Lindblad Expeditions Holdings, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statement figures are unaudited. Lindblad operates expedition cruises and adventure tours through its Lindblad and Natural Habitat segments.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Tour revenue | $76.7 million | $69.5 million | $166.3 million | $151.9 million |
| Operating income | $4.1 million | $4.2 million | $18.5 million | $18.6 million |
| Net income (loss) | $0.9 million | $(0.2) million | $15.9 million | $10.8 million |
| Net income available to common stockholders | $1.0 million | $0.1 million | $15.7 million | $10.9 million |
| Adjusted EBITDA (non-GAAP) | $12.5 million | $11.5 million | $34.5 million | $33.6 million |
- Revenue increased 10% in Q2 and 9% for the first half. Lindblad growth was primarily associated with added capacity from the National Geographic Venture; Natural Habitat growth reflected additional departures and higher pricing.
- Operating margin was approximately 5.4% in Q2 versus 6.1% a year earlier, and 11.1% for the first half versus 12.2%. Higher tour, marketing, and depreciation costs offset revenue growth. Selling and marketing expense rose 19% in Q2 and 17% in the first half.
- Q2 net income improved from a small prior-year loss. First-half net income increased 48%, including a $2.5 million income-tax benefit, compared with tax expense of $0.5 million in the prior-year period. Management attributed the tax change to itinerary timing and release of certain uncertain tax positions.
- First-half operating cash flow was $37.2 million, up from $24.8 million. The filing cites improved operating results and increased bookings for future travel; unearned passenger revenue increased $21.6 million.
- First-half capital spending was $42.3 million, versus $31.5 million, primarily for two new polar ice-class vessels. Cash, cash equivalents and restricted cash totaled $112.1 million at June 30; unrestricted cash was $78.7 million, down from $113.4 million at year-end. Restricted cash included $32.0 million in Federal Maritime Commission escrow.
- At June 30, total debt principal was approximately $200.5 million ($187.7 million carrying value after deferred financing costs); $2.0 million was current. The $200 million term loan bore a 5.648% rate at quarter-end and matures in March 2025. No revolving-facility borrowings were outstanding. The company reported compliance with debt covenants.
- Working capital deficit was $29.1 million, compared with $9.3 million at December 31, 2018. Unearned passenger revenue was $145.1 million, reflecting advance guest receipts. The filing explains these receipts may be used for operating needs and other purposes.
Business developments, outlook and risks
- The company had eight owned expedition ships and five seasonal charter vessels. It was building the National Geographic Endurance, targeted for delivery in January 2020, and contracted for a second vessel targeted for September 2021.
- The second vessel’s hedged purchase price was approximately $153.5 million, subject to contract adjustments. The company disclosed $123.3 million of related future obligations as of June 30, including $61.1 million current and $62.2 million due in one to two years. Financing of up to $122.8 million is available under a new export credit agreement, subject to conditions.
- Management stated that cash on hand, the revolving facility, export credit agreements and expected operating cash flows were believed sufficient for operations, debt service, newbuild capital spending and other needs, while cautioning that future operating cash flows are not assured. No specific earnings or revenue guidance is provided.
- Seasonality is significant: Lindblad revenue historically is larger in the first and third quarters, while Natural Habitat records much of its revenue in the third and fourth quarters. Interim results are not necessarily indicative of full-year performance.
- Principal disclosed risks include economic conditions; weather, mechanical or other disruptions; growth execution; competition and adverse cruise-industry publicity; maintaining the National Geographic relationship; regulation; debt covenant compliance; and vessel construction delays or cost overruns. The company reported ordinary-course legal and regulatory matters and stated that protection and indemnity insurance is expected to cover damages; unfavorable outcomes could still be material.
- After quarter-end, the July 17, 2019 warrant exchange converted 9,935,000 warrants into approximately 3.825 million common shares; remaining warrants were to be converted into approximately 55,000 shares, leaving no warrants outstanding. This is a material share-count consideration.
- Adoption of lease accounting on January 1, 2019 added right-of-use assets and lease liabilities; lease liabilities were $6.0 million at June 30. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- How revenue and operating margins develop as the new ship capacity is deployed, and whether higher marketing, personnel, and operating costs moderate.
- Cash availability and funding needs, including the restricted escrow balance, advance passenger receipts, and the working capital deficit.
- Construction schedules, final costs, financing conditions, and funding for both vessels; the filing identifies delivery and cost overruns as risks.
- The effect of the completed warrant exchange on diluted share count and per-share results. Shares outstanding were 45.7 million at June 30; the filing reports 49.6 million issued and outstanding as of July 31.
- Interest-rate and currency exposure: a hypothetical 1 percentage-point LIBOR move was estimated to change annual interest expense by approximately $1.0 million; the company uses rate caps and currency forwards.