Ladies and gentlemen, thank you for standing by, and welcome to the Lindblad Expeditions Incorporated Reports Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Craig Felenstein. Thank you. Please go ahead, sir.

Thank you, Alicia. Good morning, everyone, and thank you for joining us for Lindblad's 2020 Third Quarter 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 detail on our financial results and liquidity 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 good morning, everyone, and thank you again for joining us today. During our last earnings call, I spoke to you from French Polynesia. I was there to learn about the possibilities, what could be developed in order to position one of our ships there. Throughout the years I've been fortunate to spend a fair amount of time in this remarkable location. And if you think of a place like a recipe, French Polynesia has an excess of ingredients. The incredible lagoons, the turquoise waters, reefs, fish, mountains, forests, flowers everywhere and really some of the nicest and happiest people on earth. I was able to spend my time there working with local leaders and laying the groundwork for what I believe will be one of the strongest, most sustainable expedition experiences we have ever developed. Now back in [indiscernible], New York, we are all somewhat consumed by an upcoming election, and made aware each day of the grip that COVID-19 has on our country and much of the world. This is a stubborn pandemic that clearly will be with us into next year and will significantly affect our short-term plans. Over the past few months, our start-up team has worked diligently to develop a robust set of stringent protocols that would allow us to operate sooner rather than later in a variety of geographies. We had these protocols vetted by a number of health officials and local authorities who were all impressed with the procedures we had established, and were willing to work with us to resume operations. At the same time, we had reached out to our guests who were scheduled to travel with us over the next few months through a series of webinars to gauge whether they were ready to join us on an…

Thanks, Sven. Good morning, and I do hope everyone remains healthy and safe during these truly unprecedented times. I would also like to once again thank our crew across the globe and our office personnel for their resiliency during this period and for their diligence in preparing us to return to operations while simultaneously finding ways to preserve capital. It has been over 7 months since we paused our operations, and we continue to execute on the comprehensive plan we put in place back in March to reduce costs and our liquidity position. Given the uncertainty around when and how quickly we will be able to ramp up operations, in August, we further extended our liquidity runway through the issuance of $85 million in redeemable preferred stock to a diversified group of high-quality, long-term focused investors. I will discuss our overall liquidity position in a moment, but this investment, which was substantially oversubscribed, will help secure our return to operations and allow us to explore potential strategic opportunities to augment our long-term growth profile. Operationally, all of our shifts remain safely laid up with minimally required crew, and we have eliminated a considerable portion of our ship and land-based expedition operating as well as capital costs. On the advertising and marketing front, we suspended the majority of our spend, focused primarily on digital opportunities and paid media that is generating appropriate returns with regards to future bookings. And we have significantly lowered general and administrative spending through employee furloughs, salary reductions and elimination of all nonessential travel, office expenses and discretionary spending. Additionally, we suspended all repurchases of common stock under our existing stock repurchase plan. On the P&L front, the measures we have taken enabled us to reduce operating expenses before depreciation and amortization, interest and taxes by 76%…

[Operator Instructions] Your first question comes from the line of Steve Wieczynski of Stifel.

To the, your continued pause in sailings. And I guess the question is, given you don't fall technically under the CDC's guidelines, I guess we're probably surprised, I think other investors were surprised at this point, you haven't tried to get something operational sooner rather than later. So I guess the question, the biggest question is, is the issue here still trying to get customers to the ships themselves? Meaning that there's still kind of a lack of reliable air capacity at this point? Or is there -- are there just other factors that are kind of keeping you out of the water at this point?

