Lindblad Expeditions Holdings, Inc. (LIND) Q1 2017 Earnings Report, Transcript and Summary

Good day. And welcome to the Lindblad Expeditions’ First Quarter 2017 Financial Results Conference Call and Webcast. All participants will be in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. And please note this event is being recorded. I would now like to turn the conference over to Mr. Craig Felenstein, Chief Financial Officer. Please go ahead.

Thank you, Ryan. Good morning, everyone. And thank you for joining us for Lindblad’s first quarter 2017 earnings call. Joining me is Sven Lindblad, our Founder and Chief Executive Officer and Ian Rogers, our Chief Operating Officer. Sven will begin with some opening comments and then I will follow with some details on our first quarter results. You can find our latest earnings release in the Investor Relations section of our Web site. Before we get started, let me remind everyone that the Company’s comments today may include statements about expectations for the future. Those expectations are subject to known and to unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance in 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 involved in forward-looking statements, please see the Company’s SEC filings. In addition, some of our comments may refer to non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the Company’s earnings release. And with that out of the way, let me turn the call over to Sven.

Thanks, Craig and good morning everyone and thank you, for joining us. I'm pleased to say that Lindblad Expeditions is off to a strong start in 2017, as the booking momentum we generated during the end of 2016 is accelerated into this year. During our first quarter, reservations for future travel were record shattering, eclipsing the same period in 2015 by 31% and 2016 by 86%. And this strength was very much broad based with significant growth across virtually every one of our destinations. Increasingly, not only are we seeing increased booking activity for travel in the current year, but we are also generating significantly more demand for itineraries in 2018. The timing of marketing material versus the year ago certainly plays into this, but it's clear that the overall interest in our expanding offerings continue to grow and the increase demand further bolsters our confidence in our long-term growth plan. 2017 is significant for us; symbolically, we’re celebrating the 50th anniversary of my father's ground breaking expeditions to the Galápagos Islands, which followed last year's 50th anniversary of his historic first passenger expedition to Antarctica. These milestones remind us all of the heritage of the expedition travel, and Lindblad in particular, a deeply rooted heritage that blends geography, knowledge and a laser focus on providing our guests with the most fulfilling experience as possible. It is a combination of these factors that I believe are critical to the relationship and trust we have developed over decades with our myriad constitutions. There is a vast community of people in the United States and abroad who created the notion of experience as core ingredient of their lives. They are willing to invest significantly in these experiences, provided they believe a company has the ability and the commitment to fill their desires, we have always known that; however, it is more important now than ever before. Everyone in this organization is fully cognizant of that salient fact and committed to ensuring we deliver on that promise for each and every one of our guests at every step along their journey; in their first engagement for the booking process and travel preparations during the actual expedition whether on board or off and once back at home. Our guests do not want to be passive tours and we foster active engagement with an experienced expedition team on vessels that are ideally equipped for exploration. We also spend a significant amount of time and resources ensuring these vessels are rigorously maintained in accordance with applicable regulations, international conventions and insurance requirements. Despite these steps, there are times when unforeseen repairs become necessary, in some rare cases, voyages that have already been heavily booked need to the cancelled. This was the case with the Orion after the engine failure on December 27th in Antarctica. An incident of this magnitude was unprecedented in our history as we have never had calls to cancel the entire season previously. But I am pleased to inform you that the Orion returned to service April 19th as planned and guests are currently enjoying it in itineraries. Unfortunately, this past quarter, we also had an issue with an air-conditioning system on the National Geographic Sea Lion, which results in cancelling two weeks in Central America. These mechanical issues have of course affected our financial results, which Craig will cover in a moment. However, it is important to emphasize that these incidents, while unfortunate, were in no way symptomatic of any long term factors; not age of the vessels, not lack of proper maintenance, there were simply events that really but periodically can and will affect the vessel. Looking ahead, we are little over a month away from the inaugural voyage of the U.S. built National Geographic Quest; the first installment, if you will, of our long term growth plan. She is essentially sold out for our last season and it's gratifying to see that our other ships operating in the area doing well despite the added inventory. It verifies our original thesis that adding to this geography was solidly rooted in excess demand. She will be the most sophisticated passenger vessel built in the U.S. in decades, and we are incredibly excited to launch our first entirely new purpose built expedition ship. For sister ship, the National Geographic Venture is on track for delivery in Q2 of 2018, and we are very close of selecting a shipyard for our planned blue water vessel for delivery in Q3 2019. This will, I believe, be the most thought out and equipped global expedition ship in the world, enabling us to penetrate regions inaccessible before and great comfort within array of modern tools for enhancing the expeditions tours. As we increase our capacity, we also continue to hone our human resources so that we can out skip upbeat as this growth kicks in. At the end of the day, it's not all about hardware but about the people in the field; captains, expedition leaders, chefs; naturalists, et cetera, who make these expeditions powerful and memorable; recruitment, training our development, are key to success. We have also significantly augmented our marketing and sales platform; adding fields' sales representative, broadening our communications tools and developing partnerships to generate audience interest. We also continued to see great promise in Natural Habitat, which is providing -- proving to be a valuable acquisition. This is particularly true as it relates to cross selling, which has grown exponentially since May 2016. We will continue to look for opportunities to add companies or products with economics, brand fit and management ability come together. Along those lines, I’ve just returned from a two week expedition in the South Pacific with a writer, a film team and dive experts to help craft another series of expeditions for our guests. This expedition will bring voyage to a seven month deployment of the National Geographic Orion beginning in March of 2018. What I saw the people I met the opportunities on earth will add greatly to a remarkable experience with intent to provide. Linblad Expeditions is [technical difficulty] Company with a dominant equity as our hardware; we are rather a mission driven enterprises whose value is our ability to connect our guests with the world in deep meaningful fairly research ways. The name Lindblad Expeditions is not meant to be taken that lightly nor is our partnership with National Geographic. We are not only offering expeditions but live and breathe in that faith on a daily basis, which ultimately provides the greatest value of all relevance. And now, let me turn the call over to Craig to discuss our financial results in detail.

