Battered by a soft economy that's led to a downturn in hotel-room occupancy, On Command Corp. said it would lay off about 16 percent of its work force and reduce its revenue and cash-flow projections for the year.
On Command, which provides movies, high-speed Internet access, video games and business services to hotel rooms across the country, also said it has completed its previously announced management restructuring. It added three former PrimeStar Inc. executives in key positions, including Carl Vogel, the company's new chairman.
Company officials did not return phone calls for comment. But in a research note, Morgan Keegan & Co. Inc. analyst Murray Arenson estimated that the layoffs would affect about 120 full-time employees and 40 temporary contract laborers.
On Command has struggled as the sluggish economy has curtailed business travel and caused a softening of hotel-room occupancy rates. The company provides service to about 1 million rooms in 3,456 hotel properties, including Marriott International Inc., Four Seasons Hotels Inc. and Hyatt Hotels Corp.
First-quarter revenue was down 4.2 percent, to $62.2 million from $64.9 million in 2000. Earnings before interest, taxes, depreciation and amortization, also known as cash flow, dipped 21.5 percent, to $14.6 million from $18.6 million in 2000.
On Command said the job cuts would result in annual cost savings of about $10 million to $12 million. Those savings wouldn't be realized until the third or fourth quarter, however.
Arenson said the staff reductions are a positive move.
"In our opinion, the work-force reductions are a necessary step, albeit a first step, in the turnaround process," Arenson said in a research note.
On Command began a management shake-up in April, naming Liberty Satellite and Technology Inc. president and former PrimeStar executive Vogel as vice chairman and Chris Sophinos as president.
On Tuesday, On Command continued the process, elevating Vogel to chairman, (replacing the resigned Jerome Kern) and naming William Myers, a former PrimeStar vice president, as senior vice president and chief financial officer.
Rounding out the team is former PrimeStar associate general counsel Pamela Strauss, now On Command's vice president and general counsel.
Separately, On Command reduced its cash-flow projections for the year, to $68 million from the $79 million previously expected. The company said revenue for the year would be $260 million, instead of the previously announced $280 million.
"On Command has proven its ability to successfully adapt to the hospitality industry's technology demands and has the flexibility and ingenuity to expand its product offerings," Vogel, who did not return calls last week, said in a prepared statement, "I am confident that with proper guidance, On Command can fulfill the future demands of its customers by streamlining its infrastructure and continuing to update its distribution platform."
On Command's stock price closed at $6.10 each last Tuesday, up 18 cents.
Janco Partners analyst Matthew Harrigan saw the move as yet another step by Liberty Satellite to eventually combine with On Command.
"We believe these continuing management shifts and restructuring of the company signal that Liberty has a greater plan for its interest in On Command," Harrigan wrote. "We have heard for sometime now that Liberty was looking to shift its ownership in [On Command] (approximately 63 percent after the purchase of 2.25 million shares from Mr. Kern) under the Liberty Satellite umbrella in an effort to create more value at both companies.
"In our opinion, with Liberty Satellite management taking on a prominent role in On Command's operations, this shift appears more likely," Harrigan concluded.
Last Wednesday, Liberty Media Group Inc. — Liberty Satellite's parent — made another move to strengthen the ties between itself and On Command.
Liberty Media's Ascent Entertainment Group Inc. said June 27 that it would invest up to $60 million in On Command through the purchase of a new series of preferred stock. On Command said the proceeds of the investment would fund its operations into early 2002.
