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OpenTable (NASDAQ:OPEN)

Q2 2012 Earnings Call

August 02, 2012 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

Rohit Kulkarni

Paul Judd Bieber - BofA Merrill Lynch, Research Division

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

Robert Coolbrith - ThinkEquity LLC, Research Division

James T. Dobson - The Benchmark Company, LLC, Research Division

Stephen Ju - Crédit Suisse AG, Research Division

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

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

James Cakmak

Andrew D. Connor - Piper Jaffray Companies, Research Division

Kevin Allen - Barclays Capital, Research Division

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 the Senior Director of Corporate Communications, Tiffany Fox. At this time, I would like to turn the call over to Tiffany. Please go ahead.

Tiffany Fox

Good afternoon. Thank you, and welcome to the OpenTable Earnings Conference Call. Joining me today to talk about our 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

Great. Thank you, Tiffany. And welcome everyone to our conference call. OpenTable had a strong second quarter. Revenue for the quarter totaled $39.6 million, a 15% increase over last year. And in the second quarter, our adjusted EBITDA profit margin was 44% on a consolidated basis, and 52% 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 28 million in the second quarter, a 26% increase over last year and worth noting, approximately 28% of the seated diners in North America in the second quarter originated on a mobile device, either a smartphone or tablet, which compares to 25% in the prior quarter.

To add some additional context to our seated diner growth. During the second quarter, North America industry-diner counts were essentially flat year-over-year.

Turning to our installed base of restaurants in North America. We exited the quarter with 18,373 restaurants, representing an 18% year-over-year increase. This total includes 16,250 restaurants using our core Electronic Reservation Book product or ERB, and 2,123 restaurants using our Connect product, which is designed primarily for walk-in restaurants that accept reservations.

In international, which includes the U.K., Germany and Japan, seated diners grew to 2.2 million in the second quarter, a 39% increase over last year.

Looking at our installed base of international restaurants, we exited the second quarter with 6,664 installed restaurants. This total includes 3,052 ERB restaurants and 3,612 Connect restaurants. Prior to the relaunch of TopTable site, we targeted and successfully migrated the TopTable restaurants that accounted for more than 90% of the TopTable seated diners in the first quarter of 2012.

At the time of the TopTable relaunch in May of 2012, we proactively removed TopTable restaurants from our international installed restaurant base that had not migrated to OpenTable technology. This removal of restaurants from our installed base was an anticipated onetime event and reflects a group of restaurants that accounted for, in aggregate, less than 10% of TopTable seated diners in the first quarter of 2012.

As a comparison, we had 5,670 technology-enabled international restaurants at the end of the first quarter, so Q2 represents an 18% sequential increase of almost 1,000 restaurants.

Before I turn to a broader update on the business, I'd like to say how thrilled we are to have Joseph Essas onboard as our new Chief Technology Officer. As the former CTO of eHarmony and VP of Engineering at Yahoo!, Joseph was -- has deep experience in personalization, search and driving innovation, which make him well suited to help us find new ways to delight our customers and create value.

Now I'd like to provide you with a few updates and comments on trends in the business. The most significant trend is the major shift we are seeing toward mobile devices, specifically smartphones and tablets. The shift to mobile is a long-term positive for us. First, our primary and fastest-growing source of revenue is reservation transactions, which monetize well on mobile devices. Second, we believe that mobile is an ideal fit for our business as it enables us to put our solution in the hands of diners wherever and whenever they are thinking about dining out, which is often not when they're sitting in front of a computer.

And finally, we are really early in the process of optimizing the consumer experience for mobile devices. We do offer our mobile experience virtually on any platform today, but to take full advantage of this shift, we need to approach each platform and even each device as its own unique user experience. The convenience of mobile solutions is also important for our restaurant customers. A recent example of a new mobile product for our restaurant customers is Remote Manager for mobile, which we launched in June. Remote Manager for mobile provides access to the ERB from any browser-enabled mobile device, so restaurateurs can monitor their reservation book, view performance metrics and update guest records from wherever they are.

Another opportunity for us is in the area of personalization. Personalization will play a big role in our future products. We think our data is an incredible asset that we can tap into more deeply in order to provide a richer experience for diners and deliver greater business insights for our restaurant customers, as data encompasses the behavior, the preferences and history of the largest network of diners and reservation-taking restaurants in the world. Joseph's personalization experience at eHarmony is particularly relevant for us. There, among other responsibilities, he led the effort to build a data science team, which leveraged massive amounts of data and machine-learning models to create matches between users, and we both see many parallels to what we can do with our rich data at OpenTable.

