Good morning, everyone, and welcome to the Lindblad Expeditions Second Quarter Conference Call. All participants will be in a listen only mode, [Operator Instructions]. After today's presentation there will be an opportunity to ask questions and please note, today's event is also being recorded. At this time, I'd like to turn the conference call over to Mr. Craig Felenstein, Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad's Second Quarter 2017 Earnings Call. Joining me today is the Sven Lindblad, our Founder and Chief Executive Officer; and Ian Rogers, our Chief Operating Officer. Sven will begin with some opening comments and I will follow with some details on our second quarter results. You can find our latest earnings release in the Investor Relations section of our website. Before we get started, let me remind everyone that the company's comments today may include forward-looking 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 reference 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. I'm very pleased to report that the second quarter of 2017, once again, generated strong forward reservations, building on the bookings strength we delivered over the past nine months. With particular emphasis on in-year revenue production, reservations for future travel has grown nearly 40% year-to-date from the same period a year ago. And as I mentioned last quarter, this demand is broad-based, with growth across virtually all segments and destinations that we operate. Craig will discuss our financial outlook in a moment but this significant increase in advance bookings has us extremely well positioned to deliver substantial growth in the back half of 2017 and through 2018. In fact, 2018 is more solidly booked at this point, as a percentage of available revenue than 2015 was at the same point for '16, and '16 was for '17. Last month alone, bookings for future years travel was up nearly 50% more than July a year ago. And earlier this week, we had the highest booking day in the company's history. The clouds of uncertainty that affected 2016 and bled into 2017 have passed and a more accelerated booking behavior has returned, spurred by a variety of factors both internal and external, including the positive entry of National Geographic Endeavour II into the Galapagos market, combined with highlighting the 50 years of expeditions experienced in the region; the excitement surrounding the launch of our first new vessel. The National Geographic Quest; and new fresh marketing initiatives, capitalizing on the ever-expanding audience-seeking adventure and immersive experience. Expedition travel is our sole focus and that provides an understandable sense of confidence amongst our returning guests as well as people undertaking this form of travel for the first time. We are convinced that there's more activity as announced in…

Thanks, Sven. As Sven mentioned, Lindblad has demonstrated sustained operating momentum over the last 9 months. With booking growth substantially ahead of the same period a year ago. Given that our booking window averages approximately 9 months, this strength should translate into substantial revenue growth in the back half of this year and into 2018. Included in these advanced reservations, a significant demand across our existing fleet as well as excitement for our new coastal vessels as the investment thesis that was laid out when the company went public in 2015, continues to come to fruition. 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. There are short-term hurdles which I will discuss in a moment, but the initial demand for the National Geographic Quest and National Geographic Venture gives us confidence in the long term growth targets we have laid out. Turning to the second quarter, on a reported basis, Lindblad delivered revenue growth of 3% and adjusted EBITDA growth of 1% versus the second quarter of 2016. These results include a full quarter of contributions from Natural Habitat which was acquired in early May of 2016. The Lindblad segment reported revenues of $47 million, slightly below a year ago, primarily due to a decline in ticket revenue as occupancy decreased to 85% from 92% in the second quarter of 2016. The lower occupancy was partially offset by a 5% increase in available guest nights due to fewer dry dock days than a year ago which included significant time for planned maintenance work on the Explorer and Orion. Net yield of $941 declined 6% from the second quarter a year ago, as slightly increased pricing…

[Operator Instructions] And our first question today comes from George Kelly from Imperial Capital. Please go ahead with your question.

Guys, A couple of questions for you. First, when it comes to it sounds like the bookings momentum just continues to be strong in the second quarter. Wondering what internally you can attribute that to. Are there certain sales initiatives you've been working on, or what's driving that?

Sven, here. We continue to get more sophisticated with our marketing because we've really, really augmented our marketing and sales team. So that's part of it, of course. The other factor is, I believe a significant growing interest in this kind of experiential travel and we're harvesting that as well. And the factors that sort of depressed 2016 to some degree, those are not there currently. So the climate is better, the market is increasing and we are getting ever more sophisticated in terms of how we interact with those 2 factors.

