Lindblad Expeditions Holdings, Inc. — Q3 2018 Form 10-Q
Business context and reporting period: The company operates expedition cruises under Lindblad and land-based adventure tours through Natural Habitat. This unaudited report covers the three and nine months ended September 30, 2018, compared with the corresponding 2017 periods. Amounts below are in millions of dollars unless stated otherwise.
Key financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Tour revenue | $87.2 | $84.6 | $239.1 | $203.3 |
| Gross profit | $42.3 | $46.1 | $124.5 | $103.5 |
| Gross margin | 48.5% | 54.5% | 52.1% | 50.9% |
| Operating income | $10.3 | $13.5 | $28.9 | $13.3 |
| Operating margin | 11.8% | 16.0% | 12.1% | 6.5% |
| Net income | $5.3 | $9.4 | $16.1 | $7.5 |
| Net income per diluted share | $0.11 | $0.20 | $0.35 | $0.16 |
| Adjusted EBITDA, non-GAAP | $17.1 | $23.1 | $50.8 | $38.7 |
- Quarterly comparison: Revenue increased 3%, but cost of tours rose 17%, reducing gross profit by 8% and operating income by 24%. Net income fell 43%. Q3 Adjusted EBITDA declined about 26%.
- Nine-month comparison: Revenue rose 18%, operating income rose 118%, and net income more than doubled. Adjusted EBITDA increased about 31%.
- Cash flow: Nine-month operating cash flow was $39.3, versus $29.4 in 2017. Investing cash outflow was $47.0, primarily reflecting vessel construction and restricted-cash requirements; financing provided $17.0, largely reflecting refinancing activity. Cash and equivalents ended at $105.7, up from $96.4 at year-end 2017. Operating cash flow less property and equipment purchases was approximately negative $6.3.
- Liquidity and debt: Working capital deficit was $1.1, improved from $12.7 at year-end, largely in a business that collects many guest payments in advance. Unearned passenger revenues were $112.7. Debt carrying value was $190.2, including current maturities; principal was $202.0. The company had no Revolving Facility borrowings and reported compliance with its debt covenants. Cash less debt principal was approximately negative $96.3.
- Balance sheet: Total assets were $464.8 and total liabilities were $338.0 at September 30, 2018. Property and equipment, net, was $282.5.
Material changes and management commentary
- For the quarter, Lindblad segment revenue fell 4% to $64.5, primarily due to drydock timing, fewer available guest nights and lower net yields. Occupancy improved to 91.5% from 90.6%, while net yield declined to $983 from $1,048. Natural Habitat revenue grew 33% to $22.7, driven by more departures and higher pricing.
- For the nine-month period, Lindblad revenue grew 16% and Natural Habitat revenue grew 26%. Lindblad occupancy improved to 90.7% from 87.8%; the addition of the National Geographic Quest increased capacity. Management attributed nine-month operating improvement in part to higher revenue and lower stock-based compensation versus 2017.
- Quarterly cost pressures included drydock expense, fuel and personnel costs. Depreciation and amortization rose 15% in Q3 and 25% year to date, largely due to the Quest. Nine-month foreign currency results shifted to a $1.4 loss from a $1.0 gain in 2017.
- The company refinanced its term debt in March 2018 with a $200.0 million senior secured term facility due in 2025 and a $45.0 million revolving facility due in 2023. The term loan rate was 5.74% at quarter-end. A $100.0 million interest-rate cap hedges part of variable-rate exposure; management estimated a 1 percentage-point LIBOR move would change annual interest expense by about $1.0.
Outlook, commitments and risks
- The filing provides no specific revenue, earnings or Adjusted EBITDA guidance. Management said cash on hand, available credit facilities and expected operating cash flows were expected to fund operations, debt service, capital expenditures and other commitments, while cautioning that future operating cash flows are not assured.
- The National Geographic Venture, with a $57.7 million contract price and $53.0 million paid by quarter-end, was scheduled for delivery in Q4 2018. The National Geographic Endurance is targeted for delivery in January 2020, potentially as early as November 2019; its stated purchase price is $134.6 million including hedging costs. Up to $107.7 million of export-credit financing is available for that vessel, subject to conditions, and would be drawn at delivery. In July, the board authorized another polar ice-class vessel for anticipated delivery in 2021.
- Risks highlighted include weather or mechanical disruption, construction delays and cost overruns, demand and competition, economic conditions, regulatory compliance, debt covenant compliance, and the company’s ability to achieve revenue and Adjusted EBITDA projections. Results are seasonal; management notes that quarterly results are not necessarily indicative of full-year performance.
- The company reported ordinary-course claims and legal actions and stated that protection and indemnity insurance would be expected to cover damages. No material value or specific contingency amount was provided. It reported no goodwill or long-lived-asset impairment and no material change in market-risk exposure.
- Adoption of the lease standard on January 1, 2019 was expected to materially increase balance-sheet assets and liabilities, but management did not expect a material effect on future operating results or cash flows. Tax accounting related to the 2017 Tax Act remained subject to completion in 2018; future adjustments could materially affect tax expense or the effective tax rate.
Important facts for investors to verify
- Whether vessel delivery schedules and construction costs remain on track, and how remaining commitments will be funded.
- Whether recent yield and margin pressure at Lindblad persists, and whether Natural Habitat growth can be sustained profitably.
- Debt covenant headroom, interest-rate exposure, and actual availability and conditions of the revolving and export-credit facilities.
- The final impact of Tax Act accounting and the effects of lease-standard adoption on the balance sheet.
- Seasonality, advance passenger deposits, and cash-flow needs: the company’s liquidity depends partly on receipts for future expeditions.