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LodgeNet ReportsTotal Revenue 
for 1998 of $166.4 Million, 
an Increase of 22.6% Over 1997
 
SIOUX FALLS, S.D., Feb. 24, 1999 -  LodgeNet Entertainment Corporation (Nasdaq: LNET) today reported record revenue of $166.4 million and record EBITDA (earnings before interest, taxes, depreciation and amortization) of $48.6 million (excluding a one time restructuring charge of $3.3 million) for its fiscal year ended December 31, 1998. The results reflect a 22.6% increase in revenue and a 36.1% increase in EBITDA over 1997. The following 1998 annual and fourth quarter financial highlights are in thousands of dollars except per-share data: 

Twelve Months Ended December 31, 
                                                 1998                   1997 

    Total revenue                $166,351                $135,710 
    Operating loss*                (9,939)                 (8,064) 
    EBITDA (excluding 
     restructuring charge)**       48,576                  35,696 
    Net loss*                     (39,912)                (25,619) 
    Net loss per common share      $(3.45)                 $(2.27) 
    Weighted average shares 
     (thousands)                   11,579                  11,271 

 
* Operating loss and net loss for the 4th quarter and year-end 1998 include a one-time restructuring charge of $3.3 million related to the merger of the Company's ResNet subsidiary into Global Interactive Communications Corporation. 

"We ended 1998 with a clear focus on our core lodging business, which continues to produce real, record- breaking results," said Scott C. Petersen, President and Chief Executive Officer of LodgeNet. "Our fourth quarter comparisons were outstanding. Guest Pay revenue climbed by more than 24%, driven by a 17% increase in installed rooms and a 6% increase in average revenue per room. For the year, we added over 84,000 net new rooms bringing our total Guest Pay room base to just over 596,800." 

"With a clear focus on driving greater operating efficiencies, we substantially reduced our selling, general and administrative expenses from 16.0% of revenue in the fourth quarter of 1997 to only 9.9% of revenue during this past quarter," said Petersen. "We are firmly committed to continuing this type of performance in 1999." 

"The combination of increasing revenue and decreasing operating costs produced another significant surge in EBITDA" said Jeffrey T. Weisner, Senior Vice President and Chief Financial Officer of LodgeNet. "The record fourth quarter EBITDA of $13.1 million, a 46.3% increase over last year's quarter, drove our annual EBITDA performance to $48.6 million, at a margin for the year of over 29%. Excluding the financial results from our former ResNet subsidiary, which will not impact our going forward performance, our EBITDA margin for the year was 31.6%." 

Mr. Petersen continued, "We are clearly entering 1999 with strong momentum in both the growth of our lodging operations and our efforts to improve efficiencies across our business. In 1999 and beyond, we are committed to continue the streamlining of our operations, reducing costs, leveraging our room base and transforming our top-line growth into positive returns for our shareholders." 

RESULTS FROM OPERATIONS 
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED DECEMBER 31, 1997 

EBITDA, excluding the restructuring charge related to the ResNet merger, increased 36.1% to $48.6 million in 1998, as compared to $35.7 million in 1997. As a percentage of total revenue, EBITDA increased to 29.2% in 1998 as compared to 26.3% in 1997. Excluding ResNet financial results, EBITDA was $50.8 million, an increase of 36.4% over 1997, resulting in an EBITDA margin of 31.6% as compared to 28.0% in 1997. 

Total revenue for 1998 was $166.4 million, an increase of 22.6% compared to 1997. This increase included a 25.9% or $30.2 million increase in Guest Pay revenues. Average monthly revenue per Guest Pay room, including movie and video game/information service revenue was $22.06 in 1998 compared to $21.14 in 1997. 

Total direct costs increased to $74.0 million in 1998 from $58.5 million in 1997. Guest Pay direct costs increased $14.9 million, in 1998 as compared to the year earlier. Since Guest Pay direct costs, i.e. studio license fees, video game license fees and commissions retained by the hotel, are primarily based on related revenue, such direct costs tend to vary more or less directly with revenue. As a percentage of Guest Pay revenue, such costs increased from 39.2% in 1997 to 41.3% in 1998. The relative increase in Guest Pay direct costs as a percentage of revenue is primarily the result of an increase in revenue from cable television services which generally earn a lower profit margin than on-demand services and higher video game costs. 

