Lindblad Expeditions Holdings, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. The unaudited quarter and six-month periods ended June 30, 2015 precede the July 8, 2015 merger of Lindblad Expeditions, Inc. with Capitol Acquisition Corp. II, a special-purpose acquisition company. Capitol had no operating revenue before the merger; Lindblad’s results below are its standalone historical results, not post-merger consolidated results. Lindblad operates expedition cruises and adventure travel experiences, including through its alliance with National Geographic.
Financial performance and liquidity
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Tour revenue | $49.5 million | $50.8 million | $105.0 million | $102.2 million |
| Gross profit / margin | $28.0 million / 56.6% | $26.7 million / 52.5% | $59.1 million / 56.3% | $56.1 million / 54.9% |
| Operating income / margin | $2.4 million / 4.9% | $8.1 million / 16.0% | $10.4 million / 9.9% | $19.3 million / 18.9% |
| Net income / margin | $8.8 million / 17.8% | $5.2 million / 10.2% | $15.8 million / 15.0% | $13.6 million / 13.3% |
| Adjusted EBITDA | $12.0 million | $11.0 million | $26.3 million | $25.1 million |
| Occupancy | 91.9% | 95.8% | 91.9% | 95.1% |
| Net yield per available guest night | $963.10 | $1,020.45 | $984.12 | $983.22 |
- Cash flow: Lindblad generated $23.2 million of operating cash flow in the first half, versus $18.9 million in 2014. Investing activities used $108.3 million, principally for the CFMF transaction and restricted funds; financing activities provided $98.5 million, including $150 million of new debt proceeds, offset by debt repayment and financing costs.
- Liquidity: At June 30, Lindblad had $53.5 million of cash and cash equivalents, excluding $47.5 million of restricted cash and marketable securities. Net working capital was $15.4 million, compared with a $59.7 million deficit at December 31, 2014. Unearned passenger revenue, a current liability, was $79.0 million.
- Debt: Lindblad reported $150.0 million of principal, or $139.8 million net of discounts and financing costs, under the May credit facility. The July 8 amended facility totaled $175 million, comprising a $155 million U.S. term loan and a $20 million Cayman loan; it bears interest at adjusted LIBOR, subject to a 1% floor, plus 4.50%, and matures in 2021. As of June 30, Lindblad reported compliance with its financial covenants.
Material changes versus the prior comparable period
- Q2 revenue declined 2.6%, chiefly because of increased discounts on Indian Ocean cabin revenue; first-half revenue rose 2.7%, reflecting higher tour prices, additional charter voyages, and stronger pre- and post-voyage and air-ticket sales.
- Q2 operating income fell to $2.4 million from $8.1 million, and first-half operating income fell to $10.4 million from $19.3 million. Higher general and administrative costs—including transaction-related compensation and professional fees—and higher selling and marketing expenses outweighed lower tour costs.
- Reported net income increased despite lower operating income. Q2 and first-half 2015 included $5.0 million of success-fee income connected with new debt financing and a $7.5 million gain on the CFMF asset transfer. These unusual items materially affected reported earnings.
- Q2 occupancy declined 3.9 percentage points year over year and net yield fell 5.6%; first-half occupancy also declined, while first-half net yield was essentially flat.
- Fuel costs were 3.4% of tour revenue in Q2 and 4.5% for the first half, down from 5.4% and 6.2%, respectively, in 2014. Adjusted EBITDA increased modestly in both comparison periods.
Outlook, commentary, risks and unusual items
- Management said cash on hand, expected operating cash flows, financing access and merger proceeds should be sufficient for operations, debt service and capital expenditures over the next 12 months; it cautioned that future cash flows and financing are not assured.
- Management plans to order two coastal vessels, targeted for delivery in 2017 and 2018, with capacity of approximately 100 guests each. Funding is expected from merger cash, the amended credit facility and operating cash flow. Lindblad also planned to redeploy the National Geographic Orion to European itineraries in 2016; itinerary details had not yet been finalized.
- The amended credit agreement is secured by substantially all assets and imposes leverage, indebtedness and investment restrictions, reporting requirements and other covenants. The post-merger leverage covenant began at 4.75 to 1.00 and is scheduled to tighten to 3.50 to 1.00 by 2020.
- Key disclosed risks include demand sensitivity to economic and geopolitical conditions, cruise safety incidents and adverse publicity, competition, vessel repair or construction delays, foreign-currency exposure, regulatory and environmental requirements, and compliance with the Jones Act and non-U.S. ownership limits. The National Geographic alliance and license agreement was extended through 2025.
- The filing reports ordinary-course claims and legal proceedings for Lindblad, but gives no clear estimate of potential exposure. Capitol reported no litigation. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
- Capitol’s separate pre-merger statements show no revenue, a Q2 net loss of $0.8 million and a first-half net loss of $2.2 million. Following the merger, approximately $92.3 million of trust-account funds was released for general corporate purposes; the transaction also involved $90 million cash and 20,017,787 shares issued to former Lindblad stockholders, plus assumed options.
Important facts for investors to verify
- Reconcile reported net income with operating performance, separating the $5.0 million financing-related fee and $7.5 million CFMF gain from recurring results; review the company’s non-GAAP Adjusted EBITDA definition and reconciliation.
- Review the amended credit agreement’s final terms, covenant calculations, required amortization and interest-rate exposure, and confirm continuing covenant compliance.
- Assess available liquidity after accounting for restricted cash, advance passenger deposits, merger-related uses of funds and planned vessel investment.
- Track occupancy, net yield, discounting and booking trends, especially for the Orion’s planned European itineraries and the two proposed new vessels.
- Confirm the effects of Jones Act ownership restrictions, National Geographic agreement terms, and any material developments in Lindblad’s legal or regulatory matters.