A key part of personalization is enhancing your experience by adding a social layer. Some of the best online experiences tend to mirror what happens in the offline world. Many of us turn to our friends for restaurant recommendations, and dining is inherently a social experience. A cornerstone of our new products across platforms and devices will be to embed the social graph data and national behaviors into the dining discovery experience.

For our restaurant customers, data and business intelligence play an equally important role. The size and scope of data available to our customers can become overwhelming and as a result, be underutilized. We have a unique opportunity to package that data in an actionable way. Our recent example of a new product and of this opportunity is OpenTable Restaurant Center, which serves as the platform for providing analytics that help our customers improve guest service and drive their profitability.

Now let's turn to an update on TopTable. We're really excited about where we are in the U.K. We bought TopTable for its leading consumer brand and destination site. Their historical model was heavily focused on promotions, and we saw an opportunity to apply our focus on presenting the best availability at the best restaurants to create a more compelling experience for U.K. diners. We completed a major milestone in May with the transition of TopTable onto a unified technology platform. Now we're in a great position to optimize the consumer experience across each device and drive growth.

We continue to expect that we'll start seeing improvements in U.K. seated diner growth towards the end of this year. It's also exciting that London now represents our largest concentration of local restaurant customers in the world. TopTable is the clear market leader in London with more than 2x the bookable restaurants of any other reservation site. And it's not just the quantity of our restaurants but also the quality. We're proud to enable the online reservations for 80% of the initial and starred restaurants in London.

In addition to some of the product initiatives I discussed earlier, we continue to enhance the experience for both our diners and restaurant customers through complementary partnerships. For example, we've appreciated our long-standing relationship with Zagat, and we're excited about the opportunity to collaborate with Google to help people find and book reservations. We also love that Toyota continues to highlight OpenTable as a key feature of its Entune system, which is available to select -- for select Lexus and Toyota models. And looking ahead, we're excited that Siri will be adding support for OpenTable.

Finally, we're pleased to announce that we've entered into an agreement to acquire Treatful, a company that allows participating restaurants to treat their friends and family with personalized online gift certificates to their favorite restaurants. Treatful has done a great job of taking an offline process and making it more convenient online. And we believe that once we integrate the Treatful technology and service into OpenTable, our diners will love it and our restaurant customers will like the positive impact it has on their business.

In summary, we're in a great position and eager to take advantage of 2 big trends, mobile and personalization, to deliver compelling solutions for our global customers and drive future growth. 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 of 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 $39.6 million, and adjusted EBITDA grew 21% to $17.3 million. GAAP net income was $5.7 million or $0.25 per share. Non-GAAP net income was $9.7 million or $0.42 per share. To provide further insight into our key financial results and metrics, it's important to segment the statistics by geography since we're at different stages of development to our North America and International operations.

First, let's look at North America. North America total revenues grew 18% to $34.5 million, which is made up of 3 main components. North America reservation revenue grew 27% to $19.7 million, which represents 57% of total North America revenue. The primary driver of reservation revenue is the total number of seated diners, which increased 26%. Related to reservation revenue, the revenue per seated diner was $0.70 in Q2.

Moving onto the next component, subscription revenue in North America grew 11% to $12.3 million. The main driver of subscription revenue is the number of installed ERB restaurants, which grew 14% over the prior year. Also, our ERB monthly attrition remained at its historical level of approximately 1%, and the average subscription price was $255. And lastly, the smallest component of revenue disclosed as other revenue declined 4% to $2.5 million.

Turning to our North America expenses. Non-GAAP operating expenses totaled $18.2 million, a 13% increase over the prior year. The main driver was higher headcount-related expenses associated with an 11% increase in headcount. On a sequential basis, our North America non-GAAP operating expenses decreased a fraction of 1% from Q1, primarily driven by the seasonal decline in payroll-related expenses, as well as a delay in spending on professional services, which we now expect to incur in the second half of 2012, both of which were partially offset by an increase in North America headcount-related expenses associated with an increase of 26 employees even before we completed the pending acquisition of Treatful. Our resulting second quarter North America non-GAAP operating income totaled $16.3 million or 47% of revenue. North America adjusted EBITDA totaled $18.1 million or 52% of revenue.

