The Dark Clouds Roll In

Well, the Coach talks a good talk, but he seems to have difficulty on the walk. I listened to a conference call a few weeks ago and he was whooping it up about the 2nd Quarter Results. He was so excited because they were "so good" that he was going to release them early and just before the convention. Well, Jerry Brown stole his thunder there I suppose.

Well, they are out and it appears, either he can't walk the walk, or does not realize that parentheses on a balance sheet are not good. Dashes mean negative, and red is not a good color!  Here are some initial highlights and key figures:

• The bottom line is YTB lost $199,577 in the 2nd quarter which increased its year to date loss to just shy of $4 million. It is interesting to note that this time last year, the report showed an income of $1.6 million for the quarter and only a $505K loss for the year to date.  Seems like YTB is sliding to me.
• Travel sales are WAY off.  Year to date they have paid out $14.1M in commissions. That will put them near $28.2M for the year.   At an overall 10% commission that places sales in the neighborhood of $282M.  Seems a long shot from the $411M they claimed to Travel Weekly. ANd certainly not on the way to a BILLION dollars for 2006 2007 2008.  $282M puts them in the mid 30s spot on Travel Weekly, but my guess is that they slide much further (while others grow) if they make it at all.
  
• This year they have cash on hand of $632K and last year there was over $1 million.
• They disclosed that an acquisition did not go through. This is apparently the highly touted American Destinations Inc. acquisition--could I have been correct? (Caution, this is THE post, hide your children and protect their eyes the photo is still there!)
  
• Also as expected, the RTAs are leaving at a record pace. This quarter, they sold 23,296 sites (last year they sold 34, 309 so recruiting is off 32%). But 30,638 quit. So for every new site sold, 3/4 of a site left.  And on a six month basis, they are still losing more than they are selling. But, this was already predicted and expected back in May.
  
• Canada appears to be a complete bust and represents only 3% of their income and interestingly enough, Bermuda and the Bahamas are not reported at all. I wonder if they produced ANY revenue?
• The number of RTAs has only increased 30% year over year, yet the administrative expenses (salaries, etc.) have increased  100% from $13M to $26M. Seems the overhead may end up killing them.
• And of course, there is absolutely no surprise where YTB makes their money. For the quarter, in first place is website rental and sign up fees at 74.5%, in a very distant second place is income from travel at 19.7%, and bringing up the rear is training materials at 5.1%. I will say that it is slightly better than last quarter as their 6 month picture is 76.9%, 16.2%, and 6.9% respectively. Not sure those numbers will be enough to convince Jerry Brown et al, but it may be worth a try.
  

And let's keep in mind that these reflect only through June 30, 2008. They do not take into account any of the issues surrounding the recent events from California, Illinois and the Class Action suit. Nor does it include the expense of the foam prop. Speaking of which, it is strange how it has all of a sudden been devalued from $8M to $1.8M. Some things make you go "Hmmmm."

I did notice that YTB included some deferred revenue in the filing to indicate sales made that have not been paid commission. If they are accurate in this number and it is only for unpaid commissions, the sales are even further off the mark. On Page 6 it shows the "Deferred Revenue" as defined on Page 9 to be $2.6 Million. This does not seem to be a large number. That shows that each RTA has commissions owed (at some point) of about $12.

I imagine that the steady decline of RTAs in the last three quarters will only increase exponentially in the 3rd quarter. I cannot imagine how people can sell the program with the black cloud of $125M in lawsuits hanging overhead and the probability of several more.

All in all, seems like the ship is sinking and I wonder what this dismal report will do the the stock that has already taken a HUGE hit over the last week.