Oct. 21, 2009 (PR Newswire) -- SIOUX FALLS, S.D., Oct. 21 /PRNewswire-FirstCall/ -- LodgeNet Interactive Corporation (Nasdaq: LNET) today reported quarterly revenue of $121.1 million compared to $135.3 million in the third quarter of 2008, and operating income of $5.3 million compared to operating income of $4.6 million in the third quarter of 2008. The Company reported a net loss of $(5.0) million compared to a net loss of $(6.3) million for the third quarter of 2008. Net loss attributable to common stockholders was $(6.6) million or $(0.30) per share (basic and diluted) for the third quarter of 2009 compared to $(6.3) million or $(0.28) per share (basic and diluted) for the prior year period. LodgeNet also reported $16.1 million in free cash flow (defined as cash provided by operating activities less cash used for investing activities, including growth-related capital) for the third quarter of this year compared to $6.2 million in the third quarter of 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20080115/AQTU120LOGO)

The following financial highlights are in thousands of dollars, except per-share data and average shares outstanding:

Three Months Ended
September 30,
2009        2008
----        ----
Total revenue                                  $121,122    $135,320
Operating income                                  5,294       4,625
Net loss                                         (4,982)     (6,278)
Net loss attributable to common stockholders     (6,627)     (6,278)
Net loss per common share (1)                    $(0.30)     $(0.28)

Adjusted Operating Cash Flow (2)                $30,039     $34,611
Average shares outstanding (basic and
diluted)                                    22,458,587  22,296,886

(1) Based on the average shares outstanding for both basic and diluted.
(2) Adjusted Operating Cash Flow is a non-GAAP measure which we define as
Operating Income (Loss) exclusive of depreciation, amortization,
share-based compensation, impairment, and restructuring, integration
and reorganization expenses and the effects of insurance recoveries.

"We delivered on our financial guidance for the third quarter as we continued to proactively manage our business through the current economic environment," said Scott C. Petersen, LodgeNet Chairman and CEO. "Our strategic initiatives, focused on cost control and diversified revenue growth, are continuing to drive free cash flow and improvement in our profitability metrics. As a result, year-to-date income from operations is up more than 180% and free cash flow has expanded by more than 360% as compared to the first three quarters of 2008."

Third Quarter strategic highlights include:

--  Diversified Revenue Initiatives: revenue up 8% to $44.8 million -
equaled 37% of total revenue in the quarter - related gross profit up
30%.
--  Operating Expenses: reduced 20% to $22 million, compared to $27.4
million in 2008.
--  Capital Investment Activity: reduced by 69% to $4.5 million, compared to
$14.7 million in 2008.
--  Income from Operations: up 15% to $5.3 million, compared to $4.6 million
in 2008.
--  Adjusted Operating Cash Flow*: $30.0 million in the quarter, down from
$34.6 million in the prior quarter.

--  Free Cash Flow**: increased to $16.1 million this quarter, compared to
$6.2 million in 2008.

"We continue to take a conservative approach in the management of our balance sheet," said Gary H. Ritondaro, LodgeNet's Chief Financial Officer. "In the quarter we decreased long-term debt by over $54 million and enhanced our debt and interest coverage leverage ratios; yet, we still had more than $26 million in cash at quarter's end. Our operating and cost initiatives are driven by our focus on increasing free cash flow, which we will continue to utilize primarily for debt reduction in the near term. Based on our current cash position and the cash being generated by our business, we believe we are well positioned to continue maintaining compliance with our credit facility."

"We did see some signs of improvement in Guest Entertainment revenue during the quarter, but business travel and capital spending by our hotel customers continues to be soft," continued Petersen. "With our strategic acquisitions in 2007 and the more efficient operational structure we now have in place, our business model has significant operating leverage which should produce benefits as hotel occupancies increase and consumer confidence returns. However, because the economic environment remains uncertain, we will continue to take a conservative approach to operating our business pending the economic recovery."

RESULTS FROM OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009 VERSUS
THREE MONTHS ENDED SEPTEMBER 30, 2008

Total revenue for the third quarter of 2009 was $121.1 million, a decrease of $14.2 million or 10.5%, compared to the same period of 2008. The decrease in revenue was primarily from Guest Entertainment services, which was offset, in part, by revenue increases from Hotel Services, and System Sales and Related Services.

Hospitality revenue, which includes Guest Entertainment, Hotel Services, and System Sales and Related Services, decreased $14.2 million or 10.7%, to $118.3 million for the third quarter of 2009 as compared to $132.5 million for the prior year quarter. Due to continued softness in the travel economy, hotel occupancy declined by 7.6% during the third quarter 2009 compared to the same period last year. Average monthly Hospitality revenue per room was $21.70 for the third quarter of 2009, a decrease of 8.8% as compared to $23.79 per room in the third quarter of 2008.

