Lindblad Expeditions Holdings, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; unaudited. Lindblad operates expedition cruises and adventure travel through its Lindblad and Natural Habitat segments. The National Geographic Quest entered service in July 2017.
Financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Tour revenue | $84.6M | $70.8M | $203.3M | $186.2M |
| Gross profit | $46.1M | $38.3M | $103.5M | $99.1M |
| Operating income | $13.5M | $10.2M | $13.3M | $18.6M |
| Net income | $9.4M | $7.4M | $7.5M | $13.4M |
| Net income attributable to Lindblad | $9.3M | $7.4M | $7.3M | $13.5M |
| Diluted EPS attributable to Lindblad | $0.20 | $0.16 | $0.16 | $0.29 |
- Approximate gross margin was 54.5% in Q3 (54.2% prior year) and 50.9% year to date (53.2% prior year). Operating margin was about 16.0% in Q3 versus 14.4%, but 6.5% year to date versus 10.0%.
- Nine-month operating cash flow was $29.4M, compared with $15.7M. Investing used $43.8M and financing used $9.0M; cash declined $23.1M to $112.3M.
- At September 30, cash was $112.3M, restricted cash and marketable securities $8.7M, and working capital $24.9M. Current liabilities included $99.7M of unearned passenger revenue.
- Debt principal was $173.6M, including $1.8M current; carrying value net of discounts and financing costs was $165.9M. The $45M revolving facility had no borrowings. Term-loan interest was 5.95%; the company reported a 4.25x net leverage ratio and compliance with covenants.
Changes versus comparable periods
- Q3 revenue rose 20% and operating income rose 33%; nine-month revenue rose 9%, while operating income fell 29% and attributable net income fell 46%.
- Management attributed Q3 growth mainly to the Quest launch and higher Natural Habitat guests. Natural Habitat’s nine-month comparison reflects a full 2017 period versus activity only from its May 2016 acquisition date in the prior-year reported results.
- Four highly booked Quest voyages were cancelled because of delayed delivery. The company estimated the nine-month revenue and operating-income effects at $12.5M and $8.9M, respectively. Separately, Orion and Sea Lion cancellations in Q1 were estimated to affect revenue by $8.9M and Adjusted EBITDA by $6.5M.
- Nine-month consolidated Adjusted EBITDA was $38.7M versus $40.2M; management’s cancellation-adjusted estimate was $47.8M. Q3 Adjusted EBITDA was $23.1M versus $17.4M, or $25.3M excluding the estimated cancellation impact. These are non-GAAP measures and are not substitutes for GAAP results.
- Higher general and administrative expense included increased stock-based compensation and $1.4M of executive severance costs. Nine-month interest and other expense improved by about $2.0M, primarily from foreign-currency gains and capitalized interest.
Outlook, commitments and risks
- The filing provides no specific full-year revenue or earnings guidance. Management said cash, available revolving credit and expected operating cash flows should fund operations, debt service and planned capital needs, while noting future operating cash flows are not assured.
- The National Geographic Venture was expected in Q4 2018; $18.1M had been paid toward its construction by September 30. In November 2017, the company entered a contract for a polar ice-class vessel at a stated $134.6M, including hedging costs, targeted for delivery in January 2020, potentially November 2019. The contract includes options for two more vessels.
- Other disclosed exposures include $19.2M of future minimum charter payments, seasonality (including Natural Habitat’s concentration of revenue in Q4), vessel construction and operating disruption risks, and the risk of failing to meet credit covenants. The National Geographic relationship runs through 2025 and WWF agreement through 2023.
- Management reported no legal proceedings expected to materially adversely affect the company, no off-balance-sheet arrangements, and effective disclosure controls. No material change in market-risk exposure was reported.
Important facts for investors to verify
- Whether reported and cancellation-adjusted performance estimates reconcile to actual results, and how insurance proceeds and any contested claims are treated.
- Delivery timing, final cost and funding for the Venture and polar vessel, including the effect of construction delays or cost adjustments.
- Cash generation, advance passenger deposits, capital spending, debt service and covenant headroom; confirm the reported leverage calculation and available revolver capacity.
- Underlying operating-cost trends, particularly stock compensation, severance, charter costs and the seasonal contribution from Natural Habitat.