PRNewswire-FirstCall SIOUX FALLS, S.D. Oct. 16 :
LodgeNet Entertainment Corporation , celebrating 10 years as a publicly
traded company, today reported its 40th consecutive increase of
comparative quarterly revenue. LodgeNet also reported $7.0 million in free
cash flow for the third quarter. Revenue in the third quarter of 2003
increased 6.5% to $67.8 million in comparison to the third quarter of
2002. Operating income was $3.7 million in the third quarter this year
versus $3.2 million a year earlier. Net loss in the third quarter of 2003
was $(5.4) million versus $(5.5) million in the third quarter of 2002.
“LodgeNet delivered on its pledge to generate free cash flow in the third
quarter of 2003, as we produced $7.0 million of free cash flow after all
growth-related investment activities,” said Scott C. Petersen, President
and CEO. “At the same time, we continued to expand our room base and
increase our digital platform penetration based on our long-term growth
objectives. During the quarter, our digital base increased by 33,000
rooms. We also set third quarter records for revenue, gross profit, and
operating income, despite occupancy rates that were basically flat
compared to the third quarter of 2002.”
“We are executing on our business plan and successfully leveraging our
operating footprint,” said Gary H. Ritondaro, Senior Vice President and
CFO. “For the quarter, average revenue per Guest Pay room was up 1.9%
while operating costs were down 4.8% on a per-room basis over last year.
In addition, our average capital investment per new room decreased to $396
based on the design configuration of our new digital SigNETureTV(SM)
system, a decrease of 11% from the end of 2002.”
“As we continue to drive operating efficiencies and maximize the cash
generation capabilities of our business model, we are also strategically
expanding our industry-leading room base,” added Petersen. “We are seeing
strong demand for our digital systems from hoteliers and travelers, and
have increased our digital room base over the past two and one-half years
to almost 40% of total Guest Pay rooms served. As we`ve stated before,
seasonality factors will cause fourth quarter cash flow to be negative;
however, we remain on track to deliver on our goal of being net free cash
flow neutral after all growth expenditures for the second half of 2003
taken as a whole.”
Total revenue for the third quarter of 2003 was $67.8 million, an increase
of $4.1 million, or 6.5%, compared to third quarter of 2002. Revenue from
Guest Pay interactive services increased $4.9 million, or 8.0%, resulting
from a 6.0% increase in average rooms in operation. Revenue per Guest Pay
room increased 1.9% to $24.42 per month in the third quarter of 2003 from
$23.97 per month in the third quarter of 2002. Movie revenue per room
increased from $18.98 to $18.99. Revenue per room from other interactive
services increased 8.8%, from $4.99 per month in the third quarter of 2002
to $5.43 in the current year quarter. This increase was driven by the
continued expansion of revenue from TV Internet, TV On-Demand, digital
music, cable television programming, and other interactive TV services
available through the digital system. The digital platform was deployed in
another 130,000 rooms as compared to the third quarter of 2002.
Gross profit increased 2.2% to $36.7 million in the third quarter of 2003
compared to $35.9 million in the third quarter of 2002. The overall gross
profit margin decreased to 54.1% in the current quarter compared to 56.4%
in the prior year quarter. Over half of the decrease was attributable to
increased programming costs due to changes in the product mix. The balance
of the decline was split between higher hotel commissions directly related
to the Company`s “pay for performance” program and to lower margins
realized on the Company`s TV Internet service.
Guest Pay operations expenses were $8.1 million in the third quarter of
2003, an increase of 4.9% compared to the year earlier quarter. The
increase was primarily due to the 6.0% increase in average rooms in
operation, offset by continued operating improvements and efficiencies. As
a percentage of revenue, Guest Pay operations expenses decreased to 11.9%
in the third quarter of 2003 compared to 12.1% in the year earlier period.
Per average installed room, Guest Pay operations expenses decreased to
$2.98 per month in the third quarter of 2003 compared to $3.01 per month
in the prior year quarter.