Guest Entertainment revenue, which includes on-demand entertainment such as movies, games, music and other services delivered through the television, declined $17.4 million or 18.6%, to $76.4 million in the third quarter of 2009 versus the third quarter of 2008. Impacted by the 7.6% decline in occupancy and a conservative consumer buying pattern, average monthly Guest Entertainment revenue per room decreased 16.9% to $14.01 for the third quarter of 2009 compared to $16.85 for the third quarter of 2008. The decline during the third quarter was less than the decline during the first and second quarter of 2009, which had decreases of 23.0% and 20.4% respectively. Average monthly movie revenue per room was $13.11 for the third quarter of 2009, a 16.2% reduction as compared to $15.65 per room in the prior year quarter.

Hotel Services revenue, which includes revenue paid by hotels for television programming and broadband Internet service and support, increased $1.9 million or 6.2%, to $32.6 million in the third quarter of 2009 versus $30.7 million for the third quarter of 2008. On a per-room basis, monthly Hotel Services revenue for the third quarter of 2009 increased 8.3% to $5.98 compared to $5.52 for the third quarter of 2008. Monthly television programming revenue per room increased 9.7% to $5.45 for the third quarter of 2009 as compared to $4.97 for the third quarter of 2008. This increase resulted primarily from the continued installation of high definition television systems and related TV programming services. Recurring broadband Internet revenue per room decreased to $0.51 for the third quarter of 2009 compared to $0.53 for the same period of 2008.

System Sales and Related Services revenue, including sales of broadband Internet equipment, TV programming reception equipment, Internet conference services and HDTV installations services to hotels, increased $1.4 million or 17.1%, to $9.3 million during the third quarter of 2009 compared to $7.9 million in the third quarter of 2008. TV programming system sales accounted for $1.2 million of the growth and the balance was derived from sales of equipment and professional services to hotels.

Other Revenue, including the sale of interactive systems and services to Healthcare facilities and revenue from Advertising and Media Services, was $2.8 million for both periods. Healthcare revenue was $1.2 million while Advertising and Media revenue remained stable at $1.6 million, despite the continued softness in the general economy.

Total direct costs (exclusive of operating expenses and depreciation and amortization discussed separately below) decreased 6.3% or $4.7 million, to $69.3 million in the third quarter of 2009 as compared to $74.0 million in the third quarter of 2008. The decrease in total direct costs was primarily due to decreased commissions and royalties of $5.5 million, which vary with revenue, and a reduction in recurring connectivity and other Internet support costs of $1.7 million, as a result of our cost reduction initiatives. Partially offsetting the reductions were increases to incremental system sales, equipment, and service costs of $1.4 million and incremental TV programming costs of $1.5 million, which varies with the number of rooms served and the services provided. Total direct costs as a percentage of revenue were 57.3% this quarter as compared to 54.7% reported for the third quarter of 2008. The percentage increase resulted from a change in the composition of our revenue and product mix, quarter over quarter, primarily from the increased percentage of revenue generated by TV programming and system sales, which generally have a lower margin than Guest Entertainment revenues.

System Operations expenses decreased $4.0 million or 27.1%, to $10.9 million in the third quarter of 2009 as compared to $14.9 million in the third quarter of 2008. The decrease resulted from the synergies derived from the consolidation of the acquired On Command operations, our expense reduction initiatives implemented during 2008 and 2009, lower system service facilities, and fuel costs. As a percentage of revenue, System Operations expenses were 9.0% this quarter as compared to 11.0% in the third quarter of 2008. Per average installed room, System Operations expenses decreased 25.5% to $1.99 per room per month compared to $2.67 in the prior year quarter.

Selling, General and Administrative (SG&A) expenses decreased $1.3 million or 10.4%, to $11.2 million in the current quarter as compared to $12.5 million in the third quarter of 2008. This decrease also resulted from achieving the expected synergies related to the consolidation of duplicative SG&A functions from our acquisitions and our expense reduction initiatives implemented during 2008 and 2009. As a percentage of revenue, SG&A expenses were flat at 9.2% in the current quarter as compared to the third quarter of 2008. SG&A expenses per average installed room decreased 8.5% to $2.05 as compared to $2.24 in the third quarter of 2008.

Depreciation and amortization expenses decreased $4.8 million to $24.2 million in the third quarter of 2009 as compared to $29.0 million in the third quarter of 2008. The decline was due to assets becoming fully depreciated and the reduction in capital investments over the last two years. The current quarter's depreciation and amortization expenses included $2.2 million of expense related to the amortization of acquired intangibles from the acquisition of StayOnline and On Command versus $2.6 million in the third quarter of 2008. As a percentage of revenue, total depreciation and amortization expenses were 20.0% in the third quarter of 2009 versus 21.4% in the third quarter of 2008.

As a result of factors previously described, operating income increased 14.5% or $0.7 million, to $5.3 million in the third quarter of 2009 as compared to $4.6 million in the third quarter of 2008.