Okay. Good morning, Steven. Thanks. So we discussed elements of this on the last call, but just to reiterate that, sorry, for any repetition. So you need 4 -- you need 3 things primarily in order to reactivate, obviously. You need a credible medical solution, which we developed and we feel -- felt very strongly about. You need a welcome man, meaning that places in the world need to accept you coming. So for example, Argentina and Chile and the Antarctic, the starting points for the Antarctic technically are off limits to American travelers at the moment. However, we were working very closely on some kind of special dispensation based on our protocols. And then, third, you need ultimately the will of the people, the guest to travel. And this has obviously been an environment of shifting sands. So if you take, for example, last week we were poised, ready and had built to reoperate in Antarctica. We had had webinar with our guests. We had a pretty significant positive reaction from them. We had a marketing plan to fill in the gaps. We were completely ready. And then what happened, you had an extraordinary increase in COVID cases around the country, it was dominating the news. Well, there's 2 things dominating the news, the election and COVID. This was -- and then the CDC on October 26 made their announcement. And even though technically we are not in the category that the CDC is regulating from U.S. waters, it 250 souls and above. We are below that. It still has said to U.S. citizens or Americans, "Do not travel on cruise ships." So this, trying to operate in the face of that kind of a recommendation. And particularly, the places are really quite far away, and the rising tide of corona, we were dealing with what we clearly imagine would be diminishing returns. In terms of the people who said, yes, that was going to get further reduced. Our ability to get new people was going to be further reduced. And it just didn't make economic sense to send the ships. And the prospect of this getting completely out of hand in the next couple of months prior to when those voyages were scheduled was clearly a possibility. So from our point of view, it's better to say, look, we have the reserves, let's retool the organization for, hopefully, a significant start in April. We might be able to do some things between now and April in the United States and in the Galapagos Islands, we're working on that. But the circumstances just didn't allow for us to operate and do it effectively.

So it sounds like you're just -- what it comes down to is you're just erring on the side of caution at this point. Is that fair?

No, it's not fair because we're not erring on the side of caution. We're erring on the side of facts that tell us that there is no possibility to effectively operate in an area, send a ship down, fill it full of fuel, put crew on and do all of that and have it be a good result.

Yes. Steven, it's Craig. One of the things that's important to remember, when you think about Antarctica is that it's a season, right? So it runs from November to, call it, March. So in order to get that season up and running, there's a whole lot of things that have to be done. And then that season is over. Unlike, the Galapagos which runs pretty much year round. So the decision on the Antarctica had to be made by a certain point in time, and there was just too much uncertainty for us to get going from a cost perspective, just it wasn't worth the risk factor.

But Steve, the reason I react to the word caution is that we had developed an unbelievable set of protocols that would keep people safe, that people all over the industry and in countries were using as models for what they said was literally the best and the most well-thought-out protocols they had ever seen. And so we felt absolutely secure that we could bring people to the Antarctic and do it safely, and give them a great experience at the same time. It was just that when the forces outside that you have absolutely no control over and when a government institution like the Center for Disease Control makes a statement like that, that's -- that creates a huge headwind in terms of trying to go up against it.

Okay. Understood. And then second question would be that new booking number that you laid out there, which is $44 million, I think, since March, but that's an increase of $14 million versus where you were 3 months ago. So I guess the question is, is that $14 million -- it seems like you've seen a little bit of a sequential slowdown there in that booking number. And is that -- would that be kind of normal to see that slowdown in a normal type of environment? Or is that slowing down just because, again, folks have no idea when you guys will resume cruising again. And hopefully, that makes sense.

Yes, Steve, the slowdown has not really been a slowdown. You got to remember that the early days, when you look at the March time frame was still very heavy because there was still a fair amount of new bookings coming in. When I look at the new bookings called over the last 4 to 5 months, it actually has been very consistent. So every week it looked very similar. Obviously there's some higher weeks and lower weeks. But if you look at the averages, the averages per week have actually been very, very consistent. Even right now, heading into the election, we're still seeing the same consistency, whereas in the past we've seen a little bit of a slowdown heading into the election. We haven't seen that with regards to new bookings, albeit the numbers are a lot smaller.

Your next question comes from the line of Alex Fuhrman of Craig-Hallum Capital.

Question, I was wondering if you could talk a little bit about the range of scenarios that you're planning from in terms of the ability for Americans to travel to other countries, when you think you might see that voyages can resume in other countries. And then, if this ends up being most of 2021, where it's just impractical to get American to Europe and Argentina and Chile, are there possibilities where you could really ramp up your domestic cruises, maybe in the Continental U.S. in addition to Alaska to help mitigate the cash burn next year?

Yes, that's a great question. So a couple of things. I think we pretty much believe -- or we believe that if you think about all of the different components that will come into play as it relates to allowing for robust reactivation of travel broadly, a vaccine obviously, better treatments, obviously better testing. And it seems like all those are along the way, right? And they probably will be available somewhat earlier than they would in sort of normal times because there obviously is a lot of urgency around accomplishing those things. So we believe that there's a good chance that April, more or less, onwards, we will be able to operate in a lot of the areas that we traditionally do. Now remember that it's -- if you take the summer broadly, the -- our ship, our newer ship, the Endurance is in the Arctic. Our 4 American ships are in Alaska. The Explorer is in the Arctic. The Orion is in the South Pacific. So we are really in areas that are way less stressed in terms of COVID. I mean if we had voyages in the Mediterranean, let's say, or on the West Coast of Europe or places where there are large human populations, I would be way, way more concerned. I'm still concerned, by the way, obviously. I mean, we're all concerned. We're trying -- this is like trying to reach into a crystal ball and figure out an answer that's clearly unclear. However, geography matters a great deal. And we can shift some of those geographies. So I'll just give you an interesting example, and I think this is key. One of our voyages in Antarctica this year. 2, we had 2 departures of the 30-day voyages from Argentina down to the peninsula of…

Your next question comes from the line of Chris Woronka of Deutsche Bank.

