LodgeNet Interactive CEO Discusses Q1 2011 Results - Earnings Call Transcript

| About: LodgeNet Interactive (LNET)
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LodgeNet Interactive Corp. (OTC:LNET) Q1 2011 Earnings Call April 20, 2011 5:00 PM ET


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


James Boyle – Gilford Securities

David Kestenbaum – Morgan Joseph


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.

Starting with slide number three. First quarter revenue of $107.7 million was a decline of 8.7% versus last year. This performance met our Q1 guidance and was supported by continued growth in our Advertising business, which reported 8% revenue growth. In addition, our Professional Solutions group had a very strong quarter with 24% revenue growth driven by several large design and installation projects around the country. Poor Hollywood content continues to impact our Guest Entertainment business, which was down 9.2% versus prior year on a revenue per room basis.

Within Guest Entertainment, revenue from the top five theatrical releases in the first quarter was down $0.72 per room versus last year and accounted for 60% of the decline in Guest Entertainment revenue per room. We do expect the quality of our theatrical movie line up to improve as we progressed through the year and we have started to see modest improvement so far in the month of April.

Revenue from diversification efforts reached 45% this quarter as we continue our focus on growing new businesses, which leverage our existing core competencies and profitability expand our business while also reducing the overall volatility of our financial results.

On slide number four, you will see performance by product line on a revenue per room basis for the first quarter. Revenue per room of $21.17 is 2.5% below last year’s results. Our diversification initiatives were up 7.6% over last year and offset over half of the decline in Guest Entertainment this quarter.

Hotel Services revenue per room increased 6.9% driven by the growth in our television programming revenue as we increased the number of rooms receiving high definition programming and pricing increases versus prior year.

Revenue per room from System Sales and Related was up 7.8% due to significant activity in the design and installation of media systems for our hotel partners.

Advertising continues its strong performance with revenue per room up 15.9% as carriage revenue and interactive advertising showed strong growth in the quarter.

Our High Definition systems continued their superior performance. On slide number five, we provide an update on our High Definition platform versus our analog base. For the trailing four quarters, revenue per room was 61.5% higher in high definition rooms versus analog. This trend has been very steady over the past three quarters and clearly illustrates the traveler’s preference for a high definition environment.

For the quarter, we added nearly 3000 high definition rooms at an average cost of $186 per room, which is down 20% versus last year and reflects the continued reductions in our capital cost as we benefit from lower technology costs and our hotel partners taking responsibility for In Room infrastructure spending.

Our installed base of High Definition systems now stands at 273,000 rooms or 17% of our Guest Entertainment room base. With the successful amendment of our credit facility this quarter, we are prepared to invest with our best customers as they upgrade their media systems to high definition. We expect the rate of HD installations to increase significantly as we progress through the year.

Gross margins in the first quarter improved 40 basis points versus last year through broad-based improvements across all of our businesses. Most significantly, we continue to improve margins in Guest Entrainment due to lower hotel commissions and a continued focus on our cost structure to improve the profitability of our largest business line.

Advertising services increased margins by over 8 percentage points, as their high margin revenue growth and reduced cost structure combines significantly increased gross margins this quarter. We also saw continued margin improvement in Healthcare, with a 400 basis point improvement over last year, as the increased margins on both the sales of interactive TV systems and the recurring monthly support and content fees.

On slide number seven is a summary of our operating expenses for the first quarter versus last year. We continue to take steps to reduce our operating expense structure. In January, the company initiated a restructuring of our organization, which included a 7% reduction in our workforce, reduce the number of layers within the organization and took other cost reduction actions. This resulted in a 13% reduction in operating expenses during the first quarter when compared to last year.

We would expect to continue to operate at an expense level below last year for every quarter this year. While taking cost out of corporate overhead, we continue to fund innovation with investments in research and product development. These efforts are critical to ensure we remain the technology leader in the Hospitality space.