Thanks Sven. As Sven mentioned, Lindblad has started 2017 with sustained operating momentum. Bookings continued to pace well ahead of a year ago, and given our average booking over approximately nine months, the strength we are seeing today should translate into substantial revenue growth in the back half of this year and beyond. This, combined with the significant demand for our first new build, the National Geographic Quest, continues to give us confidence in the long-term growth targets we have laid out. There are some short-term hurdles that will impact the current year, which I will discuss in a moment. But the growing demand for expedition travel, combined with our expanding capacity and Lindblad’s distinguished track record in delivering unparalleled expedition experiences has us poised to deliver increasing shareholder value in the years ahead. Turning the first quarter, on a reported basis, Lindblad delivered revenue growth of 3% versus the first quarter of 2016, while adjusted EBITDA declined by 42%. These results included contributions from Natural Habitat, which was acquired during the second quarter of 2016, as well as the impact of several voyage cancellations in the current year. Excluding these voyage cancellations, we estimate revenue growth would have been 17% and adjusted EBITDA would have declined approximately 800,000. The Lindblad segment reported revenues of $53 million, $8 million below a year ago, due to lower ticker revenue from the previously discussed cancellation of four voyages on the National Geographic Orion to perform necessary engine repairs, as well as the unplanned cancellation of two voyages on the National Geographic Sea Lion to repair the air conditioning system. All of these voyages were highly booked at the time of cancellation, so the revenue loss was significant over $9 million, $11 million in ticket revenues offset by $1.9 million of insurance revenue to cover certain expenses. Excluding the impact of these cancellations, we estimate Lindblad segment revenue growth would have been approximately 1% versus the first quarter a year ago. Available guest nights in the quarter declined 18%, primarily driven by the cancelled voyages, partially offset by the additional charter nights from the launch of our expeditions in Cuba. Occupancy in the quarter was 87% versus 92% a year ago, primarily due to the booking headwinds we saw during the early part of 2016 that we have discussed previously. Despite these headwinds, net yield remained in line with the year ago at $1,008 per night, primarily due to the higher rates versus the first quarter a year ago. Given the high occupancy and price points of the cancelled voyages, they did negatively impact our metrics in the quarter. We estimate that occupancy would have been over 88% and net yield would have been approximately $1,060, if not for the cancellations. Turning to the cost side of the business, Lindblad segment operating expenses were up 2%, primarily driven by $2.9 million increase in stock-based compensation, mainly associated with Sven’s distribution of his personal shares to the employee base. This was partially offset by accelerated depreciation a year ago due to the December retirement of the National Geographic Endeavour. For the full year of 2017, we anticipate approximately $5 million of additional stock-based compensation versus 2016 with the vast majority of this increase related to the CEO distribution. Excluding stock-based compensation and depreciation and amortization, total operating expenses were 1% lower than the first quarter a year ago, primarily due to the decline in G&A expenses from lower employee cost, which were mostly offset by an increase in cost of tours. The increased cost to tours reflects the addition of expeditions in Cuba and unanticipated reimbursement costs to guest due to the cancellation of the Orion and Sea Lion voyages, partially offset by lower fuel cost. Fuel cost in the quarter was 34% below prior year at 3.1% of revenue compared with 4.1% of revenue in the first quarter of 2016. Adjusted net cruise cost on a per night basis