Now let's review the results from our International operations. International revenue for the second quarter totaled $5.1 million and represented 13% of the company's total revenue. International reservation revenue declined 5% to $2.6 million. Subscription revenue grew 13% to $1.7 million, and other revenue declined 1% to $834,000. Related to reservation revenue, the revenue per seated diner was $1.15 in Q2. The decline from $1.38 in Q1 reflects several items, including the shift in our seated diner mix, the rollout of seated diner pricing adjustments in the U.K. and the impact of a new points program for TopTable diners.

Turning to expenses. Our international non-GAAP operating expenses totaled $6.2 million, a 6% increase over the prior year associated with higher general and administrative expenses. On a sequential basis, there was a 9% decrease, primarily driven by a decrease in facilities, insurance and depreciation expense. Our result in Q2 international non-GAAP operating loss totaled $1.1 million. International adjusted EBITDA was a loss of $765,000.

Wrapping up our consolidated Q2 results. Cash and short-term investments totaled $72 million at the end of Q2. On a non-GAAP basis, taxes were $5.4 million, which is an effective rate of 36%, and our quarterly stock-based compensation expense was $5.3 million.

Let me close by turning to guidance for the third quarter and an update on our 2012 full year outlook. Starting with North America, we estimate Q3 revenue to be in the range of $33.9 million to $34.6 million, and non-GAAP adjusted EBITDA to be in the range of $16 million to $17 million. For the full year 2012, we now estimate North America revenue to be in the range of $138 million to $141 million, and non-GAAP adjusted EBITDA to be in the range of $69 million to $72.5 million. North America guidance takes into account the following factors: first, related to reservation revenue, throughout the most recent quarter and continuing through the first 3 weeks of July, the industry-diner counts have been flat compared to a favorable 3% industry growth rate in the prior year. On the subscription side, we've been selling ERB bundles for less than 2 quarters, and it remains too early to predict the long-term impact of the bundle -- that bundles will have on the average subscription price. But over the next couple of quarters, we continue to expect that the average subscription price will range between $250 to $255.

Related to other revenue, we estimate North America other revenue will range between $2.5 million to $3 million per quarter through the remainder of this year.

Turning to guidance for our International operations. We expect Q3 revenue to be in the range of $5.2 million to $5.6 million, and non-GAAP adjusted EBITDA loss to be in the range of $0.6 million to $1 million. For the full year 2012, we estimate international revenue to be in the range of $22 million to $23 million, and non-GAAP adjusted EBITDA loss to be in the range of $2 million to $3 million.

On a consolidated basis, we estimate Q3 non-GAAP EPS to be in the range of $0.34 to $0.38, and for the full year 2012, we now estimate non-GAAP EPS to be in the range of $1.54 to $1.66.

Turning to a few housekeeping items. On a consolidated basis, we estimate that our stock-based compensation expense will be approximately $5.5 million and $5 million in Q3 and Q4, respectively. Diluted weighted average shares outstanding will be approximately 23.5 million shares in Q3 and approximately 23.3 million shares for the year. Amortization of acquired intangibles will be approximately $1 million in each of Q3 and Q4. Since we're currently finalizing the accounting for the acquisition of Treatful, this estimate does not reflect any potential impact on amortization of intangibles expense associated with the acquisition. And finally, our non-GAAP effective tax rate will be approximately 38% on a quarterly basis for the remainder of the year.

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

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mark Mahaney of Citigroup.

Rohit Kulkarni

This is Rohit Kulkarni. I'm filling in for Mark. Can you provide me additional color about strategic rationale behind removing the $1,600 restaurants that you had, not migrating from TopTable to OpenTable technology? And I have a quick follow-up.

Matthew J. Roberts

Yes, so a couple of things. So our objective was to -- when the site went live to have restaurants have automated technology in place, which is what leads to a superior consumer experience. And we said, "Well, we want to get at least the ones that accounted for 90% of the historical seats filled with technology in place prior launch." And I'm really proud of the team that we executed on that, and we got those restaurants technology-enabled factored sort of -- over -- almost 1,000 sequential improvement in the technology from Q1 to Q2. I think we executed exactly on plan to what we wanted to do. The remaining restaurants actually account for less than 10% of the historical volume. And so really you can't have a site that depends on automated realtime availability with a restaurant that doesn't actually have the technology that enables that. So it's less of a strategic decision, it's just a practical reality. But again, got the restaurants that accounted for over 90%, 1,000 sequential improvement quarter-to-quarter on that technology-enabled base.

