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Published: November 30, 2009
When Princess Diana died, all I really
wanted was a movie rental.
I would have paid almost anything for it: I was in the hospital
for an appendectomy, and, after 48 hours of nonstop Diana
coverage, I was ready for the doc to remove my brain, too.
The limited entertainment choices in hospitals don't seem like a
big deal. Hospitals are supposed to help people get well, not
take in a show. But hospitals are leaving money on the table and
unhappy patients in their beds. If my hospital had offered me an
upgrade to a premium movie channel or a video rental, I'd have
jumped at the chance. Many health-care providers are still
missing out on easy revenue from the sale of video-on-demand and
broadband internet services.
But that's changing.
Hospitals can now buy interactive television systems similar to
what you see in millions of hotel rooms across the country. The
U.S. leader in providing these services to hotels will likely
emerge as the leader in health care, too. The company, in fact,
already has these services installed in 43 hospitals. And,
promisingly, 55 more are under contract to install.
The company is LodgeNet (Nasdaq: LNET), and if you've
ever stayed in a hotel, you've likely come into contact with its
bread-and-butter product. With service to more than 10,000
hotels, this $100 million company is the world's largest
supplier of in-room entertainment to the hospitality industry.
The company offers video-on-demand, games, music and
by-subscription sports to anyone staying in one of the 1.9
million hotel rooms that feature its products. It also offers
cable television programming to 1.1 million rooms and Internet
access to 200,000 rooms.
While the hotel-guest entertainment segment still makes up a
majority of the company's revenue, its efforts to diversify are
beginning to pay off. For the first nine months of 2006, the
guest-entertainment segment totaled $173 million in revenue, or
79% of the company's $219 million total revenue. For the same
period in 2009, it accounted for $226 million, or just 61% of
revenue.
LodgeNet's healthcare system turns a regular television into an
on-demand entertainment and communication tool. Patients can
watch movies, play video games, listen to music, browse the
Internet, and even order meals from the hospital cafeteria.
Heathcare facilities such as the Oklahoma Heart Hospital, the
M.D. Anderson Cancer Center, and NorthShore University
HealthSystem have already signed up for the company's service.
While LodgeNet has already inked deals with about 100 hospitals,
it's just the beginning. There are more than 5,800 hospitals in
the United States, and nearly one million hospital beds. The
company sells its system for $1,000 to $1,500 per bed, and
recurring revenue per month comes to $25 to $35. Of this, 30% to
40% is the company's gross profit.
LodgeNet has seen growth across the board,
but the most impressive numbers are in health care. Hotel
services increased +169% from 2006 to 2009. But here's the
kicker: Advertising and healthcare revenue, which the company
reports together, surged +400% during the same period. It now
accounts for 12% of the company's total revenue.
Net income for the quarter ended Sept. 30 came in at -$5.0
million, slightly better than the company's previous quarter
results of -$5.2 million, as well as the year-ago period's -$6.3
million. Revenue came in at $118.3 million, about even with the
previous quarter, but $14 million lower than the same period in
2008.
LodgeNet has been paying down its substantial debt, which now
stands at $492 million. That's a -15% reduction from $580
million at the end of 2008. The company also has been increasing
its free cash flow at a quick pace. In the third quarter, it
amounted to $61.8 million, up from $7.8 million from the same
quarter in 2008. Free cash flow measures operating cash flow
minus capital expenses, and it's a critical metric because
without it, the company would not be able to pay down debt or
make acquisitions. The company's balance sheet shows $26 million
in cash.
Though several trends bode well for LodgeNet, it's not for the
risk-averse. Still, a rebound in global travel and its promising
health-care business offer plenty of upside potential.
-- Anthony Haddad
Staff Writer
StreetAuthority |
