Lindblad Expeditions' (LIND) CEO Sven-Olof Lindblad on Q2 2016 Results - Earnings Call Transcript

| About: Lindblad Expeditions (LIND)

Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND)

Q2 2016 Earnings Conference Call

August 8, 2016, 10:00 am ET

Executives

John McClain - CFO

Sven-Olof Lindblad - CEO

Ian Rogers - COO

Mark Ein - Chairman

Analysts

Fred Wightman - Citi

Eric Gomberg - Dane Capital Management

Chris Derrico - Macquarie

Robert Kirkpatrick - Cardinal Capital

Operator

Good day and welcome to the Lindblad Expeditions Incorporated Second Quarter 2016 Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Mr. John McClain, CFO of Lindblad. Please go ahead. Mr. McClain, please go ahead.

John McClain

I'm sorry. Yes, good morning everybody and thank you, operator. Thanks for joining us on our second quarter 2016 earnings conference call. Joining us on the call is Sven Lindblad, our CEO; Ian Rogers, our Chief Operating Officer; and Mark Ein, our Chairman.

Sven will now open the comments on the business, then I'll follow with details on the results of the second quarter, and then we will open the call to your questions.

Our press release for the second quarter of 2016 results was issued this morning is available on our Investors Relations website. The company's comments today may include statements about expectations for the future. Those expectations are subject to known and unknown risks, uncertainties and other factors that may include the company's actual results and performance of future periods to be materially different from any future results or performance suggested by these expectations. The company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward-looking statements.

If you would like more information on the risk involved in forward-looking statements, please see the company's SEC filings. In addition to some of our comments we may reference non-GAAP financial measures, a reconciliation to most directly comparable GAAP financial measures and other associated disclosers are contained in the company's earnings release.

With that, I would like to turn the call over to Sven.

Sven-Olof Lindblad

Thank you, John, and thanks all of you for joining us. First of all, I would like to give you a bit of a financial summary and then look into how we view the future.

The company's financial results for Q2 2016 were in line with our expectations. Revenue was $53.9 million an increase of $4.4 million over Q2 2015 reflecting the May 4 acquisition of Natural Habitat, Inc.

Net yields for the Lindblad segment of the business were $999 compared with $963 for Q2 2015 an increase of 3.7%; and occupancy was fractionally up at 92%.

Net income shows a loss of $4.5 million compared to net income of $8.8 million in Q2 2015. That quarter included $12.5 million of pretax income and $5.5 million of pretax expense related to the July 2015 merger with capital acquisitions too.

Consolidated adjusted EBITDA for Q2 2016 was $5.2 million compared to $12 million in the prior year. Of course John is going to give you a much greater depth on these key numbers in a moment.

Key elements of our business that have a particular effect on year-over-year quarterly results are the deployment of vessels i.e. where they go and days out of service either for repositioning or for planned maintenance drydock. These elements shift regularly as to both timing and length for a variety of reasons: fine turning of deployment, because of changing conditions that could be economic or demand; and longer or shorter drydocks depending on where the ship is in its maintenance cycle of regulatory requirements.

In this particular quarter our two highest yielding ships were both in drydock for considerably longer than in Q2 2015 due to scheduling. It all balances out over the long-term but in the quarterly environment it can create swings in our quarterly results. If you combine the cost of drydocking with the loss of revenue producing days it can on a quarterly basis appear to be greater variance than what we anticipate in the long-term. We're committed to results over a broader timeframe and I hope this is helping clarifying those variances.

At the same time, there are cyclical events that post challenges. Events that in one form or another we've faced over decade, it clearly have effect. For example, in Q2 2015 our European program were impacted both by terrorism and perceptions that the refugee situation in Greece would affect guest experience. This certainly depressed the interest in specific geographies and caused an increase in cancellation. In many instances however it simply rerouted interest to another geography; some other regions experienced a lift in interest as a counterbalance such as Alaska, Northern Europe, and the Arctic.

As we have experienced year in and year out, global circumstances create both challenges and opportunity. We've learned overtime ways to mitigate the challenges and in certain instances to develop new opportunities as a consequence.

We spend more and more time further north in the summer with two of our ships as a response to external events in the changing climate which interesting now it allows us to be there earlier and later than in seasons past. It also happens to be where we do some of our best work and where we find the greatest demand.

Really the essence of our strength is a kind of Darwinian ability to adapt to changing circumstances combined with an every growing market and a very compiling value proposition.

