Lindblad Expeditions Holdings, Inc 10-Q for FY2020 Q3
Lindblad Expeditions Holdings, Inc. (LIND)
About this 10-Q
Lindblad Expeditions Holdings, Inc filed this 10-Q on October 30, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $27.38M
- compared with net income of $2.16M a year earlier
- Diluted EPS
- -$0.56
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
Commission file number
LINDBLAD EXPEDITIONS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 26, 2020,
LINDBLAD EXPEDITIONS HOLDINGS, INC.
Quarterly Report On Form 10-Q
For The Quarter Ended September 30, 2020
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| PART I. FINANCIAL INFORMATION |
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| ITEM 1. |
Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 |
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Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) |
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Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) |
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Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) |
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited) |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
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| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Quantitative and Qualitative Disclosures about Market Risk |
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Controls and Procedures |
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| PART II. OTHER INFORMATION |
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| ITEM 1. |
Legal Proceedings |
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| ITEM 1A. |
Risk Factors |
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Unregistered Sale of Equity Securities and Use of Proceeds |
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Defaults Upon Senior Securities |
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Mine Safety Disclosures |
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Other Information |
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Exhibits |
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| SIGNATURES |
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| PART I. |
FINANCIAL INFORMATION |
| Item 1. |
FINANCIAL STATEMENTS |
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
| As of September 30, 2020 | As of December 31, 2019 | |||||||
| ASSETS | (unaudited) | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Marine operating supplies | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangibles, net | ||||||||
| Deferred tax asset | ||||||||
| Right-to-use lease assets | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Unearned passenger revenues | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Lease liabilities - current | ||||||||
| Long-term debt - current | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current portion | ||||||||
| Deferred tax liabilities | ||||||||
| Lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Series A redeemable convertible preferred stock, and shares authorized; and shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | ||||||||
| Redeemable noncontrolling interest | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value, shares authorized; Series A shares issued and outstanding | ||||||||
| Common stock, par value, shares authorized; and issued, and outstanding as of September 30, 2020 and December 31, 2019, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities, stockholders' equity and redeemable noncontrolling interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Tour revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of tours | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on foreign currency | ( | ) | ( | ) | ( | ) | ||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| Net (loss) income attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net (loss) income attributable to Lindblad Expeditions Holdings, Inc. | ( | ) | ( | ) | ||||||||||||
| Non-cash deemed dividend to warrant holders | ||||||||||||||||
| Net (loss) income available to stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Undistributed (loss) earnings per share available to stockholders | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Cash flow hedges: | ||||||||||||||||
| Net unrealized gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Reclassification adjustment, net of tax | ||||||||||||||||
| Total other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: comprehensive (loss) income attributive to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income attributable to stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(unaudited)
| Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Issuance of stock for equity compensation plans, net | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchase of shares and warrants | ||||||||||||||||||||||||
| Other comprehensive income, net | - | |||||||||||||||||||||||
| Redeemable noncontrolling interest | - | |||||||||||||||||||||||
| Series A preferred stock dividend | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss available to stockholders | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance as of January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Issuance of stock for equity compensation plans, net | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchase of shares and warrants | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other comprehensive loss, net | - | ( | ) | ( | ) | |||||||||||||||||||
| Redeemable noncontrolling interest | - | |||||||||||||||||||||||
| Series A preferred stock dividend | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss available to stockholders | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (continued)
(In thousands, except share data)
(unaudited)
| Common Stock |
Additional Paid-In |
Retained |
Accumulated Other Comprehensive |
Total Stockholders' |
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| Shares |
Amount |
Capital |
Earnings |
Loss |
Equity |
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| Balance as of June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation |
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| Issuance of stock for equity compensation plans, net |
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| Warrants |
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| Other comprehensive loss, net |
- | ( |
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| Net income available to common stockholders |
- | |||||||||||||||||||||||
| Balance as of September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Common Stock |
Additional Paid-In |
Retained |
Accumulated Other Comprehensive |
Total Stockholders' |
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| Shares |
Amount |
Capital |
Earnings |
Loss |
Equity |
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| Balance as of January 1, 2019 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
- | |||||||||||||||||||||||
| Issuance of stock for equity compensation plans, net |
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| Repurchase of shares and warrants |
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| Warrants |
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| Other comprehensive loss, net |
- | ( |
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| Net income available to common stockholders |
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| Balance as of September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| For the nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash (used by) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of National Geographic fee | ||||||||
| Amortization of deferred financing costs and other, net | ||||||||
| Amortization of right-to-use lease assets | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Loss on foreign currency | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Marine operating supplies and inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Unearned passenger revenues | ( | ) | ||||||
| Other long-term assets | ( | ) | ||||||
| Other long-term liabilities | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from long-term debt | ||||||||
| Proceeds from Series A preferred stock issuance | ||||||||
| Repayments of long-term debt | ( | ) | ( | ) | ||||
| Payment of deferred financing costs | ( | ) | ( | ) | ||||
| Repurchase under stock-based compensation plans and related tax impacts | ( | ) | ( | ) | ||||
| Repurchase of warrants and common stock | ( | ) | ( | ) | ||||
| Warrants exercised | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Additional paid-in capital exercise proceeds of option shares | $ | $ | ||||||
| Additional paid-in capital exchange proceeds used for option shares | $ | $ | ( | ) | ||||
| Non-cash deemed dividend to warrant holders | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Lindblad Expeditions Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – BUSINESS AND BASIS OF PRESENTATION
Business
Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries (the “Company” or “Lindblad”) mission is offering life-changing adventures around the world and pioneering innovative ways to allow its guests to connect with exotic and remote places. The Company currently operates a fleet of owned expedition ships and seasonal charter vessels under the Lindblad brand and operates eco-conscious expeditions and nature-focused, small-group tours under the Natural Habitat, Inc. (“Natural Habitat”) brand.
