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LodgeNet Interactive Corporation (LNET)

Q4 2009 Earnings Call Transcript

February 18, 2010 5:00 pm ET

Executives

Ann Parker - Director of Investor Relations

Scott Petersen - Chairman and Chief Executive Officer

Gary Ritondaro - Senior Vice President and Chief Financial Officer

Analysts

Jim Boyle – Gilfred Securities

Frank McEverly – Craig Hallum

Michael Demaray - Elevated Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the LodgeNet fourth quarter 2009 earnings call. (Operator Instructions)

Now it’s my pleasure to introduce your host, Ann Parker, Director of Investor Relations with LodgeNet.

Ann Parker

Thank you operator. Good day everyone. I'd like to thank all of you for taking the time today to listen to our fourth quarter 2009 conference call. You should have received copies of our earnings release. If not, please call me at 605-988-1000. We'll make sure you do get a copy.

Our speakers for today's call will be Scott Petersen, Chairman and CEO of LodgeNet, and Gary Ritondaro, our Senior Vice President and CFO. Scott and Gary will review our first quarter 2009 earnings and will then welcome your questions and your comments.

This call is being webcast live over the Internet through our company website www.lodgenet.com. We also have slides posted on our website which correspond with today's comments and they can be found under the Investor section.

Before we get started, I'd like to remind you that some topics to be discussed today that do not relate to historical performance may include or constitute forward-looking statements within the meaning of the Federal Securities laws and are subject to risks, uncertainties, and other factors that could cause actual results performance or achievements of the company to be materially different from those expressed or implied by such forward-looking statements.

Certain of the risk factors which could affect the company are set forth in the company's 10-K and other filings.

With that said, I'll now turn the call over to Mr. Scott Petersen.

Scott Petersen

Good afternoon, everyone, and thank you, Ann.

I’d guess I’d summarize the 2009 financial highlights in a very short phrase and that is greater profitability and free cash flow. First we delivered what I believe are very remarkable improvements to our bottom line performance during the year. Operating income was posted at $22 million positive versus a loss of about $5 million in the prior year.

Regarding our net loss, we reduced that to $13 million this year as compared to a $48 million level just one year ago. Then we drove free cash flow. It was up 155% to $65 million. Free cash flow per share on an outstanding share basis just around $2.90 up per share and on a fully converted basis right over $1.72. Then a yield perspective either 55% free cash flow or 50% free cash flow yield depends on how you calculate to look at that.

In addition, we reduced our long-term debt by 20%. We dropped our ratio by 50 basis points during the year. It now stands at 3.68 times on a net basis and that is already below our first quarter covenant requirement.

Economic recovery, we are reworking our business model, changes to that, which are reflected in 15% to 20% lower investment active room that we’re reporting today. We completed the integration through the year, which lowered our operating cost by 20% during 2009. I’d like to spend some more time on this on the call today after Gary’s comments, but we’re seeing some very interesting performance from our high definition systems. They’re performing well and projecting a recovery that is somewhere on the horizon. I certainly believe we have significant upside both from a revenue standpoint and a cash flow perspective as the recovery becomes to materialize to a greater extent.

So with that, I’m going to turn the call over to Gary for some more color on the quarter in the year. Gary?

Gary Ritondaro

Thank you, Scott, and thank you again for joining us this afternoon.

On slide number 3, you’ll see that there’s efforts that we are undergoing about the decrease that we had in entertainment revenue for the year. For the year, revenue from our diversification efforts was up almost $190 million. Overall revenue was down about 9.3 year-over-year. Entertainment was down 18.9% for the year, offset somewhat by nice increases in the hotel services and in other.

If you turn to slide number 4, you'll see again on the pie chart where we graphically show the progress we’ve made with our diversification effort. We are growing our topline revenue from $280 million in 2006 to $485 million in 2009 through a combination of organic growth and the acquisitions that we completed in 2007.

While I’ve said that our business has grown nicely, the important point is that we are becoming a more revenue diversed company. In 2006, 80% of our revenue came from guest entertainment versus 61% in 2009, which means we become less reliant on occupancy rates and guest purchases.

If you turn to slide number five, you’ll see our revenue on a full year basis. Results produced by hotel services, system sales, and related services and advertising and health care offset about 35% of the decline from guest entertainment.

Guest entertainment was down as you can see on the chart by 17.6% and the rate of decline has moderated throughout the year as each quarter of 2009 showed an improvement in the rate of decline compared to the same quarter in 2008.

Read the rest of this transcript for free on seekingalpha.com