And that trend has continued since the quarter? And it's continued, do you see it in the last month or so as well?

Correct.

Yes, as Sven mentioned, not only has it continued, I would say in some cases, it's actually accelerated. As Sven mentioned during his comments, this week, we actually had our highest booking day in the company's history, on Monday. And this trend has continued throughout this week and July, in general, saw some significant bookings for future revenues versus what we were at the same point a year ago. So the strength is definitely sustained.

Wow. And has that bookings momentum allowed you to really turn up pricing?

We have not elected to focus on increasing pricing. We think the best play for us -- we believe that our pricing is where it should be and we believe that the growth should come from added inventory.

So the only thing to remember is when you look at our pricing, a lot of our pricing has been set 9 to 12 months ago. So we tend to keep it consistent because obviously, our vessels are so small that we tend to make sure that our guests across vessels are paying a very similar price. So we tend not to adjust our prices too much during the year. There are instances where that may change but for the most part, we tend to be pretty consistent.

Okay, okay. And then 2 other questions. First, on there's been some maintenance issues with having just over the last year or so and then with the cancellations of Quest earlier this summer. I'm wondering how you're addressing that internally. Are there things that you're doing differently now after you've kind of, you've gone through some of this stuff, these unexpected stuff in the last year, 1.5 years?

I think -- this is Ian. I think from the perspective of the earlier incidents in the year, they were totally unrelated to any construction related challenges with Quest. And on those specific issues, what was important to us is looking -- was going back and doing some forensics on our recovery, obviously, as well as the problem itself. And we actually handled those recoveries very well and minimized the time out of service. These are complex mechanical vessels and they are subject to sometimes, unplanned events. And our reactions are very good, our safety systems are continually monitored, we have internal and external resources devoted to that. With regard to the Quest and the delay in the launch, as Sven suggested, this was a very sophisticated prototype vessel being built in the U.S. on the U.S. flag and challenge is to be expected. Having said that, we're monitoring every aspect of our operation to see how we can do better with regard to the Venture. And obviously, the blue-water vessel, completely different proposition but we're doing the same thing in the future.

I also would add that when you look at the instance earlier in the year on the Orion and the Sea Lion, those are very specific items. And when you look at the history of the company, we have not had significant maintenance issues at all across the board at any point in our history. It just so happened that we unfortunately had 2 within a very short period of time that were very unique in nature. And as we talked about last quarter, we go through a rigorous maintenance schedule. And Ian kind of touched upon this, every year, both from a required perspective but also from our internal perspective to make sure that these vessels are operating at peak efficiency. And the history of the company has proven that's should always be the case, and we would expect that to be the case moving forward.

[Operator Instructions] Our next question comes from Greg Pendy from Sidoti.

Just one quick one. I guess, given the 4 canceled voyages, if I'm not mistaken, some of those guests will have the option to take a discounted tour and historically, you guys don't have to discount. So can you give us any color on where those guys have -- where are you seeing those guests filter in throughout the year? Have they taken the option for a discounted tour? And is it mainly in 2017 or does it kind of push out into 2018?

It's spread all over -- it's Sven here. It's spread all over. So we gave them a variety of options that they could consider as a consequence of the cancellation, primarily focused on making it as fair as possible to them so they could get a full refund and then a future credit on anything they wanted to do, they could transfer to another trip. They got in essence, a 50% reduction on any alternative trips they chose. And so, some of them wound up going to -- a good number wound up going on trips this summer, where we still had a few beds here, a few beds there because we defined voyages that were at similar price -- not price points, but at the time of year they were planning to travel anyway. Some have chosen things in 2018. The good news is most of them rebooked on something else, and our -- what we wanted to achieve more than anything else was to keep the face, if you will, and to keep them interested and keep them involved going forward, and that turned out to be true. So it felt very good from that perspective. And it's not concentrated in any particular area, so it's nicely spread out.