The Company operates the following reportable business segments:
Lindblad – Offers primarily ship-based expeditions aboard customized, nimble and intimately-scaled vessels that are able to venture where larger cruise ships cannot, thereby allowing Lindblad to offer up-close experiences in the planet’s wild and remote places and capitals of culture. Many of these expeditions involve travel to remote places with limited infrastructure and ports (such as Antarctica and the Arctic) or places that are best accessed by a ship (such as the Galápagos, Alaska, Baja’s Sea of Cortez, Costa Rica and Panama), and foster active engagement by guests. Each expedition ship is designed to be comfortable and inviting, while being fully equipped with state-of-the-art tools for in-depth exploration. The Company has an alliance with National Geographic Partners (“National Geographic”), which provides for lecturers and National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, to join many of the Company’s expeditions.
Natural Habitat – Offers over 100 different expedition itineraries of primarily land-based nature adventures in more than 45 countries spanning all seven continents. The expeditions focus on small groups led by award-winning naturalists to achieve close-up wildlife and nature experiences. Examples of expeditions offered include safaris in Botswana, grizzly bear adventures in Alaska, polar bear tours in Canada and small-group Galápagos tours. Many of the expeditions feature access to private wildlife reserves, remote corners of national parks and distinctive lodges and camps for the best wildlife viewing. Natural Habitat has partnered with World Wildlife Fund (“WWF”) to offer conservation travel, which is sustainable travel that contributes to the protection of nature and wildlife.
The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “LIND”.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information and include the accounts and transactions of the Company. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial statements for the periods presented. Operating results for the periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonality and other factors. Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC for interim reporting. All intercompany balances and transactions have been eliminated in these unaudited condensed consolidated financial statements. These unaudited condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 2019 contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2020 (the “2019 Annual Report”).
The presentation of certain items in the condensed consolidated statements of cash flows have been reclassified to conform to the 2020 presentation. The reclassification had no effect on previously reported results of net cash provided by operating activities.
There have been no significant changes to the Company’s accounting policies from those disclosed in the 2019 Annual Report, with the exception of those noted below.
Series A Redeemable Convertible Preferred Stock
The Company’s Series A redeemable convertible preferred stock is accounted for as equity instruments, presented on the condensed consolidated balance sheets in the temporary equity section. The redemption or conversion of the preferred stock into shares of the Company’s common stock is not solely controlled by the Company. At the six-year anniversary of the issuance, the holders have the right to require the Company to repurchase their redeemable convertible preferred stock. The redeemable convertible preferred stock is convertible into the Company’s common stock (i) any time at the holder’s election, (ii) at the six-year anniversary of the issuance of those shares not redeemed at the request of the holder, or (iii) after the third anniversary of the issuance by the Company under certain circumstances.
COVID-19 Business Update
Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, the Company has suspended or rescheduled the majority of its expeditions departing March 16, 2020 through December 31, 2020 and has rescheduled its 2020-2021 Antarctica season. The Company has been working with guests to amend travel plans and refund payments, as applicable. The Company’s ships are currently being maintained with minimally required crew on-board to ensure they comply with all necessary regulations and can be fully put back into service quickly as needed. In accordance with local regulations, the Company closed its offices and most employees are working remotely to maintain general business operations, to provide assistance to existing and potential guests and to maintain information technology systems.
