Good morning, and welcome to Lindblad Expeditions Holdings, Incorporated Second Quarter 2019 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.I would now like to turn 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 second 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 second 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 thank you, everyone, for joining us this morning. Lindblad's strong second quarter results further demonstrates the opportunity we have to deliver sustained growth as we expand our capacity, while maintaining high occupancy levels and net yields. In addition, the addition of the National Geographic Quest and Venture to our fleet has increased our available berths by over 30% from 2016 levels and the growing demand for authentic expedition travel, along with a diverse base of loyal guests, has enabled us to fill our expanded fleet at healthy price points.What has been particularly gratifying is seeing the US fleet, which has grown from 124 berths to 324 berths, reaching strong occupancy levels, both heading into the Alaska season in Q2 and throughout the Alaska season in Q3. When adding capacity in a region, you always want to be sure that cannibalization does not materialize and that certainly has been the case with Quest and Venture.A big part of this success is certainly the allure of these remarkable geographies, but we have also taken the time to explore and develop a diverse set of itineraries within South America, the Pacific Northwest and Alaska. This has allowed us to differentiate the experiences and maintain pricing strength across both the new and existing vessels.Remember, the National Geographic Quest and Venture were the first newbuilds ever for Lindblad Expeditions, developing ideas, which allow both older and new vessels to maintain value represents an enormous opportunity. It took a bit of trial and error to find the right balance, but I believe we are now headed towards further maximizing the combination of old and new.We expect to have the same outcome when we add the National Geographic Endurance to our fleet next year. It's so rewarding to watch this state-of-the-art vessel come to…

Thanks, Sven. The strategic investments that Lindblad has made over the last several years to expand our capacity is generating strong financial results today, while we continue to invest to further capitalize on the long-term opportunity given the growing demand for adventure travel. Our expanded inventory, along with a proven track record of delivering authentic and high-quality experiences, is combining with a strong booking environment to deliver strong growth in the short term, while investments in additional capacity, upgrading our technology infrastructure and expanding our sales and marketing capabilities will provide us the ability to sustain this momentum for years to come.Turning to the second quarter of 2019, specifically. Total company revenue increased 10% versus the second quarter a year ago, led by 9% growth at the Lindblad segment and 18% growth at Natural Habitat. The increased revenue growth contributed to a 9% increase in adjusted EBITDA led by 11% growth at the Lindblad segment.Looking at the individual segments, the Lindblad segment generated revenue of 64.9 million as compared with 59.6 million during the second quarter of 2018. The 9% year-on-year growth was primarily driven by a 6% increase in available guest nights, mostly from the launch of the National Geographic Venture in December 2018. The quarter also included a 3% increase in net yield to $1,030 per night predominantly due to higher ticket prices across the fleet and higher other guest revenue as well as from the impact of changes to certain itineraries, while occupancy remained strong at 89%.Turning to the cost side of the business, Lindblad segment operating expenses increased 10% on a reported basis primarily driven by a 9% increase in cost of tours, led by the addition of the National Geographic Venture to the fleet at the end of last year. Fuel costs in the quarter…

[Operator Instructions] The first question comes from Steve Wieczynski of Stifel.

So Craig or Sven, I guess, I kind of asked this question, I think to you guys last quarter as well. But if we look at your EBITDA guidance for the year, which remains unchanged, and we back out the approximately 35 million you've done in the first half so far. I mean you guys are now expecting growth in the second half of the year, which is in the -- basically, the 50s kind of range.So I guess the question is what gives you so much confidence right now that growth -- the growth -- we'll be able to see that much growth in the back half of the year? And I guess that kind of goes on top of the increased spend as well on the marketing side. That EBITDA growth seems very, very tough to get to, I guess, what am I missing here?

Sure. So thanks for the question, Steve. So first off, I think it's important to note that the results year-to-date are exactly in line with where we expect it to be at this point through the year. When you look at the way the new inventory was coming on to the fleet, with the Venture, the bulk of that advantage or the bulk of that benefit was really going to take place towards the very tail end of Q2, throughout Q3 and Q4. So we were fully expecting to see a larger portion of that benefit in the back half of the year.At the same time, certain of our existing vessels, we're expecting to generate higher yields in the back half of the year. Most notably, the Orion with her operations. Last year, she was predominantly in the South Pacific. And this year, she has a more diverse set of itineraries. So that was always anticipated in the back half of the year as well. So when you look at those two driving forces, we feel pretty confident. We also know how much bookings we've already taken for the back half of the year. So when you combine a double-digit increase in available guest nights in the second half, higher yields in the second half, and so much of that already on the books, we feel very confident in our guidance for 2019.

