Good day and welcome to the Lindblad Expeditions First Quarter 2019 Financial Results Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would like to the conference over to Craig Felenstein, Chief Financial Officer. Please go ahead

Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad’s first quarter 2019 earnings call. With me on the call today is Sven Lindblad, our Founder and Chief Executive Officer. Sven will begin with some opening comments and then I will follow with some details on our first quarter results before we open the call for Q&A. 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. Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The company cannot guarantee the accuracy of any forecast or estimates, and we undertake no obligation to update any such 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, 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 thanks to all of you who have made time to join us today. 2019 is off to a strong start for Lindblad, building off the sustained momentum, we have generated over the last 1.5 years. Our strategic investments throughout the past several years, along with a proven track record for delivering authentic, high-quality expeditions and growing demand for expedition travel, are bearing fruit, and we are extremely well positioned to deliver continued growth in both the short and long term. I would like to take a few minutes this morning to discuss some of the key components to our first quarter results while also highlighting some of the initiatives that will help build on this momentum moving forward. The biggest driver this past quarter was the addition of our second new-build, the National Geographic Venture. The interest from our guests was certainly high and it was important for us see to how she should adapt in Baja California as a 100-guest ship in a geography that we have served with 60-guest ships for decades. So certainly, there was a bit of fine-tuning needed in the 3 different itineraries we conducted, but both we and our guests were delighted with the amazing experience she provided in this remarkable geography. At the same time, her sister ship, the National Geographic Quest had a second successful season in Costa Rica, Panama and Belize, as we diversified the offerings on our new vessels ahead of the Alaska season. With the addition of this new capacity, we have been diligent in looking to develop diversified itineraries for our existing inventory. This past quarter, we experimented with a short, focused, 5-night program on the National Geographic Sea Bird in Magdalena Bay, a wildlife-rich region in Baja California. This new idea turned out to…

Thanks, Sven. Lindblad strong first quarter once again highlights our ability to deliver sustained financial results as we further invest in additional capacity, upgrade our infrastructure and expand our sales and marketing capabilities. With the addition of our 2 U.S. coastal vessels, we have expanded our available guest nights by over 20% from pre-expansion levels and despite the added inventory we continue to generate high yields and occupancies. Our proven track record of delivering authentic and high-quality experiences, along with a strong booking environment, will allow us to grow significantly in 2019 even as we invest to further capitalize on the long-term opportunity given the growing demand for adventure travel. Turning to the first quarter of 2019, total company revenue increased 9% versus the first quarter a year ago, led by 8% growth at the Lindblad segment and 14% growth at Natural Habitat, while adjusted EBITDA was down 1% as the revenue increase was offset by the planned timing of marketing and personnel spend to drive long-term growth initiatives. Looking at the individual segments, the Lindblad segment generated revenues of $76 million as compared with $70.5 million during the first quarter of 2018. The 8% year-on-year growth was primarily driven by a 9% increase in available guest nights, mostly from the launch of the National Geographic Venture in December 2018, and a slight increase in occupancy to 91%. Net yield remained very strong in the quarter at $1,099 per night, and while it was down 2% versus the first quarter a year ago, that was predominantly a result of price increases being more than offset by itinerary changes in the current quarter. We still expect to increase net yield for the full year of 2019. Turning to the cost side of the business, Lindblad segment operating expenses increased 9% on…

[Operator Instructions] The first question comes from Greg Badishkanian with Citi.

It’s actually Fred Wightman on for Greg. I apologize, Craig, if I missed this, but did you call out the specific EBITDA impact either from marketing initiatives or the headcount investments in the quarter?

We had not given specific guidance for the additional marketing spend in the quarter. We have talked about the full year. When you look at the IT projects that we have in the current year as well as some of the additional costs related to the Endurance this year, which won’t launch until 2020, the impact of those 2 things combined will be somewhere in that $3 million to $4 million range. The increased marketing spend we have not specifically highlighted. That said, when you look at the marketing spend in the current year, this is not something that’s going to recur itself every single year in terms of the magnitude of the increase. We do expect this year to be a step function, partially due to what we’re seeing in the marketplace in terms of the noise out there around expedition travel and partially because we’re adding new capacity. And when you do those things, you want to take advantage of the opportunity, and we think this is the right time to spend that investment. The return on that investment will really start to take fruit at kind of the tail end of 2019, but certainly significantly in 2020.