And our next question comes from Emily Cetlin from Eaton Vance.

Just quickly, I was wondering if you could talk about how occupancy has maybe been impacted on other ships by the launch of the new vessel?

Well, first of all, in Alaska, what we did, knowing that the Quest was coming online this year and the Venture next year, is we took the other 2 ships that they had or have and we created distinctly different itineraries in parts. One of the ships had the same itinerary but the other one did something experimental, 2 distinctly different itineraries so that in the future, we can differentiate rather than go head to head, older ships versus newer ships. And those alternative voyages or new voyages turned out to be very popular. And so the theory behind what we are trying to do proved out and makes us feel very, very good going forward. Because now, each ship can kind of do what's appropriate for them, their particular size, their particular number. And so we won't have people saying, should I go on the new one or the old one? Because it's different propositions.

Okay, great. And then could you talk a little bit about, I know that a majority of your customers have been on trips before. Are you seeing -- are those kind of stats still the same? Have you kind of seen an uptick in new customers just based on people getting interested in these kinds of trips? And then how does that kind of drive your occupancy?

Yes, so we're constantly focused on two channels, and then they break down to even more channels. But our past guests and the percentage of past guests on any given voyage is entirely dependent on where it is, how new it is, any number of factors. And then there are certain voyages that are more likely to bring in people for the first time. Alaska is one of those places, the Galapagos Islands is another example where 85% of the people are entirely new to us. So both those channels have to be vigorously pursued because then, the new folks become the pipeline for some of the more esoteric and perhaps, more expensive voyages. And now, we just launched a new idea that I touched on in the comments in Baja, California which are three- and four-night programs, easily accessible, particularly from the West Coast, where people can sort of try this kind of travel and then hopefully, transition into a deeper relationship down the line. So those funnels have to be vigorously pursued, both new guests and maintaining the relationship with the guests who've already traveled with you.

Emily, the one thing I would add is when you look at the amount of recurring guests that we get, it tends to be pretty consistent, somewhere -- 35%, 40%, somewhere in that range in any given a year. And what you're seeing now is those percentage hold, and what's interesting is the number of guests that we have has to increase because we obviously have more inventory. So for the percentage to hold the way they are, it means you are seeing more new guests in terms of absolute numbers come on to our platform while the percentages have pretty much held pretty consistent.

That's helpful. And then the other thing that I just wanted to make sure I understood, so understand that the occupancy kind of dropped this quarter as you had more available guest nights. But I just wanted to make sure I understood exactly why -- sorry, why the guest nights sold year-over-year was down a little bit.

So the primary driver of that really, the way that the booking softness that we saw and we talked about it pretty extensively regarding 2016. There were several items during the year, in '16, both internal and external which caused bookings to be a little bit softer. Whether it be some of the issues around Zika, whether it be some of the issues around terrorism, whether it be around our marketing materials getting out a little later than we wanted them to be last year. And if you recall back to the first quarter, when I talked about our expectations for the second quarter, we did expect the occupancy level to be where it ended up. It was not a surprise to us because we knew where the bookings were a year ago. So a lot of those incidents and there was some general softness last year at parts of the year, kind of bled into this year, as Sven mentioned. And the good thing is we see that have -- the winds have shifted and we looked at the back of this year and that's just certainly changed to where we expect occupancy to be which is more in line at the high-80s, low-90% range.

So just overall, you kind of expected to be in the high-80s, low-90s for the year?

I would say, for the back half of the year.

And then just, do you mind reiterating your guidance for the rest -- for the whole entire year?

In terms of revenue and EBITDA? Sure. So the revenue guidance for the year is revenues of $272 million to $276 million, and adjusted EBITDA of $44 million to $46 million. And the important thing to remember in those numbers is there is a significant amount of revenue, $12 million or so, that was lost due to voyage cancellations and certainly, another probably $9 million or so loss of EBITDA from voyage cancellations. So that is embedded in those numbers.

And that's just -- that $12 million and $9 million, that's just from Q1, that's not from the July cancellations?

