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LodgeNet Interactive Corp. (LNET)

Q2 2011 Earnings Call

July 27, 2011 5:00 pm ET


Ann Parker – Director, IR

Scott Petersen – Chairman & CEO

Frank Elsenbast – SVP & CFO


Michael Demaray – Elevated Capital

Sophia Lee [ph] – Morgan Joseph

John Corbett [ph] – Veney Management [ph]



Good day, ladies and gentlemen, and welcome to the Q2 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 follow at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Ann Parker, Director of Investor Relations for LodgeNet Interactive. Ms. Parker, 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 second 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 and Frank Elsenbast, our Senior Vice President and CFO. Scott and Frank will review our second 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 We have also 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. In the second quarter, we continue to make great progress on our strategic initiatives, and our results achieved all of our guidance metrics.

Frank will cover the details of our financial results in a moment, but a couple of financial data points really caught my attention.

First, operating income was up 35%, driven by a 10% reduction in our operating expenses. I think this shows that we’re driving operating efficiencies across our business and being very conservative in how we operate our company during these very interesting times.

And second, if you exclude the extra interest expense we incurred under our interest rate swap agreements, we were net income positive during the quarter. Although swap agreements expired in June 30, some in the third quarter, our interest expenses will be some $4.5 million less, when we posted for the second quarter this year. And I think even more importantly this signals that we are reaching the net income inflection point that we have been driving towards over the past several years.

Profitability is on the horizon in part because of our more efficient operating cost structures, but more importantly is because of the revenue growth we’re beginning to generate from our many strategic initiatives. Under the umbrella of revenue diversification, we’re continuing to see substantial revenue gains from our strategy of selling more services to our hotel customers.

During the quarter, per room revenues from all hospitality revenue sources beyond the sale of entertainment to guest increased nearly 10%. And as a result, our average total revenue per room within our hotel business was almost flat as compared to last year.

And our Healthcare group delivered revenue, which is up 130% over last year, thanks in great part to the installation of our interactive patient system at the prestigious Cedars-Sinai Hospital in Los Angeles, California.

In addition, we’re beginning to realize significant results from the strategic initiatives we launched last year to revitalize our traditional interactive television business.

We announced Envision, our next generation cloud connected television platform in June of 2010. And by June of this year, we had completed the base development and installed a compelling technology platform in key hotels within the Four Seasons, Hilton, Hyatt and Starwood brands. And we’re seeing significantly higher guest engagement and usage with this new system. And today, we just signed a new agreement with Starwood, which I’ll tell you more about in a few minutes.

Also last fall, we reorganized our management team to create our Interactive and Media Networks group to focus on driving greater revenue out of each and every installed room. In June, that team launched what we internally dubbed out VOD 2.0, and we are seeing greater and guest usage in higher Hollywood movie revenue within that base.

Now, before I turn the call over to Frank to walk through the financial details of the quarter, I would like to take a few minutes now to further focus on our new Envision system, our VOD 2.0 initiative, and our newly formed healthcare subsidiary.

If you turn to Slide #3 of the slides that we posted on our website, let’s review the progress we’re making with Envision. As I said, we announced Envision one year ago at HITEC, which is the hotel industry’s annual technology trade show.

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