Lindblad Expeditions (LIND) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period ended September 30, 2019, including the Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial details such as revenue, debt, and commitments Condensed Consolidated Balance Sheet Highlights (As of September 30, 2019) | Account | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Assets | $529,613 | $473,409 | | Total current assets | $143,563 | $150,183 | | Property and equipment, net | $345,280 | $285,979 | | Total Liabilities | $394,257 | $350,863 | | Unearned passenger revenues | $124,605 | $123,489 | | Long-term debt, less current portion | $216,117 | $188,089 | | Total Stockholders' Equity | $128,020 | $116,044 | Condensed Consolidated Statements of Income Highlights | Metric (in thousands) | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Tour Revenues | $100,983 | $87,242 | $267,294 | $239,125 | | Operating Income | $15,659 | $10,281 | $34,145 | $28,860 | | Net Income | $2,726 | $5,346 | $18,656 | $16,105 | | Net (Loss) Income per Share (Diluted) | $(0.01) | $0.11 | $0.31 | $0.35 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30) | Cash Flow Activity (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,550 | $39,258 | | Net cash used in investing activities | $(76,720) | $(45,510) | | Net cash provided by financing activities | $25,149 | $17,026 | | Net (decrease) increase in cash | $(10,021) | $10,781 | Notes to the Condensed Consolidated Financial Statements (Unaudited) The notes detail the company's business structure, accounting policies, and financial instrument activities, including segment operations, lease accounting adoption, debt facilities for fleet expansion, and derivative risk management - The company operates two reportable business segments: Lindblad, focusing on ship-based expeditions, and Natural Habitat, which offers land-based adventure travel[25][26] - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, resulting in the recognition of operating lease liabilities of $6.2 million and related right-to-use lease assets[31] - On July 17, 2019, the company completed a warrant exchange offer, converting all outstanding warrants into common stock, which resulted in the issuance of over 3.8 million shares and a non-cash deemed dividend of approximately $2.7 million[62][63] - The company has significant commitments for fleet expansion, including the construction of the National Geographic Endurance (delivery Q1 2020, price $134.6 million) and the National Geographic Resolution (delivery Q4 2021, price $153.5 million)[77][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 16% increase in tour revenues for Q3 2019, driven by the addition of the National Geographic Venture, and detailing liquidity, capital resources, and significant funding activities Business Overview and 2019 Highlights The company provides expedition cruising and land-based adventure travel, operating a fleet of eight owned ships with two new polar vessels under construction, and completed a warrant exchange offer in 2019 - The company operates a fleet of eight owned expedition ships and five seasonal charter vessels, with two new polar ice-class vessels, the National Geographic Endurance and National Geographic Resolution, scheduled for delivery in Q1 2020 and Q4 2021, respectively[24][92] - In February 2019, the company contracted to build the National Geographic Resolution for approximately $153.5 million and in April 2019, entered into a senior secured credit agreement to finance up to 80% of its purchase price[94][95] - In July 2019, the company completed a warrant exchange and consent solicitation, converting all outstanding warrants into common stock and recording a non-cash deemed dividend of $2.7 million[96] Results of Operations - Consolidated Consolidated tour revenues increased 16% in Q3 2019 and 12% in the first nine months of 2019, primarily due to the addition of the National Geographic Venture, though Q3 net income decreased due to foreign currency loss and higher interest expense Consolidated Results of Operations (in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | 9 Months 2019 | 9 Months 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Tour Revenues | $100,983 | $87,242 | 16% | $267,294 | $239,125 | 12% | | Operating Income | $15,659 | $10,281 | 52% | $34,145 | $28,860 | 18% | | Net Income | $2,726 | $5,346 | (49%) | $18,656 | $16,105 | 16% | - The increase in tour revenues for both the three and nine-month periods was primarily driven by the Lindblad segment, reflecting a significant increase in Available Guest Nights from the addition of the National Geographic Venture in late 2018[118][119] - The decrease in Q3 2019 net income was primarily due to a $2.3 million loss on foreign currency translation and a $0.8 million increase in interest expense related to new vessel financing[133] Results of Operations - Segments The Lindblad segment saw a 19% revenue increase in Q3 2019, driven by a 14% rise in Available Guest Nights, while the Natural Habitat segment's revenue grew 7% due to more departures and higher pricing, with both segments reporting significant operating income growth Segment Tour Revenues and Operating Income (Q3 2019 vs Q3 2018, in thousands) | Segment | Tour Revenues | % Change | Operating Income | % Change | | :--- | :--- | :--- | :--- | :--- | | Lindblad | $76,581 | 19% | $12,570 | 53% | | Natural Habitat | $24,402 | 7% | $3,089 | 49% | - Lindblad segment's Q3 performance was driven by a 14% increase in Available Guest Nights, a 7% increase in Net Yield to $1,054, and an occupancy increase to 94% from 92% YoY[135][137] - Natural Habitat segment's Q3 revenue growth was due to additional departures, increased travelers, and itinerary changes leading to higher average pricing[141] Liquidity and Capital Resources The company's liquidity is supported by operating cash flow, existing debt facilities, and advance passenger receipts, with net cash from operations at $41.6 million for the first nine months of 2019, primarily used for new vessel construction - Net cash from operating activities increased by $2.3 million to $41.6 million in the first nine months of 2019 compared to 2018, due to improved operating results and higher bookings[149] - The company has significant funding needs for its two new polar vessels, the National Geographic Endurance and Resolution, which will be funded by cash on hand, dedicated Export Credit Agreements, its revolving facility, and operating cash flows[159][160][161] - As of September 30, 2019, the company had a working capital deficit of $17.3 million and cash and cash equivalents of $104.1 million, with the stock repurchase plan having a remaining balance of $12.1 million[157][158] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are related to foreign currency exchange rates, particularly with the Norwegian Kroner for ship construction, and interest rates on variable-rate debt, which are partially hedged with derivatives - The company is exposed to foreign currency risk, particularly with the Norwegian Kroner (NOK) for its new ship construction, where a hypothetical 10% weakening of the NOK would result in an approximately $7.7 million loss recorded in other comprehensive income[167] - The company is exposed to interest rate risk on its variable-rate debt, where a hypothetical 1.0% change in the one-month LIBOR would impact annual interest expense by approximately $1.0 million, partially mitigated by $100.0 million in interest rate cap agreements[168] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2019, concluding their effectiveness with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2019, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[169] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[171] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various claims and legal actions arising in the ordinary course of business and maintains protection and indemnity insurance expected to cover any potential damages - The Company is involved in various claims and legal actions from time to time in the ordinary course of business and has insurance expected to cover damages[172] Risk Factors This section states that there are no material changes to the risk factors previously disclosed, referring readers to the 'Risk Factors' section in the company's 2018 Annual Report on Form 10-K for a comprehensive discussion of risks - The company refers to the 'Risk Factors' section of its 2018 Annual Report filed on February 28, 2019, for a discussion of the most important risks and uncertainties affecting the business[174] Unregistered Sale of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter, and the company's stock and warrant repurchase plan had a remaining balance of $12.1 million as of September 30, 2019, with no shares repurchased in Q3 - There were no unregistered sales of equity securities in Q3 2019[175] - As of September 30, 2019, the company's stock and warrant repurchase plan had an available balance of $12.1 million, with no shares repurchased under the plan during the three months ended September 30, 2019[176] Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and XBRL data files - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL interactive data files as exhibits[181]