Rohit Kulkarni

Okay. And a quick follow-up on revenue per seated diners. That'll make -- I believe earlier this year, and especially for international it was -- we were modeling somewhere around $1.25, $1.30. Can you explain the drivers around the revenue per seated diners coming in at $1.15 in Q2 in international?

I. Duncan Robertson

Sure, Rohit. It would primarily reflect 3 items. First, it relates to a shift in our seated diner mix. And then secondly, we'd spoken about the rollout of seated diner pricing adjustments in the U.K. And these have been implemented, really, with the goal of aligning our seated diner fees with the objective of displaying the best availability of the best restaurants, and we had spoken about this a couple of quarters ago. And so now that we have the technology in the restaurants in TopTable, we've reduced the seated diner pricing where necessary to optimize for the realtime online restaurant selection and table availability. And then there was a third part to it, which was the impact of a new points program for TopTable diners, which we launched in May, which was in conjunction with the new site. So when you aggregate those 3 items, that was the result. I think it declined from $1.38 last quarter to $1.15 this quarter.

Operator

Our next question comes from Justin Post of Bank of America.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

This is Paul Bieber for Justin. Similar to the previous question, I was hoping you could just comment on the yield improvement in North America. I think it went from $0.69 to $0.70 sequentially. Now I was just wondering what were the dynamics that drove that improvement, and is that sustainable going forward? And then secondly, can you comment on whether you're seeing any traffic from the Google+ inspiration?

I. Duncan Robertson

So I can take the first question on North America yield, which increased $0.01 to $0.70. That penny was associated in -- associated with a mix in -- a mix-shift in covers really attributed to 1,000-point program in North America and as you know, the 1,000-point covers well the absolute and small number given the $7.50 price point that the yield is obviously highly sensitive to small changes in mix. And in Q2, we saw this makeshift that contributed the extra penny from $0.69 to $0.70.

Matthew J. Roberts

And I'll follow up on the Google and Zagat relationship. We -- like I mentioned earlier, we appreciated the long-standing relationship we've had with Zagat, and we're definitely excited about the opportunity to collaborate with Google to help people find and book reservations. We don't really have any other additional details to provide today. But again excited about the relationship.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Okay. Just one quick follow-up. Can you just comment on the how based the ERB system that you mentioned last quarter? What is the -- I believe you may have said that you're in beta testing for last quarter.

Matthew J. Roberts

No, sorry. What we said is that we would -- we're looking to pilot that by the end of the year. That's what we talked about in the last quarter and that's still the case.

Operator

Our next question comes from Aaron Kessler of Raymond James.

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

Two questions. First, can you -- last quarter you talked about some of the conversion initiatives that you're going to be working on. Can you give us maybe an update on that or is that too early? So also I just mean -- in terms of our survey, we did a survey in the quarter which showed about 50% of people actually had not even heard of OpenTable, which is surprising, but given that, any plans to maybe increase marketing efforts? I know hopefully Apple relationship and Google will help, just general thoughts maybe increasing brand awareness.

Matthew J. Roberts

Sure. So on conversion what we talked about last time is that when we completed our transition and launch -- relaunch of TopTable, it'd be great because we're going to have these development resources that'll get freed up so we can reallocate towards other things that will manifest itself and improve conversion over time. So I would call it too early since we just launched the relaunch in May to kind of talk through changes there. But it remains a hyper focus for us and a big, big opportunity for us as we move forward. If you -- the other part of the question was around brand awareness. And I like your survey. It's -- I don't know the methodology, but I like the survey because that just spells opportunity for growth for us going forward. The overall awareness on our historical approach to brand awareness has been word-of-mouth and people just enjoying the service and talking about it with their friends or passing it along, and telling them this is a great service to use. We have not done other than really, really early in our history a lot of brand campaigns. Totally open to it. May look to do something like that in markets that we are more heavily penetrated in, and our selection and service is just really well developed. It could make a lot of sense but nothing specific for us to announce at this point.

