Lindblad Expeditions Holdings Inc.

Thank you for your patience, everyone. The call will begin shortly. In the meantime, if you would like to pre-register to ask a question, you may do so by pressing star followed by one on your telephone keypad. Good morning, everyone, and welcome to the Lindblad Expeditions Report 2023 Third Quarter Financial Results. My name is Chach, and I'll be the coordinator for your call today. During the presentation, you can register to ask a question by pressing star 4x1 on your telephone keypad. If you do change your mind, you may press star 4x2. I would now like to hand over the call to Craig Felsenstein, Chief Financial Officer, to begin. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Linblad's 2023 third quarter earnings call. With me on the call today is Sven Linblad, Linblad's founder and chief executive officer. Sven will begin with some opening comments, and then I will follow with some details on our financial results, balance sheet, and current 2023 expectations before we open the call for Q&A. You can find our latest earnings release in the investor relations section of our website. Before we get started, let me remind everyone that the company's comments today may include forward-looking statements. Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The company cannot guarantee the accuracy of any forecast or estimates, and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company's earnings release. And with that out of the way, let me turn the call over to Sven.

Thank you, Craig, and good morning, everybody, and thank you for joining us. Craig will discuss our record financial results in a moment, but before he does, I would like to take a few minutes to discuss the momentum across our operations, along with where we are focused as a company to further take advantage of the earnings potential of our platform and the growing demand for experiential travel. When I returned to CEO in June, I made it clear to the organization that we have three key priorities. First, as has been the number one principle since we founded the company back in 1979, ensure that everything we do elevates and enhances the guest experience. Second, given the fixed cost nature of our fleet, fill our expanded capacity to the same levels we were doing so prior to the pandemic. And third, continue to rapidly grow the diverse businesses we have acquired while strategically and selectively looking for accretive acquisitions where we can further broaden our offerings and when appropriate, create cross-marketing opportunities that provide meaningful, incremental value. I'd like to provide a little color on each of these priorities, starting with the guest experience. Ensuring our quality is the highest level possible before, during, and after the expedition has always been essential because it is our promise to guests. High quality is what they reasonably expect, and it's even more important today given the evolving competitive landscape. We are proud of the consistently excellent guest satisfaction scores we have always achieved, and we are dedicated to continuing to earn those results as we continue to grow in the months and years ahead. There have been some short-term challenges on the pre-voyage front, the changes in our operating environment and changes and changes to our company infrastructure have presented, but we have been diligent in addressing each head on. External factors such as lingering remnants of COVID, changing political circumstances, and evolving geographic nuances have created much deeper and longer conversations between guests and our service teams. This takes more time to ensure that they have all the information needed for upcoming and prospective voyages. So we have adjusted the employee numbers dedicated to this effort to swiftly accommodate the rise in inbound call volume. At the same time, we are adapting to a massive change in technology as we significantly upgraded our digital stack with a rollout of a new CRM system, reservation platform, content management system, customer data platform, and company websites. Fully integrating these tools will provide far greater efficiency for our guests and employees. And after the expected initial challenges, as we integrated 15 critical systems across the company, including sales, marketing, accounting, operational, and analytical tools, we are beginning to see the benefits from these investments. As we focus on our pre-voyage interactions and integrating technology, we are also now back to full force with research and development. It is the lifeblood of providing unparalleled experience and having significant boots on the ground, planning and developing itineraries is an essential ingredient to cultivating new experiences in parts of the world we have been visiting for years and curating new expeditions and additional destinations worldwide. The same can be said for in-person training of our field staff, marine personnel and hotel operations all key ingredients to the unparalleled service and experiences that Lindblad has been synonymous with over the last five decades. Turning to our second priority, filling our ships, this is obviously an imperative as they are basically fixed cost platforms. The vast majority of each additional guest beyond our current occupancy drops to the bottom line and each bed that goes unsold is a lost opportunity to maximize our