increased 23%, but the majority of this increase reflected a decline in available guest nights due to the voyage cancellations. Overall, on a report basis, the lower revenue due to the voyage cancellations resulted in adjusted EBITDA that was $7.7 million lower at the Lindblad segment versus the first quarter a year ago. Excluding the impact of these voyage cancellations, we estimate adjusted EBITDA in the quarter would have approximately $16.3 million or 7% below the prior year, reflecting the lower occupancy. Total Company net income in the quarter was $0.6 million or $0.01 per share as compared with $10.5 million or $0.23 per share in the first quarter of 2016. The year-on-year decline was primarily driven by the lower operating results and $2.9 million of higher stock-based compensations. Turning to the balance sheet, we remain extremely well positioned to invest in future growth opportunities. We ended the quarter with $104 million in unrestricted cash. Free cash flow for the quarter was a use of $20.1 million, which included $17 million spent on the new builds and an additional $3 million spent on vessels repairs, that is expected to be reimbursed. Including only maintenance CapEx, free cash flow was a slight source in the first quarter. Given the strength of our balance sheet, the confidence we have in our long-term growth opportunity and the belief that the Company’s share and warrant prices are not reflective of the value of the Company and our prospects, we repurchased 481,000 shares and 513,000 warrants for $5.5 million during the first quarter under our $35 million stock and warrant repurchase plan. As of May 1st, we have approximately $13 million remaining under the existing plan. It is important to note that our first priority for capital allocation is investing in our existing businesses and external growth opportunities that will enhance our long term growth profile. Turning to the full year 2017, the Lindblad segment is currently pacing $12 million ahead of the same point a year ago, despite the voyage cancellations on the Orion and Sea Lion. And it is primarily due to the additional inventory from the anticipated launch of the National Geographic Quest in June and from the additional charter expeditions in Cuba. We are currently at 92% of our full year projected ticket revenues for 2017, which compares to 93% of the 2016 full year ticket revenue at the same time a year ago. Factoring in the estimated $9.1 million in revenue and $6.5 million in adjusted EBITDA impacts from the six voyage cancellations; we now expect total Company tour revenue in 2017 between $275 million and $281 million; 14% to 16% growth versus 2016; and adjusted EBITDA between $47 million and $49 million or 12% to 17% growth versus 2016. The change versus our original guidance is due to the impact of the Sea Lion cancellations and some unanticipated costs related to the Orion cancellations. It is important to note that these impacts are short-term and we remain on track with the long term financial objectives that were led out when the Company went public in 2015. Please note that current expectations are for the second quarter results and metrics to be down year-on-year, while bookings year-to-date in 2017 are up over 60% versus the prior year, given the long time experienced in most locations. We are still seeing the impact of some of the booking softness during the first half of 2016. We will also be impacted by the timing of voyages, which will defer some revenue until the third quarter that was previously recognized in the second quarter in 2016. Looking at the back half of the year, Q3 and Q4 results will benefit from the strong bookings over the last nine months and the launch of the National Geographic Quest. Additionally, Natural Habitat had seasonality to the results with a significant portion of their revenue in the second half of the year and the majority of the annual adjusted EBITDA that will be recognized [technical difficulty]. Thanks for your time this morning. And now Sven, Ian and I would be happy to answer any questions that you may have.