The Company moved quickly to implement a comprehensive plan to mitigate the impact of COVID-19 and preserve and enhance its liquidity position. The Company is employing a variety of cost reduction and cash preservation measures, while accessing available capital under its existing debt facilities and through the issuance of preferred stock, while exploring additional sources of capital and liquidity. These measures include the following operating expense and capital expenditure reductions:
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| ● | Significantly reduced ship and land-based expedition costs including crew payroll, land costs, fuel and food. All ships have been safely laid up. |
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| ● | Lowered expected annual maintenance capital expenditures by over $ |
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| ● | Meaningfully reduced general and administrative expenses through staff furloughs, payroll reductions and the elimination of all non-essential travel, office expenses and discretionary spending. |
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| ● | Suspended the majority of planned advertising and marketing spend. |
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| ● | Suspended all repurchases of common stock under the stock repurchase plan. |
Bookings Trends
The Company was off to a strong start to the year with Lindblad segment bookings at the end of February up
For 2020 voyages that have been cancelled or rescheduled, the Company is providing future travel credits with incremental value or full refunds, as applicable, to its fully paid guests. As of October 26, 2020, the majority of guests have opted for future travel credits.
Balance Sheet and Liquidity
As of September 30, 2020, the Company had $
During May 2020, the Company amended its $
During June 2020, the Company amended its export credit agreements to defer approximately $
During August 2020, the Company raised $
As of September 30, 2020, the Company had a total debt position of $
The Company estimates its monthly cash usage while its vessels are not in operations to be approximately $
In April 2020, the Company received a U.S. Small Business Administration Loan related to the COVID-19 crisis in the amount of $6.6 million. The Company subsequently returned the funds received from this loan and, as a result, made additional adjustments to its cost structure.
The Company has not previously experienced a complete cessation of its operations and, as a consequence, its ability to predict the impact of such cessation on its costs and future prospects is limited. Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of the COVID-19 virus on its financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be lifted and what the demand for expedition travel will be once these restrictions are no longer in place. The estimates for monthly cash usage reflect the Company’s current forecast for operating costs, capital expenditures and expected debt and interest payments. Based on current liquidity, the actions taken to date and its current forecast, which assumes rescheduled operations during 2020 with a ramp up in operations throughout 2021, the Company believes that its liquidity should be adequate to meet its obligations for the next 12 months from October 29, 2020, the date of this Quarterly Report on Form 10-Q.
Return to Operations
The Company already has a robust set of operating protocols and, in preparation for the resumption of operations, has been proactively working in close cooperation with various medical policy experts and public health authorities to further augment its procedures and protocols for health and safety onboard its vessels to mitigate the potential impacts of the COVID-19 virus. These protocols encompass, but are not limited to, medical care, screening, testing, social distancing, personal protective equipment, and sanitization during all aspects of an expedition.
While it is uncertain when the Company will return to operations, it believes there are a variety of strategic advantages that should enable it to deploy its ships safely and quickly once travel restrictions have been lifted. The most notable is the size of its owned and operated vessels which range from 48 to 148 passengers, allowing for a highly controlled environment that includes stringent cleaning protocols. The small nature of the Company’s ships should also allow it to efficiently and effectively test its guests and crew prior to boarding. On average, the Company estimates it will only take a few thousand tests a month to ensure all guests and crew across its entire fleet have been tested. Additionally, the majority of its expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence. The Company also has the ability to be flexible with regards to existing itineraries and is actively investigating additional itinerary opportunities both internationally and domestically. Lastly, the Company’s guests are explorers by nature, eager to travel and have historically been very resilient following periods of uncertainty.
Valuation of Goodwill
In accordance with ASC 360, the Company tests for impairment annually as of September 30, or more frequently if warranted. The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount. The Company completed the annual impairment test as of September 30, 2020 with no indication of goodwill impairment.
Valuation of Long-lived Assets
The effects of COVID-19 on the Company’s expected future operating cash flows was a potential indicator that the carrying value of the Company's long-lived assets may not be recoverable. The Company performed an undiscounted cash flow analysis of its long-lived assets for potential impairment as of September 30, 2020, and based on the analysis, it was determined that there was no impairment to the Company's long-lived assets.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes. The amendments of this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company will adopt this ASU as required and does not expect it to have a material impact to the Company’s financial statements.
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848) –Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance of this ASU is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company is currently reviewing its agreements impacted by the reference rate reform and does not expect this ASU to have a material impact to the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this Update address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments in this Update reduce the number of accounting models for convertible debt instruments and convertible preferred stock, and address convertible instruments with conversion features, as well as other items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, early adoption is permitted for fiscal years beginning after December 15, 2020, and must be adopted at the beginning of an entities’ fiscal year. The Company will adopt this ASU as required and is currently reviewing the impacts this ASU will have on its financial statements.