platform and increase margins. We have discussed in the past how every point of auction occupancy is worth approximately four to $5 million, all else being equal. So it's not hard to see the tremendous upside in getting from the current occupancies to historic levels. The key to doing so is multifaceted starting with the right balance of inventory. As we strategically expanded our fleet beginning in 2016, we focused on maintaining that balance. investing in capacity that would serve the guest demand we were seeing across the globe. By doing so, we expanded our US fleet, nearly tripling our capacity in key areas such as Alaska, while maintaining high occupancy levels and increasing yields. We were on the same path through the same with our expanded blue water fleet when COVID hit, which was further exasperated by Russia's invasion of Ukraine, forcing the rescheduling of many of our new exciting itineraries like crossing the northeast passage and any other itinerary involving russia these itineraries had to be recrafted remarketed and they had to be done so while we also lost two years of generating new past guests due to covid these past guests are critical to generating strong demand for all of our more esoteric itineraries they have already traveled with us once have an appreciation for what we do have recency as drivers. So it is imperative that we rebuild that past gas pipeline to maximize the opportunity across our fleet. We are already making significant inroads on that front. Itineraries that are drivers of new guests, Alaska, Galapagos, for example, are already performing near historic levels. And so the system is now fully active again, producing the necessary pipeline for a balanced across-the-board occupancy in future years. At the same time as I laid out on our last call, we continue to focus on creating the most modern marketing and sales platform to propel growth. Marrying the historically successful approach, which centered around direct mail and targeted emails, with meaningful digital lead generation, focusing on driving first-time bookings through elevated search campaigns to capture and convert new audiences. We are also continuing to grow our relationship with travel advisors across the globe, as more advisors are booking their clients on expedition cruises than ever before, and we've hired industry-leading salespeople to help us grow our share from these important distribution partners. As we grow occupancy, we are also focused on ensuring that we maintain our premium price point given the experience we deliver. This requires that we continue to reinforce the messaging around our value proposition with an emphasis on the differentiated, high-quality expedition we can provide, given our heritage experience and knowledge base, as well as our long-standing partnership with National Geographic. For many travelers, a destination like Antarctica is a once-in-a-lifetime experience. We believe strongly that such an experience should not be compromised, and with us, it won't be. We clearly have the best and most experienced navigators, expedition leaders, and naturalists, as well as the best chefs, both from the perspective of providing expedition excellence and elegance. The first priority is to continue to drive the results across our land port. The final priority is to continue to drive the results across our land portfolio. The rapid growth we are delivering at Natural Habitat, Divine, Classic Journeys, and Off the Beaten Path is a testament to the founders and leaders of these businesses who share my commitment to the guest experience. They had significant momentum coming out of COVID in 2022 and are certainly building on that success in 2023. The collaboration and sharing of best practices with regard to product marketing and operations is helping to attract more and more travelers, and we believe we are just scratching the surface of opportunity the land portfolio has to offer. As we grow our existing business, we also continue to explore additional opportunities to further broaden our product offerings. We recognize that our travelers are omnivorous in their interest. A person may be with us in Antarctica in December, and on Safari in Africa in September. The more diverse options we can provide, the better. So we are very focused and excited about selectively finding additional companies that are best in class and aligned from a mission perspective to bring into the fold. The biggest opportunity we have in the short term is to increase the execution of our existing portfolio, but augmenting our long-term growth opportunity with additional drivers remains a priority. Overall, we are very excited by the momentum across our entire company as we deliver strong results today while setting ourselves up to further leverage the premium platform we have built. In many ways, we are a much different company now than we were right before the pandemic, with a fleet that is 40% larger, a land portfolio that has quadrupled, and an involved technological footprint and overall company infrastructure. While there are significant opportunities, there will also be a lot of hard work involved in ensuring the success of the priorities I've laid out that the organization fully understands and embraces their importance. And we look forward to delivering continued growth in the months and years ahead. And with that, I will turn the call back to Craig.