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

Great. And I -- last question, I might have missed it. But the -- do you have organic growth adds for international restaurants or what you lost because of TopTable?

Matthew J. Roberts

Organic, the closest I think I can view for you on that is on the international side is the flux that I provided, which is if you look at an apples-to-apples last quarter, we had, I believe 56, 70 restaurants that had technology in place and now we're at 6,664 restaurants that have technology in place. And so that's really the flux of our installed -- sorry, apples-to-apples flux.

Operator

Our next question comes from Robert Coolbrith of ThinkEquity.

Robert Coolbrith - ThinkEquity LLC, Research Division

A few questions. First of all, in the North American restaurant additions for the quarter, we, like many others on the sell side track those additions, just wondering, it seems like in June, New York was light. Just wondering if you could maybe provide a little bit of detail on anything that might have happened there, was it an issue with sales force productivity or restaurants going out of business? So just any detail you might provide on that. And then I have a couple of follow-ups.

Matthew J. Roberts

Yes, we talked through our base in holistics. So we were there rather than Metro by Metro. So nothing to talk through specifically in New York. There's no New York issue or New York problem. We continue to have great momentum in all the cities that we're selling in. So nothing to call out to you, specifically on New York.

Robert Coolbrith - ThinkEquity LLC, Research Division

Okay, fair enough. Then on the iOS 6 or the Siri integration, and more generally about mobile, I'm wondering if you could maybe give us a snapshot update on a few things, maybe if you could tell us the percentage of the mobile seated diners that are coming from iOS versus other platforms currently, or maybe a snapshot where you're thinking about the current number of iOS installs, just so we could think about the potential on that Siri integration, which looks pretty interesting. And also is there a revenue share with Apple as there is with many of your other partners?

Matthew J. Roberts

Yes, we're excited that Siri will be adding support for OpenTable, but we don't have any additional details, and we really are not in a position to disclose terms of our partnership agreements. The mix of the mobile device sort of originated traffic. We also don't provide that mix in granularity. Obviously Apple and -- as is everywhere, an important component of that mix.

Robert Coolbrith - ThinkEquity LLC, Research Division

Okay. Let me just try 1 more that you might be able to answer, sorry. On TopTable, just wondering with the new integrations, special offer's still part of that along with the bonus points program? I'm just wondering in terms of the revenue per seated diner, are restaurants paying more when they're featuring a special offer, or how should we think about that alongside the bonus point program or 1,000-point program?

Matthew J. Roberts

Sure. The TopTable has really 2 offers -- programs that we have going on TopTable. One is more of a fixed fee amount, a monthly fixed fee amount to run a promotion, in which case that -- the seats fill by virtue of having that offer out there. There's no differential in price to the normal network price. The other program that we have is, and we just launched with the relaunch, is very equivalent to our 1,000-points program in the U.S. And in which case there is no fixed monthly fee but there's a per unit -- a premium per unit associated with that.

Operator

Our next question comes from James Dobson of Benchmark.

James T. Dobson - The Benchmark Company, LLC, Research Division

Internationally, the ERB, the Connect penetration is much lower than domestic. So I'm wondering how much of an advantage is it to sort of the OpenTable ecosystem to have more ERB restaurants than Connect? And does pricing internationally favor sort of restaurants choose sign up for ERB sort of going forward?

Matthew J. Roberts

Sure. The part of the mix of ERB to Connect in that 6,664 restaurants at the end of second quarter is largely a function of the fact that strategically we wanted to get the new TopTable site launched as fast as possible. And that the easiest technology to put in place was and is often Connect versus a full ERB solution. We are now going back to restaurants where we started with Connect and looking -- where appropriate, looking to put our full ERB solution in place. And we'll -- and we will do that, and we actually had conversations going with restaurants where they really want an ERB but in the interim, to be able to be on the site at relaunch, went live with Connect. So I don't think the current mix of Connect versus ERB internationally is reflective of what we think it will be longer-term. It's really a transitionary stage right now for us.

James T. Dobson - The Benchmark Company, LLC, Research Division

And is it more advantageous to OpenTable and to consumers to have more restaurants on ERB than Connect, and I guess sort of financially also?

