Lindblad Expeditions Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, welcome to the Lindblad Expeditions Holding Incorporation Report 2023 Second Quarter Financial Results. My name is Glen, and I'll be the operator for today's call. At the moment, all participants will be in a listen only mode. After the speakers' remarks, I will now hand you over to your host, Craig Bilstein, Financial Officer to begin. Craig?

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad's 2023 Second Quarter Earnings Call. With me on the call today is Sven Lindblad, Lindblad's Founder and Chief Executive Officer. Sven will begin with some opening comments, And I will follow-up with some details on our financial results, balance sheet and current 2023 expectations before we open the call for Q and A. You can find our latest earnings release in the Investor Relations section of our website.

Speaker 1

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 and 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.

Speaker 1

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.

Speaker 2

Thank you, Craig, and good morning, everyone, and I appreciate you joining us. Hard to believe that it's been about 2 years since I in an earnings call, and I welcome the chance to discuss with you the performance of the company today and the opportunities we see moving forward. Before I do that, I would like to thank our recently departed CEO, Dolph Berndy, for the dedication and commitment he brought to Lindblad Expeditions these past couple of years. Together with the management team, the Board of Directors and our employees around the globe, We stewarded the company through the longest lasting downturn in our history and helped position the company for success moving forward. I appreciate DOLF and the entire organization for their relentless hard work, adapting virtually daily to the challenges posed by COVID, while pushing to maximize our existing product portfolio and exploring opportunities to further broaden our platform, all while keeping our guests and guest experience front and center.

Speaker 2

I wish Dolph the best in his new role Closer to home and while we wish him well, I couldn't be more excited to return and help navigate this great enterprise into a new era. So what do I mean by a new era? First of all, putting the COVID pandemic definitively behind us. Yes, we still have the occasional case, but they no longer significantly impact the overall operations. Our financial results have already started to reflect this reality with EBITDA up $61,000,000 in the first half of the year versus where we were a year ago.

Speaker 2

2nd, it means capitalizing on the massive growth of interest in We've been providing authentic high quality experiences to our guests for 5 decades. And along with our partner, National Geographic, we are poised to build on that success. The pull to connect authentically with nature And culture is growing by the day. And there is no other company in this segment with our track record or with our commitment to providing unique and immersive expeditions. 3rd, it means building our technology to for innovative ways to drive the business.

Speaker 2

This quarter, we launched our new reservation system. And as part of that launch, we integrated 15 critical systems across of the company, including sales, marketing, accounting, operational and analytics tools. This was the biggest and final building block in our digital stack transformation, which also included new CRM, a new content management system, a new digital asset management system and the new customer data platform. Looking ahead, we see tremendous opportunities to leverage the combined capabilities of this stack to drive more effective and personalized marketing, enhanced customer service levels, better forecasting, pricing and promotional tactics and efficiency gains for our sales associates. Our implementation has already supercharged our Online bookings enabling cabin selection, new ways to display and merchandise different aspects of our voyages and search for trips and information faster than ever before.

Speaker 2

We're also able to dynamically price our departures ensuring that we're pricing each cabin on each trip appropriately. 4th, the new era means reconnecting our community in creative ways after having dealt with so much distance, creating the most modern marketing and sales platform to propel growth. I just mentioned the technology But it's more than that. It's marrying the historically successful marketing approach, which centered largely around direct mail and targeted emails with meaningful digital lead generation, focusing on driving first time bookings through the elevated search campaigns to capture and convert more prospects than ever before. We are also looking for innovative ways to reach new audiences such Our recently launched collaboration with Food and Wine Magazine, carrying 14 expeditions in 2024 along the Columbia and Snake Rivers in Washington and Oregon with programming elements, wine selections and special guests selected by the editorial staff of Food and Wine.

Speaker 2

At the same time, we are doubling the size of our sales force so that we can grow our relationships with travel advisors across the country and internationally. More advisers are booking their clients on expedition cruises than ever before and we've hired history leading sales people our industry leading sales people to help us grow our share from these important distribution partners. A new era also means bringing R and D back to the forefront in terms of new geographies, new experiences in parts of the world we have been visiting for years and innovating the ways we immerse our guests in these remarkable destinations. COVID, of course, limited our boots on the ground approach, so critical in developing our unique offerings. We have reconstituted our experienced team in this area and have redeployed our personnel around the globe to ensure our itineraries deliver unparalleled experiences for our guests.