So occupancy is fractionally up and yields too, however cost are up as well, but for reasons that relate primarily to drydock deployment and some headwinds resulting for example in increased marketing and promotional cost, and of course we are investing in infrastructure to drive our growth, at the same time transitioning fully to the public market has added layers of cost over Q2 2015.

However and perhaps most relevant is our commitment to build the infrastructure the talent, the marketing platforms that are necessary for our transformational growth plan which begins in earnest in 2017.

Our key executive team is now complete with the addition Phil Auerbach our new Chief Commercial Officer and Craig Felenstein who will join us on September 6 as our Chief Financial Officer.

Phil has only been here since May 31. However he has already added significant benefit both with short-term tactical activities and strategic development for our future growth. And I couldn't be happier to have Craig joining the Executive team along with his highly relevant experience particularly at Discovery and Fox and his clear drive.

The additions to our fleet are also proceeding as planned. The National Geographic Endeavor 2 is well underway in its refurbishment and adaptation for operating in the Galapagos Islands and is on target for delivery in time to begin service in January 2017.

The National Geographic Quest is also well into construction and we expect an on time delivery in late Q2 2017 with operation beginning shortly thereafter.

Our new charter programs for Cuba are on pace for successful first year. This along with acquisition in National Habitat or additions to the growth plan we presented to investors during the merger.

I hope these insights are helpful. I continue to appreciate the myriad opportunities that come with being a public company with investors who not only invest but often bring their skills, their experience, and many instances their networks to bear.

The future as we are well aware is unknown, if you always have. However it also has important knows, there is a massive global audience that wants to explore and learn and experience that we together with National Geographic are in the best possible position to harness this interest that our commitment to building the smartest and most effective executive team is persistent that our growth plan is presented for our merger has already been augmented with our expansion into Cuba in the acquisition of Natural Habitat.

So all in all, I'm extremely pleased about where we are and more importantly, extremely pleased about where we're headed.

Now I would like to turn it back to John for a more in depth review of the financials.

John McClain

Great. Thank you, Sven. In the second quarter of 2016, the company generated total revenue of $53.9 million which represents an increase of $4.4 million or 8.9% from the $49.5 million in the second quarter of 2015.

The growth was driven by an acquisition of Natural Habitat, Inc. on May 4. Excluding Natural Habitat acquisition, the Lindblad segment had total revenues of $48.2 million as compared with $49.5 million in the prior year period, a 2.6% decrease driven primarily by the planned reduction in vessel operating days due to the drydock maintenance.

At the Lindblad segment, net yield remained strong at $999 in the second quarter compared with $963 in the prior year quarter, a 3.7% increase driven by pricing. We recorded 37,903 guest nights sold in the second quarter compared with 40,597 last year while we have 4,830 guests compared with 4,818.

The occupancy rate in the second quarter was 92% compared with 91.9% in the second quarter last year. Demand was strong in the quarter, our inventory down due to the drydocking.

Adjusted net cruise per available guest night amounted to $858 in the second quarter 2016 compared with $691 in the same period in the prior year. This increase was due to the higher cost of tours due to an increase in drydock cost and an increase in charter cost related to additional charter voyages, partially offset by a decrease in fuel cost as well as an increase in general and administrative cost.

And as the company has transitioned to the public market and is more engaged in executing on its transformational long-range growth plan, additional infrastructure required to support these efforts has increased general administrative expenses compared to last year. This includes the addition of talent both at the executive level and across the organization of the company accounting a compliance cost and incremental insurance cost. We continue to benefit from a lower cost of fuel in the second quarter. Fuel cost represented 2.3% of the Lindblad's segment total revenue in the second quarter 2016 compared with 3.4% in the same period last year. This represents a 33% decrease in the fuel expense year-over-year and as we've mentioned before we have not hedged fuel purchases historically but continue to investigate the potential relative to our business model.

Consolidated adjusted EBITDA for the second quarter was $5.2 million compared with $12 million in the same period in 2015. The decrease is primarily due to the increase in drydock activities for the quarter with a corresponding decrease in revenues and increase in expenses and the increase in G&A expenses which I just discussed.

We have not repurchased any shares or warrants since late January and tend to focus our capital on growth initiatives similar to Natural Habitat.

On the liquidity front, we remain extremely well positioned to fund upcoming projects. We ended the quarter with $151 million in cash excluding $18 million of restricted cash compared with a debt balance of $176 million. Overall, we are very pleased with where we stand and are on our track to meet our future objectives.

And with that operator we'll now take questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions].

And our first question comes from Greg Badishkanian of Citi. Please go ahead.

Fred Wightman

Hey guys good morning this is actually Fred Wightman on for Greg. Just wondering if you could talk about the Natural Habitat integration effort so far and how you see sort of the run rate of that business?