And at this time, we will begin the question-and-answer session [Operator Instructions]. Our first question today comes from [Steve Kozel] with Deutsche Bank. Please go ahead.

Any early read you can share with us on 2018 booking pace?

Right now, we’re seeing some significant strength in 2018 out of the gate. It's actually ramped up rather quickly compared to 2016 at the same time for 2017. About 60% greater this year than it was the same time year ago. Interestingly enough, but 2018 pace is also significantly ahead of where it was in 2015 for 2016. At that point, we’re probably about 15% to 20% higher than that pace. So we are seeing some significant bookings already for 2018 and it speaks to not only this strength today, but also some of the weakness that we’re seeing a year ago at the same time.

And then in terms of customer origin, any kind of outbound markets that you’ve been seeing -- that you’re seeing that are particularly strong or weak?

When you say, outbound origins, the majority of our guest only come to U.S. In terms of the markets that today are strong, it’s the market that traditionally we do really, really well and we’re seeing strength in Alaska, we’re seeing strength in [indiscernible], we’re seeing strength in the Galápagos. So we continue to see strength in those markets that our guests have been utilizing for us for very long time.

[Operator Instructions] Our next question today comes from Greg Pendy with Sidoti. Please go ahead.

Just looking over to Natural Habitat, I know, I believe the second quarter last year, was that a partial close when you did roughly $6 million, or was that the full quarter, just trying to understand the seasonality of the business.

The deal closed towards the end of May actually it was more towards the beginning of May. But yes, it was a partial quarter I think it was May 6th was the actual date. So, you're seeing a partial quarter in Q2 and then a full quarter in Q3 and Q4.

And then just as a follow-up, can you talk a little bit what type of cross selling, because I guess you didn’t have any revenues from March last year. But I mean what type of synergies you are seeing, are you seeing just from sharing, I guess, the database of clients?

So one of the things we know is the demographics of Nat Habs clientele and ours, are quite similar, also very much oriented to nature based travel. And so Nat Hab offering our products to their audience and vice versa has proven to be very effective. We’ve been testing in a variety of different ways to see how that could be most cost effective in terms of distributing these ideas across from our Company to Nat Hab and Nat Hab to us. But its growing month-by-month and we’re finding a lot of synergy in that area.

Our next question today comes from Greg [indiscernible] with Citigroup. Please go ahead.

This is actually Fred Wightman on for Greg. I know that you said that most of the delta in the guidance is due to the cancellation from the Sea Lion. But did you also say there were some unexpected costs from the Orion? Any sense for how big that was.