Speaker 2

And it means looking for new ways to broaden and deepen our platform of product offerings as we maximize our existing portfolio. Expanding our fleet either through acquisitions or through building new capacity and exploring ways to further diversify our land offering. The 4 land companies we have acquired since 2016 have generated significant growth from acquisition levels. Each had strong momentum coming out of the pandemic, providing high quality remote adventure travel opportunities to an audience that was cooped up for many months, and we have maintained that momentum in 2023 as we further fine tune product offerings and focus on reaching wider audiences. As we look to continue to scale these businesses with their dedicated and passionate founders, we will focus on finding additional companies that are best in class and aligns from a mission perspective, whereby joining with us, we can collectively propel meaningful growth.

Speaker 2

So that is just some of what I mean by a new area here for Lindblad Expeditions. This is definitely a time for survival of those best suited to adaptation is the future. We have a wealth of tenured people, a fantastic Board of Directors and some very talented new grads. Everyone knows that the mantra can never be adherence to the way we have always done it. We must respect our past, but we must always evolve as the world terms and changes.

Speaker 2

While we are excited by the momentum across our business today, we are not yet where we need to be. Occupancy across our fleet in 2023 will be up year on year, but it is not yet at a historical levels of 90%. Some of the headwinds still remain such as the inordinate amount of large scale discounting we are seeing in the marketplace as new entrants trying to gain market share, a practice that has absolutely no chance of success in the long run. This is not the first time we have seen this dynamic across the industry. And as we have in the past, we will maintain our commitment to high yields given the experiences we provide.

Speaker 2

Other headwinds are starting to wane. Cancellations, for example, while still slightly elevated from 2019 levels are moving in the right direction every week as travelers get more comfortable coming out of the pandemic and as we have updated our cancellation policies. As we navigate the short term, I think the core question has to be where are we going and are we poised for sustained and meaningful growth? And I believe the answer is without doubt, yes. Each point of occupancy should yield $4,000,000 to $5,000,000 in additional EBITDA.

Speaker 2

So clearly, the most valuable opportunity is to get back to the occupancy levels we have historically achieved. As we focus on returning to these levels, while maintaining robust yields, as I mentioned earlier, we will also be exploring ways to further diversify our portfolio of product offerings to further increase the earning potential of the company. So bottom line, we are excited, motivated and most definitely poised for continued growth. And I am both grateful and ready to be back at the helm of this great ship, Lindblad Expeditions. And with that, I'd like to turn the call back to Craig.

Speaker 1

Thanks, Jen. Lindblad's strong year on year growth continued during the Q2 as we further ramped operations with broader use of our fleet and additional departures across our growing land businesses. As we deliver sustained year on year growth, we are taking the operational and strategic steps necessary to take full advantage of the expanded earnings potential of the company. The significant investments we have made in additional capacity, diverse product offerings, technological capabilities and our overall infrastructure has uniquely positioned us to significantly capitalize on the growing demand for high quality experiential travel. Turning to the quarter specifically, 2nd quarter total company revenue of $125,000,000 increased $34,000,000 or 37% versus the Q2 a year ago, as we continue to ramp operations with strong growth across both of our operating segments.

Speaker 1

At the Lindblad segment, Revenue of $87,000,000 increased $23,000,000 or 36% versus the Q2 a year ago. The year on year growth was driven by a 34% Expansion in available guest nights from broader utilization of the fleet and by increased pricing, which contributed to a 5% increase in net yield to 10.34 per available guest night. Occupancy of 74% was slightly below a year ago due primarily to significant additional shoulder season inventory as we broaden the use of the fleet and the Peru cancellations early in the quarter, which we mentioned on the last call. The Land Experiences segment revenue of $37,000,000 increased $11,000,000 or 39% versus the Q2 of 2022, led by additional departures and guests across our land companies, including natural habitat trips to Africa and the Galapagos Islands, Off the beaten path trips to Alaska and the U. S.

