Lindblad Expeditions Holdings, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Amounts are USD millions unless otherwise stated. The company operates expedition cruises and, following its May 4 acquisition of 80.1% of Natural Habitat, land-based adventure travel. Natural Habitat’s results are included from May 5, 2016.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Tour revenue | $53.9 | $49.5 | $115.4 | $105.0 |
| Gross profit / margin | $24.5 / 45.4% | $28.0 / 56.6% | $60.8 / 52.6% | $59.1 / 56.3% |
| Operating income (loss) | $(2.5) | $2.4 | $8.4 | $10.4 |
| Net income (loss) | $(4.5) | $8.8 | $6.0 | $15.8 |
| EPS attributable to Lindblad | $(0.10) | $0.20 | $0.13 | $0.35 |
| Adjusted EBITDA | $5.2 | $12.0 | $22.8 | $26.2 |
- Revenue and margins: Revenue rose 8.9% in Q2 and 9.9% year to date, mainly from $5.7 million of Natural Habitat revenue. Lindblad’s own Q2 revenue declined 2.6% as drydock activity reduced available guest nights. Consolidated Q2 cost of tours increased 36.7%; gross margin fell to 45.4%.
- Cash flow: Six-month operating cash flow was $6.8 million, versus $23.9 million a year earlier. Investing used $52.0 million, including $32.9 million of property and equipment purchases and $9.9 million net cash used for the Natural Habitat acquisition. Financing used $10.6 million. Cash and equivalents declined $56.1 million to $150.8 million.
- Liquidity: Current assets were $197.3 million and current liabilities $111.4 million; management reported net working capital of $85.9 million. Restricted cash and securities were $17.6 million and are not freely available for general use. The company attributes its working-capital profile in part to passenger deposits collected before departures.
- Debt: Credit-facility principal was $173.25 million; Natural Habitat also issued a $2.525 million note. Debt carrying value, net of discount and financing costs, was $165.7 million, including $1.75 million current. The term loans bear interest at LIBOR plus 4.50% (5.50% stated rate at June 30); maturity is May 2021. A $45 million revolving facility was undrawn. The company reported a 4.5-to-1 net leverage ratio and compliance with covenants.
Material changes and notable items
- Natural Habitat was acquired for approximately $20.0 million of consideration, comprising $14.8 million cash, $2.5 million debt and $2.7 million restricted shares. Its retained 19.9% interest is classified as redeemable noncontrolling interest; the agreement includes specified put and call rights.
- Q2 operating results were pressured by planned drydocking of three vessels, including lower capacity and higher drydock costs, as well as increased general and administrative expense. Natural Habitat reported $5.7 million revenue and a $0.8 million operating loss for its included period.
- Q2 2015 included $12.5 million of unusual income (a debt-financing success fee and a gain on transfer of assets). The prior-year comparison also included merger-related expenses; 2016 included acquisition-related expenses and National Geographic fee amortization.
- Depreciation and amortization rose to $4.9 million in Q2 and $9.4 million for the half-year, partly reflecting accelerated depreciation of the National Geographic Endeavour, expected to be replaced in Q4 2016.
Outlook, risks and commitments
- No specific revenue or earnings guidance is provided. Management said cash on hand, the revolver and expected operating cash inflows should fund operations, debt service, capital spending and other planned uses, while cautioning that future operating cash flows are not assured.
- Two 100-passenger coastal vessels are under construction for $48.0 million and $46.8 million, with delivery expected in Q2 2017 and Q2 2018. The company had spent $20.2 million by June 30. It planned up to a further $7.4 million to refurbish and outfit the National Geographic Endeavour II, expected to enter service in Q4 2016.
- Management cited Zika-related concerns in certain destinations and reduced activity related to the National Geographic Endeavour, as well as seasonality, drydock timing, competition, economic conditions, regulatory compliance, covenant compliance, execution of growth plans and ship-construction risks. Fuel represented 2.3% of Lindblad Q2 revenue and 3.3% for the half-year; fuel hedging was under evaluation.
- Other commitments include $21.8 million of future minimum charter payments and the two vessel construction contracts. The company disclosed ordinary-course legal claims and proceedings, with protection and indemnity insurance expected to cover damages. No off-balance-sheet arrangements were reported.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported growth and future performance is attributable to Natural Habitat, and whether its operating losses improve after integration.
- Actual remaining construction and refurbishment costs, delivery timing, funding sources and expected returns for fleet investments.
- Whether operating cash generation and advance passenger deposits can support planned spending while maintaining covenant compliance and liquidity.
- Underlying performance excluding drydock timing, acquisition costs, accelerated depreciation and other non-GAAP adjustments; assess Adjusted EBITDA alongside GAAP results and cash flows.
- Potential effects of destination-specific demand concerns, seasonality, foreign currency exposure, and the Natural Habitat noncontrolling-interest put/call terms.