Wanted to ask if you have done any work around trying to understand the opportunity to potentially get some folks who may have been loyal to one of the bigger cruise brands. And now they're looking for post-COVID a different experience. Is there any way to kind of gauge or how do you direct your marketing efforts to some of those people?

Yes. That's also -- that's a great question. One of the things I personally learned during this period of COVID, which was a great sort of an awakening of sorts is well, I always felt that travel adviser community or travel agents, as some people may refer to them, was important. What I realized during this period is they are way more important than I had really fully realized. And they have a real relationship with their clients, and they really do act as advisers, just like a financial adviser would act in relationship to finances. They act -- they advise in relationship to their travel opportunities, which they now are really, really important to the people they deal with. And today -- and we've had conversations with many of them about this very subject. I mean, people are going to change their preferences. And I think that's going to bode well from our perspective because I think the idea of being on -- in any sort of large gathering is just going to become less attractive. People are just going to be less attracted to crowds and obviously a large cruise ship. And I'm not saying I don't want to denigrate that in any way, shape or form, but it's a fact of life. It's a critical mass that is significant. And in our situation, it's a critical mass that is way, way lower. And people -- and certainly people in the travel trade recognize this, and they're going to be instrumental in an acceleration of shift in our favor. And that isn't just something I believe, that's something we've discussed, that's something I've heard over and over again and something we will really, really nurture.

Hey, Chris, one other thing that I'll add is when you look at the new bookings that we're getting in right now versus folks that are being rescheduled, out of the new bookings it's pretty much split down the middle between guests that have been here previously, but also new guests. And that percentage of new guests is nice for us to see, especially during this time. So we are seeing just natural inbound interest on top of some of the work that Sven said we're going to be doing with some of the third-party travelers.

An incidentally, that's not the only avenue. But I just want to illustrate that as a specific avenue. Obviously, in our communication, in our marketing, and -- we are completely sort of rebranding, not rebranding, but our -- for example, our catalog, the one piece that is like critical every year that sort of launches the following year and the year after, we're completely reinventing it, if you will, in terms of emphasis and focusing on getting back into and developing a different relationship with wild places. So the combination of size and the combination of geography, I think, is a very potent mix.

Okay. Great. Appreciate all that color. And then, just when you think about starting up again and whether it's April or before, and you think about some of the protocols that are probably still going to be in place and hopefully, eventually, they go away. But does that change the -- dramatically change the economics if you're -- who's paying for testing and some of the other things you have to do? And I know you -- it will be a great trade to get sailing again. But as we think about kind of modeling that out, is it a different margin profile for the first X number of months or quarters?

Yes. Certainly, there's a couple of things that are going to happen out of the gate for us. When you need to get all the crew up and running and get them from where they are to the ships and then get the ships ultimately ready to sail and then the ships down to where they ultimately are going to take guests, that will certainly be additional cost in the startup process, nothing that we haven't planned for and part of the overall economics when we factor in whether it makes sense to sail or not. So that shouldn't be too out of the ordinary. There will be, when you start off, depending on geographies, some additional costs. Certain geographies are going to require charter planes potentially. Certain geographies are going to require more medical capabilities. Certain geographies may decide to pull some captains out of service. So I would say in the short term your margins will be a little bit impacted, albeit not too dramatically. You'll still be significantly profitable. When you think about these ships in general, the majority of our ships operate at gross margins well over 50%. So we would still expect to have very high margins on these ships when we operate them. And then those costs will certainly dissipate over time. So I would expect the first year margins to be impacted. But when you look out to years 2 and 3, we should get back to the places where we've been historically.

[Operator Instructions] Gentlemen, there are no further questions.

Thank you, operator. And thank you, everybody, for joining us today. And we look forward to connecting over the next few days if you have additional questions. Thank you.

Thank you.

This concludes today's conference call. You may now disconnect.