Upgrading a hotel room's television service to high-definition adds an incremental $5 per room in monthly revenues, says LodgeNet CEO Scott Petersen, who sees a "significant growth opportunity in the hotel industry in selling high-definition services."
Petersen, speaking on LodgeNet's first quarter earnings call, says that less than 30,000 of the hotel video supplier's addressable base of 1.8 million hotel rooms have HD service today. The company, which closed a $380 million acquisition of competitor On Command earlier this month, is working to provide a "well-packaged" HD solution to its customers, which include the Hilton, Sheraton, Marriott and Wyndham chains.
LodgeNet installed HDTV systems in 9,855 rooms during the first quarter, compared to 1,755 rooms in the first quarter of 2006. As a result, the company's average investment to convert a room from analog to digital TV service increased to $285 in Q1 2007, compared to $262 in the first quarter of 2006, due to the higher cost of high-definition equipment.
LodgeNet's first-quarter revenues got a boost from its acquisition of Internet access provider StayOnline, which closed in the first quarter. Total revenues were $75.3 million, an increase of $5.1 million or 7.3%, compared to the first quarter of 2006, and Guest Pay revenue, including high-speed Internet access (HSIA) service revenues from StayOnline, increased 3.0%. Other revenue, primarily related to the sale of HSIA equipment to hotels as a result of the StayOnline acquisition and the sale of interactive systems to healthcare facilities, increased more than $3.0 million, to $5.0 million during the quarter.
For the first quarter 2007, LodgeNet reported a net loss of $(28,000) or $0.00 per share, versus a net loss of $(654,000), or $(0.04) per share, in the first quarter of 2006. Excluding the results from StayOnline, the Company says it would have reported net income of $1.1 million, or $0.06 per share, in the first quarter of 2007.
Petersen says that Internet access should be another big growth area for LodgeNet, as it currently provides Internet connectivity to only 190,000 rooms, or slightly more than 10% of its customer base. But the company did not provide its usual guidance for the second quarter, citing the ongoing integration of the OnCommand assets.
"We're in the initial planning stages of putting together two very similar companies," says Petersen. "We should see $15 million of synergies over the next 18 to 24 months."