John McClain

Well, as we had said earlier on the acquisition of Natural Habitat was the acquisition of a standalone business. So while we looked at the potential for revenue synergies to be able to have end market into our database and for us to market into their database, we were not anticipating any cost energies behind the scenes. So we've owned them since May 4, they are performing as expected, but surely not much in terms of synergy that we expected on the cost side.

Fred Wightman

Okay that make sense. And then just briefly I think it was Sven mentioned in his script there was some uptick in European cancellations could you just give a little bit more detail where you guys saw that?

Sven-Olof Lindblad

Yes, Sven here. Well, we saw it in Greece and the Mediterranean as a consequence of tremendous amount of noise in the news as it related to refugees coming through Greece and we certainly saw it in Western Europe as a consequence I believe of the terrorist activities both in Paris and in Brussels.

Fred Wightman

And could you just quantify I mean roughly speaking ballpark what level the increase was multiple factors of cancelations are people rebooking?

Sven-Olof Lindblad

No, it was by no means huge but there was most definitely it would have been a more robust season have these events not taken place. It was not double-digits or anything of that nature.

Operator

Our next question comes from Eric Gomberg of Dane Capital Management. Please go ahead.

Eric Gomberg

Hey, good morning. Thanks for taking my questions. In the prepared remarks, you talked about the drawn tanker transformational growth plans. So again just may be you could remind is that simply the ships that you have on plan or what's the deal for slow backlog look like are we're looking at things potentially like NatHab or things you've been sizable and transformational?

Sven-Olof Lindblad

I think it's difficult for us to be specific about that. We have our eyes out all over the place for opportunities things that fall within a set of criteria that would make sense for us whether they would be, whether they would be other ship operators, other ships, other land-based operations anything that fits within, anything is compactable with our business model but more specific compared I prefer not to get --

Eric Gomberg

And I assume that you would do things that are both on brand and accretive. I saw Abercrombie & Kent was recently acquired in the very experiential travel space and I think it was at a fairly substantial multiple to where Lindblad trades. There assume you guys would be disciplined in your purchase prices.

Sven-Olof Lindblad

I believe we would be disciplined in our purchase prices, yes. I think you saw that. So I can say, I think you saw that on the NatHab acquisition where we certainly paid a reasonable EBITDA multiple.

Eric Gomberg

No and that's certainly being a pricing I guess from you guys. Just a couple of other things I hope it's okay in terms of expectations of drydocking it seems more first half loaded than you have been in the past, just so that we're adequately prepared would you expect less drydocks in the back half of the year and look to positively affect year-over-year compares?

John McClain

Yes that's fair, if you look in what happened in 2015 the drydock which was also relatively consistent with 2014 that the second and the fourth quarters are when we have the most significant, last year the fourth quarter was most significant, this year, the second quarter is the most significant. So we will be down a little bit from what we saw in the fourth quarter last year.

Eric Gomberg

Okay. And then just curious in terms of you have unbilled quest for next year another ship for 2018 in your original Investor Presentation you have a larger Bluewater ship for 2019. I'm just wondering given what's going on in the energy space and kind of the weakness in shipping, if it's become a buyer's market would your pricing could potentially be more attractive or the terms could be more attractive on the 2019 vessels and you're doing with that then you might have anticipated a year ago.

John McClain

Go ahead, Ian.

Ian Rogers

Yes, this will be an error. Absolutely that's correct. The decline in the offshore business proves very attractive, so pricing particularly out of the European yards and some of the Southern European yards. So as you mentioned Eric, our plan is to still build the two coastal vessels which are well underway, we deepen the review process of the planning for the third Bluewater vessel and we would expect pricing to be more attractive than as originally laid out in our growth plan.

Operator

Thank you very much. And our next question comes from Chris Derrico of Macquarie. Please go ahead.

Chris Derrico

Hi guys. I had a question for you; with the increase size of the Chinese upper class do you see that market as any potential growth in the future?

Sven-Olof Lindblad

We have historically focused on primarily on the U.S. market because we still are focused primarily on the U.S. market because we believe for a whole variety of reasons; it's the strongest and most valuable market. However we're certainly exploring possibilities in foreign markets and our sort of space of research as to what those opportunities might be. But by no means are we viewing the U.S. market as something that needs per se to be augmented by a foreign market. But a foreign market if we find the right combination of circumstances that are cost effective and that would yield good results, we would certainly pursue that.

Operator

And our next question comes from [indiscernible]. Please go ahead.