No, that includes the July cancellations. The impact in Q1 was it was up $6.5 million on EBITDA and about $9 million of revenue, and the numbers that I just quoted include the additional impact of the Quest cancellation.

Our next question comes from Greg Badishkanian from Citi. Please go ahead with your question.

It's actually Fred Wightman on for Greg. Just sort of staying on that last topic, can you walk through the impact of the Quest delays on guidance? Is sort the impact being offset by insurance or anything in any way?

Yes. So the numbers that I laid out in my prepared remarks of $3.6 million in revenue and $3 million of EBITDA impacts from the Quest cancellation is the best estimate that we have today. That certainly can change as we may have to reimburse some additional costs associated with guests canceling certain travel arrangements they may have had previously, but it shouldn't skew too far from that number. So that would be the ultimate impact. As far as the insurance piece of it, there is right now, I would not assume any insurance offset to that. We certainly have some insurance opportunities in front of us, but we're still exploring those and we certainly want to have a discussion with the yard and the implications from them. As everybody knows, we're building a second vessel and we want to focus on that right now as well, to make sure the timeline there doesn't shift. So there's a lot of balls in the air right now but right now, the implications for the year, we think, are that $3.6 million in revenue and $3 million of EBITDA.

Okay, that make sense. And if we just look at some of the booking commentary, I believe last quarter, you said, you were up 60% which is sort of up 40% now year-to-date. Could you just sort of talk about a, what drove the deceleration, sort of, is it just tougher compares? And then just on your commentary or could you help us frame that figure on an apples-to-apples basis? Sort of the, obviously, it involves the Quest capacity and Venture as well.

Yes, sure. So I would be very careful on calling this deceleration because while the numbers are a little bit lower, they do include the cancellations associated with the Quest. So that certainly does skew the year-on-year growth expectations because there were some bookings associated certainly with the Quest previously. Here's the way I would say it, when you look at the year-on-year, we are $9 million ahead of where we would have been from a booking perspective a year ago. But important to remember that in that number, there is close to $12 million of cancellation revenue. So when you look at the year-on-year bookings, year-on-year bookings are over $20 million up where they were a year ago at this point for '16, where we are for '17. Other things that I think it's important to note is when you look at 2018, for next year, we are close to 50% above bookings for next year where we were for the same point for '17 a year ago. Now, certainly, we have more inventory associated with the Quest and associated with Venture as well as we had some voyage cancellations in '17, but I think it speaks to the momentum that the business has from a booking perspective moving forward.

Okay, great. And then just one last one. If you look at some of your larger peers that are public, that they're describing a pretty positive environment for both the back half of '17 and then also, early signs for '18. Did you have a sense for how much you guys are benefiting from an overall positive cruise environment versus stuff that's sort of internal? Obviously, it's different, you guys are in a bit of a niche here, but just any thoughts there would be helpful.

There's no question that when the climate is more positive, everybody benefits, including ourselves. What is -- it's an interesting question from the relationship -- from the perspective of what can be attributed to the positive plan and what can be attributed to certain particular efforts made. And it's very difficult to sort of be totally accurate about what that is. But in combination, it's like a chemical reaction and it's very, very positive.

Our next question comes from Chris Woronka from Deutsche Bank. Please go ahead with your question.

I want to ask you if it's possible to kind of get a data point on where you're booked now for Venture next year versus maybe where you were booked for the Quest at a similar time, ahead of its opening last year.

Sure. We obviously don't get into specific bookings by vessel, but what I will say is we are operating in a much stronger environment now than we were probably a year ago. So future bookings obviously, are better overall for the company at this point today within where they were a year ago. And I think the most important point in all this is kind of what's Sven touched upon, which is that we are not seeing any degradation in anything across the fleet. So the overall pie that we're looking at has certainly increased, both from a Venture and Quest in a new build perspective, but also when you factor in the Sea Bird and Sea Lion which operate in the same geographies. And they're not seeing any degradation nor are we seeing any degradation across any other aspect of our fleet, whether it be the Galapagos, whether it be the poles, whether it be South America. All in, we're seeing a very strong booking environment across the board as we continue to see increased bookings on the Venture. So I think it speaks to the health of the market and also the demand for this type of cruising experience.

