Good day, and welcome to the Lindblad Expeditions Inc. First Quarter 2022 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Craig Felenstein. Please go ahead, sir.

Thank you, Chuck. Good morning, everyone, and thank you for joining us for Lindblad's 2022 First Quarter Earnings Call. With me on the call today is Dolf Berle, Lindblad's Chief Executive Officer. Dolf will begin with some opening comments, and then I will follow with some details 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 Dolf.

Thanks, Craig, and good morning, everyone, and thanks for joining us today. I recently pinned the letter to our shareholders for our annual report, and I started with an expression of gratitude. Gratitude is the leading sentiment that I feel for our tremendously hard-working team. I also want to express gratitude to our many partners in the travel industry across the world who help us execute our business. And perhaps most importantly, I want to convey thanks to our guests who have been so loyal and steadfast in their zeal for expedition travel with Lindblad Expeditions as we navigate this final phase of ramping back up to full operations as a company. You may recall that at the end of 2021, we had 9 of our 10 owned ships back in action, and I'm happy to report that starting with the Orion's April trips to French Polynesia, all of our ships are back to taking guests to the world's remarkable destinations. Having all our owned ships sailing and all of our land companies back to operating in nearly all their key geographies is something that we have worked for a long time to achieve. This accomplishment, combined with the strength of future bookings, which I will describe further in a few minutes, are sources of great optimism for our team. Q1 was metaphorically, a tale of 2 cities quarter for us. Let me begin with some very positive highlights. The Antarctic season was a great success. Unlike many other companies, we were able to complete all voyages in our schedule despite the rapid spread of the Omicron variant at the time. We maintained our strict protocols with regard to vaccination requirements, pre-embarkation testing, daily symptom checks, onboard crew testing, cleaning routines and mask requirements in common areas. And as a…

Thanks, Dolf. It is certainly exciting to have all 10 of our ships back providing unforgettable experiences to our guests. And I would like to once again thank everyone across our fleet, operations and offices who work so hard to make this possible. is their diligence and dedication that has enabled us to ramp our operations so quickly and successfully and which has positioned us to begin realizing the expanded earnings power of the company. As expected, first quarter results were significantly impacted by the Omicron variant, but we have ample liquidity to weather any immediate headwinds as we further ramp up operations. More importantly, the investments we have made during the pandemic to expand our fleet capacity and diversify our product offerings has significantly increased our earnings potential from pre-pandemic levels. So we are primed to capitalize on the growing demand for authentic adventure travel. During the quarter, we further strengthened our balance sheet with the refinancing of our existing term loan, including the Main Street facility as well as our revolving credit facility through the issuance of 6.75% notes that mature in 2027. As we mentioned previously, the issuance was over 7x subscribed, which speaks to the attractiveness of our business model and the earnings power of the business coming out of the pandemic. This issuance, along with the new undrawn $45 million revolving credit facility also maturing in 2027, provides us additional financial flexibility as we ramp operations and explore additional growth opportunities. Turning to our current financial position overall. We ended the first quarter with $155 million in unrestricted cash and $30 million in restricted cash, primarily related to deposits on voyages that originate in the United States and credit card reserves. The $185 million of total cash increased $12 million versus the end of the…

We will now begin the question-and-answer session. And the first question will come from Steven Wieczynski with Stifel. Please go ahead.

Yes. Hey, guys, good morning. So Craig, or Dolf, wondering if you could maybe help us break down the $21 million EBITDA loss in the quarter. And what I mean by that is wondering if you could help us with how that -- how the cadence of those losses looked through the quarter? Just trying to understand if the cadence from an EBITDA perspective, improved through the quarter and then maybe how April -- I'm not sure I'm going to say this, but how April looked as well? And I guess the underlying question here is, Craig, you talked about turning EBITDA positive in the third quarter. And then maybe how we should think about you guys turning free cash flow positive and maybe when that inflection point can happen as well.

