Lindblad Expeditions Holdings, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports unaudited fourth-quarter results. Unless noted, financial amounts are in U.S. dollars.
Business context
Lindblad operates expedition cruises and adventure travel, with six owned ships and five seasonal charter vessels at year-end. In May 2016, it acquired 80.1% of land-based ecotourism operator Natural Habitat; its results are consolidated from May 5, 2016. National Geographic is a major sales, marketing, and branding partner, accounting for approximately 27% of 2016 guest ticket revenue. The company reported Lindblad and Natural Habitat as separate segments.
Financial and operating performance
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Tour revenue | $242.3 million | $210.0 million |
| Gross profit | $123.4 million | $114.6 million |
| Operating income | $14.0 million | $15.5 million |
| Net income | $5.1 million | $19.7 million |
| Diluted EPS | $0.10 | $0.43 |
| Operating cash flow | $31.4 million | $40.3 million |
| Adjusted EBITDA, non-GAAP | $41.7 million | $46.8 million |
Gross margin was approximately 50.9% versus 54.6%; operating margin was approximately 5.8% versus 7.4%. Revenue rose 15%, primarily because Natural Habitat contributed $34.5 million after acquisition; Lindblad segment revenue declined 1%. Lindblad occupancy was 90.3% versus 91.8%, while net yield increased to $976 from $971.
Fourth-quarter 2016 revenue was $56.1 million versus $46.5 million a year earlier. Gross profit was $24.3 million versus $22.4 million. The quarter recorded a net loss of $8.4 million, or diluted loss per share of $0.19, compared with a $0.4 million net loss and $0.01 diluted loss per share in Q4 2015.
At December 31, 2016, cash and cash equivalents were $135.4 million, restricted cash and marketable securities were $9.0 million, and net working capital was $47.1 million, down from $130.0 million a year earlier. Total debt principal was $174.9 million, including $172.4 million under the secured term loan; the company had not drawn its $45 million revolving facility. The term loan carried a 5.50% rate at year-end and matures in 2021. The company reported compliance with its 4.50:1.00 leverage covenant. A 100-basis-point rate increase was estimated to reduce annual pretax earnings by about $1.7 million.
Changes, outlook, and unusual items
- Net income fell 74% year over year. Drivers included higher operating expenses and depreciation, interest expense, and the absence of 2015 gains and success-fee income; 2015 also included $13.3 million of merger-related expenses.
- Natural Habitat contributed $34.5 million in revenue and $2.2 million in operating income for the post-acquisition period. Consolidated 2016 results therefore include only part of a year of its operations.
- The National Geographic Orion engine issue led to five canceled voyages. Management estimated a 2016 revenue impact of about $1.0 million and operating-income impact of about $0.6 million; for 2017 it expected a $9–10 million revenue impact and a $2–3 million operating-income impact. The ship was scheduled to resume regular operations in April 2017.
- Management reported that 82% of expected 2017 Lindblad guest ticket revenue was booked as of February 28, 2017. This is a booking indicator, not formal earnings guidance.
- Two new 100-guest coastal ships, costing $48.0 million and $46.8 million, were under construction, with expected delivery in Q2 2017 and Q2 2018. The filing lists $53.0 million of remaining fleet-expansion purchase obligations at year-end.
- Capital spending was substantial: operating cash flow of $31.4 million was below $86.4 million of investing cash outflow, which included vessel construction and acquisition and renovation of Endeavour II. The company expects cash, operating inflows, and its revolver to support operations, debt service, and committed investment, while noting there is no assurance future operating cash will suffice.
Risks and contingencies
Key risks include discretionary travel demand and geopolitical conditions; severe weather, natural disasters, mechanical failures, and shipyard delays; fuel and other operating-cost inflation; competition and capacity; regulatory and environmental requirements; access restrictions and Galápagos operating permits; foreign-exchange and variable-rate debt exposure; and compliance with credit covenants. The business also depends on National Geographic and, through Natural Habitat, WWF. Jones Act citizenship and ownership limits may constrain share transfers and U.S. coastwise operations. The company reported no litigation expected to have a material adverse effect. Its financial statements received an unqualified audit opinion; management concluded controls were effective, but Natural Habitat was excluded from the internal-control assessment as a recent acquisition.
Investor facts to verify
- Separate organic Lindblad performance from Natural Habitat’s partial-year contribution and assess Natural Habitat’s full-year profitability and integration.
- Track the Orion’s return to service and whether the disclosed 2017 revenue and operating-income impacts materialized.
- Monitor vessel delivery timing, remaining construction payments, capital spending, and resulting cash and debt levels.
- Review covenant headroom, floating-rate exposure, and liquidity after the sharp decline in working capital and cash during 2016.
- Assess booking conversion and occupancy alongside net yield, and verify the continued terms and performance of the National Geographic and WWF relationships.
- Consider non-GAAP Adjusted EBITDA alongside GAAP earnings and cash flow; the filing cautions that non-GAAP measures may not be comparable across companies.