NOTE 2 – EARNINGS PER SHARE
Earnings per Common Share
Earnings per common share is computed using the two-class method related to its Preferred Stock. Under the two-class method, undistributed earnings available to stockholders for the period are allocated on a pro rata basis to the common stockholders and to the holders of convertible preferred shares based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion of the Preferred Stock. Diluted earnings per share is computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the dilutive incremental common shares associated with restricted stock awards, shares issuable upon the exercise of stock options and previously outstanding warrants, using the treasury stock method, and the potential common shares that could be issued from conversion of the Preferred Stock, using the if-converted method. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted EPS calculation.
For the three and nine months ended September 30, 2020 and 2019, the Company calculated earnings (loss) per share as follows:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands, except share and per share data) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
| Net (loss) income attributable to Lindblad Expeditions Holdings, Inc. | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Series A redeemable convertible preferred stock dividend | ||||||||||||||||
| Non-cash deemed dividend to warrant holders | ||||||||||||||||
| Undistributed (loss) earnings available to stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Total weighted average shares outstanding, basic | ||||||||||||||||
| Dilutive potential common shares | ||||||||||||||||
| Dilutive potential options | ||||||||||||||||
| Dilutive potential redeemable convertible preferred shares | ||||||||||||||||
| Dilutive potential warrants | ||||||||||||||||
| Total weighted average shares outstanding, diluted | ||||||||||||||||
| Undistributed (loss) earnings per share available to stockholders | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
For the three and nine months ended September 30, 2020, the Company incurred a net loss from operations, therefore
NOTE 3 – REVENUES
Customer Deposits and Contract Liabilities
The Company’s guests remit deposits in advance of tour embarkation. Guest deposits consist of guest ticket revenues as well as revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the condensed consolidated balance sheets when received and are subsequently recognized as tour revenue over the duration of the expedition. Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. The Company does not consider guest deposits to be a contract liability until the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. The change in contract liabilities within unearned passenger revenues presented in our condensed consolidated balance sheets are as follows:
| Contract Liabilities | ||||
| (In thousands) | (unaudited) | |||
| Balance as of January 1, 2020 | $ | |||
| Recognized in tour revenues during the period | ( | ) | ||
| Additional contract liabilities in period | ||||
| Balance as of September 30, 2020 | $ | |||
The following table disaggregates our tour revenues by the sales channel it was derived from:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Guest ticket revenue: | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
| Direct | % | % | % | % | ||||||||||||
| National Geographic | % | % | % | % | ||||||||||||
| Agencies | % | % | % | % | ||||||||||||
| Affinity | % | % | % | % | ||||||||||||
| Guest ticket revenue | % | % | % | % | ||||||||||||
| Other tour revenue | % | % | % | % | ||||||||||||
| Tour revenues | % | % | % | % | ||||||||||||
NOTE 4 – FINANCIAL STATEMENT DETAILS
The following is a reconciliation of cash, cash equivalents and restricted cash to the statement of cash flows:
| As of September 30, | ||||||||
| 2020 | 2019 | |||||||
| (In thousands) | (unaudited) | (unaudited) | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash as presented in the statement of cash flows | $ | $ | ||||||
Restricted cash consist of the following:
| As of September 30, 2020 | As of December 31, 2019 | |||||||
| (In thousands) | (unaudited) | |||||||
| Federal Maritime Commission escrow | $ | $ | ||||||
| Certificates of deposit and other restricted securities | ||||||||
| Credit card processor reserves | ||||||||
| Total restricted cash | $ | $ | ||||||
The Company’s prepaid expenses and other current assets consist of the following:
| As of September 30, 2020 | As of December 31, 2019 | |||||||
| (In thousands) | (unaudited) | |||||||
| Prepaid tour expenses | $ | $ | ||||||
| Prepaid air expense | ||||||||
| Prepaid marketing, commissions and other expenses | ||||||||
| Prepaid client insurance | ||||||||
| Prepaid corporate insurance | ||||||||
| Prepaid port agent fees | ||||||||
| Prepaid income taxes | ||||||||
| Total prepaid expenses | $ | $ | ||||||
The Company’s accounts payable and accrued expenses consist of the following:
| As of September 30, 2020 | As of December 31, 2019 | |||||||
| (In thousands) | (unaudited) | |||||||
| Accounts payable | $ | $ | ||||||
| Foreign currency forward contract liability | ||||||||
| Accrued other expense | ||||||||
| Employee liability | ||||||||
| Refunds and commissions payable | ||||||||
| Bonus compensation liability | ||||||||
| Travel certificate liability | ||||||||
