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LodgeNet Interactive Corporation (LNET)

Q1 2010 Earnings Call

April 22, 2010 5:00 pm ET

Executives

Ann Parker – Director, IR

Scott Petersen - Chairman and Chief Executive Officer

Gary Ritondaro - Senior Vice President and Chief Financial Officer

Analysts

Frank McEverly – Craig Hallum

Jim Boyle – Gilfred Securities

David Kestenbaum – Morgan Joseph

Presentation

Operator

Good day ladies and gentlemen and welcome to the LodgeNet’s first quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions) As a reminder this conference call may be recorded.

I would now like to hand the conference over to your host, Director of Investor Relations Ms. Ann Parker. Ma'am, you may begin.

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 first quarter 2010 conference call. You should have received copies of our earnings release. If not please call at 605-988-1000 and 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. Also joining us is Frank Elsenbast, who will be assuming the role of LodgeNet’s CFO upon Gary’s retirement.

Scott and Gary will review our first quarter 2010 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

Thank you, Ann and good afternoon everyone. As usual, I would like to first give you some high level thoughts regarding the first quarter and then turn the call over to Gary Ritondaro for some comments on some of the details behind the numbers.

Simply stated, I think our first quarter results were solid and certainly within our guidance for the quarter. Our revenue diversification initiatives continued to move forward. We have produced greater revenue from both hotel and advertising services as well as our developing healthcare business during the quarter. We maintain the conservative operating cost structure and capital investment levels that we established in early 2009 in order to proactively manage the business through this challenging recession. And as a result, we generated $23.5 million of free cash flow during the quarter and for the first half of this year we continue to expect that we will generate somewhere between $33 million and $35 million in total.

In the quarter, we continued to strengthen our balance sheet as we have in the past. Our leverage ratio is now at 3.51 times on a net debt basis and that especially means that we are already at the lowest covenant level required under our credit facility. And lastly, during the quarter, I think we positioned our company to accelerate our transition to high definition systems during the second half of this year with the growth capital that we raised in mid march and I will talk a little bit more about that after Gary’s comments.

So, with that, Gary?

Gary Ritondaro

Thank you, Scott. Beginning on slide number three, you will see that our total revenues for the quarter was $118 million, which was again as Scott mentioned within our first quarter guidance range. Compared to last year’s first quarter, our revenues decreased about 7.8%. However, our revenue growth initiatives accounted for 41% of our revenue during the quarter and we saw a nice increases in revenue from hotel services, advertising services and healthcare.

Guest entertainment continues to be impacted by the economy and somewhat we believe by the bad weather that we experienced in January and February, which disrupted travel during this period. On the other hand, we experienced a very solid March. As a result, guest entertainment was lower this year compared to last by about 9.7%, a portion of the decrease is due to having fewer rooms in this quarter compared to last year. However the rooms, as that we have talked about, we removed from service are generally rooms that we do not meet our revenue criteria and therefore we would not be upgraded to HD systems using our capital.

On a positive note, we saw 3% to 4% improvement in occupancy rates period-to-period, again mainly concentrated in March because of the weather. Another factor impacting the comparison of revenue period-over-period was the $4 million contract within our professional services area with a major program provider during the first quarter of 2009. This service was performed to upgrade four HD channels for this customer and accounted for about 40% of our revenue decline, again period-over-period.

If you look on slide number four, we show our total revenue per room. Total revenue per room for the services we provide for the hospitality market including advertising services was $21.71, down about 4% compared to last year. Guest entertainment was impacted as I mentioned by the disruption in travel during the first part of the quarter and by the continuation of conservative consumer buying pattern.

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