And then the second question, I wanted to ask about the occupancy, slight dip here in the quarter. Maybe I'm reading too much into this, but it's -- the first time, it has dropped in a while and it's a metric we're focused on given how much capacity you guys brought to the market and are continuing to bring to the market. And is that something I'm reading too much into or this could be just a function of some of the shorter itineraries that you guys have introduced?

Yes. So I certainly wouldn't focus on a 1% drop in occupancy as a significant item or an item at all for that matter. When you look at the fact that we've added inventory, we're growing yields to see occupancy slightly down or flat, that's a normal course of action for the business. That said, the reason that you're seeing it where you're seeing it in the current quarter is because we added and Sven touched upon this in his comments, we added a bunch of inventory with the Venture in the shoulder season this year.And that's going to always have a little bit of lower occupancy than the, what I would call, peak seasons. So if I was looking at just occupancy, for example, in June, which is the Alaska season kicked off in earnest, our occupancy was up year-on-year. So it really, I think, is a matter of timing more than anything else, just given where we are in the course of the year, and you should see occupancy very strong in Q3.

The next question comes from Greg Badishkanian of Citi.

This is actually Spencer Hanus on for Greg. So I just had a quick question on the response to your shorter itinerary cruises. What has been the response there? And then do we have any sense of what the repeat rate looks like for these customers taking these shorter cruises?

Yes. Yes. The -- so we have, as I mentioned, 11 new itineraries, some of which are brand new. So we have very -- not a lot of data in yet, and they haven't been going on that long. And so the repeat rates from this audience is not clear yet. But the ones we've launched so far, the indications have been very, very positive. The one that has been sort of going on for a while is in Galapagos and that's completely been sold out.And in fact, in 2021, we're moving one of our ships into entirely in the -- we're migrating it entirely into these shorter programs in terms of their construct. So we're going to learn a lot more about in the next six months or so, and it's going to take a little bit of time before we really understand what the repeat rate factor is. The key is that they're selling well, and they're selling to younger people, which is very, very -- a very good indication of future health.

Great. And then any update on trends that you guys are seeing from non-US sourced passengers? I know that's not a huge part of your sourcing, but any update there would be great.

Sure. So when you look at -- for those who aren't familiar, today, about 90% of our guests and travelers are from the US, with another 10% outside the US, and that has been very, very consistent for us over the last several years. Part of that is we spend the majority of our time focused in the US, and we haven't really looked to expand yet internationally, in I would say, significant ways. But that will change over time. Today, we still see an enormous opportunity here in the United States. We think we're still just scratching the surface. When you look at the amount of guests that we ultimately take across our fleet over the course of a year, we're still 23,000, 24,000 guests. And that we think is just a start of what the US can be.So when you look at the US can grow, we still think that will be the lion's share of our guests, but we do anticipate in the future, starting to expand our marketing efforts and our outreach programs internationally. We have done some thus far, but we are relatively minor in that aspect. So I think you'll see that percentage not change too dramatically. We look forward because I think there's so much growth left here in the United States, but we will see the absolute number of guests coming from our international sources start to increase over time.

[Operator Instructions] The next question comes from George Kelly of Imperial Capital.

So just a few for you. Wondering to start, if you could talk about the new reservation system and dynamic pricing. And wondering what the timeline is for that? And if you've been testing any kind of dynamic pricing so far, what you're seeing?

Sure. Let me answer the first question first, which is, in terms of timing of the rollout, we expect that our new reservation system will be functional either at the end of this year or the start of next year. So, late fourth quarter or sometime in the first quarter. Once we do that, the implications and the impact of the dynamic pricing will probably be felt towards the tail end of 2020. And then certainly, in bulk in 2021. That said, we're not sitting around waiting for that system to launch to experiment with dynamic pricing. We have taken opportunities to raise pricing on some itineraries that we think are selling out dramatically.It's been, I would say, very much a fits and starts kind of effort. We have not done it wide scale, but we do look for opportunities to take advantage of yields when we see significant demand for an individual itinerary. And the response rate has been very positive. We have not seen a whole lot of falloff when we raise pricing, which is good. But I would say it's very much done mechanically now as opposed to automated, and we look forward to the opportunity to automating the process.