| Accrued travel insurance expense | ||||||||
| Royalty payable | ||||||||
| Income tax liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
Loan Receivable
The Company’s loan receivable is recorded at amortized cost within other long-term assets. The Company reviewed its loan receivable for credit losses in connection with the preparation of its condensed consolidated financial statements for the period ended September 30, 2020. In evaluating the allowance for loan losses, the Company considered factors such as historical loss experience, the type and amount of loan, adverse situations that may affect the borrower’s ability to repay and prevailing economic conditions. Based on these credit loss estimation and experience factors, the Company realized no allowance for loan loss for the nine months ended September 30, 2020. The roll-forward of the loan receivable balance is as follows:
| Loan Receivable | ||||
| (In thousands) | (unaudited) | |||
| Balance as of January 1, 2020 | $ | |||
| Accrued interest | ||||
| Amortization of deferred costs | ) | |||
| Balance as of September 30, 2020 | $ | |||
NOTE 5 – LONG-TERM DEBT
| As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (In thousands) | Principal | Deferred Financing Costs, net | Balance | Principal | Deferred Financing Costs, net | Balance | ||||||||||||||||||
| Note payable | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Revolving Facility | ( | ) | ||||||||||||||||||||||
| Credit Facility | ( | ) | ( | ) | ||||||||||||||||||||
| 1st Senior Secured Credit Agreement | ( | ) | ||||||||||||||||||||||
| 2nd Senior Secured Credit Agreement | ( | ) | ( | ) | ||||||||||||||||||||
| Total long-term debt | ( | ) | ( | ) | ||||||||||||||||||||
| Less current portion | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Total long-term debt, non-current | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
For the three and nine months ended September 30, 2020, deferred financing costs charged to interest expense were $
The Company has amended its export credit agreements, term loan and revolving credit facilities. During June 2020, the Company amended its export credit agreements to defer approximately $
On August 7, 2020, the Company amended its term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the term loan has been increased
Credit Facility
In March 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), providing for a $
Export Credit Agreements
In January 2018, the Company entered into a senior secured credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch and Eksportkreditt Norge AS, which made available to the Company a loan in an aggregate principal amount not to exceed $
In April 2019, the Company entered into a senior secured credit agreement (the “Second Export Credit Agreement”) with the Citibank, N.A., London Branch and Eksportkreditt Norge AS. Pursuant to the Second Export Credit Agreement, the Lenders have agreed to make available to the Company, at the Company's option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $
The Second Export Credit Agreement bears a variable interest rate equal to three-month LIBOR plus a margin of
Note Payable
In connection with the Natural Habitat acquisition in May 2016, Natural Habitat issued an unsecured promissory note to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $
Other
On April 10, 2020, the Company received a U.S. Small Business Administration Loan related to the COVID-19 crisis in the amount of $
Covenants
The Company’s Amended Credit Agreement, Export Credit Agreement and Second Export Credit Agreement contain financial and restrictive covenants that include among others, net leverage ratios, minimum liquidity, limits on additional indebtedness and limits on certain investments. The net leverage ratios covenants of the Company’s credit agreements have been suspended or waived through June 2021. As of September 30, 2020, the Company was in compliance with its covenants.
NOTE 6 – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Instruments and Hedging Activities
The Company’s derivative assets and liabilities consist principally of foreign exchange forward contracts and interest rate caps and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as quoted market prices are not readily available. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves and counterparty credit risks.
Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S.-dollar denominated receivables and payables. The Company primarily hedges a portion of its current-year currency exposure to several currencies, which normally include, but are not limited to, the Canadian and New Zealand dollars, the Brazilian Real, the South African Rand, the Euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge.
In March 2019, the Company entered into foreign exchange forward contracts, designated as cash flow hedges, to hedge its exposure to Norwegian Kroner ("NOK"), related to the Company’s contract to purchase the new polar ice-class vessel (see Note 11 – Commitments and Contingencies). The cost of the foreign exchange forward contracts will be amortized to interest expense over their lives, from the effective date through settlement dates.
Interest Rate Risk. The Company uses interest rate caps, designated as cash flow hedges, to manage the risk related to its floating rate corporate debt.
