Lindblad Expeditions Holdings, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Dollar amounts below are in millions unless noted. Lindblad operates expedition cruises and, since acquiring 80.1% of Natural Habitat on May 4, 2016, land-based adventure travel. Natural Habitat’s results are included from May 5, making year-over-year comparisons partly non-comparable.
Financial performance
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Tour revenue | $70.8 | $58.6 | $186.2 | $163.5 |
| Gross profit | $38.3 | $33.1 | $99.1 | $92.2 |
| Gross margin | 54.2% | 56.6% | 53.2% | 56.4% |
| Operating income | $10.2 | $5.8 | $18.6 | $16.1 |
| Net income | $7.4 | $4.4 | $13.4 | $20.2 |
| Diluted EPS attributable to Lindblad | $0.16 | $0.10 | $0.29 | $0.44 |
| Adjusted EBITDA (non-GAAP) | $17.4 | $15.8 | $40.2 | $42.1 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $15.7 | $30.4 |
Q3 revenue rose 21%, primarily from $14.6 million of Natural Habitat revenue, partly offset by lower Lindblad revenue due to reduced available guest nights. Nine-month revenue increased 14%, including $20.3 million from Natural Habitat. Lindblad’s nine-month net yield increased to $1,006 from $966; Q3 occupancy was 90.8%, compared with 90.5%.
Q3 operating income benefited from the absence of $5.5 million of prior-year merger expenses and lower air and fuel costs. Nine-month net income declined largely because 2015 included a $7.5 million asset-transfer gain and $5.0 million of success-fee income, while 2016 had higher accelerated depreciation. Nine-month Adjusted EBITDA also declined, primarily due to a $1.9 million lower contribution from the Lindblad segment. Adjusted EBITDA is a non-GAAP measure.
Financial position and liquidity
- Cash and cash equivalents were $149.0 million at September 30, 2016, down from $206.9 million at December 31, 2015. Restricted cash and marketable securities were an additional $10.4 million.
- Current assets were $185.9 million and current liabilities $106.3 million, a $79.6 million working-capital surplus. Unearned passenger revenue was $84.6 million; advance guest receipts are a significant source of operating liquidity.
- Long-term debt principal was approximately $175.3 million, including the $2.5 million Natural Habitat acquisition note; reported debt carrying value was $165.8 million before current/noncurrent classification. The $45 million revolving facility was undrawn. The term loans mature in 2021; the revolver matures in 2020. The company reported covenant compliance.
- Nine-month investing cash outflow was $62.5 million, including $50.6 million of property and equipment purchases and $9.9 million net cash used for the Natural Habitat acquisition. Financing cash outflow was $11.0 million.
Material developments, outlook and risks
- Capital investment includes two 100-passenger coastal vessels priced at $48.0 million and $46.8 million, with delivery expected in Q2 2017 and Q2 2018. The company had spent $30.2 million on their construction by September 30. The National Geographic Endeavour II was undergoing renovation for planned Q4 2016 deployment, replacing the National Geographic Endeavour.
- Management said cash on hand, the revolving facility and expected operating cash flows should fund operations, debt service, capital spending, acquisitions and the repurchase plan; it cautioned that future operating cash flows are not assured. No specific revenue or earnings guidance was provided in the filing text.
- Natural Habitat reported Q3 revenue of $14.6 million and operating income of $0.3 million; from acquisition through September 30, it reported $20.3 million revenue and a $0.5 million operating loss. Its founder retains a 19.9% interest subject to put/call arrangements.
- Key risks include seasonality and drydock timing, execution and cost risks for ship construction and renovation, competition and economic conditions, the ability to manage growth, and compliance with debt covenants. The company operates with advance customer deposits and significant capital needs. Ordinary-course legal claims and regulatory proceedings are disclosed; management expects protection and indemnity insurance to cover damages.
- The National Geographic Endeavour’s remaining useful life was shortened, accelerating depreciation through expected replacement in Q4 2016. Fuel costs declined as a share of Lindblad revenue; the company had not historically hedged fuel and continued to evaluate a hedging strategy.
Investor verification priorities
- Assess underlying Lindblad performance separately from Natural Habitat’s contribution and the acquisition-related comparison effects.
- Verify the cost, timing, delivery and funding of the two newbuild vessels and Endeavour II renovation, including remaining commitments.
- Review debt covenant headroom, future cash generation and planned use of the $45 million revolver alongside capital spending and repurchases.
- Reconcile the decline in nine-month net income and Adjusted EBITDA with accelerated depreciation and 2015’s one-time gains and merger costs.
- Monitor Natural Habitat profitability, integration and the terms and potential consequences of the minority-interest put/call arrangement.