Speaker 1

National Parks, Duvain's bike tours in Italy and France and classic journey trips across Europe. Strong revenue performance across both segments generated significant operating leverage with total company adjusted EBITDA of $6,000,000 in the 2nd quarter, an increase of $12,000,000 versus the Q2 a year ago. The year on year growth was driven by a $10,000,000 increase at the Lindblad segment and a $2,000,000 increase at the Land Experiences segment, what is traditionally a slow season. Looking a little closer at the cost side of the business, Operating expenses before depreciation and amortization, stock based compensation, interest and taxes increased 21,000,000 were 22% versus the Q2 of 2022, led by a 24% increase in cost of tours, primarily related to the ramp in ship utilization as well as expenses related to operating additional land based trips. Fuel costs in the quarter were 5% of revenue as compared to 7% of revenue in the Q2 of 2022, reflecting slightly lower fuel prices and the increased revenue profile.

Speaker 1

Sales and marketing costs increased 18% versus a year ago, primarily due to higher commissions and royalties related to the increase in revenue. The quarter also included some additional costs associated with our digital initiatives, most notably associated with the implementation and integration of our new reservation system, which, as Sven mentioned, launched during the quarter. G and A expense during the quarter increased 18% versus a year ago, excluding stock based comp and one time items, primarily due to higher personnel and sales tax costs as we ramp operations and increased credit card commissions related to final payments for upcoming itineraries and for higher deposits on new reservations for future travel. Total company net loss available to stockholders of $25,600,000 or $0.48 per diluted share improved $4,500,000 versus net loss available to common stockholders of $30,000,000 or $0.59 per diluted share reported in the Q2 a year ago. The improvement reflects the significant ramp in operations, partially offset by the write off of $3,900,000 in deferred financing costs related to our export credit agreements and additional interest expense of $2,200,000 net associated with higher rates and increased borrowings related to our debt refinancing in May.

Speaker 1

Turning to the balance sheet. We ended the quarter with $197,000,000 in cash and short term investments, a $77,000,000 increase from the end of the first quarter, led by $68,000,000 in cash provided by financing activities as we further solidified our balance sheet by refinancing our export credit agreements with notes that mature in 2028. The 9% fixed rate notes replaced variable rate debt that had an interest rate of approximately 8.5% in the 1st quarter and also eliminates principal payments of over $20,000,000 annually. In addition to the cash provided by the refinancing, The company generated positive operating cash flow of $17,000,000 during the quarter, which was partially offset by CapEx of $8,000,000 including primarily maintenance CapEx and spending on our digital initiatives. Turning to the full year of 2023, we are excited by the sustained operating momentum across our portfolio and continue to anticipate significant growth as we ramp operations and capitalize on our expanded platform.

Speaker 1

The Lindblad segment has already booked nearly 100% of its year projected ticket revenues for the year and we continue to expect total company tour revenues in 2023 between $550,000,000 $575,000,000 and adjusted EBITDA between $70,000,000 $80,000,000 These projections reflect the impact of the elevated cancellations on occupancy during the first half of the year, But as Sven mentioned and as was anticipated, we have seen a slowdown in cancellation rates with regards to bookings for the back half of the year and well into 2024. Please note that quarterly results for the remainder of the year will reflect the seasonality of our business with the Q3 benefiting from more complete fleet usage and peak seasons across both our fleet and land companies. Conversely, the Q4 will be impacted by less available guest nights due to the heavy dry dock and transit time across our fleet, more shoulder season inventory and the seasonality for our land businesses. Overall, we are pleased with the operating momentum across our businesses. And while there will be quarterly fluctuations, we are well positioned for sustained growth as we take full advantage of the expanded earnings potential of the company and the growing demand for authentic and immersive experiences.

Speaker 1

Thanks for your time this morning. And now Sven and I would be happy to answer any questions you may have.

Operator

Thank you. We have our first question comes from Steven Wieczynski from Stifel. Steven, your line is now open.

Speaker 3

Yes. Hey, guys. Good morning. So Craig, we did this last quarter, but need to do Some simple math here again. Okay.

Speaker 3

So you did $33,000,000 in EBITDA in the first half of the year. Based on your unchanged guidance, you're saying your business will do, what, let's call it $42,000,000 for the last quarters of the year at the midpoint. And that's with a pretty nice booked position at this point. I fully understand the seasonality of your business, But I have really no idea how this business will only do $42,000,000 of EBITDA over the last two quarters, especially with where the land based business is at this point. So Can you help me here a little bit?

Speaker 3

Are you being super conservative? Are you seeing something we aren't seeing? Just really just trying to square away why the full year guidance here wasn't Touched.

Speaker 1

Sure. Thanks, Steve. So when you look at the full year, there's a number of variables that obviously play into things when you look The next 6 months. Certainly, the cancellations are trending in the right directions. However, they do still remain elevated from where they were back in 2019.

