Business context and reporting period
Lindblad Expeditions Holdings, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The company operates expedition cruises and adventure travel through Lindblad and Natural Habitat; Natural Habitat was acquired in May 2016, so prior-period comparisons include it only from May 5, 2016. Results are seasonal and interim results are not necessarily indicative of full-year performance.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data and percentages. Comparisons are with the corresponding 2016 period.
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Tour revenue | $55.6, up 3% | $118.7, up 3% |
| Gross profit / gross margin | $26.9 / 48.4%, versus $24.5 / 45.5% | $57.4 / 48.4%, versus $60.8 / 52.7% |
| Operating income (loss) | $(1.7), versus $(2.5) | $(0.3), versus $8.4 |
| Net income (loss) attributable to Lindblad | $(2.5), versus $(4.3); EPS $(0.06), versus $(0.10) | $(1.9), versus $6.1; EPS $(0.04), versus $0.13 |
| Adjusted EBITDA, non-GAAP | $5.3, versus $5.2 | $15.5, versus $22.8; $22.0 excluding estimated voyage-cancellation impact |
| Operating cash flow | Not presented for the quarter | $23.2, versus $6.8 |
At June 30, cash and cash equivalents were $99.3 million, down from $135.4 million at December 31, 2016; restricted cash and marketable securities were a further $21.3 million. Six-month investing outflow was $51.0 million, including $38.7 million of property and equipment purchases; financing outflow was $8.5 million. Cash declined $36.1 million over the six months. Working capital was $11.7 million, down from $47.1 million at year-end, and current liabilities included $117.1 million of unearned passenger revenue.
Debt was $165.8 million net of discounts and deferred financing costs ($174.0 million principal), including $1.75 million current. The $45 million revolving facility was undrawn. Term-loan interest was 5.82% at June 30; the company reported compliance with covenants and a 4.25-to-1 net leverage ratio. Management stated cash, available revolver capacity and expected operating inflows should fund operations, debt service and planned capital needs, while cautioning that future operating cash flows are not assured.
Material changes versus the prior period
- Six-month revenue increased $3.3 million, but Lindblad segment revenue fell 8% as Natural Habitat’s additional contribution was partly offset by six first-quarter voyage cancellations and lower occupancy. Excluding cancellations, management estimated revenue would have been $127.8 million, up 11%.
- Six-month operating results weakened from $8.4 million income to a $0.3 million loss. Cost of tours rose 12% and general and administrative expenses rose 27%, partly reflecting a full period of Natural Habitat results and higher stock-based compensation. Lower depreciation and amortization and interest expense provided offsets.
- Operating cash flow increased primarily because unearned passenger revenues rose with bookings; this working-capital source is linked to advance customer deposits, not solely earnings.
- Property and equipment increased to $218.1 million from $186.2 million, reflecting the vessel construction program. Cash and total working capital declined, while unearned passenger revenues increased.
Outlook, commentary, risks and unusual items
- The National Geographic Quest was delivered in July 2017 after a delay; management estimated four cancelled voyages would reduce full-year tour revenue by approximately $3.6 million and Adjusted EBITDA by approximately $3.0 million. The National Geographic Venture was expected to launch in June 2018. At June 30, the company had paid $51.6 million and $14.9 million, respectively, toward the two vessels.
- First-quarter repairs led to cancellations of four highly booked Orion voyages and two Sea Lion voyages. Management estimated a $9.1 million revenue impact, including $1.9 million of insurance revenue, and a $6.5 million Adjusted EBITDA impact. The filing also records $1.9 million of insurance revenue for cancelled Orion voyages; contested claims were excluded.
- No formal numerical full-year guidance is provided in the filing. Management identifies risks including weather, mechanical failures, voyage cancellations, shipbuilding delays, demand and competition, regulatory compliance, growth execution and credit-covenant compliance. Lindblad describes fuel-cost exposure as historically limited, with fuel equal to 2% of Lindblad tour revenue in Q2 2017 and 2% for the first half.
- Stock-based compensation was $6.4 million for the first half, versus $2.6 million a year earlier, including expense associated with CEO allocation awards. The company repurchased $6.2 million of shares and warrants during the first half under its $35 million authorization.
- The company reported ordinary-course legal matters with no proceedings expected by management to materially affect financial position, results or cash flows. It reported no off-balance-sheet arrangements, no impairment charges, and effective disclosure controls.
Most important facts for investors to verify
- Whether vessel operations and occupancy recover after the 2017 cancellations and the Quest delivery delay, and whether the Venture is completed on schedule and within budget.
- How much reported operating cash flow depends on advance bookings and unearned passenger revenue, and how liquidity evolves as those deposits fund voyages.
- Whether Natural Habitat improves profitability as it is integrated, and whether elevated general and administrative and stock-compensation costs persist.
- Debt covenant headroom, the cost of floating-rate debt, remaining vessel capital commitments and management’s assumptions supporting its liquidity assessment.
- The treatment and timing of insurance recoveries, and the realization and renewal risks associated with Galápagos operating rights and other key licenses.