Matthew J. Roberts

Yes, well, there's a couple things. The ERB has a subscription fee associated with it and Connect doesn't. But the real value is really dependent on the restaurant. And if it's a restaurant that is mostly run off of reservations and has a need for deep integration and understanding of their guest management services to be able to do guest marketing, table management, all the risk reporting and functionality that's inherent in our ERB solution, well, then that's the best fit for the restaurant. It also happens to have a subscription fee, which is great from an OpenTable perspective, but it's the right solution for the restaurant. From a diner's perspective, if you go on OpenTable or TopTable, you want actually see a difference between the 2, unless there's an allocation differential, meaning that the Connect restaurant doesn't allocate their full availability. So all things being equal, I think that the realtime availability across all times shines through better with an ERB solution than with Connect, but it's very restaurant-specific.

James T. Dobson - The Benchmark Company, LLC, Research Division

Okay, great. And my final question is now that TopTable integration is complete, how should we think about sort of restaurant adds going forward? Obviously you said you're going to try to focus on transitioning some Connect to ERB, what about sort of new restaurant additions in general?

Matthew J. Roberts

Yes. So one of the things that we talked about on the call too, which is interesting to note is that now London actually is our absolute largest concentration of local restaurants anywhere in the world. Our -- before that, it was New York City. So we have -- and high quality with 80% of the initial and starred restaurants presented to diners in London now. So we have a great selection of restaurants, and we're making it better every single day. We can't talk about customers that we haven't signed yet, but there's some really interesting ones in the pipeline that'll come out here soon. So what we're focused on is adding the best availability at the best restaurant each and every day and look forward to continuing to grow the base, an already large base, to get that even more compelling from a user perspective going forward.

Operator

Our next question comes from Stephen Ju of Crédit Suisse.

Stephen Ju - Crédit Suisse AG, Research Division

So for the London market, is there a way you can characterize where you are in terms of penetration of reservation-taking restaurants, as well as your share of total seated diners in the way you outlined in your presentation in that -- the area? And second, for international pricing, do you expect any further price compression for seated diners as you come off the last of the old TopTable pricing, or was it all about pretty much gone and taken care of in the adjustments you talked about earlier? And I have one more.

Matthew J. Roberts

Sure. I'll talk about the -- sorry, give me your first part again.

Stephen Ju - Crédit Suisse AG, Research Division

Well, can you characterize the state of the London market and draw comparisons to what you have in your presentation that particular area. Yes.

Matthew J. Roberts

Got it. Sorry about that. So the -- we haven't done -- our typical presentation shows San Francisco versus North America. We haven't done the same thing for London. We'll look to pull that data together. I think it's a really interesting and meaningful data point for investors relative to the international markets. So we'll look to pull that together. I think what you'll see is that as evidenced by it's our single largest city now, that we have a really healthy percentage of the restaurants. But what you'd see is that our diner's -- seated diner penetration is not anywhere near the penetration that we're seeing in other more similarly developed U.S. markets. And there's a very clear answer for that, which is up until May, diners didn't have access to realtime availability at all these restaurants. And now they do and will continue to make the experience better and better for them, and our expectation would be that diners in London want the same ease and convenience as any major city across the world. So we look to see that growth over time.

I. Duncan Robertson

And, Stephen, on your question related to international seated diners, which was $1.15 in Q2, I mean obviously on an FX-neutral basis, I think that's important to recognize because many people have been talking about the weakness in Europe and the U.K., and we'd seen slight weakness in the currency in the current quarter. So all of my comments obviously assuming FX-neutral, the 3 items that drove the mix in Q2, which was the mix of seated diners, the new pricing adjustments and the new points program, don't lead us to think that there's going to be any significant change going forward. But because, obviously, we're still less than a couple of quarters in through the relaunch of TopTable and are still monitoring the adoption and the appreciation of the new points program and some of the other things that I've spoken about. It's -- I would say, it's still reasonably early to say where that's going to go, but I think the $1.15 is a reasonable proxy for the next couple of quarters.

Stephen Ju - Crédit Suisse AG, Research Division

Okay. And going back to the Apple question again, have you done any studies to see whether iPhone users will favor using your app versus Siri to search for restaurants in the area?

Matthew J. Roberts

So we're excited that Siri will be adding support for OpenTable, albeit the -- really, any other details around the relationship, we don't have anything to share today. I think that the mobile -- if you look at mobile holistically and as is evidenced by my comments, it's a huge opportunity for us as a total category, smartphones and tablets, and we see tremendous growth there. And because our product and service monetizes so well on mobile, and people are out and about and that's when they're thinking about going to eat often, I think it just continues to represent a significant opportunity for us.