Speaker 1

And we'll have a better feel for how that's going to impact really the Q4, which will drive Significant variability right now. Obviously, for the Q3, we feel pretty baked. But for the Q4, that variability will be when those cancellation rates changed based off of the time line of when people are allowed to cancel heading into the Q4. So that's, I would say, the first thing. The second thing is, obviously, the last When I call the last mile of bookings, so the bookings that come in for that Q4 or for the end of the Q3 now In the short term, we'll obviously don't have a whole lot of cost associated with them given the fixed cost nature of our platform.

Speaker 1

Those last minute bookings will either drive outperformance or they'll end up where we pretty much expected. And that remains to be What we have seen with regards to booking windows is people are booking overall a shorter timeline than they had Directly, the traditional booking window for the company had been somewhere around 9 months. It's trending shorter than that right now, which would lend to some additional short term bookings. But interestingly, we're not seeing so much in the next 3 months right now. We're seeing more bookings for the Q1 of 2024 and the Q2 of 2024.

Speaker 1

So it's really those two things that will play what I would say is most with regards to the rest of the year. And then certainly on the cost side, how fuel prices ebb up or down will Certainly have an impact. And then the last thing I'll say is we'll have some decisions to make on the marketing side of the house. Right now, the marketing spend that we're putting out there is having really nice returns. If that continues, we may look to spend a little more in marketing in the back half of the year to help drive bookings in the back half of 2024 and 2025.

Speaker 1

But given some of the new tools and some of the new Digital initiatives that we put out there, we'll be able to make those decisions, I would say, in a more timely fashion. So those are some of the variables that will impact the back half of the year.

Speaker 3

Okay. Got you. And then you just touched on this a little bit, but I wanted to try to understand that again bookings for 2023 looks, you're in a very good book position for this year. But can you give us any color on how maybe early 20 20 For looks at this point relative to where you would be historically?

Speaker 1

Sure. When you look at where we are for overall 2024, I'm not going to put a number out there yet. We'll provide that later in the year. When you look at where we are from a percentage of sale, for example, percentage of our inventory sold, we're, I would say, a little bit behind where we were in 20 20, 2019 for 2020, 4 years ago. But we obviously have a significant amount more inventory.

Speaker 1

So I think we're in pretty good shape from that perspective. We don't have the advantage of all of the bookings that were carried over for 2023 due to the pandemic, but we're seeing really nice gains. When you look at the gross bookings that took place for 2024 throughout the Quarter, they were up dramatically versus bookings that were done for 2020 back in 2019. So the trends are all heading in the right direction. The one thing and maybe I'll provide the opportunity for Sven to talk a little bit about this.

Speaker 1

Right now, we're seeing really, Really strong bookings with regards to what I would say are the tried and true geographies. It's the shoulder geographies which are relying on past guests, Which are, I would say, lagging a little bit. Sven, do you want to provide a little color on that?

Speaker 2

Yes. Well, when you think about it, So the past guests make up about let's say on average about 30% to 35% of our overall business. But on certain in certain geographies on our blue water ships in particular, the more esoteric geographies that are sort of we call them shoulder season, but they're really better defined as more esoteric. They're more reliable, more reliant on past guests. And so in 2020 2021, we obviously didn't produce past guests and people past guests with recency are the most Reliable source of new business, right?

Speaker 2

So we lost basically 32,000, 34,000 people in those 2 years to draw from on future itineraries. So we're making up for that And it's now getting back into a normal pace. But that loss has made has produced a bit of a shortfall on some of these kinds of bridges for a short period of time, simply because the base is not there, the base of recency is not there to the same degree. But that will be an historic situation and it will be over pretty soon now because obviously starting again in 2022 and 2020 a little bit in 2022 and more robustly in 2023, That base is being built up again.

Speaker 3

And maybe can I ask one more? I apologize. But Sven, while you're there, I think one of the questions we get from the investment community is maybe if you could give a little color in terms of Why you came back to run the company again? Obviously, you're the founder, you're very involved, but Maybe where you are today in terms of where your head is and maybe how long of a move. Is this something that's temporary or is this You see you staying in this position for an extended period.