Thanks, Sven. As Sven mentioned, Lindblad delivered record third quarter results, building on the momentum we generated during the first half of as we further ramped operations with broader deployment of our expanded fleet and additional departures across our diversified portfolio of land businesses. Equally as important, as we deliver sustained year-on-year growth, we continue to take the necessary operational and strategic steps to further position us to take full advantage of the growing demand for high-quality experiential travel. The earnings potential of the company has increased dramatically from pre-pandemic level. And the significant investments we have made in our overall infrastructure, technological footprint, and marketing and sales capabilities will allow us to maximize that earnings potential in the years ahead. Turning to the third quarter specifically, total company revenue of $176 million increased $31 million, or 22% versus the third quarter a year ago, as we continue to ramp operations with strong growth across both of our operating segments. At the Lindblad segment, revenue of $109 million increased 25 million, or 30%, versus the third quarter a year ago. The year-on-year growth was driven by a 21% expansion in available guest nights from broader utilization of the fleet, and by increased pricing, which contributed to a 9% increase in net yield, to $1,110 per available guest night. Occupancy of 81% was in line with the third quarter a year ago, despite the significant increase in available guest nights year over year. At the land experiences segment, revenue of $67 million increased $6 million, or 10%, versus the third quarter of 2022, led by additional departures and guests across our land companies, including natural habitat trips to Africa, Alaska, Canada, and the U.S. National Parks. off-the-beaten-path trips to Alaska and the U.S. national parks, Dubai's bike tours in Italy, France, and Portugal, and classic journey trips across Europe. The strong revenue performance across both segments generated significant operating leverage, with total company-adjusted EBITDA of $34 million in the third quarter, an increase of 83% versus the third quarter a year ago, driven by a $15 million increase at the Lindblad segment, with strength in Alaska, the Galapagos, and the Arctic. Looking a little closer at the cost side of the business, operating expenses before depreciation and amortization, stock-based compensation, interest and taxes increased 16 million, or 13%, versus the third quarter of 2022, led by a 9% increase in cost of tours, primarily related to the ramp and ship utilization, as well as expenses related to operating additional land-based trips. Fuel costs were 3% of revenue as compared to 6% of revenue in the third quarter of 2022, reflecting the increased revenue profile and lower fuel prices versus a year ago. We have seen a steady increase in fuel costs from the second quarter of this year, which will likely impact our fourth quarter and 2024 results. But overall, fuel remains a relatively small component of our operating costs. Sales and marketing costs increased 21% versus a year ago, primarily due to higher commissions and royalties related to the increase in revenue, as well as additional marketing spend to drive future bookings. The quarter also included some additional costs associated with our digital initiatives, most notably associated with the integration of our new reservation system. G&A expense during the quarter increased 18% versus a year ago, excluding stock-based compensation and one-time items. primarily due to higher personnel costs as we ramp operations and position the company for future growth, as well as from the increased credit card commissions related to final payments for upcoming itineraries and higher deposits on new reservations for future travel. Total company net income available to stockholders of $4.5 million, or $0.08 per diluted share, improved $14.3 million versus the net loss available to common stockholders of $9.8 million, or 18 cents per diluted share reported in the third quarter a year ago. The improvement primarily reflects the significant rampant operations partially offset by additional interest expense of 3.1 million associated with higher rates and increased borrowing related to our debt refinancing in May. Turning to the balance sheet, we ended the quarter with 205 million in cash and short-term investments, a $7 million increase from the end of the second quarter and the company generated positive operating cash flow of $27 million during the quarter, which was partially offset by interest payments of $12 million and CapEx of $8 million, including maintenance CapEx and spending on additional emissions. Turning to the full year 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 platforms. The Lindblad segment has already booked nearly all of its full-year projected ticket revenues for the year, and we continue to expect total company total revenue in 2023 between $550 and $575 million, and adjusted EBITDA between $70 and $80 million. Please note, as we mentioned last quarter, the fourth quarter results will be impacted by the heavy dry dock and transit times across our fleet, more shoulder season inventory, and seasonality for our land businesses. We have made several of the repositioning trips across the Pacific and down the Atlantic available to guests, which will increase our available guest nights and contribute to revenue growth versus a year ago, but we do anticipate lower occupancy on these voyages given their nature. Additionally, occupancy will be impacted by the heightened cancellations on our Egypt voyages as a result of recent worldwide events. Overall, we continue to be excited about the opportunity ahead. While there may be short-term fluctuations, The investments we have made in strengthening our existing operations and expanding our product platform is delivering more guests today than ever before and ideally situates us to further capitalize on the growing demand for high-quality, authentic, and immersive experiential travel. Thank you for your time this morning, and now Sven and I would be happy to answer any questions you may have.