The Company records the effective portion of changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized. Any changes in fair values of hedges that are determined to be ineffective are immediately reclassified from accumulated other comprehensive income (loss) into earnings. gains or losses of the Company’s cash flow hedges were considered to be ineffective for the period ended September 30, 2020. The Company reclassified $
The Company held the following derivative instruments with absolute notional values as of September 30, 2020:
| (in thousands) | Absolute Notional Value | |||
| Interest rate caps | $ | |||
| Foreign exchange contracts | ||||
Estimated fair values (Level 2) of derivative instruments were as follows:
| As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
| (unaudited) | ||||||||||||||||
| (In thousands) | Fair Value, Asset Derivatives | Fair Value, Liability Derivatives | Fair Value, Asset Derivatives | Fair Value, Liability Derivatives | ||||||||||||
| Derivative instruments designated as cash flow hedging instruments: | ||||||||||||||||
| Foreign exchange forward (a) | $ | $ | $ | $ | ||||||||||||
| Interest rate cap (b) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Derivative instruments not designated as cash flow hedging instruments: | ||||||||||||||||
| Foreign exchange forward (c) | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| __________ |
|
| (a) | Recorded in accounts payable and accrued expenses, and other long-term liabilities. |
| (b) | Recorded in prepaid expenses and other current assets, and other long-term assets. |
| (c) | Recorded in prepaid expenses and other current assets, and accounts payable and accrued expenses. |
Changes in the fair value of the Company’s hedging instruments are recorded in accumulated other comprehensive income, pursuant to the guidelines of cash flow hedge accounting as outlined in ASC 815.
The effects of derivatives recognized in the Company’s condensed consolidated financial statements were as follows:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Derivative instruments designated as cash flow hedging instruments: | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
| Foreign exchange forward (a) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Interest rate cap (b) | ( | ) | ( | ) | ||||||||||||
| Derivative instruments not designated as cash flow hedging instruments: | ||||||||||||||||
| Foreign exchange forward (c) | ( | ) | ( | ) | ||||||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
|
|
|
| (a) | For the three and nine months ended September 30, 2020, a $ |
| (b) | Recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity |
| (c) | Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged. During the three and nine months ended September 30, 2020, a gain of $ |
Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value given that the terms of the agreement were comparable to the market as of September 30, 2020. As of September 30, 2020 and December 31, 2019, the Company had no other significant liabilities that were measured at fair value on a recurring basis.
NOTE 7 – STOCKHOLDERS’ EQUITY
Preferred Stock
On August 31, 2020, the Company issued and sold
For the three and nine months ended September 30, 2020, the Company recorded $
The Preferred Stock deferred issuance costs was approximately $
As of September 30, 2020, the Preferred Stock could be converted at the option of the holders into approximately
Stock and Warrant Repurchase Plan
The Company’s Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $
NOTE 8 – STOCK-BASED COMPENSATION
The Company is authorized to issue up to
As of September 30, 2020 and December 31, 2019, options to purchase an aggregate of
The Company recorded stock-based compensation expense of $
2020 Long-Term Incentive Compensation
During the nine months ended September 30, 2020, the Company granted
During the nine months ended September 30, 2020, the Company granted
During the nine months ended September 30, 2020, the Company awarded
On September 30, 2020, the Company awarded
Natural Habitat Contingent Arrangement
In connection with the acquisition of Natural Habitat, Mr. Bressler, the founder of Natural Habitat, has an equity incentive opportunity to earn an award of options based on the future financial performance of Natural Habitat, where if the Final Year Equity Value of Natural Habitat, as defined in Mr. Bressler's amended employment agreement, exceeds $
NOTE 9 – RELATED PARTY TRANSACTIONS
In May 2016, in connection with the Company's acquisition of Natural Habitat, Natural Habitat issued an unsecured promissory note to Mr. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $
NOTE 10 – INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. The determination of the required valuation allowance against net deferred tax assets was made without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.
The Company accounts for income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of our foreign and U.S. companies to determine the appropriate level of valuation allowances.
The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of FASB’s authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on its condensed consolidated financial statements or may exceed the current income tax reserves in amounts that could be material. As of September 30, 2020, and December 31, 2019, the Company had a liability for unrecognized tax benefits of $
The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns for the current year and three prior years remain subject to examination by tax authorities and the Company’s foreign tax returns for the current year and four prior years remain subject to examination by tax authorities.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Fleet Expansion
In February 2019, the Company entered into an agreement, which was amended in December 2019, with Ulstein Verft, to construct a second polar ice class vessel, the National Geographic Resolution, with a total purchase price of
Royalty Agreement – National Geographic
The Company is party to an alliance and license agreement with National Geographic, which allows the Company to use the National Geographic name and logo. In return for these rights, the Company is charged a royalty fee. The royalty fee is included within selling and marketing expense on the accompanying condensed consolidated statements of operations. The amount is calculated based upon a percentage of certain ticket revenues less travel agent commission, including the revenues received from cancellation fees and any revenues received from the sale of pre- and post-expedition extensions. Royalty expense for the three and nine months ended September 30, 2020 was $
The royalty balances outstanding to National Geographic as of September 30, 2020 and December 31, 2019 were $
Royalty Agreement – World Wildlife Fund
Natural Habitat has a license agreement with WWF, which allows it to use the WWF name and logo. In return for these rights, Natural Habitat is charged a royalty fee and a fee based on annual gross sales. The fees are included within selling and marketing expense on the accompanying condensed consolidated statements of operations. This royalty fee expense was $
Charter Commitments
From time to time, the Company enters into agreements to charter vessels onto which it holds its tours and expeditions. Future minimum payments on its charter agreements as of September 30, 2020 are as follows:
| For the years ended December 31, | Amount | |||
| (In thousands) | (unaudited) | |||
| 2020 (three months) | $ | |||
| 2021 | ||||
| 2022 | ||||
| Total | $ | |||
Natural Habitat Redeemable Non-Controlling Interest
Mr. Bressler, founder of Natural Habitat, retains a
Since the redemption of the noncontrolling interest is not solely in the Company’s control, the Company is required to record the redeemable noncontrolling interest outside of stockholders’ equity but after its total liabilities. In addition, if it is probable that the instrument will become redeemable, as such solely due to the passage of time, the redeemable noncontrollable interest should be adjusted to the redemption value via one of two measurement methods.
