Lindblad Expeditions Holdings, Inc. (LIND) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Lindblad Expeditions Incorporated First Quarter 2016 Financial Results Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. John McClain, CFO of Lindbland. Please go ahead.

Thank you, operator, and good morning, everyone and thank you for joining us on our first quarter 2016 earnings conference call. Joining us on the call are Ian Rogers, our Chief Operating Officer and Mark Ein, our Chairman. Mark will add some opening comments then I'll follow the details on the results of the first quarter. And then I’ll turn it over to Ian who’ll provide comments and other developments in the business. And then we’ll open the call to your questions. Our press release for the first quarter 2016 results was issued this morning and is available on our Investor Relations website. The Company's comments today may include statements about expectations for the future, those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance and future periods to be materially different from any future results or performance suggested by these expectations. The Company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements. If you would like more information on the risks involvement in forward-looking statement, please see the Company's SEC filings. In addition some of our comments may reference non-GAAP financial measures, a reconciliation are most directly comparable GAAP financial measures and other associated disclosers are contained in the Company's earnings release. With that, I would like to turn the call over to Mark.

Thank you, John, and good morning, everyone. I want to start by just letting all of you know that on Tuesday, late in the day, our furious leader Sven Lindblad found out that he had a detached retina and needed to get some minor surgery done yesterday. And he is recovering. He is actually on the phone, but we want Sven to recover as quickly as we can. The team and myself are going to take the majority of this call and tell you what's going on, but Sven is on the phone and he is recovering well. It is a very busy time for Lindblad. The team is working extremely hard to both maximize our economics from the existing fleet and business today, while simultaneously recruiting new talent to the senior management team and adding additional growth levers, including new lines of business and new capacity, which is really where the big value creation opportunity is. We are excited to [tell you] all these activities this morning and so I'm going to hand it back over to John who will talk about the financial results for the first quarter. And then Ian will talk about a wide range of other topics and activities and I'll come back and close it out at the end. So John.

Thank you, Mark. We had strong quarter and we are pleased with how the year’s begun. The Company generated total revenue of $61.6 million in the first quarter, which represents an increase of $6.2 million or 11.2% from the $55.4 million in the first quarter of 2015. The growth was primarily driven by $6.1 million of higher guest ticket revenues, derived from the change in vessel deployments which yielded a 10% increase in guest nights sold and an increase in pricing. Net yield remained strong at a $1,008 in the quarter compared with a $1,004 in the prior year quarter. We recorded 47,619 guest nights sold in the first quarter, which was up 10.2% - the last year. While we had 5,284 guests, which is a 5.9% increase than the first quarter in 2015. The occupancy rate in the quarter was 91.8% compared with 92% in the first quarter last year. Demand was very strong in a quarter while inventory was up due to a change in deployments. Adjusted net cruise cost per available guest night amounted to $670 in first quarter of 2016 compared with $701 in the same period in the prior year, which represents a decrease of 4.1%. This decrease was due to the benefits of increased available guest nights and lower fuel costs exceeding the impact of higher costs or more voyages in public company costs. We continue to benefit from the lower cost of fuel in the first quarter. Fuel costs represented 4.4% of the total revenue in the first quarter compared with 5.5% in the same period last year. This represents 17% decrease in the fuel expense year-over-year. We don't anticipate such continued benefits for the remainder of the year. And as we mentioned before, we've not hedged fuel purchases historically, but continue to investigate the potential relative to our business model. Adjusted EBITDA for the first quarter was $17.6 million compared with $14.2 million in the same period last year and the increase is primarily due to the benefit of increased revenue from that 10% increase in guest nights sold, exceeding the increase in variable costs to provide those additional guest nights and the increase in public company costs. We have not repurchased any shares or warrants since late January and tend to focus our capital, the growth initiatives similar to Natural Habitat. On the liquidity front, we remain extremely well positioned to fund upcoming projects. We ended the quarter with $182 million in cash excluding $15 million of restricted cash compared with the debt balance of $174 million and those amounts excludes the impacts of purchasing both Nat Hab and the Endeavour II, which occurred after the end of the quarter. Overall, we are very pleased with where we stand and are on our track to meet our future objectives. With that, I'll turn the call over Ian to share our activities related to the longer-term of the business.