Sure. Thanks, Steve. A few things there to unpack. But let's start with the first quarter and how it kind of played out over a several month period. So I'm actually going to harken back to November. When we're sitting here in November of 2021, we actually were very close to being profitable in the first quarter of 2022. That was prior to the Omicron variant. Once the Ometron variant hit, there was a significant displacement of guests in the first quarter and the second quarter towards the end of 2022, but really the early part of 2023. So once that happens, where you normally would see some additional revenue coming into the quarter for the first quarter, that obviously did not happen and we were stepping backwards. The second thing that happened in the quarter that was unexpected was the Russia, Ukraine conflict. When the Russia-Ukraine conflict kicked in, fuel prices obviously spiked, which had an implication for us on the cost side of the business that we weren't anticipating. That obviously took our expectations for Q1 down because of that change. The last thing, and I touched upon this in my remarks, was the venture was operating in Baja, California, and there were 3 voyages that unfortunately needed to be canceled because of some permit approvals that took a little while to get going. We were able to secure those for the end of the season, but there were 3 voyages that had to be canceled. So the cadence, unfortunately, for the first quarter went backwards for most of the quarter because of those items. However, the booking trends in the quarter were the exact opposite. The booking trends for the full year 2022 and into 2023, actually reversed course really after the, I would say, second week…

That's great color, Craig. Appreciate that. So the one part of that question, I don't think you answered I'm not sure you're going to answer it. But from an EBITDA perspective, did April look better than March?

Yes, I'm not going to get specific with regards to a month. And so much of that, Steve, for us depends on where the ships are operating and are they in transit, right? So a lot of our ships in March, for example, are traversing from what I would say is Antarctica up to their next destination. So there's a little bit of a challenge when it comes to that in terms of just transit costs. And then in April, for example, the Orion was transiting down to French Polynesia. So there's nuances to it in terms of operational months that make comparisons a little bit difficult. But certainly, the business is improving as we move forward.

Okay. And then second question, are asked a ton of questions. But second question would be, you talked about the cadence of bookings that has sequentially improved on a weekly basis all the way through April, I think you mentioned. And I just want to understand if there have been any material or changes in booking patterns, meaning are folks booking heavily or more heavy in certain jurisdictions or the booking patterns pretty similar to where they were 5 months ago or 6 months ago?

Yes. I would say they've changed a little bit. And what I mean by change that they've almost reverted back to historical levels. If you recall on the last quarter call, what I said is what we're seeing a little bit at that time was you were seeing more bookings for the short term and the long term, which kept the average kind of booking window at around that 9-month level. Now we've kind of seen a little bit less of that lately, and it's more traditional levels in terms of what you're seeing in terms of that 9-month window just being kind of the average. We're also seeing what I would say is traditional levels of repeat versus new guests, the repeat guests that are coming in are somewhere in the high 37%, 38% range, which is in line with what we've seen historically. So booking patterns are returning to more normalized levels. There's obviously nuances when you have a cancellation of voyages like we saw with Russia for the third and second quarters. But for the most part, the bookings are back to where we would have seen them say, pre-pandemic levels.

Okay, great. Thanks, guys, I appreciate it.

Thank you.

The next question will come from Tyler Batory with Oppenheimer. Please go ahead.

Good morning, guys. This is Jonathan on for Tyler. I wanted to follow up on that booking pattern discussion and maybe ask it a different way. I'm wondering if you've seen any kind of sentiment shift in recent weeks in terms of guests who are maybe hesitant on booking going back into the inbound pool or demand spikes for different itinerary. Any additional color on that front?

Yes. Thanks for the question, Jonathan. As Craig referenced, we're really seeing a return to the kind of patterns that we saw pre-pandemic. You may recall during the pandemic that there was a really strong push for the U.S.-based itineraries, specifically Alaska. But we're seeing now a balance that's returning to kind of rest of the world in addition to what we anticipate will be a good Alaska season. I think that -- we did see a little bit of an upshift or an uptick in booking patterns when the mask mandate was released. I think that sort of sent a wave of optimism through Guess across our industry, quite frankly. And so the guests still are sensitive to medical advice, but we have definitely seen a return to what we would consider more pre-pandemic types of booking behaviors, questions, interest in various itineraries versus any time previous to these last months or so.