The Company elected the income classification-excess adjustment and accretion methods for recognizing changes in the redemption value of Mr. Bressler’s put option. Under this methodology, a calculation of the present value of the redemption value is compared to the carrying value of the redeemable noncontrolling interest and the carrying value of the redeemable noncontrolling interest is adjusted to the redemption value’s present value. Any adjustments to the carrying value of the redeemable noncontrolling interest, up to the fair value of the noncontrolling interest, are classified to retained earnings. Adjustments in excess of the fair value of the noncontrolling interest, are treated as a decrease to net income available to common stockholders.
The fair value of Mr. Bressler’s put option was determined using a discounted cash flow model. The redemption value was adjusted to its present value using the Company’s weighted average cost of capital.
The following is a rollforward of redeemable non-controlling interest:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Net income attributable to noncontrolling interest | ( | ) |
| ( | ) | |||||||||||
| Fair value adjustment of put option | ( | ) | ( | ) | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
Legal Proceedings
From time to time, the Company is party to litigation and regulatory matters and claims. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated. The results of complex proceedings and reviews are difficult to predict and the Company’s view of these matters may change in the future as events related thereto unfold. An unfavorable outcome to any legal or regulatory matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.
NOTE 12 – SEGMENT INFORMATION
The Company is primarily a specialty cruise and adventure expedition operator with operations in segments, Lindblad and Natural Habitat. The Company evaluates the performance of the business based largely on the results of its operating segments. The chief operating decision maker, or CODM, and management review operating results monthly, and base operating decisions on the total results at a consolidated level, as well as at a segment level. The reports provided to the Board of Directors are at a consolidated level and also contain information regarding the separate results of both segments. While both segments have similar characteristics, the operating and reporting segments cannot be aggregated because they fail to meet the requirements for aggregation.
The Company evaluates the performance of its business segments based largely on tour revenues and operating income, without allocating other income and expenses, net, income taxes and interest expense, net. For the three and nine months ended September 30, 2020 and 2019, operating results were as follows:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | % | 2020 | 2019 | Change | % | |||||||||||||||||||||||||
| (In thousands) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
| Tour revenues: | ||||||||||||||||||||||||||||||||
| Lindblad | $ | $ | $ | ( | ) | NM | $ | $ | $ | ( | ) | ( | %) | |||||||||||||||||||
| Natural Habitat | ( | ) | NM | ( | ) | ( | %) | |||||||||||||||||||||||||
| Total tour revenues | $ | $ | $ | ( | ) | NM | $ | $ | $ | ( | ) | ( | %) | |||||||||||||||||||
| Operating (loss) income: | ||||||||||||||||||||||||||||||||
| Lindblad | $ | ( | ) | $ | $ | ( | ) | NM | $ | ( | ) | $ | $ | ( | ) | NM | ||||||||||||||||
| Natural Habitat | ( | ) | ( | ) | NM | ( | ) | ( | ) | NM | ||||||||||||||||||||||
| Total operating (loss) income | $ | ( | ) | $ | $ | ( | ) | NM | $ | ( | ) | $ | $ | ( | ) | NM | ||||||||||||||||
Depreciation and amortization are included in segment operating income as shown below:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | % | 2020 | 2019 | Change | % | |||||||||||||||||||||||||
| (In thousands) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||||||||||||||
| Lindblad | $ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Natural Habitat | % | % | ||||||||||||||||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||||||
The following table presents our total assets, intangibles, net and goodwill by segment:
| (In thousands) | As of September 30, 2020 | As of December 31, 2019 | ||||||
| Total Assets: | (unaudited) | |||||||
| Lindblad | $ | $ | ||||||
| Natural Habitat | ||||||||
| Total assets | $ | $ | ||||||
| Intangibles, net: | ||||||||
| Lindblad | $ | $ | ||||||
| Natural Habitat | ||||||||
| Total intangibles, net | $ | $ | ||||||
| Goodwill: | ||||||||
| Lindblad | $ | $ | ||||||
| Natural Habitat | ||||||||
| Total goodwill | $ | $ | ||||||
For the three and nine months ended September 30, 2020, there were $
| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
The following discussion and analysis addresses material changes in the financial condition and results of operations of the Company for the periods presented. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020.
