Lindblad Expeditions Holdings Inc.

Thank you for standing by and welcome to the Lynn Blatt Expeditions first quarter earnings conference call. At this time, all participants are in a listening mode. After this piece of presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Craig Pellenstein. Thank you. You may begin.

Thank you, April. Good morning, everyone, and thank you for joining us for Linblad's 2021 first quarter earnings call. With me on the call today, Sven Linblad, our founder and chief executive officer. Sven 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 forecasts 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. Thanks for joining us today. This morning started with some pretty interesting news that New York may be fully opening on July 1st, which certainly gave me a smile, and I'm sure many people on this phone call, responsibly opening on July 1st. That would be a huge victory that we've been waiting a long time for. As you all know, these past 12 months have been inordinately hard for our industry and for so many people that depend on tourism for their livelihoods. But now it's clear that there is significant positive momentum. And that momentum is due in large part to vaccinations, The acceleration of distribution in the U.S. has been a monumental achievement. And just a few days ago, the European Union stated that U.S. citizens who are vaccinated would soon be allowed to travel to EU countries. The details, of course, will take some time to emerge, but this is a huge and welcome step. At the end of March, when we announced our reactivation plans, we also announced that we would require all adults, all adults to be vaccinated. That was premised on a number of factors, but most importantly, it was based on our commitment to keeping our guests, our crew, and the people we visit safe. It was also overwhelmingly what our surveyed guests indicated that they wanted in order to return to travel. We couldn't be more excited to begin sailing again during the first week in June with two ships in Alaska and one in the Galapagos Islands, and our excitement has been matched by our guests. The demand has been so strong, particularly in Alaska, that we will likely be activating two more ships later in June. A fifth ship, the National Geographic Orion, may also be activated in Alaska if we can secure permission to effect clearance in a Russian port, as incorporating a foreign port is unfortunately necessary for a non-US ship in order to comply with the Jones Act. I think this reflects on the value of flexibility which our size ships allow for. Soon we will also reactivate sailings in parts of Europe beginning with Iceland and hopefully Greenland shortly thereafter. These are both geographies we know extremely well and areas that are in high demand from our audience. By year's end we anticipate being more or less fully operational again and we will return to explore the world's amazing geographies with a robust cash position and with two new complimentary travel companies that we acquired recently. These two additions are the latest pieces of our growth strategy, which includes offering a broad and deep platform for adventure and experiential travel opportunities. Divine Cycling and Adventure is a very high-end global adventure travel company exploring the world by bike, and they are poised to go rapidly with biking exploding. particularly with the greater production and the use of e-bikes, which significantly broadens the demographics of potential participants in bicycle touring. You cannot buy a bike at the moment, hardly, certainly not an e-bike. The demand is so significant. Our other acquisition, Off the Beaten Path, also operates globally, but primarily focuses on high-touch exclusive experiences in North American national parks. OBP was growing rapidly prior to COVID and given the focus on U.S. travel to remote locations right now, they are seeing record sales coming out of the pandemic. Both these companies are already extremely well run by entrepreneurial owners and have tremendous potential for growth, particularly when integrated into our marketing platform that is rapidly evolving with the goal of becoming a digital powerhouse. Over the past 50 years, Lindblad Expeditions has had hundreds of thousands of explorers discover the world's most extraordinary destinations while educating our guests about local cultures and the ever-changing environment. Through the expert lens of our specialists, guides, and our expedition ships, we're the gold standard in experiential travel by which others are measured. That commitment to excellence in everything we do on behalf of our guests is also reflected in our commitment to provide a best-in-class experience before, during and after the guest journey via our digital transformation efforts. By creating engaging informative