Speaker 2

Yes. Well, first of all, when Dolf elected to move to another opportunity, In the 2 years since I left and when he elected to leave, I was still very much involved with the company. I was involved Regularly in the management meetings and involved in strategic decisions, etcetera, etcetera. So even though I wasn't in the role of CEO, I was deeply involved As Co Chair in day to day activities actually. So when Dolf elected to leave, it just seemed like, okay, It seems like a rational idea.

Speaker 2

The Board and I spoke about it and we decided to assist the best path forward because at the end of the day, There is a deep obviously, a deep understanding of the business having been built up over all those decades. And when we eventually decide, and it's not going to be very soon, but At some point in the future and I don't know exactly when that is, we'll say, okay, it's time to get another CEO. And I think I learned a lot from The past experience here in terms of how do you help an individual really come up to speed with the business broadly, even more so Then I mean Dolf did and did a great job, but I would like to help that individual even more in terms of understanding the complexities of the needs in order to carry on from there. So this is not an interim position, but it's one that we'll assess after each year, we'll assess How is this going? How do we feel about it?

Speaker 2

How do I feel about it? How does support feel about it? How does the management feel about it? And then we'll move forward from there. But right now, I'm extremely happy to be back doing this.

Speaker 2

I think it's I think the timing is such that it will be very helpful to the business for a period of time.

Speaker 3

Okay, great. Thanks guys. Appreciate it.

Speaker 1

Thanks Steve.

Operator

Thank you, We have our next question comes from Alex Fuhrman from Craig Hallum Capital Group. Alex, your line is now open.

Speaker 4

Hey guys, thanks for taking my question. The results in Q2 were definitely stronger than we were Q4 here, nice profitability and revenue. The occupancy was a pretty meaningful step down from Q1, I know, Sven, you mentioned talked about some of the headwinds to ramping up the shoulder season or more esoteric itineraries, is that the primary driver of the sequential step down in occupancy? And then as we think about the second half of the year, should we expect a similar dynamic where occupancy is stronger in the Q3 when you run more of your peak season itineraries?

Speaker 2

Yes, definitely. So if you look at our business broadly, there are some key geographies that we you I don't really like the term, but it certainly expresses it well, rinse and repeat that you've developed and then you develop these programs and you repeat You repeat them for several months in certain instances for the entire year like the Galapagos obviously is an example of an all year round program. Alaska is 4 months a year with 4 ships. The Antarctic is a 3.5 month season with 3 ships, etcetera, etcetera. And at the end of the day, those are the vehicles or those are the products that bring in new audiences.

Speaker 2

But you can't do them all the time. If you could, you probably would. But you'd He wants a certain amount of diversity. And so the balancing of inventory is a key component. And For me, it's like deep in my blood, this notion of balanced inventory because I spent my entire career based on premise that You have to fill these ships all year round, otherwise you're going to get in trouble at some point.

Speaker 2

So This and trying to understand why we're a little off on occupancy is directly correlated to this basically 2 year loss of building past guest community. So inventory when it was developed It was not developed because you developed the inventory back years and that was not developed with that loss in mind. And so it's been an adjustment and we will get back to those 90 plusminus percent occupancies, which is what we're geared for, what we're our entire way of being drives us to accomplishing that particular goal. Does that answer your question?

Speaker 4

It does. Yes. Thank you. Thank you very much.

Operator

Thank you.

Speaker 1

Alex, one thing I would just add On top of what Sven said is and you kind of touched upon this, which is one of the things that we tend to do is we tend to focus on certain metrics here when we have these calls. But the reality is The drivers of the business are pretty easy to understand here, right? That is occupancy is a driver as is price As is the amount of nights. And when you look at what happened in the Q2, you're going to continue to see that in the Q3, which is we're going to have more available guest nights. Available guest nights will be up dramatically from where we were in 2022 and dramatically from where we were in 2019.

Speaker 1

Pricing will continue to be up from where we were last It would be up from where we were in 2019. So with 2 of those drivers doing really, really well, even as you add additional nights As Sven would call them, more esoteric geographies, the profitability of these ships, even the ones that are off who documents are a little lower right now, is still significant. We expect to see continued growth across the company, when you look at both the 3rd Q4.

Speaker 4

Great. That's really helpful. Thank you both.

Operator

Thank you,

Speaker 1

I got it. Operator, thanks. Well, thanks everybody for joining us today. We appreciate your time this morning, and we're here to answer any additional questions you have. So just reach out and let us know.

Speaker 1

Thanks,

Speaker 2

Ken. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

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