Lindblad Expeditions Holdings, Inc. — Q1 2016 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. The company operates expedition cruises and adventure travel, with six owned ships and four seasonal charter vessels. Results are subject to seasonal factors and may not indicate full-year performance.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Tour revenue | $61.6 million | $55.4 million | +11.2% |
| Gross profit / margin | $36.3 million / 59.0% | $31.0 million / 56.0% | Margin +3.0 percentage points |
| Operating income / margin | $10.9 million / 17.8% | $8.0 million / 14.4% | |
| Net income | $10.5 million | $6.9 million | +51.0% |
| Basic and diluted EPS | $0.23 | $0.16 | |
| Adjusted EBITDA (non-GAAP) | $17.6 million | $14.2 million | |
| Net cash from operating activities | $(1.0) million | $10.4 million | |
| Cash and cash equivalents at period end | $181.9 million | $37.9 million | Prior-period-end cash balance |
| Debt principal outstanding | $173.7 million | Not stated here | Net carrying amount was $163.1 million |
Revenue growth was primarily from a $6.1 million increase in guest ticket revenue, attributed to vessel deployment changes and price increases. Net yield rose to $1,008 from $1,004; occupancy was 91.8%, versus 92.0%. Cost of tours increased 3.7%, slower than revenue growth. Fuel was 4.1% of revenue, compared with 5.5% a year earlier.
Operating cash flow declined largely due to payments on newbuild progress work and timing of customer deposits and accounts-payable payments. Investing cash outflow was $13.9 million, including $6.9 million of property and equipment purchases and $7.0 million added to restricted cash and marketable securities. Financing cash outflow was $10.0 million, including a $5.4 million warrant repurchase and deferred financing costs. Cash decreased $25.0 million during the quarter. Restricted cash and marketable securities totaled $15.5 million and are not freely available.
Material changes and unusual items
- General and administrative expense rose $2.4 million, mainly from personnel costs and public-company professional and legal fees.
- Depreciation and amortization increased $1.9 million to $4.6 million, primarily because the National Geographic Endeavour’s remaining useful life was shortened ahead of its expected replacement in Q4 2016.
- Interest expense increased $1.5 million to $2.7 million, mainly reflecting higher debt levels. The income statement also recorded a $2.2 million income tax benefit, versus a $23,000 benefit in Q1 2015.
- There were no merger-related expenses in Q1 2016, compared with $2.3 million in Q1 2015.
- The company repurchased 1,967,445 warrants for $5.4 million during the quarter; $9.1 million remained under its $20.0 million repurchase authorization at March 31.
Liquidity, debt and outlook
Working capital was $128.7 million at March 31, versus $130.0 million at year-end. The company had a $175 million senior secured term-loan facility and a new $45 million revolving facility, including a $5 million letter-of-credit subfacility; no revolver borrowings were outstanding at quarter-end. The term loan rate was 5.50%, and the term loans mature in 2021. The revolver matures in 2020. The company reported a 4.5-to-1 net leverage ratio and compliance with financial covenants.
Management stated that cash on hand, the revolver and expected operating cash flows should be sufficient for operations, debt service, capital spending, acquisitions and the repurchase plan, while noting there is no assurance future operating cash will be available. This is not quantified earnings guidance.
Capital commitments include two 100-passenger coastal vessels costing $48.0 million and $46.8 million, scheduled for delivery in Q2 2017 and Q2 2018. The company reported $13.9 million spent on their construction by March 31. It also paid $16.2 million for the National Geographic Endeavour II on April 25 and expected to spend up to $9.3 million more on refurbishment, with deployment expected in Q4 2016. Management cited newbuild execution and growth management among the risks; fuel hedging was under evaluation, and fuel purchases were not historically hedged.
Subsequent events and other disclosures
- On May 4, 2016, the company acquired an 80.1% interest in Natural Habitat, expanding into land-based travel. Consideration included $14.85 million cash, 264,208 shares valued at $2.65 million, and a $2.5 million unsecured note.
- The CFO announced his resignation effective August 16, 2016; a replacement search was underway. A new commercial officer was appointed effective May 26.
- A proposed CEO share-allocation plan for up to 1.0 million shares was subject to stockholder approval. The contemplated contribution of shares by the CEO would correspond to awards granted under the plan.
- Ordinary-course legal claims and regulatory matters were disclosed; the company said it maintained protection and indemnity insurance expected to cover damages. A U.S. federal tax audit for 2013 was pending; the company reported $0.7 million of unrecognized tax benefits.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether operating cash generation recovers, given Q1 operating cash outflow and the timing sensitivity of advance passenger deposits and payables.
- Funding capacity and covenant headroom for the two newbuilds, the Endeavour II refurbishment, the Natural Habitat acquisition and debt service.
- Execution, delivery timing and total costs of the vessel projects, and whether the Endeavour II enters service as planned.
- Drivers and sustainability of revenue and yield growth, including occupancy, pricing, deployment mix and fuel costs.
- The effect of the tax benefit on reported net income and the outcome of the pending tax audit.
- Integration and performance of Natural Habitat, including the expected benefits and costs of the land-based expansion.