Okay, very good. And then you guys talked a little bit about acquisitions in adjacent spaces. Can you maybe just talk a little bit about the environment, and are you closer to pulling the trigger? Or is there something specific that you're looking at right now?

Yes, I would say that any given moment, we are looking at a lot of different things, both big and small and both -- whether it be an acquisition, whether it be a strategic partnership, whether it be a marketing initiative or things along those lines. We have various balls in the air at any given moment. Today, I would say we have a number of things in the hopper but nothing more so than we have six to nine months ago. There are a number of things that come our way because there are a fair amount of companies that would like to be involved with Lindblad, given the heritage of the company and the prospects that we have moving forward, and we continue to explore all of those. The lens that we look through an acquisition at is very, very strict because of the growth opportunity that we see in front of us. Organically, given the capacity that we have coming on board over the next two to three years, we certainly see a significant amount of growth in front of us and we're laser-focused on that. And if we're going to veer from that and do an acquisition, it has to check a lot of boxes, just like Natural Habitat did. It doesn't mean you can't find those acquisitions, it's just that we have a very strict lens when we look at them.

Sure, got you. And then just finally for me, I think, I guess last month, the Ritz-Carlton confirmed that they'll go ahead with this luxury yacht offering. How do you view that in the context of a competitive landscape?

Well, there are obviously a bunch of new entrants into the "expedition space." Now I use quotes for a reason because it's a label that's being used rather loosely at the moment, as more and more ships are being ordered. And I think the net effect of that would be sort an increase of noise as it relates to this kind of travel because there's a lot of rhetoric which is used that all sounds the same at a certain point, or much of it does. And so there'll obviously be a greater spotlight on the idea. And then I think people on this day and age are very, very smart and they'll do their research. And I think ultimately, they will really begin to look critically at what is the relationship between the interest that's been generated in themselves and who are the people that can actually deliver on what does expectations are. And this is where I believe that our heritage and our experience and our absolute laser singular focus is going to work to our advantage. So for example, somebody may look at a Ritz-Carlton that's basically is in the luxury hotels business and all of a sudden, they're going to transfer that to ship business. And they're going to probably ask, is that a rational transition? I mean, if all of a sudden, we woke up one day and started offering bicycle tours, I think people would legitimately say, well, how well-equipped is Lindblad Expeditions based on what it does, its DNA et cetera, et cetera? How good are they likely -- are they likely to be better than Backroads at delivering bicycle expeditions? And I think a reasoned person would say, probably not. And that's a long-winded answer in many, many ways but I think I give the public a lot more credit for making intelligent decisions about who they want to work with in relationship to a particular kind of activity.

Our next question comes from Joe Hovorka from Emerald Advisers.

Just a couple of quick ones here. First, can you give your capacity growth rate for the third quarter, fourth quarter and all of '18, with all the new capacity coming on and some of the other puts and takes?

Sure. So again, we're not going to get too specific here but when you look at the third quarter, there's a number of components. Certainly, we have the cancellation of the Quest which certainly play into the capacity growth overall. So that's going to be a challenge but we do have different itineraries on the majority of our vessels, where the fourth quarter will be a little bit cleaner. But if you're looking at capacity overall in the third and fourth quarter, just the maximum capacity. In the third quarter, the capacity increase will be somewhere in the low to mid-teens overall, with the addition of Quest in July. And when you look at the fourth quarter, it should be somewhere in the high single digits overall. That's kind of the implications. But again, that's not necessarily just the addition of Quest, it's the change in itineraries.

Okay. And for '18?

I'm sorry, so you're looking for the full year 2018 or are you looking for just the third and fourth quarter?

Full year 2018.

So when you look at overall capacity for 2018, Quest is certainly the biggest driver of that, so capacity should be up, and then Venture certainly in the back half of the year. Capacity overall should be up somewhere in the high-teens range.