Okay, thank you, Dolf. And then you highlighted the desire to get out and explore it from guests. And I'm curious if you could provide some color on the early guest feedback. And do you think there's been a kind of structural change in which an increased value is put on the product offering or expedition travel in general?

Sure. I mean we -- some of it is a little bit intangible, which is just the -- what people are experiencing on the ships and how they're providing very strong guest feedback on our common cards. And of course, our folks on the ships are themselves just excited to be back in the action. So I think the way that I feel that it's going is that these trips represent almost a coming out party for people who have been yearning to get out and explore. And once they're on the ships, and they're in the safe bubble that we're providing in terms of COVID protection, they really have just a chance to feel, I think, quite a bit different than they might have when in their back where they live. And so there is a sentiment change. We also see signs of that when we see what people are doing on our -- on the web and what they're clicking on, what they're excited about, how they're spending their time there, looking at video of some of the recent voyages. So all the indications are that public sentiment is shifting and that we've seen really a change, honestly, in the last month more so than any time in the last 12.

That's great. And then one last one, if I could. You guys recently unveiled and here to. And I'm wondering if there's any color you can provide on that process on how and when and if it changes your propensity or willingness, I should say, to do more of those deals in the future compared with new hardware builds?

I'll handle the second part of the question with regards to new hardware builds, and Dolf, can handle the response so far. So the first thing I would say is when it comes to replacement hardware, there aren't any plans to replace any other hardware moving forward. The -- it was an opportunity that we saw during the pandemic to acquire a vessel at an attractive price. We knew at some point the Islander 2 would have to be replaced, and this was a way to do so relatively economically and also provide a shift that would add or enhance where we were with the Islander 1, which will allow us to generate more revenue from the Islander 2 moving forward. With regards to new builds, we've been pretty, I would say, consistent in our approach to new builds, which is we believe that the expedition travel space is only going to continue to grow. The demand for the kind of experiences that we provide has only ratcheted up prior to the pandemic, and it exacerbated itself from there because people want to get out and see what the world has to offer. We do continue to evaluate the opportunities to add to our fleet, whether it be through new build process or whether it be through acquisitions, and we balance that with all the other opportunities that we have for growth moving forward. So nothing obviously new to announce today, but we'll continue to explore new growth opportunities at every angle.

And with regard to the Islander 2 specifically, this was a shift that we have been looking a long time to find. And it's the same number of guests that the islander -- the original Islander had. So we maintain that small ship advantage in terms of its agility, ability to go places and find codes where there's fantastic snorkeling and where possible access to the islands. And so the expedition capability is just as good as what we've had in the past, which is fundamental to the guest experience. But the real upgrade is the quality of the cabins and accommodations. And the fact that it's an all-suite shift, we do enjoy a reasonably good family business down in the Galapagos, and we saw the need for cabin configurations that allowed for more people inside a cabin. And so we think this is going to be a really nice complement to the Endeavor 2, which has been a stronghold for us down there for many years.

Great. Very helpful. Thank you for color, guys. That's all for me.

Thanks, Jonathan,

The next question will come from Ryan Sundby with William Blair. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. Just to follow up on the last one there. It sounds like the polar class 5 capabilities have exceeded expectations and maybe opened up options that even you hadn't considered or fully appreciate yet. I know word-of-mouth and repeat visitation or big roles in driving bookings for you guys. So could you maybe just talk a little bit more about in the past, when you introduce something big like this? What kind of tailwinds you've seen over a multiyear period as those guys get to experience that and share it with others.