Unidentified Analyst

Hello my first question is really about your capital expenditures, would you mind breaking that down into what went in current rates and what went into paying for the new build?

John McClain

So I will try to flip through that as we have another question.

Unidentified Analyst

Sure I will go with the second one. So the second one is really more about the history of the Lindblad may be you guys can share some qualitative statement and may be some numbers about performance of the Lindblad in 2007, 2008, 2009, 2010 like specifically I'm targeting how wholly the company formed during the global financial crisis in terms of revenue, occupancy, yields, costs et cetera?

John McClain

I'm sorry can you repeat that I missed that I was trying to look for the other information one more time.

Unidentified Analyst

Yes of course, no worries. Could you guys comment a little bit on the performance of the company during the global financial crisis?

Sven-Olof Lindblad

Yes so our performance during those periods is -- was considerably better than the rest of the cruise business in terms of our demographic and we talked about this extensively in terms of our Investor Presentation and when we came to market and we would be happy to share that with you at a future time. But our audience tend to be somewhat articulated from the regulated of the general economic environment, given that as I mentioned that demographics affected fully or less effective during that period. So we have not provided quantitative base around those elements.

John McClain

Great. And on the purchase of the property equipment the large majority of that absent 2006, $3 million or $4 million is all in the new builds.

Unidentified Analyst

Okay, thanks for the conference question. Just a quick-follow up on 2008, 2009. So I think you lost a little bit, so in one sentence you said that you shared some information here in the Road Show and you said now cannot disclose anything so those two are not consistent in my mind. So I probably missed something, could you clarify?

John McClain

That is not my intent of that or my response to that question what I indicated, what we have mentioned in the Road Show and disclosed some information about how the company has performed over the last few years which is not at all, what I always said about we're being less affected by economic downturns.

And I think the most the strongest point to take away from that discussion is that we are an experiential based travel company and I guess it really motivated and interested by the experiential elements of what we offer which is very different to a straight product delivery.

Operator

[Operator Instructions].

Our next question comes from Robert Kirkpatrick of Cardinal Capital. Please go ahead.

Robert Kirkpatrick

Thank you and good morning. First of all could you talk at all about how your bookings are shaping up for 2017 please?

John McClain

So, if you can see well we quote in the release on where we are for 2016 so, we’re a little bit behind. As we look to 2017, we are also just a little bit behind but it's really early in the cycle and if you looked at the last few months that we had our bookings have exceeded last year’s bookings for the same month for the last I think it's four months. So we think that some of the tactical efforts that we put forth are starting to payoff but we’re just slightly behind but we’re still really early in the game.

Robert Kirkpatrick

Okay. And then secondly is there a quantification or directional quantification you'd give us in terms of drydock expenses and what those were up year-on-year in 2016 second quarter versus 2015?

John McClain

Yes and I think it's similar may be in the release that was -- it was up about $2.5 million.

Robert Kirkpatrick

Great. Thank you so much.

John McClain

You bet.

Mark Ein

Can I just add something Sven here to your first question? One of the things that again when we use the word cyclical, behavior too is cyclical and response to events of cyclical one of the things that discovered literarily over decades is that there tends to be external events tend depending on what they are of course tend to produce some pretty reactionary or significant instant kind of response. But we had also found is that, that tends to die off very, very quickly and people go back to normal where it seems to be this embedded idea in people's minds that they want to get back to "normalcy".

And the fact that, bad things happened here and bad things happened there periodically I think is really, really baked into people's mindset these days. So at any point you may go down a little bit because a bomb went off somewhere or some of them took place and then a month later or two months later people baked in, they understand it, and then they go back to their habits. And so patterns particularly as one focus on anything that is related to a quarterly kind of issue get a little bit hard because those events are whatever they may be are not planned according to our definition of quarters. So they happened, they get assimilated they get baked into the site and then people kind of move on. And these -- there was a period of consistent drip of sad news in one form or another and that certainly did cause some depressed interest but it's, as John said, in the last four months that sort of pent-up demand if you will or that is holding back or whatever you wish to call it has reversed itself.

John McClain

We can take one more question.

Operator

All right. It seems we have no further questions at this time.

John McClain

Great.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Lindblad for any closing remarks.

Sven-Olof Lindblad

Thanks a lot for spending the time on a summer of Monday morning. Certainly hope this information was helpful. And then more importantly and most importantly that it gives a good understanding of the business, the reality both present and certainly as it relates to the future. I just want to reiterate we feel in a very good position as it relates to our future and we appreciate all of the folks who have chosen to invest in the enterprise. Thank you very much.

Operator

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

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