Lindblad Expeditions Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; compared with the three months ended March 31, 2018, unless otherwise noted. Unaudited results. Lindblad operates expedition cruises and adventure travel through its Lindblad and Natural Habitat segments.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Tour revenue | $89.7 million | $82.4 million | +9% |
| Operating income | $14.4 million | $14.4 million | Essentially flat |
| Operating margin | 16.0% | 17.4% | Down about 1.4 percentage points |
| Net income | $15.1 million | $10.9 million | +38% |
| Net income available to common stockholders | $14.7 million | $10.8 million | +36% |
| Diluted EPS | $0.31 | $0.24 | +$0.07 |
| Adjusted EBITDA | $22.0 million | $22.2 million | −1% |
| Cash provided by operating activities | $15.3 million | $10.5 million | +$4.8 million |
| Capital expenditures | $35.1 million | $14.5 million | +$20.6 million |
Segment and operating indicators: Lindblad revenue grew 8% to $76.0 million, while operating income rose 2% to $13.6 million. Occupancy was 91%, unchanged; available guest nights increased to 58,669 from 53,917, mainly following the addition of the National Geographic Venture. Lindblad net yield declined to $1,099 from $1,127, primarily due to itinerary changes. Natural Habitat revenue increased 14% to $13.6 million, but operating income fell 22% to $0.7 million as additional departures and personnel and marketing costs more than offset revenue growth.
Balance sheet, debt and liquidity
At March 31, 2019, cash and cash equivalents were $70.1 million, down from $113.4 million at year-end; restricted cash was $30.5 million, up from $8.8 million. Combined cash, cash equivalents and restricted cash were $100.6 million. The company reported a $28.3 million working capital deficit, compared with $9.3 million at December 31, 2018; unearned passenger revenue was $129.5 million.
Debt principal totaled approximately $201.0 million, including $2.0 million current; the balance-sheet carrying value was $190.0 million after unamortized financing costs. The $200 million term facility matures in March 2025 and bore a 5.99% rate at quarter-end. No borrowings were outstanding under the $45 million revolving facility. The company said it was in compliance with debt covenants. Management stated that cash, available facilities, credit agreements and expected operating cash flows should fund operations, debt service and planned investment, while cautioning that future operating cash flows are not assured.
Material changes and unusual items
- Revenue growth was largely offset by higher operating costs: operating expenses rose 11%, including a 23% increase in depreciation and amortization. Operating income was nearly unchanged.
- Net income growth benefited materially from a $3.1 million income tax benefit in Q1 2019, versus $0.3 million of tax expense in Q1 2018. The filing reports a 25.5% effective tax benefit rate for 2019, compared with a 2.5% expense rate in 2018.
- Other expense decreased to $2.4 million from $3.2 million, including a $0.7 million foreign-currency gain versus a $0.5 million loss a year earlier; net interest expense increased to $3.0 million from $2.7 million.
- Q1 investing cash outflow rose with vessel-related property and equipment purchases. The company adopted lease accounting in 2019, recognizing $6.2 million of right-of-use assets and lease liabilities.
- National Geographic exercised an option in March 2019 to acquire 891,113 shares from Mr. Lindblad in a cashless transaction.
Outlook, commitments and risks
The company provided no specific revenue or earnings guidance in this filing. It described results as seasonal: Lindblad revenue has historically been stronger in the first and third quarters, while Natural Habitat’s revenue is concentrated in the third and fourth quarters. Drydocking can reduce revenue and increase tour costs.
Two new polar ice-class vessels are under contract. The National Geographic Endurance is targeted for January 2020, with a stated purchase price of $134.6 million including hedging costs. A second vessel is targeted for September 2021; its purchase price was hedged at approximately $153.5 million, subject to contract adjustments. The company reported $123.3 million of additional obligations related to the second vessel as of March 31, 2019. On April 8, 2019, it entered into a credit agreement making up to $122.8 million available, subject to conditions, to finance up to 80% of that vessel’s purchase price.
Risks identified include economic conditions; weather, mechanical or other disruptions; competition; regulatory and environmental compliance; maintaining the National Geographic relationship; debt covenant compliance; financing availability; and vessel construction delays or cost overruns. The filing also describes ordinary-course litigation and regulatory matters; outcomes may be difficult to predict, and material adverse outcomes could affect results or liquidity. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether revenue growth and 91% Lindblad occupancy can be sustained, given the lower net yield and flat consolidated operating income.
- How the tax benefit affected reported net income, and whether it is repeatable; distinguish GAAP results from Adjusted EBITDA.
- Funding needs and cash availability for both vessel builds, including the conditions and drawdown timing of the export credit facilities.
- Liquidity implications of the working capital deficit, restricted cash, and advance passenger receipts, alongside upcoming operating and capital spending.
- Exposure to variable interest rates, currency movements, vessel delivery or cost changes, and other disclosed operating and legal risks.