I think that what I should do is give you the perspective of Sven Lindblad, our founder, who has obviously been part of every ship that has come into the fleet over the course of the last 40-plus years. So Sven will say that this is the most remarkable change in shift capability and technology that he has never experienced. And the reason for that is that it's the combination of the marine capability and also the quality of the hotel and food and beverage and the accommodations. Specifically related to the marine capability, it's just the way that it can cut through the waters in the Drake Passage, but then also because of the polar ice Class V capabilities, we've been able to go further south than we've ever been able to go before in the west, -- and I mentioned a couple of things in my comments about things that are relative first for us. The -- what that means is that the guests are coming back with the sense of having been explorers. And they're coming back and what is reflected on their social media and what we hear from them is they feel like they are doing things that other people haven't done and they can talk about them in ways that really capture the whole spirit of being an explorer and because of what we do with the combination of National Geographic and our expedition staff, we're able to really educate people about why certain milestones are significant. -- certain areas we visit are particularly pristine, certain wildlife that they're seeing are things that others maybe haven't seen in such a way. And so I think it's really a whole comprehensive view of what a great expedition adds up to, and these ships deliver on so many fronts. So I know that's sort of a broad answer. But Craig, maybe you'd like to add to that.

Yes, sure, Ryan. So when you look back to the history of the company, when we launch a new ship, it traditionally generates a fair amount of buzz and you get a fair amount of excitement. And then obviously, when you deliver on the promise of what that ship has to offer, where amount spreads, not only for guests, but also through the travel agent community. It's a little bit interesting this time out because we launched 2 new ships during the pandemic. And as you might imagine, there's excitement on just getting back out to these places alone and the experiences that people can have returning to these amazing locations. But when you layer on top of that, the guest feedback that we're getting from these shifts it should only build on the momentum and the success that it's had thus far. And that's the anticipation as we move forward and look out towards the Antarctica season for the end of 2022 into 2023. We're really significantly sold already. Now part of that is certainly the byproduct of people postponing trips from the end of 2021 and early 2022. But a part of that is also the -- what I would say, word-of-mouth that's going on right now with regards to these 2 new ships.

Ryan, I probably should have mentioned too, it certainly helped that -- good Morning America was on the Endurance and her kind of inaugural season in Antarctica. And so that reached millions of folks who, I think, sort of caught the thrill of the idea of being down there.

No, it's great to hear, and it sounds like repeat visitation could maybe even move higher. Maybe just to flip over, if you look at the 8 voyages that were touching Russia, I guess, it sounds like you'll be able to offset some, but maybe not all of that impact with revised itineraries here. So what help us understand how big of an impact that would have on the top and bottom line this year? And then just, I guess, more broadly, have you seen any signs that the conflict may be filling over and having an impact on other itineraries in Europe or orthotics?

Sure. So we're not going to comment specifically on the impact of those voyages because we don't speak to individual voyages. But what I can say is we had over 500 guests booked across these 8 voyages -- and while we were able to rebook for this year, probably close to half of them already. There's a fair amount of folks that are either pushed to next year or still taking that wait-and-see approach. So there is a significant, what I would say, revenue impact associated with changing these voyages around or certainly rescheduling them. And Ryan, I forgot the second part of your question.

When there are other geographies that are being impacted I can comment, if you like. Yes, we're certainly keeping track of that, Ryan. Initially, there was, I think, some concern on the part of guests who were going to be traveling in the Baltic just based on proximity to the conflict. And we did see people redirect a little further east and we saw a bit of a surge as it related to Alaska at that time. But that seems to have now stabilized, and we continue to monitor the situation closely, obviously. And we really haven't seen a change in pattern or sentiment in the last couple of weeks.

What else has been interesting, Ryan, is that when you looked at the booking patterns just globally, people are booking any kind of a trip, there was effectively a 1-week slowdown. When the conflict began, we saw -- we did see a hesitation for that 1 week when bookings really slowed. But the week following, it immediately picked back up and has been very consistent and actually been more positive since that point. So it looks like the desire to travel is only increasing as we've seen.

Great, thanks for the color, guys. That’s all for me.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Craig Felenstein, for any closing remarks. Please go ahead.

Thanks, Chuck, and thank you, everybody, for joining us today. We appreciate your time. As always, if you have additional follow-up questions, we'd be happy to answer. So please reach out and let us know. Thanks again.

Thanks, everyone.

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