Okay. That makes sense. Could you just give a little bit of color on the Alaska market specifically? I know your capacity’s up pretty significantly there this year. But just any other color you could add would be helpful?

Well, the Sven here. One thing is clear is, is that the Alaska market is still incredibly strong, for us at least. I’m not very, very cognizant of how it’s going for the big cruise lines specifically, but our occupancies are as high as they’ve ever been, probably a bit higher, and we’re taking way more people as a consequence of now having 4 ships. It’s the first summer we’re going to have 4 ships in Alaska, so basically 320 beds, which is, obviously, a significant increase. And the bookings for 2020 are looking very, very strong. So, I see no dilution of that market at all.

Okay, great. And then just finally, could you talk about any expected changes from the National Geographic relationship after the Disney deal?

Well, the only thing I can tell you at this juncture is that I would anticipate that good things will happen as a consequence of it because, obviously, Disney’s reach and Disney’s ability as it relates to business to consumer are massive and way, way greater than they were with Fox, obviously. And so as far as I’m concerned, I see nothing, but benefit. Of course, it will take a while for Disney, I would imagine to assimilate this part of the whole transaction and decide how they want to move forward and engage with it. But I see nothing but positive opportunities.

Thank you so much.

The next question comes from Steve Wieczynski of Stifel. Please go ahead.

Hi guys. Good morning. So, Craig or Sven, I guess if we look at your EBITDA guidance for the year, it remains unchanged. If we back out the $22 million you did in the first quarter, that’s essentially saying you guys are expecting some pretty significant growth. I mean, I think, it’s kind of low-40s growth over the last 3 quarters. So, I guess, the question is, at this point, what gives you so much confidence in that growth? And look, I understand the increase in the capacity days. But I guess, what I am getting at here is with the increased spend on the marketing side and some other initiatives you are doing that EBITDA growth still seems does that still seem pretty realistic? That makes sense.

Sure. So, we look at the course of the year for us, the real power or the full power, I should say, of adding this additional inventory really is yet to come. When you look at the first quarter, yes, we launched the Venture, but we did pull back a little bit with some of our older inventory. Sven did mention that we did do some experimenting on the Sea Bird, but we did pull back a little bit on the Sea Bird and the Sea Lion in the first quarter. But we always expected the full power of that additional inventory to be there, really in the second and third quarters and a little bit into the fourth quarter. So that’s the first thing. The second thing that we’re really seeing is when you look out to the remainder of the years, yes, we booked so much of our inventory already for this year that we feel really comfortable about where the year is going to play itself out because of that inventory and, frankly, because of the pricing that we expect to see moving forward because the yields are going to grow throughout the year as well. The last thing I would say is, the timing of the marketing spend is going to vary throughout the course of the year. Each quarter, the increase is going to be different, but when you look at the plan that we have for the year, the plan in the first quarter was always anticipated. The growth that we see in the second and third quarter is going to come in as anticipated, it looks like. And now, it’s really just about finalizing some of the additional inventory that we have about there in Q4, which we feel very comfortable with given the historical operating trends.

Okay, guys. And then I don’t know if this question is going to make sense. But if you look at your yields in the first quarter, they were down slightly. Is there any way to help us think about what those yields would have looked like without the itinerary shifts? I don’t know if that makes sense.

Yes, they certainly would have been up. We haven’t guided to individual quarters from a yield perspective, because so many things can affect that in any given moment. But when you look at the first quarter, the primary driver of the yields being lower than they were a year ago, is some of the experimentation which we did on the Sea Bird in the first quarter. When you’re doing some experimenting a, stuff tends to go on sale a little bit later; b, it tends to price at a little bit more advantageous to see what kind of traction you can get and that certainly had an impact in the quarter. If you took that out of the equation, just that one item, you would have been up year-on-year. So, we feel pretty good about where the yields are. The demand for existing inventory has been really, really strong. The demand for the new inventory, which certainly has a higher price point in some instances, has been really strong, and that’s not just true for the first quarter, but we look out to the full year of 2019 and, frankly, into 2020. So, we feel really good about where the yields are headed right now.