content, personalized information, and rich media about travel and our destinations, we'll generate greater awareness, interest, and demand for our unique products and experiences while growing time spent with our brand. Our business will be fueled by the insight and data we'll be able to generate as a result of this transformation which will have a positive impact on everything we do, from content to operations, resulting in a richer and deeper understanding of needs while creating greater operating efficiency. Further, we'll be able to easily integrate other expeditions and services that we offer from our recent acquisitions and natural habitat to travelers, as they are omnivorous in their desires and interests in the unique experiences we provide. With this commitment to a best-in-class digital experience, Lindblad will not only transform but will lead the way from our roots as the innovator in the category of eco-adventure travel while pushing the envelope to provide the best experience pre, during, and post every expedition, allowing us to go further in every aspect of our business. As we strengthen our market reach, we will continue to look to further broaden our platform of companies while continuing to expand our core business of expedition ships either through new bills or acquisitions of existing vessels. The other announcement this past quarter, aside from our resumption of operation, was that next month I will be moving from my CEO position to co-chair of the board. This was envisioned about a year prior to the pandemic, but of course slowed as a consequence. The question I've been asked most often since we announced this change is why am I stepping down? Reality is, That's not really how I look at it. I feel I'm stepping into a role where I can use my abilities better or wisely and to greater effect. I have a deep understanding of this business, its components, and its opportunities. More and more as CEO, I felt that there was often not enough time to focus on long-term potential. Well, as of May 10th, that is about to change. Our new CEO, Dolph Burleigh, is an ideal candidate to succeed me as leader of this special organization. Dolph is most recently President and CEO of Topgolf, and I've gotten to know him well through the search and selection process. He deeply understands the importance of delivering unmatched guest experiences and creating communities, while keeping customer service at the front and center of all activities. He also understands the essential role of technology in growing businesses and the importance of building world-class teams. I view DOLF as a true partner, and I will continually be available to him as needed as an advisor and a thought partner. Personally, aside from helping onboard DOLF, I'm going to focus on growth opportunities, new geographies, and the strengthening of our social activities. As I have said probably each time we have reported, I believe so strongly that the combination of good, smart business combined with a strong, integrated approach to conservation, science, education, exploration, Diversity and inclusion is the essence of a sustainably successful enterprise. It always has been, but I feel even more important now as consumers care more and more about how a company relates to society more broadly as part of its relevance. It has been a tremendous honor to found and serve as the CEO of Lindblad Expeditions since 1979, and I'm proud of all that we've accomplished over the last 42 years. We've built a business based on the respect and understanding of geography and connecting hundreds of thousands of guests worldwide with nature, culture, and an opportunity to explore our world. In summary, it's been a long year, one with little to be happy about, optimistic about. That has now changed. Getting back to doing what we do is the greatest form of optimism, and we are on track to do that in just over a month. I couldn't be happier. We are well prepared to start up again. We have excellent financial reserves, a couple of new companies under our umbrella, and a marketing machine that is vastly strengthened for growth. And we have the added horsepower of a new, capable, enthusiastic CEO to lead the way in our next phase together with a talented and tenured team and an engaged board that has proven to be such an extraordinary asset in this most challenging year. Before I finish, I do want to thank all of you, our investors, who have recognized the long-term value of Lindblad Expeditions over the past year and maintained your enthusiasm for continued involvement. We should all be excited and optimistic about the years ahead where expedition and experiential travel become more and more meaningful to a traveling public itching to get out there and explore. Many thanks for your time today, and now let me turn the call back to Craig.