Thank you, John and good morning to you all. I'd like to spend some time this morning talking about recent Company events and our considerable efforts focused on the longer-term building of the business. Yesterday, we announced the acquisition of 80.1% for the outstanding common stock of Natural Habitat, Inc., a leading adventure travel and ecotourism company based in Boulder, Colorado for $20 million. The implied 2015 EBITDA purchase multiple for the acquisition is 5.4 times including the $5 million of cash acquired at closing. The acquisition of Nat Hab provides Lindblad a platform for expansion into land-based offerings with a partner that has a strong, trusted and complementary brand, an entrepreneur who remains very driven, motivated and focused on building his business and a company with a shared focus on nature and conservation. We are very excited by this opportunity. I would like to direct you towards our separate press release on investor deck for much more detail on the transaction. In addition, last week we announced that we have launched our first 16-weekly expeditions in Cuba that will run from December 2016 through March 2017. These trips are new additions to our plan. We believe that we have created a Cuba offering that is very special and differentiated from others entering the market and that there will be strong demand long into the future for Cuba and all that it has to offer. As we look forward, we do see some potential headwinds. A mix of factors including things like the U.S. and global economics, [indiscernible] in Europe, the earthquake in Ecuador, the Zika virus, and El Niño all impacts our people feel and our willingness to book trips many months out. Some are waiting to book closer to the trip date. We have also seen an unanticipated softening on bookings on the Endeavor for late in the year. As you know, we will be replacing Endeavor with Endeavor II and the excitement regarding the new ship has some guests opting to wait for the new ship. Lastly, on our own end, we were delayed in getting our core marketing catalogue completed and nailed, which has given a two months less time to have an impact on future sales. We continue to respond to all these challenges as we have in the past with focused marketing and enhancements to our offerings. Even with the impact of these events, our advanced bookings for 2016 remain solid. As of April 30, 89% of projected guest ticket revenue for 2016 was on the books compared with 98% on books for the same time in 2015 for travel in 2015, a reduction of approximately $5.3 million in ticket revenue much of which is in the fourth quarter. As I mentioned, we have a number of initiatives in place to drive revenue growth in this period. To significantly enhance our marketing capabilities and to help execute our growth plan, we announced on Tuesday that we have recruited Phil Auerbach to the newly established position of Chief Commercial Officer. Phil brings us a great depth and breadth of new skills, tactics and experiences most recently responsible for all sales and marketing functions for Caesars' nine Las Vegas properties including CRM, social media, event and partnership. For us, he will be responsible for all revenue production and will lead marketing, sales, digital product development, and strategic partnerships. Our expansion requires an integrated commercial approach with an innovative leader to implement new growth strategies where we get even closer to our core existing customers in fact much more deeply into the vast untested demand for new customers who are interested in this kind of travel. So it’s perfectly placed for this new roll and will start at the end of May. On our fleet, as we have discussed before our plan calls for adding two new 100 passenger, U.S. flagged, coastal vessels to be added to our fleets in 2017 and 2018. The builds are proceeding on schedule. The first vessel, which has been named the National Geographic Quest, is expected to be delivered in the second quarter of 2017 and will sail in Alaska and British Columbia during the summer of 2017. The second newbuild vessel is expected to be delivered in the second quarter of 2018. On the Via Australis which we have renamed the National Geographic Endeavour II, we took possession to ship on April 25 and have begun refurbishment. We continue to plan for an estimated deployment in the fourth quarter of this year. Lastly, we are diligently working on those previous announced plans for at least one newbuild vessel to be delivered in 2019. Now, I'd like to turn the call over to Mark to wrap it up.

Thank you, Ian and John. In summary, as you have heard Lindblad continues to post strong operating results. We have a tremendous opportunity in front of us and we are focused on recruiting world class talent to our team and executing our growth plan both organically and through small acquisitions to capitalize on this opportunity. Now we are glad to take your questions. Operator, we will now take questions.

We will now begin the question-and-answer session. [Operator Instructions] We have a question from Eric Gomberg of Dane Capital Management. Please go ahead.

Hi. Thanks for taking my call. I was curious if you could talk a little bit about any expectations you have on the Natural Habitat acquisition and what type of cross-selling opportunities you think are there?

Thanks, Eric. This is Mark. If you look at our - at the presentation that we shared yesterday around the acquisition you'll see the last year's EBITDA that we shared. We haven't shared projections yet or may not specifically for that line of business, but as Ian said in his remarks, we think this is a really perfectly complementary company. It's got shared values, culture and a very shared similar demographic. But then more importantly, mutually we do think that there's a lot of opportunities for us to cross sell. We know Lindblad actually used to be in the land based business and we know that a lot of our travelers are interested in that kind of travel. And similarly a large number of Natural Habitat customers are interested in our kind of maritime travel. And so that really was the driver behind it was being able to capitalize on those things. And obviously the Company also comes with a long-term relationship with the World Wildlife Funds which is a very important organization with its own set of a large set of relationships that Natural Habitat is very successfully tapped into and we certainly think and hope that we're going to find ways to tap into that as well. So it was a traffic opportunity for us to buy really nicely fitting business at a really attractive price. And with a lot of upside which will be driven from those kind of cross marketing opportunities.

Okay. And just one follow-on. You mentioned in your opening remarks you just mentioned that you still have a buyback authorization, but it sounds like you're looking more towards the growth initiatives, just curious if you could maybe characterize what the acquisition pipeline looks like, kind of what the opportunity set is there obviously 5.4 times trailing it looks pretty attractive. So do you have a number of things kind of the - of course there is kind of a wide variety because you know at the same time your stock looks reasonably attractive as well as especially within authorization out there and a lot of dry powder on your balance sheet.