Okay. Okay. Great. And then the other technology initiatives and marketing initiatives that are underway, I think you said there's the CRM goes live in the third quarter, and then there's some marketing -- additional marketing initiatives coming later? Can you be more specific about what those last -- I think it's marketing in cloud, kind of, what does that mean?

Sure. So well, the vast majority of the CRM will go live in the third quarter. We have actually started to roll out certain functionality within the CRM platform already. And we are, I would say, starting to see a very nice understanding of our customer flows and our ultimate guest 360 Viewpoint, which is great. The two pieces that still are to come are the website and the marketing cloud. And what those are really done, they're tied to the launch of the reservation system, that we're going to launch because we don't want to obviously tie them into a piece of technology that's going to be obsolete come the start of next year.So we're holding off on those. But when we are able to do that -- first of all, on the website, you'll have improved mobile design. You'll have access to that website from third-party travel agents and items like that, which will allow for direct bookings, which will certainly increase the productivity there. And on the marketing cloud, it really allows us to capture the guest interest on and off board, improve their overall onboard experience, we can generate greater ROI in our direct mail efforts by looking at effectively, who wants to see information on what pieces of itineraries or what geographies, so we can be much more targeted in our marketing efforts, once the marketing cloud gets up and running.But again, it also will help us with our e-mail performance and ultimately when we're sending out digital communications to our guests, that will tie directly into our website to see where the demand is most needed. So there's a lot of additional productivity that we'll get once these new systems launch. But again, the cloud and the website are very much tied to the launch of the reservation system.

Okay. Okay. And then just a couple of modeling questions. These new vessels that you've launched in recent years. What -- how does the contribution margin change as the ship matures? Do you sort of overinvest in staff and having -- making sure the experience is just perfect for the first year or two? Like, will margins optimize higher over time as the fleet matures?

Sure. And I think you have to look at each vessel individually depending on where it's going to launch and how it's going to launch. But from a broad stroke perspective, typically, what you would see is that the margins in the first year or so would be lower for a variety of reasons, one being, you're going to certainly market ahead of any kind of voyage. So that's going to, obviously, bring your margins down.You're also going to -- to your point, you could invest a little bit of additional staff into that vessel, both in terms of the office staff as well as the onboard staff, certainly. And then as you launch a vessel, you start to see the things that you want to change to ultimately fit the ideal guest experience for that vessel. And that usually takes some fine-tuning over the first year, a year and a half years or so. So I would say, by year two, certainly by year three, you're optimizing, certainly, your efficiencies on that vessel in achieving peak margins.

Okay. Okay. And then last question for me, just about your EBITDA guidance back to that topic. For the year, can you remind me what sort of one-time-ish -- I know you don't generally back out a lot of the new vessel marketing and things out of your EBITDA, but what are the major -- there's incremental marketing this year. And then, I believe there's some new ship marketing-related costs as well. Can you quantify those?

Sure. So there's really three buckets of, what I would call, onetime items, and that relates predominantly to -- we increased our marketing spend in the year. We haven't quantified what that's going to be specifically, but the increased marketing spend is included in our guidance and our EBITDA guidance for the year. And that halfway through the year, we're spending exactly what we thought we would spend on the additional marketing side of things.And to be fair, we can increase that or decrease that, depending on the return we're getting as we spend those dollars. So that will be a byproduct of the bookings that we're seeing with regard to the marketing spend. Now obviously, the booking that we do see on that marketing spend will help us in 2020 and 2021. So it will not have so much of an impact in 2019, but it is certainly money well spent for the future growth of the company. The two one-off items that we have quantified in the past, as we said, that between the new operating expenses associated with the new IT projects as well as the new spend related to the launch of the Endurance.That would be things like hiring crew ahead of launch, buying things that you would ultimately need to operate the vessel from an expense perspective. Those two things combined, when you compare the IT spend and the Endurance spend, it will be about $3 million to $4 million of costs, predominantly in the second half of the year. There was some spend on those things in the first half of the year, but the bulk of that will be in the second half of the year. And those are the primary onetime items.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Felenstein for closing remarks.

Thank you for joining us this morning, everybody. We look forward to speaking to you in the future. And if you have additional questions, feel free to give us a call. Thank you.

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