Okay, got it. And last question just a quick housekeeping question. Craig, any changes with the available guest nights in terms of the way we should be thinking about those over the last 3 quarters of the year?

Sure. So, when you look at the next few quarters, I can give you some direction with regards to the available guest nights. We haven’t seen any change in our expectations. We do expect the second quarter to be very similar from an increase perspective to the first quarter. We will see a probably a step-up a little bit on that growth in Q3. And then in Q4, it will come down as we start to lap a little bit of the Venture launch from a year ago. And then certainly, when you look out to 2020, you get the launch of the Endurance in April of 2020. So that will certainly increase the overall capacity in 2020. So that’s really how it should play out for the remainder of this year and looking into next.

So, it’s still full year kind of that upper single-digit range?

Correct.

Okay thanks guys appreciate it.

Thanks Steve.

The next question comes from Greg Pendy of Sidoti. Please go ahead.

Hi, guys. Thanks for taking my questions. Just I guess you mentioned, you don’t give the quarterly guidance on the yield and I understand that. But is most of the catch-up, is it fair to say that the itinerary is going to be more favorable in 3Q this year? I think last year, you had some itineraries, I think they were in Europe, that you’re not going to be doing this year?

Yes. We do expect there to be yield expansion for the remainder of the year. The quarter that you mentioned will probably have the largest increase, which would be the third quarter, but it’s less a byproduct of Europe than it is of the South Pacific a year ago. And Sven and I talked about that a year ago that the South Pacific yields were lower than some of the other yields that we had traditionally. And as a result, we have less inventory this year and the yields that we’re getting on the Orion this year for some of the other voyages are certainly significantly higher than what was in the South Pacific in 2018. So, I would expect the largest increase to be in Q3, but we do expect for the full-year to have net yield expansion overall.

Okay, great. And then just one more, I guess, on the step-up in the marketing. Can you just kind of give us – you mentioned a brand campaign. Right now, I guess, you’re kind of operating under 3 different names. Are you looking to really kind of maintain I guess, Natural Habitat as its own name? Are you looking to kind of brand everything into the Lindblad name? Can you just kind of give us a big picture strategy?

Yes. So, we are not going to take Natural Habitat and offer it under our – under the Lindblad brand, because Natural Habitat does have a strong brand. It has strong loyalty. It has a very, very strong community of repeat travelers. And so we see no value in subsuming that brand, if you will. Our own brand development is really around really understanding the key ingredients that matter to guests. We do this periodically. It just helps hone our voice, if you will. It – and that then translates through everything, our advertising, how we approach messaging and direct mail, how we approach the web development, et cetera, et cetera. And as we were migrating into a total new, should we say, reconfiguring of the web or redevelopment of the web, we wanted to make sure we had our ducks in order and did some research in the context of current times, because what people care about and what matters to them changes. So, it’s really more honing of our messaging that’s at play and we do that every few years, because you just want to keep that up to-date and keep that modern.

Okay, that’s helpful. Thanks a lot.

Thank you.

The next question comes from George Kelly with Imperial Capital. Please go ahead. George Kelly, your line –

George Kelly?

Can you guys hear me?

Yes.

Yes.

I can now.

Okay, thanks.

Hi, George.

So, few questions for you. First, on the technology side, you talked about the updates coming out this year. Can you remind us the timing of the biggest features and just when they’re going to start to roll through? And then when should we benefit from those technology enhancements? Are you baking anything into your 2019 guidance or is it more of a kind of 3-year type story there?