Yes. So, we always sort of evaluate the three buckets for our capital. Internal growth to adding capacity, which we know is very attractive to us, generates great returns. Opportunistically looking at acquisitions of which since we completed our merger last year and became a public company there's been a constant steady flow of things that we have seen or gone after. And then lastly there's obviously also the opportunity buy back or stock and warrants and we’re looking at all three at all times and we’re looking for the highest best returns on that capital. And at different times all three are very attractive. As you said we do have a good amount of liquidity and you know are going to continue to look at all three and be hopefully be judicious and smart and how we deploy it.

Great, Mark. Thank you.

[Operator Instructions] Our next question comes from Mordechai Yavneh of Focus Capital Management. Please go ahead. Mr. Yavneh.

Congratulations on the great quarter. I just have some questions on the Nat Hab acquisition? Can you give some color on what Nat Hab’s gross margins are and whether they're operating at capacity were they have room to expand?

Ian do you want to…

We’ve haven’t disclosed operating margins publicly with regard to expansion possibilities. Just in general a land-based offering is a variable cost model, with very few limitations to geographic ability to offer trips and so we see that there is a lot of room for expansion as we look to grow the brands.

Okay. Are you planning to integrate the companies kind of into one or is it basically just can be sharing customer databases by operating them separately?

We are operating the company separately and sharing databases to really maximize the revenue potential.

Lindblad is able to use the World Wildlife Funds database that provided to Nat Hab or that’s remained by Nat Hab?

The agreements are that Nat Hat shares its database, Lindblad shares its database.

That means you would get World Wildlife Funds database that was shared with Nat Hab also?

I think on this we're at the beginning of this journey of World Wildlife Fund get extend there, as we said extended their relationship with Nat Hab and connection with this, they're very supportive of it. But we're just at the very beginning of thinking through all the different ways that we're going to be able to leverage off each other's relationships and databases. And as Ian said, it will be run independently. The entrepreneur who runs it, Ben Bressler who is a terrific guy really wanted to maintain some amount of independence and maintain his entrepreneurial spirit that's led him built it. But that said, also was looking to Lindblad to provide him resources and room for growth and also provided that back to us and so we're going to let it run fairly independently, but also try to exploit synergies and relationships to our mutual benefit whenever we can.

Okay. And if I could just ask one more follow-up. On the conference call yesterday it was mentioned that Nat Hab already sell some of Lindblad’s cruises. Do you have any - can you give like some sort of idea or the number of 30% of Lindblad’s revenue that comes now from Nat Hab and how much more you can expect that, you’re hoping to gain from the synergies.

It’s very small right now, so we hope to be able to sell our trips to some of their customers and vice versa, but right now the amount that crossover there is very small.

Okay. Thank you so much. Congratulations again.

Thank you.

Our next question comes from Robert Kirkpatrick of Cardinal Capital. Please go ahead.

Good morning. I was wondering if you could try to allocate or prioritize the impacts on the softness that you're seeing in the fourth quarter bookings between the new ship, the list of things that you cited at the beginning from the global economy El Niño to the delays and start getting out the catalog.

Thank you for your question. I think the one thing you should bear in mind that pacing is only an indicator of bookings that appeared in time and does not necessarily represent where our final revenue will be. So we talked about potentially $5 million off from our pacing at prior years, but as you mentioned there are internal factors which we have corrected and our marketing material is out. The world fact is something we deal with every year and I think in previous conference calls we've been very clear and as we presented Lindblad to the market that we are very creative and go to a [long lands] to make sure those voyages fill as we anticipate them to sell. I think quantifying between each of the factors is something really that would be difficult to do. We are very much more interested and just making sure we had every note that we can and filling those vessels to the targets we need.

So therefore the softness in the Endeavor be - probably the least one in terms of your thinking of it?

I don't think we can specifically identify those factors as I discussed. I thank the important thing as we have initiatives in place that will address both the specific items around Endeavor, worldwide events. There are a slow of them together. We are operating in a multitude of geographic opportunities. And so we have some diversification around that. And then finally, we've corrected our internal hick-up on the marketing production. So we're doing what we do best as a company and really move towards filling those vassals. I think it's the best way I can answer that question for you.

And then when we get to the second quarter you'll give us a number that more reflects 2017 as opposed to 2016 is that the way your data disclosure works?

We’ll think about at that time because even when you get there the amount of data relative to the 2017 is pretty small. So we are thinking about that and how we’ll handle the next quarter.

Great. Thank you so much.

Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Mark Ein, Chairman of Lindblad for any closing remarks.

Thank you, operator and thank you all for joining. Thank you to the team for doing a terrific job as you can tell the company has an incredible amount on its plate and the team is doing a really terrific job executing on all fronts and we'll look forward to keeping in touch with all of you. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.