Profitability for the quarter was strong with adjusted operating cash flow at $27.9 million, which was at the high-end of our Q1 guidance of $25 million to $28 million and represents only a 4% decline in the AOCF versus last year.

AOCF margin for the first quarter was 25.9%, an increase of 120 basis points versus last year. The increase was driven by the 40 basis point improvement in gross margins with the remainder driven by reductions in operating expenses.

On slide number eight, you will see the trend for our trailing 12 month AOCF performance over the past five quarters. Despite recent volatility in top line revenue, our company remains focused on the controllable factors of reducing operating expenses and improving product margins, which allow us to maintain high operating margins and partially offset the revenue declines experienced in our Guest Entertainment business.

On slide number nine, you will see the continued improvement in our bottom line profitability with a 4% improvement in operating income versus prior year. On a per share basis, the improvement versus last year was 47% driven by $1 million reduction in interest expense and a $2.5 million reduction in depreciation and amortization as our existing asset base becomes fully depreciated and we are reinvesting at a much slower level due to the slow down in hotel investment over the last two years and the 50% reduction we have seen in the capital cost to upgrade a room to high definition.

We continue to generate strong free cash flow. You can see on slide number 10, we generated nearly $15 million in free cash flow during Q1, driven by our strong AOCF performance and modest capital investment for the quarter at $4.6 million. Free cash flow for the prior year was $23.6 million, which benefited from an $8 million reduction in working capital. That benefit reversed this year with a $1 million use of cash from working capital changes.

On slide number 12, we provide a summary of the amendment to our credit facility, which was completed in late March. The key modifications to the credit facility include an increase in the allowable leverage from 3.5 times AOCF to 4.0 times. A payment basket was created for the payment of cash dividends on the company’s Series B Preferred shares. The potential to extend the term of the credit facility was also added with the amendment.

The company will pay a higher interest rate under the amended agreement. The new rate is LIBOR plus 500 basis points compared to LIBOR plus 200 basis points before the amendment and there is also a LIBOR floor of 1.5% under the new terms.

The company’s interest rate swaps expire at the end of the second quarter, and at this point the company does not plan to enter into another swap agreement. With the final swap payment in the higher interest rate on our credit facility, we expect the company’s interest rate to be approximately 12% during the second quarter before normalizing at 6.5% in the third quarter.

On slide number 13, you will see that we have continued to delever the company. Net debt now stands at $354.5 million with a net debt leverage ratio of 3.31, which was down sequentially versus last quarter and significantly below our amended covenant of 4.0.

I will conclude with slide number 14, which lays out LodgeNet’s financial guidance for the second quarter of 2011. We are expecting revenues to be in the range of $106 million to $110 million. This would be a decline in total revenue of 3% to 7% versus 2010. This revenue projection assumes a decline in Guest Entertainment revenue per room of 3% to 8%, and an increase in revenue from our diversification initiatives of 3% to 6%.

Adjusted operating cash flow is expected to be in the range of $25 million to $28 million, and net loss available to common shareholders will be in the range of a loss of $0.20 per share to a loss of $0.12 per share.

With that I will turn the call back to Scott.

Scott C. Petersen

Thank you, Frank. Before turning to your questions, I’d like to take a few minutes and make a couple of comments regarding few of our strategic initiatives, which I believe position us for growth in this year 2011 and beyond.

As I see it, the core asset of LodgeNet is our 85% market share of VOD served rooms within the North American hospitality market. We provide services to 1.8 million rooms in more than 9,000 hotels throughout the United States, Canada and Mexico. In those rooms, we touch over 500 million travelers annually, so our business strategy is focused on unlocking the full value that those rooms represents, and we believe there are substantial value beyond the returns we are generating from our current analog base today.

As Frank discussed, one of our key growth drivers is high definition. Those systems are generating 6% greater revenue on a per room basis than our analog base. Our high-def interactive platform is now in only 17% of our room base, and we know that leading hotels will launch and they will need to transition to full high definition interactive television over the next several years. So that represents a clear and very promising opportunity for us. With Envision, we’re taking that opportunity to the next level.

