Lindblad Expeditions Holdings, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual filing; fourth-quarter figures are also summarized below. Lindblad operates expedition cruises and land-based adventure travel through its Lindblad and Natural Habitat segments.
Business context and reporting period
The company operated seven owned ships and five seasonal charter vessels. Its National Geographic alliance supports branding, marketing and expedition programming; that channel generated about 25% of 2017 guest ticket revenue. Natural Habitat, acquired in May 2016 with Lindblad holding an 80.1% interest, expanded the company’s land-based travel business.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Tour revenue | $266.5 million | $242.3 million |
| Gross profit / gross margin | $131.0 million / 49.1% | $123.4 million / 50.9% |
| Operating income / operating margin | $10.7 million / 4.0% | $14.0 million / 5.8% |
| Net income (loss) | $(7.5) million | $5.1 million |
| Net income (loss) attributable to common stockholders | $(8.7) million | $4.9 million |
| Adjusted EBITDA, non-GAAP | $43.5 million | $41.7 million |
| Cash provided by operating activities | $52.9 million | $31.4 million |
| Capital expenditures | $80.5 million | $75.9 million |
| Cash and cash equivalents at year-end | $96.4 million | $135.4 million |
| Debt principal outstanding at year-end | $173.2 million | $174.9 million |
Net yield for the Lindblad segment rose to $985 from $976; occupancy declined to 87.4% from 90.3%. Gross profit increased, but gross and operating margins contracted as costs grew faster than revenue. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Liquidity included an undrawn $45 million revolving facility. Working capital was negative $12.7 million, compared with a positive $47.1 million at year-end 2016; management attributed the recurring deficit in part to advance guest payments recorded as current unearned revenue. The company reported compliance with its credit covenants. Its senior term loan carried a 6.34% rate at year-end and matures in 2021; substantially all assets secure the credit facility.
Material changes versus the prior comparable period
- Revenue grew 10%, including $15.2 million of additional Natural Habitat revenue as 2017 included a full year of operations, versus a partial year in 2016. Lindblad segment revenue increased 4%.
- Management estimated 2017 revenue was reduced by about $12.4 million and Adjusted EBITDA by about $9.0 million due to ship repair cancellations and delayed delivery of the National Geographic Quest. Excluding those effects, management estimated revenue would have grown 15% and Adjusted EBITDA 26% year over year.
- Operating income fell 23%, while the company moved from net income to a net loss. The $10.0 million income tax expense included a provisional $12.7 million net tax expense related to the Tax Act; management said the tax accounting was not yet complete.
- Operating cash flow increased by $21.5 million, primarily because unearned passenger revenue rose $20.7 million. Cash declined by $39.0 million during the year as investment and financing outflows exceeded operating cash generation.
- Fourth-quarter revenue was $63.2 million, up from $56.1 million in 2016, while the quarterly net loss widened to $15.0 million from $8.4 million. The filing does not provide a single stated cause for the entire fourth-quarter loss; the annual results cite the provisional Tax Act charge as a major unusual item.
Outlook, commentary, risks and unusual items
- Demand and capacity: As of February 26, 2018, 90% of expected 2018 Lindblad-segment guest ticket revenue was booked. The company reported occupancy above 87% in each of 2015–2017 and described a strategy of premium pricing rather than broad discounting. This booking figure is for the Lindblad segment, not necessarily the consolidated company.
- Fleet investment: The National Geographic Venture was expected to enter service in the fourth quarter of 2018. A polar ice-class vessel was targeted for January 2020, potentially as early as November 2019, at a stated purchase price of $134.6 million including hedging costs. The company held options for two further polar vessels. A January 2018 agreement, after the reporting date, made up to $107.7 million of export-credit financing available for the polar vessel, subject to conditions and at the company’s option.
- Principal risks: Disruptions from weather, mechanical failures, accidents, disease or geopolitical events; construction delays and cost overruns; competition and discretionary travel demand; higher fuel, labor and maintenance costs; foreign-exchange and interest-rate exposure; and compliance with maritime, environmental and Jones Act requirements. The filing notes a 100-basis-point interest-rate increase would reduce annual pretax earnings by about $1.7 million, based on year-end debt.
- Concentration and access: The National Geographic relationship and brand are significant; termination or material changes could harm results. Galápagos operating rights are subject to cupos permits currently set to expire in July 2024, with renewal preparations expected to begin in 2020.
- Other items: Voyage cancellations were attributed to engine repairs on the National Geographic Orion, air-conditioning repairs on the National Geographic Sea Lion, and delayed Quest delivery. The company reported no material litigation expected to adversely affect its financial position or results. It did not plan to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether 2018 bookings converted to completed voyages and whether the new vessels were delivered on schedule and within budget.
- Actual operating performance against management’s estimates of revenue and Adjusted EBITDA lost to 2017 cancellations and delays.
- The final tax effects of the Tax Act and any material adjustments to the provisional 2017 tax amounts.
- Cash generation, capital spending, debt service and covenant headroom as fleet commitments come due; the $45 million revolver was undrawn at year-end 2017.
- Retention and renewal of Galápagos permits, and the continuing terms and contribution of the National Geographic alliance.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2017; the auditor did not provide an attestation opinion on internal controls.