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LodgeNet Interactive Corp. (LNET)

Q1 2011 Earnings Call

April 20, 2011 5:00 pm ET

Executives

Ann Parker – Director, Investor Relations and Corporate Communication

Scott C. Petersen – Chairman and Chief Executive Officer

Frank P. Elsenbast – Senior Vice President and Chief Financial Officer

Analysts

James Boyle – Gilford Securities

David Kestenbaum – Morgan Joseph

Presentation

Operator

Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the Q1 2011 Earnings 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 is being recorded.

I would now like to turn the call over to your host the 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 2011 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 Interactive and Frank Elsenbast, our Senior VP and CFO. Scott and Frank will review our first quarter 2011 earnings and we’ll then welcome your questions and your comments.

This call is being webcast live over the internet through our company website www.lodgenet.com. We have also posted slides 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 C. Petersen

Thank you, Ann, and good afternoon, everyone. Appreciate you’re joining us today. We were very pleased with our first quarter performance as we achieved our financial guidance and continued our strategic focus on strengthening our balance sheet and driving per-room revenue growth within our strategic initiatives.

The highlights of the quarter are contained on slide two; on the deck we posted on our website. As you can see, during the quarter our diversified hospitality revenue initiatives again generated nearly 8% greater revenue per room than the prior year period. We had particularly strong revenue and cash flow growth from our Hotel Services, Advertising Services and System Sales, and gross margins expanded across all of our product lines.

Overall, diversified revenues now represent 45% of our total revenue, and that’s more than double their revenue contribution percentage versus 2006 when we kicked off these initiatives.

We also successfully launched our Envision interactive system during the quarter. Envision is our new cloud-connected, high-def interactive TV platform. We installed our first Envision system at the 1100-room Hyatt Regency O'Hare property with great success. And I’ll tell you more about Envision after we discuss this quarter’s numbers. But we are clearly looking to Envision to drive our HD penetration and increase our per-room revenues.

Additionally, during the quarter we continued strengthen our balance sheet. Our leverage ratio continued to improve; it’s now down to 3.31 times on a net debt basis. And during the quarter, we also amended our credit facility, which increased our covenant to four times, so we gain more operating cushion as a result, but really more importantly we gain significant greater ability to invest in the growth of our business. And lastly, during the quarter we generated a 47% improvement in our per share performance with our net loss per common share dropping down to only $0.09.

So with that at this time I’m going to turn the call over to Frank Elsenbast, our CFO for some further comment and color, Frank?

Frank P. Elsenbast

Thank you, Scott, and good afternoon. I will take a few minutes to provide a review of our financial results for the first quarter as well as a recap of our credit facility amendment, which was completed during the first quarter. I will be referring to slides that were released this afternoon along with our earning release.

As an overview of the quarter, the company saw a continued progress in our revenue diversification efforts as sales from these initiatives grew to 45% of total revenue and improved 7.6% on a revenue per room basis, while Guest Entertainment declined versus last year.

Operating margins improved as gross margins and operating expenses both showed improvement versus prior year due to our continued focus on cost control. We will continue to manage the business accordingly as we further diversify our revenue base and transition our Guest Entertainment base to high definition systems.

Our results for the first quarter met our financial guidance for revenue, adjusted operating cash flow, and earnings per share. During the quarter, we also amended our credit facility, which will provide additional flexibility as we accelerate our investment in the rollout of our high-definition platform and the launch of our Envision interactive applications.

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