Thanks, Sven. Before I jump in, let me once again thank our dedicated crew across the world, as well as our diligent office personnel for their resiliency over the past year and for their commitment in preparing us to return to operations while preserving capital whenever possible. It has been over a year since we paused our operations, and we continue to execute on the comprehensive plan we put in place back in March of 2020 to further fortify our liquidity position and ensure we emerge from the COVID pandemic as the same strong and vibrant company we were prior to the cessation of operations. The targeted capital raises and cash preservation measures implemented over the past year allowed us to end Q1 2021 with $164 million in unrestricted cash and $22 million in restricted cash related primarily to deposits on voyages that originate in the United States. This is a $26 million increase in total cash over where we ended Q1 2020. So as we begin to sail this June, we have ample liquidity to begin ramping up our operations. At the same time, the investments we have made over the past year to expand our fleet capacity and diversify our product offerings will allow us to build upon the momentum we had prior to the virus and capitalize on the growing demand for authentic adventure travel. With the addition of the National Geographic Endurance, which was delivered last March, and the anticipated delivery of her sister ship, the National Geographic Resolution, later this year, we will have increased our fleet capacity by over 35% from 2019 levels once we are fully operational. And with the recent acquisitions of leading travel operators to vine and off the beaten path, we have further broadened our growth opportunity with two high-quality brands that will benefit from our marketing platform, expertise, and resources while expanding our addressable markets and offering more options to our guests. Turning to our current operations, during the first quarter, all of our ships remain safely laid up with a minimally required crew, and we continue to minimize ship and land-based expedition operating and capital costs. We did spend a little over $1 million on maintenance capex this past quarter, down $3 million from a year ago, primarily due to dry docks for the quest and venture, as we prepare to resume sailing, and an additional $2 million on build costs related to the resolution. On the advertising and marketing front during the first quarter, we continue to limit our spend, focusing primarily on digital opportunities and paid media that was generating appropriate returns with regards to future bookings. and we continue to minimize general and administrative spending through employee furloughs, workload reductions, and elimination of all nonessential travel, office expenses, and discretionary spending. We did begin bringing back employees as necessary to implement our restart plans, and that is expected to continue to ramp as we move closer to resuming operations. Looking at the P&L, The measures taken during the first quarter enabled us to reduce total operating expenses before depreciation and amortization, interest, and taxes by nearly 70% versus the same quarter a year ago. On the cash front, we lowered our net cash spend this quarter to $18 million, which included approximately $18 million spent on operating costs, $7 million net spent on the acquisitions of Devine and Off the Beaten Path, $5 million spent in principal and interest payments, and $4 million spent in CapEx. The cash usage was significantly offset by the positive net cash flow from guests as payments for future travel far exceeded guest refunds on rescheduled voyages. Turning to current booking trends, demand for travel continues to accelerate, and we are really well situated for a return to ship operations. Bookings for 2022 are currently 39% ahead of where we were for 2021 at the same time a year ago. and 32% ahead of 2020 at the same point two years ago. The strong year-on-year trends include guests on canceled voyages that have opted to reschedule, but they only make up about 20% of our overall bookings for 2022. The robust new bookings we are seeing is from both returning guests as well as new audiences as we begin to resume marketing in earnest, focusing on digital targeting and social opportunities, as well as increased outreach through trade advertising and travel advisors. There is no question that there is significant pent-up demand to get out and explore the world's amazing geographies. And as more destinations open to travel, we expect to secure additional bookings for both 2021 as well as 2022 and beyond. As we work towards resuming operations, our cash usage today is still estimated to be approximately 10 to 15 million monthly on average, including all ship and office operating expenses, necessary capital expenditures, and expected interest and principal payments, but excluding any new guest payments for future travel and refunds of previously made guest payments. Of course, as we implement plans to resume operations, this monthly operating cast usage will increase as we hire crew, return shifts to service, market upcoming expeditions, spend on our digital transformation projects, and reinstate furloughed and part-time office staff as needed. At the same time, we do anticipate a continued ramp in cash inflows from final payments for upcoming voyages, as well as growing deposits related to new reservations for future travels. Looking at our debt obligations, we ended the first quarter with $498 million in principal outstanding, an increase of $116 million from the end of Q1 a year ago. This primarily reflects the incremental $85 million Main Street loan during the fourth quarter of 2020, as well as $30.5 million in borrowings under our export credit agreement during April 2020 for the third installment payment on the National Geographic Resolution. Following the quarter in April of 2021, we drew down an additional $15.5 million for the fourth installment payment on the vessel, and our final borrow related to the resolution of $47 million will be drawn upon delivery, which is still anticipated to be during the fourth quarter of this year. With regards to our leverage covenants, the company has continued to work with its lenders, and following the quarter, it further amended its existing term and revolver loans to suspend leverage ratio covenants through March 31, 2022. With the resumption of marine operations set to become a reality in just over a month, the steps we have taken over the past year to increase our liquidity runway, enhance our existing operations, and expand our product platform will enable us to emerge from the pandemic as a strong and vibrant company. And while it still will take some time to return to full operations, we are absolutely ready to capitalize on those geographies that are available today, and at the same time, well-positioned to take advantage of the growing demand for experiential travel over the long term, which will enable us to build additional shareholder value in the years to come. Thank you very much for your time this morning, and now Sven and I would be happy to answer any questions you may have.