On slide 15, you’ll see some of the highlights of our successful launch of Envision during the first quarter. But before addressing those milestones, let me give you some insights into our thinking, which drove the Envision product.

First of all, as we analyze the trends in media consumption in the guest room, it was clear to us that flat-panel, high-def televisions will remain the focal point of the room, as it represents the optimal display device, and that the future of interactive television will be apps-driven and cloud-connected. And we continue to see over 98% turn on rates within the guest room for the television, and average view times continue to be over three hours per day.

So we believe we uniquely control a highly valued amenity and device within the guest room. So with Envision, our goals to enhance and deliver a great guest experience, presenting travelers with the content and information they need for a productive and relaxing trip with added source from the Internet or accessed from our EDGE servers and we’ve designed Envision to also give hoteliers access to the power of our interactive television platform to drive their bottom line of results and their overall brand experience.

So during the first quarter, as you can see on slide 15, we launched our first Envision system at the landmark, 1,100 Room Hyatt Regency O’Hare property and with that the installation we saw a significant increase in guest engagement with the Envision platform versus our prior analog platform. All of the Hyatt Regency Hotel information can now be interactively accessed by their guest through the Envision system, which will help the hotel reduce its marketing costs as well its environmental footprints.

And during the second quarter now, the property will be testing our new interactive breakfast ordering app, which is designed to drive incremental revenues and reduce their operating costs.

During the quarter, we also received an extremely positive reception to Envision from the general hotel industry. Every major brand is discussing with us, their vision of how they can use the power of our Envision platform to create customized arrays of apps and services that would uniquely address their individual brand promises.

And lastly we are also delivering and evolving suite of interactive television apps for the Envision platform, which deliver web-enabled content to the guest room television. One of our core offerings is called eCompendium that contains a suite of informational apps to convey hotel-specific information and promotions that traditionally have been communicated to guests through an in-room printed guide.

eConcierge is a second kind of core offering of Envision, which is a series of apps that integrates into the hotel’s back-end systems to support in-room dining and guest requests for housekeeping and maintenance for example.

Of course we have a variety of internet apps that deliver information source from the internet in real time, such as weather, news and flight times or enable transactions versus the internet for things like purchasing tickets, flowers, golf tee times et cetera. So with Envision, we’re providing the hotels and our guests with a new connected TV experience, and we believe LodgeNet will benefit from a variety of new and extended revenue opportunities as a result.

On slide 16, you’ll see that one of our other major initiatives underway. As indicated on our last earnings call, we are focused on a number of initiatives to improve revenue beyond just upgrading to our base to high definition. As I mentioned last time, we created a new interactive and media networks group last fall to focus on maximizing our revenue opportunities within the room, whether that is driving increased revenues from the guests or creating new revenue streams from third parties or advertisers that want access to the guest for their product marketing.

On slide 16, you’ll see the highlights regarding a promising initiative, we call VOD 2.0. Later this quarter, we’ll be launching VOD 2.0, which is our marketing initiative to refresh the value proposition of our entertainment services within the guest room. We will have three tiers of pricing where a content that is before the DVD release will be priced at a premium reflecting the value more towards the theatrical or the box office pricing. As the titles moved through the DVD window, they will reduce to somewhere around a sub $10 price point and then we’ll also have specials at less than $5 per title for the value consumer.

Same time we will be refreshing the on-screen look and feel and you can see that some of that flavor on slide 16. And then lastly, our marketing message will clearly drive on the point that we have a very unique and very early window for Hollywood movies 60 days before the release to DVD and generally 90 days before the release to Netflix. So our goal here is to get more consumers in our store so to speak and then present them with new price points and marketing messages that drive higher purchase rates.