Guest Pay operations expenses consist of costs directly related to the operation of systems at the hotel sites as well as at residential sites serviced by ResNet. Excluding the expenses incurred to operate the systems at residential sites, which were $2.9 million in 1998 compared to $1.4 million in 1997, Guest Pay operations expense increased 14.8%, to $22.2 million from $19.4 million in the previous year. This increase is primarily attributable to a 20.7% increase in the average number of installed Guest Pay rooms in the current period as compared to 1997, partially offset by lower average operating and service expenses incurred on a per-room basis. Per average installed Guest Pay room, Guest Pay operations expense decreased 4.8% to $3.35 per month in 1998 as compared to $3.52 per month in 1997. 

Selling, general and administrative expenses (including $2.2 million and $1.8 million of expenses incurred by the residential services segment in 1998 and 1997, respectively) decreased to $18.6 million, from $20.7 million in the same period a year earlier. As a percentage of revenue, selling, general and administrative expenses represented 11.2% of revenue in 1998 as compared to 15.3% in 1997. 

The $3.3 million restructuring charge recorded in the fourth quarter of 1998 represents costs incurred related to the Company's merger of its ResNet operations with two unaffiliated companies to form Global Interactive Communications Corporation ("Global"). 

Depreciation and amortization expenses increased to $55.2 million in 1998 from $43.8 million in 1997. This increase is primarily attributable to the increases in installed Guest Pay rooms and ResNet units, associated software, and other capitalized costs such as service vans, equipment and computers that are related to the increased number of rooms in service since the year-earlier period. ResNet-related depreciation and amortization was $3.6 million in 1998 compared to $1.5 in the year earlier period. 

The Company's operating loss was $(9.9) million in 1998 as compared to $(8.1) million in 1997. Excluding ResNet financial results, the operating loss related to the Company's core lodging business decreased from $(5.0) million in 1997 to $(800,000) in 1998. 

The Company obtained an equity interest in two entities during 1998, Global, as previously mentioned, and Across Media Networks, LLC, a company engaged in the creation and distribution of digitally produced on-screen content for television and the Internet. In the fourth quarter, the Company began applying the equity method of accounting for these investments, recording a combined loss of $6.5 million during the period. 

LodgeNet Entertainment Corporation 
Five Quarter Summary 

                                            4th Qtr   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr 
                                                '98           '98          '98            '98         '97 
Room Base Statistics 

    Total Guest Pay Rooms     596,806   578,981   556,268   533,604   511,851 

    On-Demand Rooms           581,893   562,578   535,234   509,128   484,070 
    Percent of Total             97.5%     97.2%     96.2%     95.4%     94.6% 

    Nintendo Rooms            546,324   530,194   503,041   474,944   448,969 
    Percent of Total             91.5%     91.6%     90.4%     89.0%     87.7% 

    Total Free-to-Guest Rooms 384,324   374,752   366,342   356,046   341,030 

Guest Pay Per Room Statistics (per month) 

    Movie Revenue              $18.05    $19.79    $18.54    $17.29    $17.26 
    Games/Information Service   $3.44     $4.38     $3.54     $3.11     $2.98 
    Total Per Guest Pay Room   $21.49    $24.17    $22.08    $20.40    $20.24 

    Guest Pay Operations 
     Expense                    $3.19     $3.36     $3.40     $3.45     $3.36 

LodgeNet Entertainment Corporation (http:/www.lodgenet.com) is a specialized communications company that serves more than 4,500 lodging properties in the United States and selected international markets. Through its proprietary b-LAN(R) technology, LodgeNet delivers guest pay services including on-demand movies, in-room video games, Internet access and other interactive applications, as well as digital-quality basic and premium free-to-guest programming. LodgeNet is listed on Nasdaq and trades under the symbol LNET. Except for the historical statements contained herein, all statements made in this release are "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, 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. Such factors include, among others, the impact of competition and changes to the competitive environment for the Company's products and services, changes in technology, reliance on strategic partners, uncertainty of litigation, changes in government regulation and other factors detailed, from time to time, in the Company's filings with the Securities and Exchange Commission.

###
 
Contact:
Ann Parker, Director
Corporate Communications of LodgeNet, 605-988-1000
Web site: http:/www.lodgenet.com
 --
 
Also See: Lodgenet Now Delivering Interactive Entertainment to over 700,000 Hotel Rooms / Jan 1999 

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