As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star then the number one. And your first question comes from Steve Wisinski with Stiefel.

Hey, guys. Good morning. So, Sven, first of all, congratulations. I guess it's congratulations. You know, so I want to understand, you know, how you're thinking about layering in additional ships at this point. You mentioned, Sven, in your prepared remarks that it sounds like you might already be ready to launch some additional ships at this point. I just want to dig into that a little bit more and understand how you guys go about making those decisions. I would assume that at this point, that's all demand-based. Is that the right way to think about it?

Yeah. Well, it's based on two factors. One is identifying geography that you think... our audience is interested in and secondly really understanding the demand curve and the timing of those things. So it's a really rigorous process because obviously it's a big commitment to build a ship or ships and you want to make sure that there's a confluence between geography and demand.

Steve, just to be clear, are you referring to launching new ships ultimately several years from now or are you talking about launching new ships this year?

No, no, what I meant was later this year. So obviously you have the three ready to go in early June, and I guess maybe I misunderstood you, but it sounds like you're ready to actually start to think about putting additional ships back in the water sometime later this summer.

Oh, yeah. Sorry, I think I misunderstood your question. My apologies. So we will be – as we've always said, there are three things that are necessary in order to relaunch a ship in a particular area. One is there's obviously a medical solution, and we have that. We're requiring everybody to be vaccinated, and that's a very clear path. And then the second one is the challenge at the moment in certain areas, which is are you allowed to come into that area or not? And there still are some restrictions. I'll give you an interesting example, the Columbia River in the United States. Washington State has a particular perspective. Oregon, which is the other side of the river, has another perspective county by county. Now, all these things are changing really, really rapidly. You know, the acceleration of openings is really at a much higher pace. And the minute places are open, we've got sort of plans in place. A lot of these voyages, we have guests booked, lots of them. We just cannot officially go there yet, right? So for example, Norway, we have lots of people booked on our voyages that involve Norway, but Norway is not yet open. We have lots of people interested and booked in Iceland. Iceland is open. Greenland is not yet open, and it's an important place for us, but we anticipate that it's highly likely that we'll be able to operate in Greenland later this summer. So it's all a series of processes that have to happen in order to pull the trigger finally on reactivating a ship.

One other thing that I'll add, Steve, is that we've talked about this a lot in the past, even while we were operating, but even more so now, which is we have an immense amount of flexibility, both given the size of the ships and kind of how we operate. So as a result, if there are geographies that aren't opening, you can pivot and pivot pretty quickly as long as there's guest demand to a different itinerary. And given the experience that the team has here in operating in these geographies for many, many years, We have some interestingly and unique ideas we can pivot to. So we do envision some openings later this year. It's just a matter of figuring out what those are and when they are.

Okay, gotcha. Thanks for that color. And I guess this would be for you, Craig. If you look at the booking trends for 22, I think if I read my notes right, 39% and 32% higher versus 21% and 20%, obviously those are being – you know, at least I think they are being pushed up by, you know, the resolution and endurance. And I guess the question is, is there any way to think about, you know, what those, you know, what booking trends for 22 would look like with, you know, without the new capacity, just trying to get it, you know, on a like-for-like basis? I don't know if you guys can do that or you can't.

Let me give you a little color rather than give you specifics, but I can get you close. It's always an interesting question because it's not like we have a same store sales. If we didn't have the resolution or the endurance, a lot of these guests would likely travel on our other ships, whether it be the Explorer or the Orion or some of our other destinations. So it's really not a fair apples to apples comparison to just stripped out those two ships. But the way we tend to look at these things is when you look at where we are from a percentage of the max revenue that we can get in any given year, where do we sit today as percentage versus where we sat in prior years? And what I can tell you is that as a percentage of max revenue for 2022, We are further along today than we were last year for 2021 and the year prior for 2020. So in terms of percentages, we are definitely pacing ahead in terms of the overall bookings, even when you strip those two voyages out.

Understood. And if I can ask one more quick one, I guess on the pricing front, I mean, everything that we and everything it sounds like you guys are seeing in terms of pent-up demand from your customer base looks extremely, extremely strong in the out years, especially for a lot of the exotic itineraries. So I guess the question is going to come from a pricing standpoint. And it seems like you guys should have some extremely strong pricing power over the next couple of years. And I just want to kind of get your thoughts in terms of the way you think about pricing power moving forward.

Yeah, so... It's interesting. I don't think we have never felt it wise to sort of, well, I'm not suggesting you're suggesting gouging, but what could be perceived as sort of gouging. And, you know, we believe that our greatest opportunity is expansion of inventory rather than pushing prices too, too hard. because at a certain point you could fall off a cliff or just put you in a position where there could be too much focus on pricing. Our pricing is already the highest in the industry. I mean, without question. And so we're very cautious about that. We don't want to be a hog that gets slaughtered because of pushing that too fast, too hard.