When you look at the original expectation that we had heading into the year, the expectation was the Orion impact was going to be about $3 million. The overall voyage cancellation impact so far or I should say all-in for this year is about $6.5 million. The delta between those two things is pretty much split evenly between the Sea Lion and the Orion. The Sea Lion costs are significant from a cancellation perspective because the cancellation was only for two voyages and did not exceed the 30 day window that we typically have for our loss on higher reimbursement. So the Sea Lion impact was partially because of that, it was partially because of additional costs that we utilized to take our guests down there that had already traveled down to where the Sea Lion was leaving from. And so that was the impact on the Sea Lion. The Orion impacts, there was additional costs that we decided to take on to take care of our guests from; cancelation costs that they had on air fare; cancellation cost that they had on the hotel side of things; there was also some charter costs that we had to take up that previously we were looking to get rid of. So there was some additional cost on the Orion side that certainly took place in the quarter. A lot of the costs related to both of these things, related to taking care of our guests that were into these because of these things and about spend mostly go little bit in terms of that the first that we took.

Well, at the end of the day, what became paramount in terms of our priority was to make sure that every single individual who was inconvenienced, some were greatly inconvenienced, i.e. they’re already down there when it became apparent they could not continue their voyage. And so what we just wanted make sure was that we treated all those people as well as we possibly could in order to maintain long term relationships with them. And interestingly enough more than 75% of the people who were cancelled off the Orion and Antarctica within week, so we booked on another voyage. And I think is a reflection of the fact that we took care of them very, very well, and some of the cost related so that certainly exceeded our expectations. And certainly the air lines that were not nearly as cooperative as one would have liked to the circumstance like this in terms of imposing cancellation penalties. But just to be clear, whenever and fortunately, it's extremely rare that we do have an incidence like this. It's critical for us to take very, very, very good care of our guests. In certain instances, we paid for them to stay down in Argentina for several days so that the transition back to the United States was as easy as possible. Certainly, weren’t obligated to do that technically but chose to do that as it relates to maintaining those relationships.

So just on a related note, I mean, do you think that these cancellations are hurting the brand among your potential customers? Or do you think that that 75% of rebooking figure is a positive overall?

Once again I’ve learned over the years is that if and when anything bad happens and you deal with people respectfully and with a notion that they are the priority, they become the most loyal clients you could possibly have. And I have every single time and there have been few incidences, but it could be something its weather related or whatever. Whatever it is, the inconveniences to guest if you take care of them well, they become your greatest advocates. And so I believe that these people will be talking to tons of other people about how they were treated in a bad circumstance and that will reflect well on the Company.

And then I think toward to end you mentioned the cost in Cuba were little bit higher than you anticipated. Could you just talk about what the feedback from that market has been so far? Was that comment relative to your plan or just relative to the existing book of business previously?

I'll let Sven talk about how Cuba is going. But in terms of the cost, the cost actually came in line with our expectations. They were just higher than last year, because we did not have the Cuba voyages a year ago. So when you look at things year-on-year, there is additional costs related to that. But the cost themselves came in very much in line with what expected this quarter.

Well, I think that probably answered the question. To that answer, the question or is there an additional element that you’d like covered.

Just broadly speaking, I mean any feedback from it is that are you still satisfied with what you're seeing in the market, anything that’s different than you expected?

Well, I think in Cuba, almost everything is different and expected because when you walk into a country like that or develop an idea in a country like as new as circumstances are in a country like that, there are plenty of surprises. Fortunately, we have a very strong team on the ground that’s been actively engaged in monitoring every aspect of what's going on there, and able to adjust accordingly. It will take a while before Cuba is really stable from the perspective of reliability. That mean if you would compare it to let's say European context, it has and will continue to provide some surprises. But the general appreciation of Cuba as a destination is high from the perspective of our audience understands the fact that not everything works like clockwork in this country. And they really I think appreciate access to an unusual program in this most interesting of countries.

Our next question today comes from George Kelly with Imperial Capital. Please go ahead.

A couple of questions for you, first if I could start with the Quest; wondering if you could talk about how the pricing and booking patterns played out versus your initial expectations before you started selling it; and then if you could quantify expected revenue contribution from that shift this year?