Operator

Our next question comes from Jason Helfstein of Oppenheimer.

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

I apologize if any of this was addressed, multi-tasking on 4 calls. So Matt, can you just update on kind of where we are with mobile? I think one of the things that you haven't talked about in the past was the desire to get more update and to -- just to continue to improve functionality and that would be a focus after TopTable. And then talk about what, if any, the impact of your recent CTO hire, and if that would change any type of strategy or spending initiative?

Matthew J. Roberts

Sure. Some of the things we talked about -- I'll start at the high-level. If you look at our total seats filled in North America, 28% last quarter started where people were on -- using a smartphone or a tablet. So it's a huge part of our business, and it's going to be, we believe, the majority of the way people interact with our service and take advantage of the convenience of online bookings going forward. To take advantage of this, we really do have to take a clean slate to each platform and each mobile device and make sure that we have the optimized solution in place. We are early, I say, even though we have products out there for all platforms in most devices, almost all devices. We still are early, which I think just represents opportunity as we go forward. Joseph's experience at eHarmony leveraging data, leveraging -- figuring out how to take all the information that you gathered and use it to create a very compelling user experience that gets modified and tweaked over time to be responsive to changes in trends and devices, et cetera, is very, very relevant for us, and we're looking forward to seeing his impact working with our incredibly talented development team to put some new mobile products out there, and I look forward to launching those and having you take a look.

Operator

Our next question comes from Heath Terry of Goldman Sachs.

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

I was wondering -- we've seen about 300 basis points of margin expansion over the course of the first half of this year on a year-over-year basis. It's come largely from lower tax spending as a percentage of revenue. To what extent is Joseph going to be -- going to have the budget to rebuild, basically, the engineering organization there? And do you have a sense yet of what his initial priorities are going to be in the role?

Matthew J. Roberts

Sure, a couple things. One, if you look at the last couple of quarters, we had a couple quarters where our headcount and the technology team had declined slightly. In the current quarter, in the second quarter, we actually increased our technology still in light of a very competitive hiring environment. So I like that we made some great progress in the second quarter and -- sorry, towards the end of the second quarter but in the second quarter and started to build back up the tech team. Relative to Joseph's budget, if you will, you've got a big budget. He has an opportunity to go. He knows, and is very excited about the opportunities that we have to grow the business, has a pretty clear vision working with the team on how to execute against that. And both Duncan and I stand ready to provide the support in both financial and headcount or even whatever other things that he can up with in order to help move the needle on our product development.

Operator

Our next question comes from James Cakmak of Telsey Advisory Group.

James Cakmak

For North America, you discussed having a social layer to your services, can you provide some more detail on what type of services the customer may experience on the personalization side as you roll those out? And then you acquired Treat Technologies, how are you guys thinking about offering adjacent services, and to what extent you can offer them to deepen the relationships on a per diner basis? And then for international, the seated diners were roughly flat with Q1. I know we don't have much data on TopTable yet, but with the realtime rollout, can you provide any color on how it's been tracking since the realtime has been rolled out in June or maybe to date?

Matthew J. Roberts

Sure. So let's start with the social layer and what does that look like. We're still in the process of creating the flows and understanding what the product features would look like. And as I mentioned earlier in the call, we're taking a clean-slate approach to our mobile products, smartphones and tablets. So it's hard to articulate specific features and locations of those features in the flow given that context. But just really at a high-level, if you step back and think about what happens offline, is when you want to figure out where to go to eat, you often ask your friends. And when you've gone to a really great restaurant, you like to share that information with your friends. So it's really a natural extension of what you would do anyway and figuring out a way to embed that in a very seamless, frictionless way within our products. And so that's probably the best I can do to help you understand where our head's at without sort of articulating this feature is going to be in place by x date. As far as Treatful goes, it's just a fantastic complementary product for us, and it makes sense because it's a pain point for many diners. I don't know if you -- if you tried to get a gift certificate for somebody's birthday, and you call up a restaurant that's one of our restaurants, and you'll often get a form faxed to you or you have to wait until the other person comes in, in the morning so that you can give your credit card. It's just not easy. And that's not helpful at all for restaurants, because effectively what they're doing is pre-selling revenue and so -- and accelerating their cash flow. So here's a great opportunity for us to add a lot of value to our restaurant customers, while alleviating a pain point for diners that we probably all experience. So that's -- we'll always look for and will continue to look for similar complementary services to add into the mix wherever we see them, and Treatful just happened to be an example of that. And the last part of your question was around TopTable. We talked about how it's -- earlier last call, and a few calls now, about the first step would be to get the restaurants technology-enabled, we did a great job on that, and to get the platform in place, also sort of check the box, successful. Now what we need to do is -- and we always said that those will be the prerequisites and that we would expect, and we continue to expect, that we'll experience a seated diner growth in the U.K. by year end as a by-product of getting those 2 pieces in place and optimizing the consumer experience. And we still feel very confident that, that'll be the case.

