Lindblad Expeditions Holdings, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited results; amounts below are in millions of dollars unless stated otherwise. Lindblad operates expedition cruises and, since acquiring 80.1% of Natural Habitat in May 2016, land-based adventure travel. Its fleet comprised six owned expedition ships and seasonal charter vessels.
Key financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Tour revenue | $63.1 | $61.6 | +3% |
| Gross profit / margin | $30.5 / 48.4% | $36.3 / 59.0% | Profit down 16% |
| Operating income / margin | $1.4 / 2.2% | $10.9 / 17.7% | Down 88% |
| Net income attributable to Lindblad | $0.6 | $10.5 | Down 94% |
| Diluted EPS | $0.01 | $0.23 | Down $0.22 |
| Adjusted EBITDA (non-GAAP) | $10.3 | $17.6 | Down 42% |
| Operating cash flow | $2.7 | $(1.0) | Improved $3.7 |
| Capital expenditures | $22.8 | $6.9 | Higher, primarily new vessels |
Revenue included $9.9 million from Natural Habitat, which contributed $0.1 million of operating income. Lindblad segment revenue fell 14% to $53.2 million. Management estimated revenue would have been $72.3 million, up 17%, absent voyage cancellations; this is a company estimate, not reported GAAP revenue.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $103.8 million, versus $135.4 million at year-end. Restricted cash and marketable securities were $13.4 million, up from $9.0 million.
- Net working capital was $24.9 million, compared with $47.1 million at December 31, 2016. Unearned passenger revenue, primarily advance guest deposits, was $95.8 million.
- Debt carrying value was $166.0 million, including $1.8 million current; the company reported approximately $166.0 million of debt obligations. The $45 million revolving facility had no borrowings. Term-loan interest was 5.82% at quarter-end; the term loans mature in May 2021.
- Net leverage ratio was 4.25:1, and the company reported compliance with credit covenants. The credit facility is secured by substantially all company assets.
- Total assets were $403.9 million and total liabilities $285.0 million at March 31.
Material changes and unusual items
- Six voyages were cancelled: four on National Geographic Orion for main-engine repairs and two on National Geographic Sea Lion for air-conditioning repairs. The estimated revenue impact was $9.1 million, including $1.9 million of insurance revenue; estimated Adjusted EBITDA impact was $6.5 million.
- Management’s cancellation-adjusted estimates were $16.7 million Adjusted EBITDA versus $17.6 million in Q1 2016, and $7.8 million operating income versus $10.9 million. These estimates are non-GAAP or adjusted comparisons.
- Cost of tours rose 29%, reflecting Natural Habitat, additional charter expeditions and other factors. General and administrative expense rose 35%, including $4.2 million of stock-based compensation versus $1.3 million a year earlier. Lower occupancy also affected Lindblad: 86.8%, compared with 91.8%.
- Cash used in investing was $27.3 million, mainly for new-ship construction and Federal Maritime Commission escrow. Financing used $7.1 million, including share and warrant repurchases. Cash decreased $31.6 million in the quarter.
- The company repurchased 480,864 common shares for $4.5 million and 513,372 warrants for $1.1 million. The board-authorized repurchase plan totals $35 million.
Outlook, risks and contingencies
- No quantified financial guidance was provided. Management said cash on hand, the revolver and expected operating cash flows should fund operations, debt service, capital spending, acquisitions and the repurchase plan, while cautioning that future operating cash may not be available.
- The first new coastal vessel, National Geographic Quest, was expected to launch June 26, 2017; the second, National Geographic Venture, was expected to launch in June 2018. Management said construction was on schedule. Contract prices were $48.0 million and $46.8 million, subject to change orders.
- Results are seasonal and interim results are not necessarily indicative of the full year. Natural Habitat’s revenue is concentrated in the fourth quarter; Lindblad revenue has historically been higher in the first and third quarters.
- Risks cited include weather or mechanical disruptions, execution of growth plans, competition, regulatory compliance, credit-covenant compliance, financing availability and failure to meet revenue or Adjusted EBITDA projections. Management said ordinary-course legal matters were not expected to have a material adverse effect. No off-balance-sheet arrangements were reported.
- The company adopted stock-compensation guidance in Q1, recording a $1.8 million increase to deferred tax assets and retained earnings through retroactive application. It expected the new lease standard to materially affect balance-sheet presentation, but not materially affect net income, upon planned adoption in 2019.
Important facts for investors to verify
- Whether the canceled voyages and vessel repairs were fully resolved, and whether insurance proceeds and adjusted impact estimates were realized as expected.
- New-vessel delivery timing, remaining construction costs, and funding needs relative to available cash and the unused revolver.
- Future occupancy, yields, operating costs and Natural Habitat’s seasonal contribution; distinguish reported results from management’s adjusted estimates and non-GAAP measures.
- Debt covenant headroom and liquidity, especially given the 4.25:1 leverage ratio, advance-deposit liabilities and continuing repurchases.
- Potential dilution from outstanding options, restricted awards and warrants; the filing reported 10.7 million warrants outstanding, excluded from diluted EPS as anti-dilutive.