Selling, general and administrative expenses decreased by $272,000, from
$5.7 million in the third quarter of 2002 to $5.4 million in the third
quarter of 2003. As a percentage of revenue, SG&A decreased to 8.0%
compared to 9.0% for the third quarter of 2002. Per average Guest Pay
room, SG&A expenses decreased to $2.01 per month in the third quarter of
2003 compared to $2.23 per month in the prior year quarter. The decrease
was primarily due to reductions in professional fees partially offset by
increases in payroll- related expenses.
Depreciation and amortization expenses increased 1.1% to $19.4 million in
the current year quarter versus $19.2 million in the third quarter of
2002. The increase was due to the 6.0% increase in average rooms in
operation and the amortization of intangibles and distribution rights
acquired in August 2002 offset to a significant degree by fully
depreciated assets. As a percentage of revenue, depreciation and
amortization decreased from 30.2% in the third quarter of 2002 to 28.7% in
the third quarter of 2003.
As a result of factors previously described, the Company generated
operating income of $3.7 million in the third quarter of 2003, an increase
of 14.5%, or $466,000, compared to operating income of $3.2 million in the
year earlier quarter. Operating income exclusive of depreciation and
amortization was $23.1 million this year compared to $22.5 million in the
third quarter of 2002.
Interest expense increased 6.0% to $8.7 million versus $8.3 million in the
third quarter of 2002. The average principal amount of long-term debt
outstanding during the third quarter was approximately $368 million, at an
average interest rate of approximately 9.5%, as compared to an average
principal amount outstanding of approximately $346 million, at an average
interest rate of approximately 9.6% in the prior-year quarter.
The Company`s net loss was $(5.4) million as compared to $(5.5) million in
the year earlier quarter.
Net cash provided by Operating Activities for the third quarter was $20.0
million while net cash used for investing activities including growth
capital was $13.0 million, resulting in free cash flow of $7.0 million.
Growth capital for new Guest Pay rooms for the quarter was $6.9 million.
For the third quarter of 2002, net cash provided by Operating Activities
was $20.8 million while net cash used for investing activities including
growth capital was $19.8 million, resulting in free cash flow of $1.0
million. Growth capital for new Guest Pay rooms for that quarter was $9.0
With regard to financial results for the fourth quarter of 2003, LodgeNet
expects to report revenue of between $61.5 million and $64.5 million,
resulting in $0.2 to $1.5 million in operating income. Operating income
exclusive of depreciation and amortization is expected to be $19.5 to
$21.0 million during the quarter. Loss per share estimates are $(0.72) to
$(0.60) for the fourth quarter of 2003. With respect to the calendar year
2003, LodgeNet expects to report revenue in a range from $251 million to
$254 million and operating income from $5.8 million to $7.3 million.
Operating income exclusive of depreciation and amortization is expected to
be $84.5 to $86.0 million. Loss per share estimates are $(2.89) to $(2.77)
for the full year 2003. The Company will hold a conference call on Thursday, October 16, 2003 at
4:00pm CDT. The call is being webcast live over the Internet via ECI at
http://www.calleci.com/conference/pub_cs.jsp . The webcast will be
archived at that site for one month and can be accessed via LodgeNet`s
company website at http://www.lodgenet.com/ . Additionally, the Company
has posted slides at its website under the investor relations, company
presentation section, which will be referenced during the conference call.
LodgeNet Entertainment Corporation ( http://www.lodgenet.com/ ) is the
leading provider in the delivery of broadband, interactive services to the
lodging industry, serving more hotels and guest rooms than any other
provider in the world. These services include on-demand digital movies,
digital music and music videos, Nintendo(R) video games, high-speed
Internet access and other interactive television services designed to
serve the needs of the lodging industry and the traveling public. As the
largest company in the industry, LodgeNet provides service to 980,000
rooms (including more than 910,000 interactive Guest Pay rooms) in more
than 5,800 hotel properties worldwide. More than 260 million travelers
have access to LodgeNet systems on an annual basis. LodgeNet is listed on
NASDAQ and trades under the symbol LNET.