Lindblad Expeditions Holdings, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited results are compared with the corresponding 2018 periods. Lindblad operates expedition cruises and land-based adventure travel through its Lindblad and Natural Habitat segments. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Tour revenue | $101.0 | $87.2 | $267.3 | $239.1 |
| Operating income | $15.7 | $10.3 | $34.1 | $28.9 |
| Operating margin | 15.5% | 11.8% | 12.8% | 12.1% |
| Net income | $2.7 | $5.3 | $18.7 | $16.1 |
| Net income (loss) available to common shareholders | $(0.5) | $5.1 | $15.2 | $16.0 |
| Adjusted EBITDA, non-GAAP | $24.1 | $17.1 | $58.7 | $50.8 |
Q3 diluted EPS was $(0.01), versus $0.11; nine-month diluted EPS was $0.31, versus $0.35. Q3 common-shareholder results include a $2.7 million non-cash deemed dividend associated with the warrant exchange. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results or cash flow.
- Revenue and operating trends: Q3 revenue rose 16% and nine-month revenue rose 12%. The National Geographic Venture, added in late 2018, increased Lindblad capacity. Lindblad occupancy was 94% in Q3 and 92% year to date, up from 92% and 91%, respectively. Higher pricing and itinerary changes also supported yields. Natural Habitat revenue increased with additional departures and pricing.
- Costs and margins: Q3 operating expenses rose 11%, below revenue growth, and operating income increased 52%. Selling and marketing expense increased 27% in Q3 and 21% year to date, primarily from advertising, commissions and customer relationship technology. Depreciation and amortization increased 24%, mainly due to the Venture.
- Below operating income: Q3 net income fell 49%, despite higher operating income, as income tax expense rose to $7.4 million from $2.7 million and other expense increased to $5.6 million from $2.2 million. Other expense included a $2.3 million foreign-currency loss and higher interest expense. For nine months, net income increased 16%, while common-shareholder income declined after the warrant-related deemed dividend.
Cash flow, balance sheet and debt
- For the first nine months, operating cash flow was $41.6 million, compared with $39.3 million. Capital spending was $76.7 million, versus $45.5 million, largely related to the two new vessels. Financing provided $25.1 million, including $30.5 million drawn under the Second Export Credit Agreement. Cash, cash equivalents and restricted cash declined $10.0 million to $112.1 million; cash and cash equivalents excluding restricted cash were $104.1 million at September 30.
- Total assets were $529.6 million, compared with $473.4 million at year-end 2018. Property and equipment increased to $345.3 million from $286.0 million. Working capital was negative $17.3 million, versus negative $9.3 million at year-end, with $124.6 million of unearned passenger revenue among current liabilities.
- Debt principal totaled $230.5 million, including $2.0 million current; the reported carrying amount after deferred financing costs was $218.1 million. The $200 million term facility matures in March 2025; its stated rate was 5.266% at September 30. The $45 million revolving facility had no borrowings. The company reported compliance with debt covenants.
- The company stated that cash, available credit facilities and expected operating cash flows should fund operations, debt service and vessel-related spending, but cautioned that future operating cash flows are not assured.
Material changes, outlook and risks
- The company contracted for the National Geographic Resolution, scheduled for delivery in Q4 2021, at a hedged purchase price of approximately $153.5 million, subject to contract adjustments. It drew $30.5 million for an installment. The National Geographic Endurance, with a purchase price of $134.6 million including hedging costs, was targeted for delivery in Q1 2020. The filing identifies construction and financing obligations as material changes to future commitments.
- The July 2019 warrant exchange and consent solicitation converted all outstanding warrants into common shares; no warrants remained. The exchange increased shares outstanding and generated the $2.7 million non-cash deemed dividend.
- Foreign-exchange hedges for vessel construction had a $7.2 million liability fair value at September 30; the company recorded hedge losses in other comprehensive income. A hypothetical 10% change in the Norwegian krone was estimated to change OCI by a gain of about $9.5 million if stronger, or a loss of about $7.7 million if weaker. A 1% change in one-month LIBOR was estimated to affect annual interest expense by approximately $1.0 million.
- The filing provides no specific quantified revenue or earnings guidance. Management highlighted seasonality, with Lindblad revenue historically stronger in the first and third quarters and Natural Habitat revenue concentrated in the third and fourth quarters. Risks include weather or mechanical disruptions, competition, economic conditions, environmental regulation, maintaining the National Geographic relationship, debt covenant compliance, and vessel-delivery delays or cost overruns.
- The company reported ordinary-course legal and regulatory matters and stated that protection and indemnity insurance would be expected to cover damages. It did not quantify potential exposure; adverse outcomes could affect operations, liquidity or financial results.
Key facts for investors to verify
- Delivery timing, final costs and financing drawdowns for both new vessels, including remaining construction commitments and any contract adjustments.
- Liquidity and covenant headroom given the working-capital deficit, capital spending and reliance on advance passenger receipts.
- Whether revenue growth and higher occupancy and yields can persist while marketing, commissions, depreciation and interest costs rise.
- The impact of foreign-exchange and floating-rate exposures, including hedge fair values and amounts expected to be reclassified from accumulated OCI.
- The drivers and sustainability of quarterly tax expense and the distinction between net income and common-shareholder earnings after the warrant exchange.