Okay. And then as we add class and adventure, and if I think about it from a pricing standpoint, are those ships coming in at a yield that is comparable to the fleet, higher than the fleet, lower than the fleet?

In terms of the new vessels, listen, I think it really depends on the vessel that you're talking about. Overall, the fleet, we like to see a net yield of somewhere around $1,000 a night. These vessels really depends on when you're operating them and at what location you're operating them in. But all in all, we tend to shoot for a pretty consistent yield across the fleet. In the first year or so, they may have a little bit lower yield because there may be some additional cost in terms of launching the vessel, to get them out the gate. But as they're operating full bore, you should see a -- you should see yields very similar to the rest of the fleet.

Okay. And then as far as the third vessel, the blue water vessel which you haven't yet ordered, when do you need to place an order so we make a kind of mid-year 2019 expected launch date?

It really depends on some of the intricacies of the vessel build itself and the yard and their availability to build the vessel in terms of what other obligations they have over that time period. As we continue to negotiate on these existing contracts with these existing yards, we still feel very comfortable about delivering the vessels during 2019. The question is just, when in 2019 will depend on when we ultimately sign the deal. We'd rather, if you had to push it a little bit, push it a little bit to make sure that the contract and the design and all the implications associated with the contract are done correctly. We're not doing that today but we would gladly do that if we have to sacrifice a couple of months to make sure that the vessel is exactly how we want, because we see years and years of service obviously associated with this vessel. And we want to make sure that we look to the long term, not just the short term.

Sure, that makes sense. Have you chosen the yard yet or are you still debating between yards as well?

This is Ian. We've chosen the yard out of a large selection and went through a down select process. The 3 finalists which we went a lot further with design with 2 of those finalists, and we have a single yard that we're working with currently. And we're deeply engaged in those conversations and they're extremely productive. We want, as it's been stated, the most innovative expedition vessels that reflects all of our knowledge, heritage, experience as well as that combined with the ship yard and how to build such a vessel. So that's what's taking some time and it's very productive time for us.

[Operator Instructions] Our next question is a follow-up from Emily Cetlin from Eaton Vance.

So just quickly, with the blue water vessel, do you kind of -- what's the cost range that you expect that to be in? Is it kind of 1.40?

Yes, we have not announced the size of the vessel yet, so we really can't get into the price of the vessel. What I will say is that the original estimate for the cost of the vessel was somewhere in the range that you just mentioned. And certainly, we think we have an ability to be more aggressive on the price right now, given some of the things that's taken place in the overall environment. But it's really hard to talk about the price until we talk about the design of the vessel, what it entails and ultimately, the size of the vessel.

Okay, great. And then for the ship that's coming on next year, do you guys have kind of a projected price for that?

The 2 coastal vessels that were being built, the Quest and the Venture were both estimated to be somewhere in the $48 million range or so. We should see a little bit of scale on the second vessel from building the first vessel. But we would expect the vessels, the contracted price is somewhere in that $46 million to $48 million range.

Okay, great. And then can you just talk -- have you guys seen any benefit, I know you guys kind of talked when you acquired Natural Habitat, of marketing to each other's customers. Have you guys seen any benefit from that?

Yes, it's Sven here. Absolutely, and a significant benefit, I mean, in the millions of benefit across selling. But what did do is we went into it carefully because what we wanted to do is really understand what was the relationship between the audience that we've cultivated and the audience that Nat Hab have cultivated and how would they react to offering each other's activities. And so we moved on that quite slowly by intent, discovered that the audiences are remarkably compatible, not really a surprise, but we wanted that confirmed. And now, we're getting more aggressive in terms of our cross marketing and it's proving to be a boon for both companies, for both brands, shall we say.

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Thank you very much, everybody, for joining us today. And please let us know if you have any follow-up questions. Thanks.

Ladies and gentleman, we will now conclude today's conference call. We do thank you for attending. You may now disconnect your lines.