a result of discussions with the airlines and so the price, in many cases, people are paying is built in an assumed fuel surcharge and it's been fairly accurate. In addition, for a significant percentage of our airline tickets, we have created a hedge with some airlines that we've put in place.

I think it's just about a third -- a little under a third -- about 30% of our ticketing. We have worked with certain airlines to create hedges in place so that we've done some prepayments in those cases. So, we've tried to address that problem as best we can, but when we see fuel prices moving 20% in a fairly narrow window of time, it's a fairly unusual environment and we're managing through it by being proactive.

Ken Cassidy - Cassidy Investments

Okay. Thank you.

Operator

Your next question is a follow-up from the line of Mike Roarke. Please proceed.

Mike Roarke - MWR

Hi, Chadwick, just a couple of quick ones. I'm looking at the capital spending, about $1.8 million. Is that kind of a normalized level of what we can expect for the rest of the year?

Chadwick Byrd

No. Actually over 50% of that $1.8 million that you're seeing really relates back to final payments on our new facility, which we moved into in August.

Mike Roarke - MWR

Okay.

Chadwick Byrd

So, we just didn't want to make payments until we had to or until they were contractually due. But on a normalized basis, we're going to be anywhere from 2% to 3% of our gross program receipts will be used as capital expenditures.

Jeff Thomas

And that's obviously on an annualized basis.

Chadwick Byrd

Correct.

Mike Roarke - MWR

2% to 3% annualized for the CapEx of gross?

Chadwick Byrd

That's correct.

Mike Roarke - MWR

Okay. Just another one, if I may. Is there any movement on your part for attracting foreign delegates into the U.S. market? Is there any update on that?

Jeff Thomas

We are continuing to work on the inbound business and we had some good success last year and I think we talked about that. The model is not easily scalable at this point. We are trying a few different things this year to make it more scalable, but as I said, it's more of a longer-term move than a shorter-term one. That's organically, if you will.

We have also tried to make some strategic moves in that area, either through acquisition or various partnerships, which would obviously have a much quicker impact than building it ourselves. But nothing concrete or affirmative to report on that side as of yet.

Mike Roarke - MWR

Okay and then, just as it stands right now, are you capable of providing revenue split for -- just to give us a sense of how small it is --?

Jeff Thomas

I think last fall we talked about the inbound business being less than 5% of our business and with no hope of it being greater than that this year at this point in time either.

Mike Roarke - MWR

Okay, good deal. Thank you.

Jeff Thomas

Thank you.

Chadwick Byrd

Thanks, Mike.

Operator

Your next question is a follow-up from the line of James Bellessa of D.A. Davidson. Please proceed.

James Bellessa - D.A. Davidson

Yes. In the most recent quarter, your depreciation and amortization went down about $100,000 from the fourth quarter level. What caused that?

Chadwick Byrd

I think back a couple of years ago we had some investments in technology and I think you're seeing some of that come off, Jim.

James Bellessa - D.A. Davidson

And so, is this more of a normal run-rate year, that it was posted in the first quarter or -- ?

Chadwick Byrd

That looks appropriate, yes.

James Bellessa - D.A. Davidson

Okay. And then, looking at or in listening to your explanation about how your G&A expenses will be down relative to a year ago starting in the second quarter, is that applicable to also the fourth quarter or was your comment just applicable to the second and third quarter?

Chadwick Byrd

No. Second, third and fourth quarters.

James Bellessa - D.A. Davidson

And fourth quarter, okay. Thank you very much.

Chadwick Byrd

And Jim, just on that one, the fourth quarter being the largest one.

James Bellessa - D.A. Davidson

Meaning?

Chadwick Byrd

The largest decrease.

James Bellessa - D.A. Davidson

The fourth quarter will be the largest decrease in what, Chadwick?

Chadwick Byrd

In G&A costs.

Jeff Thomas

Jim, are you still there?

Chadwick Byrd

Operator, if we have a chance to get Jim back on the call, we'll listen to his last --

Operator

Jim, your line is open.

James Bellessa - D.A. Davidson

Thank you. What causes the fourth quarter to be the largest, I guess, in terms of dollar amount of decline versus the fourth quarter of last year? What causes it to be the one that goes down the most?

Chadwick Byrd

The fourth quarter is usually when we have a lot of our incentive pay coming through. And so for 2008 with the year and the financial results that we're presenting, we see that going down.

James Bellessa - D.A. Davidson

Thank you very much.

Chadwick Byrd

You bet.

Jeff Thomas

At this point, it looks like we'll go ahead and end the call. We appreciate everyone calling in with their questions and we look forward to speaking with you again next quarter and updating you on the summer travel season as it gets underway. Thank you.

Operator

Thank you for your participation in today's conference. This concludes our presentation and you may now disconnect. Have a great day.

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Source: Ambassadors Group Inc. Q1 2008 Earnings Call Transcript
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