Thank you, Craig. If you'd like to ask a question, press star 4 by 1 on your telephone keypad now. If you change your mind, please press star four by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Steve Gwyszynski from C4. Please go ahead.

Hi, this is Jackson. First of all, excellent quarter. Really nice balanced performance across land base and crews. Nicely ahead of consensus EBITDA. Given the beat, can you talk about what went into the decision to leave guidance unchanged here and what sort of question marks still remain that might push you towards the top or bottom of that $70 to $80 million range?

Sure. Thanks, Jackson. Appreciate it. So there's a couple of things. Obviously, we're pretty much well into the fourth quarter, and we have a pretty good visibility as to where the rest of the year plays out. The reason we didn't change anything at this point really circles around, I would say, three items, which are probably more variable than less visibility here moving forward. The first certainly is cancellation levels. We don't know for sure what cancellation levels are going to look like. Cancellation levels thus far, aside from Egypt, which we'll get into in a second, have been relatively minimal. They're still trending a little bit above 2019 levels. but they certainly have come down significantly from where they were at the start of the year. So where they ultimately end up will have an impact on the fourth quarter like they do traditionally at this time of year because you're not seeing a whole lot of new bookings coming in for the fourth quarter given the timeframe of our booking window. The second item is Egypt. Obviously, we have a presence in Egypt today, which is being impacted a little bit by what's going on in the world. How cancellations ratchet up with regard to Egypt specifically will have an impact in the quarter, and we'll have better visibility of that probably here in the next two to three weeks. And then the last item I would say is the fuel prices. I did mention how they're increasing here versus where they were prior to the year, but how high they ultimately increase and what the impact of that is on the fourth quarter still is a little bit of variability. So those three things are what's kind of keeping us where we are today. and we'll see how they play out over the next several weeks and months.

Okay, great. Really appreciate all the detail there. If I could ask one more, I would just say, in your release, you noted 2023 bookings remain solidly ahead of pre-pandemic, 42%. But can you give any commentary around 2024 bookings and recent booking trends? And I guess specifically, have you noticed any hesitance from your customer base further out just kind of tied to the heightened geopolitical tensions globally?

Sure. So here's what I'll say. The booking trends have been relatively consistent. So when we look at kind of the bookings during the third quarter, for example, gross production in the third quarter was up close to 20% versus where it was in 2022 in the third quarter. So we continue to see really nice growth year on year in terms of the volumes that we're bringing in. In terms of where we are for 24, we'll provide more color on that certainly in February on our year-end earnings call. What I will say is from a percentage of sale of our available inventory for next year, we are in a really nice spot heading into 2024. We are behind where we were for 2023 a year ago, but that was predominantly because a year ago we had some benefit from all the people who had canceled or pushed their bookings from travel in 2021 and 2022. So we had a little bit of a better base, but we're closing that gap every single week, and we expect to be in really good shape as we head into 2024. We have not seen any real impact yet other than the cancellations from Egypt with regards to what's going on in the world. The booking window for next year remains pretty consistently in that nine, averaging around nine-month window when people are booking. So no real change yet. Obviously, we don't know if that continues, but today we're not seeing any impact.

Okay, great. Thanks, Craig. Thank you.

The next question on the line is from Alex Furman from Craig Hallam Capital. Please go ahead.

Hey, guys. Thanks for taking my questions. You know, I wanted to ask about the occupancy. You know, it looks like unchanged here from last year at 81%. Can you kind of break down – what the difference is between that 81% and the 90% or so that you were operating at for the most part prior to the pandemic. I think you mentioned that short-term cancellations are starting to come down a little bit. Was that still the lion's share of of the delta there in Q3? And then how much of the shortfall in occupancy relative to 2019 is just a function of needing more time to ramp up itineraries on the new shifts, especially in the shoulder season?

Yeah, so it's a complicated equation, but I'll try and keep it as clear as I possibly can. So we have certain products which are drivers for new people coming in, mostly bucket list destinations, like Alaska, for example, in the Galapagos. And then we have a certain number of itineraries, particularly on the blue water ships that are more esoteric in the South Pacific, Papua New Guinea, certain parts of the Arctic, South America. And these are really... quite heavily dependent on past guests. And so we had 2020 and 2021 and then a bit of a weaker 2022 where we were not generating the same numbers of new guests. And so the pipeline got stagnant, if you will, or didn't expand in those years. And so our inventory was a bit out of balance and also a key factor was that we had a lot of new itineraries planned primarily involving parts of Russia, the Northeast Passage for example, that had originally just completely flown off the shelves and filled and obviously we had to reroute and involve a lot of geography that was less new and a lot of those past guests had already been to those areas. So there's a bit of rebalancing of inventory needed until that pipeline gets back to the level that it's meant to be in order to provide the fuel, if you will, for those esoteric programs. And we're sort of in the middle of that. For example, we've already done some of that rebalancing for 24, and we're going to do some more work on that front for 25. And by 26, I think we'll be back sort of in a normal cadence again.

Great. That's really helpful. Appreciate that.

As a reminder, if you'd like to ask any questions, please press star 4 by 1 on your telephone keypad. It appears we have no further questions.

Great. Thank you, operator, for your time. Thank you, everybody else, for joining us. I know it's a busy morning on a variety of fronts, so if you have additional questions, please feel free to reach out, and we're happy to continue the discussion.