James Cakmak

Okay, got it. I guess the one thing I was just trying to draw out, has the needle moved at all over the last 2 months -- 2.5 months since you launched the realtime solution?

Matthew J. Roberts

Yes, we would have expected for us to put in technology in and of itself and that in and of itself would drive the growth, which is why we had consistently said that you'd see -- that we had expected to see the growth by the end of the year.

Operator

Our next question comes from Mike Olson of Piper Jaffray.

Andrew D. Connor - Piper Jaffray Companies, Research Division

This is Andrew Connor in for Mike. One follow-up on Heath's question in terms of the product development going forward. You've given EBITDA guidance for 2012 I think the midpoint is 42.5% margin. But looking beyond December, I'm just curious if there's discussion internally around the need to begin a new investment cycle around product, and anything that would really meaningfully change the margin structure beyond what you guys have talked about with 2012. And then I have a follow-up.

Matthew J. Roberts

Yes, we haven't talked anything past 2012 at this point. I think it still goes back to the answer that I provided, which is what we're committed to sort of item 1, 2 and 3 is growth and driving growth and realizing the significant opportunity that we have in front of us, and we're not near-term optimizing for having the margins that we have. We just have a fantastic business model that had tons of operating leverage. And when you have a business model as great as ours, then you're going to have great operating margins as well. So it really is about Joseph's assessment working with the team about what he needs to be successful. And I mentioned earlier that both Duncan and I stand at the ready to support him in adding the resources he needs.

Andrew D. Connor - Piper Jaffray Companies, Research Division

Okay, great. And then I just have a quick industry question. In terms of what is really driving that flat industry diner growth that you talked about, just curious if you're seeing that as a result of more of structural issues with the industry, specifically the success of casual concepts versus maybe more cyclical issues like unemployment?

Matthew J. Roberts

Great question. I have no idea. I think what we see is visibility into the overall seats filled at our restaurants, which why we're uniquely positioned to provide feedback on the reservation-taking restaurant industry because nobody else captures the data at as much breadth as we do and depth as we do. What we can answer is some of the double click questions that you asked, which is why other than we can just observe and report the trends.

Operator

Our next question comes from Kevin Allen of Barclays.

Kevin Allen - Barclays Capital, Research Division

Just a quick one for you. You talked about the potential for continued tech and development headcount additions. Are there any other areas where you would expect to potentially add more aggressively over the next couple of quarters?

I. Duncan Robertson

I mean, I think the number one focus, as Matt said, will continue to be around the technology side of the business with Joseph having joined recently. So I -- when you look at the headcount add on our sales side, we actually had a pretty nice increase in sales headcount in the current quarter, so there's no specific need to -- or near-term need to add there. So I would say tech's probably the #1 area that we'll continue to focus on but not necessarily, reiterate what Matt said, there's not necessarily an immediate requirement to invest more than we've already said is in the plans for that.

Matthew J. Roberts

The only thing I would -- the only add I'd have is on the sales side is that we're -- Mike Dodson really has an open hire on sales team. So he finds a rock star salesperson, he has an open hire. He knows that, that's a really good investment for the business, to grow the business. And so that's really the -- what he's operated on for a long period of time.

Operator

At this time, I'd like to turn the call back over to our moderators for any closing remarks.

Matthew J. Roberts

Great. Well, thanks, everyone, for joining us on the call. Appreciate the interest and the questions, and look forward to talking with you on the next call. Take care.

Operator

Ladies and gentlemen, that does conclude your program. Thank you for your participation, and have a wonderful day. You may disconnect your lines at this time.

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