Our testing up to this point reflects a 10% to 20% increases in ticket sales, which I think is very good but because the average ticket price has been down about the same percentage amount the resulting revenue per room within our test base right now has been roughly flat through this period of testing. We’re continuing to refine our product and pricing mix to find that optimal point that better positions the value of our movies versus other distribution channels, drives higher ticket sales and then optimizes the revenue and profitability of our hotel systems.

So with that, I would ask the operator to please explain the questions or the procedure for asking questions. Thanks.

Questions-and-Answers Session


Thank you sir. (Operator Instructions) Our first question comes from Jim Boyle of Gilford Securities.

James Boyle – Gilford Securities

Good afternoon.

Scott C. Petersen

Hello, Jim

Frank P. Elsenbast

Hey, Jim.

James Boyle – Gilford Securities

Scott, over the last 10 years, where has the optimal pricing been for LodgeNet’s Hollywood new release charge in the hotel room versus let’s say the average international or large market movie theater new release ticket as it always been had a discount or a premium or has it flip flopped?

Scott C. Petersen

It’s actually always been on the premium side versus like on New York or Chicago marketplace. Traditionally guests, we all buy a $2 or $3 cokes in the vending machines at hotels in tender, we use to pay more for our comfort services within properties and we’ve always found that at premium price point has maximized revenues. So our pricing strategy there Jim is to make sure that the newest content is premium priced, but with the new markets in the world of distribution out there right where we’re finding that some of the older kind of stone sell those well and by repricing those in a more value price points, we think we’re going to be able to drive greater revenue over time.

James Boyle – Gilford Securities

Okay. And has that premium widened in the last five years or kind of held out either percentage or absolute spread?

Scott C. Petersen

I would say over the last several years it’s probably widened somewhat, not overly dramatic. It would be a couple percentage points wider than it would have been to say five years ago.

James Boyle – Gilford Securities

Okay. I was looking at the last 10 years of Q4 Guest Entertainment revenue per room and I noticed for seven years of that 10 years the Guest Entertainment revenue per room, per month very nicely hovered in the kind of $16.5 to just under $17 range then in the last three years albeit during a big recession. That Q4 amount per room has plunged to 13.5 and then to 12.5 and last year Q4 was a 11.5. Is that trend likely to stabilize in 2011 or perhaps 2012 and how is that going to occur?

Scott C. Petersen

We certainly believe so, our guidance for the second quarter you will see that we’ve kind of moved up, we still looking for a somewhat of a decline on a per room basis, but we have kind of trim to that percentage and in fact for the first, we have results in for the early part of April kind of halfway through the month and they’re on the better half of the guidance range at this point. So we do believe as travel has come back somewhat, I think occupancy in the first quarter up about 5% versus one year ago, didn’t necessarily translate as you can see into our results at this point of time.

But the consumer we still find is being very kind of cautious within the space, the data point that Frank put out, the content I think also comparing this year versus last was quite soft, but the $0.72 difference per room for the top five, last year, we had Blind Side, we also had Couples Retreat, two very strong titles for our hotel window.

The other big factor that’s really going to move I think the average revenues as we accelerate the upgrade of our analog base to high-def, and from the data points you saw on the slides there, we are selling over 50% more entertainment in the high-def rooms than the average analog room, we don’t necessarily price high-def higher, so it is true higher usage within that space and I think we can all say if you’re confronting with an opportunity of buying a movie and spending two hours with a tube TV versus a flat panel and high-def, you can understand why I think guests are voting and spending more in the high-def room.

So I think my belief is that where you’ll see this year moderating and as we continue to move forward with our pricing structures, moving of high-def, we’ll see some real revenue per room growth over the next couple of years.

James Boyle – Gilford Securities

Okay, final question, now that it can be seen Universal Movie Studios owned by Comcast, a residential cable company with 24 million subscribers, who is their pay-per-view movie window, historically has been about three, three plus months behind your movie window, hypothetically what are your potential plans if Comcast captive movie studio changes the movie release window so that their 24 million subs connects as new releases at either a similar or much closer time as four to five million hotel rooms that Comcast doesn’t know. What would you do to offset that?