Sure. So, we are rolling out certain functions with regards to the new systems really over the next few months, but that’s – those are going to be predominantly behind the scenes, either they’re going to help us with our marketing and some of our customer journey tracking will certainly happen behind the scenes. The bulk of the forward-facing elements of the IT transformation will take place in Q3 and Q4 of this year. Some, such as certain features of the website will take place even in the first quarter of next year. When you look at the benefits of, I would say, this rollout, the vast majority of it will not be in 2019. Actually, in 2019 to be frank, these investments will be negative just because the outflow of both cash on a capital perspective, as well as an operating expense perspective will outweigh the positive benefits, but that will certainly reverse itself in force in 2020. And you will see the majority of the benefit start really in the first half of 2020, but really kick in, in the second half of 2020 and into 2021.

Okay, got it. And then next on the bookings strength that you commented on record quarter, I think you said for the – just level of bookings. What – is there anything you can isolate that drove that? Was it any specific geography or anything, and did you see that strength continue after the end of the quarter?

Yes. The booking curve, I would say, it’s hard to pinpoint one item specifically for 2019. For 2020, certainly, a significant piece of that increase is the new demand for the Endurance while as Sven mentioned, maintaining the demand across the remainder of the fleet. So, that’s been a really, really good sign. The thesis always being as you add new inventory being able to maintain what you have on the existing front and then just layering that on top is certainly the big growth engine of this company. But when you look for travel in 2019, again, very broad-based, whether it would be Galápagos, whether it would be Alaska, whether it be the Arctic, it’s been very strong across the board. Interestingly, enough, when you look at the bookings that we already have for 2019, we’ve already exceeded significantly the bookings we had for all of 2018. So, this notion of adding additional inventory and filling it is certainly playing itself out in both the short-term, as well as the long-term.

And so it sounds like that’s continuing after the quarter too, I mean you’re still –

Yes. Obviously, we’re just talking about the month of April, but the month of April bookings were very, very strong year-on-year. We saw some nice growth overall and we don’t see any reason why it should slowdown.

Great. And then last question for me. And I’m not exactly sure how to phrase this, but over the last year, year and a half, you’re adding all these new customers and what – what do you, I guess, all this new capacity that you’ve added and you’re talking about booking strength, is it mostly a function of adding new people into the mix or is it that your repeat customers are coming back more frequently? And I guess, the big question for me is just as you add – as more people are becoming interested in this type of travel, what kind of repeat dynamic – do they look like your legacy customers? Do they come back as frequently and can you talk at all just to that?

Yes, so sort of a broad answer and then one can drill down a little bit. But the reality is, is we have a multitude of channels that we were – we have a travel agent channel, we have charters, we have affinity organizations, we have National Geographic, we have past guests, and we have different mechanisms for attracting new guests. And they all sort of have a life of their own, if you will, and they – and they’re all monitored very carefully and they’re all adjusted according to need in one form or another. So, for example, we’ve made – we’ve – obviously, knowing that we were going to expand our inventory, we increased our activity in the channels that we felt were most productive and by and large, that has been very, very successful some more than others. Obviously, they don’t all behave exactly the same, but all of them actually have behaved pretty well. But some extraordinarily well in terms of their improvement, as a consequence of identity – relating the – identifying the need and then activating the channels. And so it’s kind of a complex matrix of activity, because you just want to make sure and I think I’ve stressed this before in some previous calls. You want to make absolutely sure that your machine, if you will, or your system for generating new guests is proportionate to your growth and inventory, the only thing that can really, really badly hurt companies in this business if those two things are out of balance. And so we are very cognizant of that in my entire life since I started this business, I was – that was like an obsession to make sure that our marketing reach is ahead of your inventory, which is, again, why we’ve made some significant investments in that area this year, because we want to take advantage of growing interest. We want to make sure we’re very, very much out there so that we’re top of mind and that we capture as much of market share as we possibly can as a consequence. That’s kind of an overview on marketing, if that’s helpful, and if I haven’t answered anything that you really need more than that just let us know and I’ll dig deeper.

No, that’s great. Thanks.

[Operator Instructions] There is no question at the moment. This concludes our question-and-answer session. I would like to turn the conference back over to Craig Felenstein for any closing remarks.

Thank you very much for joining us today everybody. We appreciate your time this morning. And if you have any additional follow-up questions, feel free to reach out to us here in New York at any time. Thanks.

Thank you.

The conference call is now concluded. Thank you for attending today’s presentation. You may now disconnect.