And we'll continue to evaluate that, Steve, as we move forward. When you think about the drivers of our revenue, it's pretty simple, right? You have occupancy, you have the availability of guest nights, and you have price. And when you think about what's happened from 2016 through where we are today, obviously not operating today, but before the pandemic, we were able to maintain pricing and we were able to maintain occupancy as we dramatically increased the available guest nights. And when you think about where we're going to be in 2022 post-resolution years, we're going to be 66% above in terms of our inventory where we were back in 2016. It's a massive increase. If we can maintain the other two aspects of that, which are occupancy and pricing, even at a relatively stable level, you're going to see some significant growth. And then we'll continue to push price in those geographies where we think it makes sense to do so. But it is something that we want to be cognizant of. You don't want to put too much stress on the system in all aspects, both in terms of distribution as well as price. But we'll evaluate... pretty much on an itinerary by itinerary basis as we move forward.

Okay. Thanks, guys. Great color and best of luck this quarter in terms of resumption of cruising. Thanks, Steve. Thanks, Steve.

Your next question is from Alex Furman with Craig Callum Capital.

Great. Thanks very much for taking my question. I was wondering if you could talk a little bit more about some of the recent acquisitions that you've made and what you're seeing so far in terms of interest in those properties from some of your existing customers. I don't know if that's anything you've marketed at all, but I'm sure some people have just seen that news. How do you plan to market that broader portfolio of offerings going forward? Is it just about you know, finding good assets at good prices or, you know, could there be bigger opportunities to really, you know, integrate your offering?

Yeah, great question. Thank you. Well, first of all, it's only been a couple of months that we've had these companies in essence. And what we've done is we are really committed, all these companies, NADHAB, Off the Beaten Path, Divine, and ourselves to aggressive cross-marketing efforts. Because we know for a fact that our audiences are diverse in terms of their interests. And that's the whole thesis behind acquiring these companies. I'll meet somebody who's in Antarctica one year, they'll be on a safari in Africa the next year, they'll be bicycling through Burgundy the following year, whatever. And they just have this diverse set of interests. And so constantly putting the opportunities in front of our collective audiences that is more than just our individual companies to us feels like a really, really smart strategy. Now we have started with a whole bunch of emails introducing these new companies to our audiences and divide an OBP for example, the inquiries have like been not only records but like multiple of records in terms of inquiries as a consequence of being exposed to are obviously much larger audiences. So we believe this strategy makes a tremendous amount of sense. We're very eager to find additional companies that fit this strategy. And the cross-marketing component, as well as taking advantage of certain synergies, makes a huge amount of sense.

Great. That's really helpful. And then I'm wondering if you could also comment just about the impact over the past year and a half or so you know you've had a lot of canceled voyages and a lot of travel credits that have been issued to to customers can you give us a sense of how you're thinking about that both from a business standpoint and then what we're going to see from a financial reporting standpoint as those 125 credit start to get used and you know curious um to the you know the prior questions point i mean you sound like you've got just a huge surge of demand for couple years here and and and you know there's not going to be a lot of sensitivity to price or there may be opportunities for customers to use those credits on on some of your other properties like off the beaten path you know as they as they start to rebook plans over the next few years

Please remain on the line just one moment. In just one moment while we get the line reconnected. Okay, Mr. Fillenstein, you are reconnected now.

April, can you hear us?

I can. I can. You're reconnected now.

Okay. Alex, are you still on? We may have lost Alex. Sorry about that, everybody. We got disconnected. It's never happened to me in 20-plus years of doing this, but hopefully you can hear us again. The question that was raised was raised about future travel credits. and the implications that it's going to have over the next several years. As I mentioned earlier in my comments, right now the future travel credit implications in 2021 and 2022 is really only about 21% of our future bookings. So we have a significant cash opportunity still in 2022 and beyond with regards to the bookings. The majority of the bookings, I'd say close to 75% of them, of the future travel credit bookings have already been made. So a lot of that's going to be utilized over the next couple of years. The other facet of this, which is actually helpful for us when you look outward, is if folks reschedule their voyages from point A to point B from the same voyage they were going to take a year ago, they will burn off part of that credit, but then they will have an additional credit to utilize moving forward. And what they can do with that credit is they can book an additional voyage. And given the high repeat balances that we see among our guests in terms of frequency of travel, if they have a great experience, which confident they will, they're likely to travel again sooner if they have a future travel credit. So it should help us stimulate some additional business moving forward, while at the same time being a little bit of a cash overhang in the next year, year and a half.

Hello? Again, if anyone would like to ask a question, please press star, then the number one. And there are no further questions at this time.

Okay. Thank you, everybody, for joining us. We appreciate your time this morning. And if you have additional questions, please feel free to reach out, and we can connect over the next several days. Thank you. Thank you.

Thank you for joining today's conference. This concludes the call. You may now disconnect.