Scott C. Petersen

Well, Comcast represents a part of the U.S. marketplace. This month on DIRECTV, there are a couple of studios testing, basically getting the content about the same time we are and the price points though in the home are $29.95 for the same title that we’re probably price pointed $15.

And time will tell whether that makes financial sense for these studios, the theater owners were clearly pushing back on that strategy, some are even talking about not taking titles or reducing playtimes within as they’re in the theatre, there is a large concern on theft, illegal theft of the content if it’s in the home; the abilities for kind of hackers to work through that.

So I guess, we’ll see how that goes. So I believe one of those things we still represent when it comes to first one content about 60% to 70% of the revenue we generate from any given Hollywood title is during that first two months that we have it. If you could get it in some Comcast homes that might be some distraction, but the reality I think is that, the people flowing through our rooms busy business people, they don’t necessarily go to the theaters and they find themselves with downtime in a hotel with the newest content, that’s what they’re buying from us.

And actually if the price points, Jim if Comcast would take that strategy, but we’d price it in the $20 to $30 range, I think it just reinforces the value prop that we have for that same content in the hotels, it’s about half the price that would in the homes. So we’ll see how this all goes. The other great thing is we’re diversifying our revenues, we’re not just a movie company anymore, lot of different things and the revenue streams and the other things are growing nicely. So I think we have a lot of opportunity ahead of us.

James Boyle – Gilford Securities

Okay. Thank you.

Frank P. Elsenbast

Thanks, Jim.


Thank you. (Operator Instructions) Our next question comes from David Kestenbaum of Morgan Joseph.

David Kestenbaum – Morgan Joseph

Okay. Thanks.

Frank P. Elsenbast

Hello, David.

David Kestenbaum – Morgan Joseph

Hi, how are you?

Frank P. Elsenbast

Yeah, good.

David Kestenbaum – Morgan Joseph

Can you talk about how are you planning enrolling out Envision countrywide across your 1.8 million rooms as well as VOD 2.0 this year and how aggressive are you going to be as far as the High Definition upgrades?

Frank P. Elsenbast

Sure, well, first let me start with the VOD 2.0 because that is intended to address our installed base that we have today. Actually various aspects of that, the price points and the promotional messaging on certain of the promo channels that will be widely distributed in the past across the whole 1.7, 1.0 million days, some other features might be limited to more of the newer platforms, which would account for about half of our base.

I think you’ll be seeing a pretty substantial rollout in June, and we are still kind of working through final details of the launch program, but that we’ll clearly start down the path in June and we’ll take it from there, making sure that we’re on the right side of the business equation as we change price points, we want to make sure we are protecting revenue per room as we do that.

Clearly selling more tickets, but we’re also very mindful of the bottom line so to speak. At Envision, that is a forward, going forward strategy. The hotels that are within our renewal window, and if that is turned out to be – that’s a pretty healthy group at this point as hotels have not done much purchasing of and upgrading their systems over last couple years given the recession, we’re focused on our best and biggest customers making affirmative proposals to those accounts generally thinking, $15 or higher average revenue per room of the analog platform that’s our kind of our key focus today. So they of course have to agree to the contracts that we do schedule for installation.

So this year, the first half will be relatively modest installations. This first quarter was a little lower than what we’re anticipating. As we started the year, we did have some carry over customer accounts, so accelerated in the fourth quarter. Last year, we had a very strong quarter there.

You’re going to see an uptick in the second quarter as far as installations. And then as you see the second half here we will definitely be in the mid teens, I would think four installations per quarters were rolling out in vision. So methodical keeping our cash flows within balance, but with a new credit facility we do have the flexibilities if a bigger account would come in and looking for more immediate installations. We do have that operating flexibility today that we would not have had prior to the bang on that.

