Lindblad Expeditions Holdings, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Lindblad operates six owned expedition ships and four seasonal charter vessels, with an alliance with National Geographic. The July 8, 2015 merger with Capitol was accounted for as a reverse acquisition; reported operating history is principally Lindblad’s, and merger-related costs affect comparison with 2014.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Tour revenue | $58.6 million | $51.5 million | $163.5 million | $153.7 million |
| Gross profit / margin | $33.1 million / 56.6% | $28.9 million / 56.2% | $92.2 million / 56.4% | $85.0 million / 55.3% |
| Operating income / margin | $5.8 million / 9.8% | $10.7 million / 20.7% | $16.1 million / 9.9% | $29.9 million / 19.5% |
| Net income | $4.4 million | $7.3 million | $20.2 million | $20.8 million |
| Adjusted EBITDA (non-GAAP) | $15.8 million | $13.6 million | $42.1 million | $38.7 million |
| Operating cash flow | — | $30.3 million | $27.0 million |
Q3 revenue increased 13.8%; nine-month revenue rose 6.4%. Growth reflected additional owned- and charter-vessel voyages, and for the nine-month period higher tour prices and extension and air-ticket sales. Occupancy declined to 90.5% from 93.0% in Q3 and to 91.4% from 94.4% for the nine months. Net yield was $935.21 in Q3 (down 1.6%) and $966.09 for nine months (up slightly from $964.61).
Operating income and net income declined despite revenue growth. Operating expenses included $5.5 million of Q3 merger costs; nine-month merger-related expenses totaled $13.3 million, including $5.0 million of success-fee compensation. Q3 net income also reflected higher interest expense. Nine-month results included a $7.5 million gain on transfer of assets and $5.0 million of other income related to financing, making reported earnings less indicative of recurring operations. Adjusted EBITDA is a company-defined non-GAAP measure and is not a substitute for cash flow or net income.
Financial position and liquidity
- September 30 cash and cash equivalents were $208.8 million; restricted cash and marketable securities were an additional $9.3 million.
- Debt principal was $174.6 million, with a net carrying amount of $164.4 million after discounts and financing costs; $1.75 million was current. The new secured credit facility matures May 8, 2021 and bears interest at adjusted LIBOR, subject to a 1.00% floor, plus 4.50%.
- Net working capital was $140.9 million, compared with a $59.7 million deficit at December 31, 2014, reflecting merger proceeds and financing. Unearned passenger revenue, a current liability, was $72.9 million.
- Nine-month cash flows: $30.3 million provided by operations, $75.7 million used in investing (including the CFMF transaction and capital spending), and $214.6 million provided by financing, including debt and merger proceeds.
Management said cash, expected operating inflows and the credit agreement should fund operations, debt service and capital expenditures for the foreseeable future, while noting there is no assurance future cash flows or financing will be available. The company reported compliance with financial covenants at quarter-end.
Outlook, developments and risks
- No quantified financial guidance was provided. Management emphasized occupancy, pricing, net yields and disciplined capacity expansion. The National Geographic Orion is planned to move to European summer voyages in 2016.
- The company signed a non-binding letter of intent for two coastal vessels, targeting delivery in Q2 2017 and 2018, with capacity of about 100 guests each. It paid a non-refundable $4.0 million shipyard slot fee; management expects to fund construction with cash on hand and operating cash flow.
- Fuel costs fell as a share of revenue; the company historically has not hedged fuel purchases. Risks cited include demand and competition, growth execution, regulation, credit covenant compliance, general economic conditions, and adverse cruise-industry publicity.
- The National Geographic alliance was extended through 2025. A $13.8 million long-term asset was recorded for option shares related to the alliance and is being amortized through March 2020.
- On November 9, 2015, after quarter-end, the board approved a $20 million stock and warrant repurchase plan. The filing reports ordinary-course legal claims and regulatory matters, with protection and indemnity insurance expected to cover damages. A U.S. federal tax audit for 2013 was pending; management noted tax outcomes could differ from recorded estimates.
- In Q3, the company changed procedures for counting certain small supply items and recorded a $321,011 adjustment to cost of tours; it also reclassified $413,593 of supplies to property and equipment.
Investor facts to verify
- Whether occupancy and net-yield trends improve, and whether added capacity can be filled at profitable pricing.
- Debt covenant headroom, variable-rate interest exposure, and the effect of debt service on cash available for ship construction or repurchases.
- Final terms, cost, financing and delivery risks for the proposed coastal vessels; the letter of intent is non-binding.
- How much of reported earnings and adjusted EBITDA reflects recurring operations versus merger, CFMF and other unusual items.
- Potential dilution from outstanding options and 16.1 million warrants, and the execution and funding of the announced repurchase plan.