Look, I'll handle the second one first. We’re not going to into specifically individual revenue contribution for a specific vessel. When we did go public in 2015, we laid out that for the first year, because it was the half year, you were looking somewhere in that $13 million to $15 million of revenue for the vessel overall. So I'm not going to say much more than that, because that’s been out there in public domain, so we’re going to shy away from talking about individual vessel contributions. But, Ian, why don’t you talk about the booking patterns?

Quest has been extraordinarily well received in the market. We have experienced very strong bookings from the moment we announced the vessel and that pattern continues through to launch the end of June. And we’re excited it's a newest U.S. flagged vessel in anyone fleet built with very high standard, built in the U.S. And all of our travel partners were excited, as well as within the Company, around this. So bookings has been strong from all segments of our business.

And then second question on the growth metrics you provided about the first quarter in bookings, in which, it sounds like a very strong environment. That includes Natural Habitat, correct? And is there any way you could take Natural Habitat out of your booking numbers for this year's first quarter to compare them with last year.

George, so when we talk about bookings, we talk about booking specific to the Lindblad segment, to the Lindblad fleet. So when we talk about 50% growth, positive, that and we’re seeing in the first quarter. That just relates to the Lindblad fleet and does not include Nat Hab. Interestingly, we certainly have more available inventory, we talked about the Quest and we talked about Cuba, but we did have the offsetting negative this time now associated with the Orion and Sea Lion. So the 60% plus booking trend that you’ve seen in first quarter, that Sven spoke about, is really just a indication of how strong things are looking forward to future travel. So we feel very optimistic about things once again pass these voyage cancellations that we have to deal within the first quarter.

And then last question on potential acquisitions. Can you talk about the pipeline, do you feel like there is some things that seem -- do you have a full pipeline? Are you happy where you’re at with potential acquisitions?

I think when it comes to acquisition, the Company has from even before went public, has been very open and honest about the fact that we are open for business. We are always looking at new and I would say compatible ways to expand the business opportunity for us in the long term. We think we have a significant amount of growth still embedded in our existing fleet, especially with the additional inventory that we’re adding over the next three years. But like we did with Natural Habitat, we continue to look at a lot of opportunities at any given moment to expand that growth profile. To be frank, we’re passing a lot of things; mostly because they don’t fit with the echoes of what we do or we don’t think its sustainable long term growth opportunity for the Company. The pipeline today, I would say, is normal, it's nice, robust compared to where it was a year ago and in order to complete it I think there’re several days that we’re looking at any given moment, both from a fleet perspective as well as from a differential perspective. And we’ll continue to explore those as they present themselves in most places.

[Operator Instructions] Next question today comes from Monica [indiscernible] with Focus Capital. Please go ahead.

I just had one just to ask about the thinking behind your buyback, specifically the split between the share buybacks and the warrant buybacks. As I recall when you started buying back first few quarters, you brought just warrants. If you had specification of significant price appreciation in the stocks or warrants, buyback would seem to be better being for the book in terms of saving share dilution in the future. Wondering what's going to taking the opportunity through most of the buyback on the shares?

Sure. So when we do our buyback, we actually look at the intrinsic value of the launch at every individual share price. So we compare the intrinsic value of one to the other and look at what the best value is at any given moment. Doesn’t mean that we will stop buying one versus the other, it means that we’re just going to take advantage of the bigger opportunity at any given moment. And that is why you’ve seen a little bit of shift from the warrants for the shares. We are still happy to buyback warrants if they present themselves at the right price. But we’re also going to compare that to what the share price is at any given time. And that’s how we take a look at it.

In Q1, how many warrants are in hands of the sponsors?

I forget the exact number. I'll tell you, when we get back to you with that number after the call, okay?

And we are currently showing no further questions. I’d like to turn the conference back over to Mr. Craig Felenstein for any closing remarks.

Thank you everybody for joining us today. If you have any follow-up questions, please give me a call and I will be happy to get back to you as soon as possible. Thank you.

And ladies and gentlemen, this concludes today's conference. Thank you for attending today's presentation. You may now disconnect.