David Kestenbaum – Morgan Joseph

Okay. And then on the high-definition upgrades, how aggressive we think you’ll be this year?

Scott C. Petersen

Well, from a sales standpoint we’re being very aggressive and there it’s kind of the sales cycle who will be the determining factor on the specific rollout and the second half will be much stronger than the first. So as I was kind of saying I think mid teens for second of the year, I would think we will be pushing out at least 30,000 to 40,000 rooms total during the second half while the first half will be quite a bit lower than that.

David Kestenbaum – Morgan Joseph

Okay. So as overall CapEx is going to stay in the mid 20s or maybe $30 million for the year, but it sounds now like it’s going up much more?

Scott C. Petersen

I think that’s a fair range, right. Last couple years we were on the 20 range, mid $20 million total. Frank?

Frank P. Elsenbast

Yeah, I think we will expect to and sell more rooms this year, but we keep seeing that decline in the cost per room. So we’ll get a little bit of an offset on the average costs per room. But I think, I wouldn’t be surprised to see it’s in the mid to upper 20s and again it depends on how quickly our hotel partners are ready to move on their upgrades.

David Kestenbaum – Morgan Joseph

All right. And then as far as the room losses, I think on the last call you said, you thought about 75,000 for the year. You’ve lost 31,000 this quarter, can you just talk about what your expectations are there going forward?

Frank P. Elsenbast

Well, in this year it will be higher than the 75,000. First of all the 30,000 from the first quarter, once again tend to be smaller hotels, the average revenue per room of based on left was about 40% less than our average revenue per room. So once again it is, it’s the base that really we would not interested or would not financially be interested in taking, investing capital to extend the interactive television piece. We’re certainly focused on maintaining more of those as pretty less customers with a monthly recurring subscription fee from those properties.

Then also we’re looking to accounts that in the first quarter made and informed us that the they were moving their room base, which gives – could this year could be somewhere between 35,000 and 45,000 rooms too many for the guest only environment, once again that’s the economy segment that will take, I think for the full-year, we will probably be looking at somewhere around the 100,000. Last year I think it was a 110, was the total number of somewhere probably in that range. Big focus on making sure we are retaining the best hotels we do have. Its one of those where we’re certainly not going to chase the low end of the market just keep the numbers in fact but…

David Kestenbaum – Morgan Joseph

Are you waiting any new mandates?

Scott C. Petersen

Yes. I mean new construction properties of course new construction has been very soft as the pipeline for financing really slowed down. I think the one area that we think it represents a lot of solid new opportunity for us is in the gaming market and specifically Vegas and Tahoe and Reno those markets historically have been strongly served by the local an affiliate of the local cable company, which is Cox. This quarter we actually made a public announcement where a secured gentlemen who formally been one of their lead sales directors in the gaming market has joined us and we’re very active in kind of establishing solid roots in that market.

We have about 25,000 rooms in Vegas, so it’s not that we don’t have space there but out of a 120,000 some rooms in the Vegas hotel market, there is lot of opportunity for us to grow so you know that’s not necessarily, there could be some immediate opportunities for us there, but over the next 24 months, we think that represents very solid opportunity for us. But till new construction comes back, it’s primarily a game of maintaining our base, improving our base, and thinking that base to high-def.

David Kestenbaum – Morgan Joseph

Okay. Thank you very much.

Scott C. Petersen

Thanks, David.


Thank you. (Operator Instructions) And there appear to be no further questions in queue at this time.

Ann Parker

We would like to thank everyone for joining us today. A reminder that replays of this call can be accessed over the next months via the Internet through our company website, again that’s www.lodgenet.com. And the slides used during this webcast will also be archived on our website for your reference under the Investor Section.

If you have any difficulty downloading those slides, we would be happy to send them on request. Thanks again, everyone, and have a good day.


Ladies and gentlemen, this does conclude your program. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time.

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