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to:
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suspended operations and disruptions to our business and operations related to COVID-19; |
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the impacts of COVID-19 on our financial condition, liquidity, results of operations, cash flows, employees, plans and growth; |
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the impacts of COVID-19 on future travel and the cruise and airline industries in general; |
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unscheduled disruptions in our business due to travel restrictions, weather events, mechanical failures, pandemics or other events; |
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changes adversely affecting the business in which we are engaged; |
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management of our growth and our ability to execute on our planned growth; |
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our business strategy and plans; |
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our ability to maintain our relationship with National Geographic; |
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compliance with new and existing laws and regulations, including environmental regulations and travel advisories and restrictions; |
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compliance with the financial and/or operating covenants in our debt arrangements; |
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adverse publicity regarding the cruise industry in general; |
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loss of business due to competition; |
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the result of future financing efforts; |
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delays and costs overruns with respect to the construction and delivery of newly constructed vessels; |
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the inability to meet revenue and Adjusted EBITDA projections; and |
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those risks discussed herein, in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 26, 2020 (the “2019 Annual Report”) and in Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, as filed with the SEC on May 6, 2020. |
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Unless the context otherwise requires, in this Form 10-Q, “Company,” “Lindblad,” “we,” “us,” “our,” and “ours” refer to Lindblad Expeditions Holdings, Inc., and its subsidiaries.
Business Overview
We provide expedition cruising and land-based adventure travel experiences, using itineraries that feature up-close encounters with wildlife, nature, history and culture, and promote guest empowerment and interactivity. Our mission is to offer life-changing adventures around the world and pioneer innovative ways to allow our guests to connect with exotic and remote places. Many of these expeditions involve travel to remote places, such as the Arctic, Antarctica, the Galápagos, Alaska, Baja's Sea of Cortez, Costa Rica, Panama, Churchill and Africa. We operate a fleet of nine owned expedition ships and have contracted for a new polar ice class vessel, the National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021.
In addition, we operate five seasonal charter vessels under the Lindblad brand. We deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximize yields. We use our charter inventory as a mechanism to both increase travel options for our existing and prospective guests and to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs.
We have a longstanding relationship with the National Geographic Society dating back to 2004, which is based on a shared interest in exploration, research, technology and conservation. This relationship includes co-selling, co-marketing and branding arrangements with National Geographic Partners, LLC (“National Geographic”) whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions through their internal travel divisions. We collaborate with National Geographic on expedition planning to enhance the guest experience by having National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, join our expeditions. Guests have the ability to interface with these experts through lectures, excursions, dining and other experiences throughout their expedition.
COVID-19 Business Update
Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, we have suspended or rescheduled the majority of our expeditions departing March 16, 2020 through December 31, 2020 and have rescheduled our 2020-2021 Antarctica season. We have been working with guests to amend travel plans and refund payments, as applicable. Our ships are currently being maintained with minimally required crew on-board to ensure they comply with all necessary regulations and can be fully put back into service quickly as needed. In accordance with local regulations, we closed our offices and most employees are working remotely to maintain general business operations, to provide assistance to existing and potential guests and to maintain information technology systems.
We moved quickly to implement a comprehensive plan to mitigate the impact of COVID-19 and preserve and enhance our liquidity position. We are employing a variety of cost reduction and cash preservation measures, while accessing available capital under our existing debt facilities and through the issuance of preferred stock, while exploring additional sources of capital and liquidity. These measures include the following operating expense and capital expenditure reductions:
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Significantly reduced ship and land-based expedition costs including crew payroll, land costs, fuel and food. All ships have been safely laid up. |
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Lowered expected annual maintenance capital expenditures by over $10 million, savings of more than 50% from originally planned levels. |
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Meaningfully reduced general and administrative expenses through staff furloughs, payroll reductions and the elimination of all non-essential travel, office expenses and discretionary spending. |
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Suspended the majority of planned advertising and marketing spend. |
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Suspended all repurchases of common stock under the stock repurchase plan. |
Bookings Trends
We were off to a strong start to the year with Lindblad segment bookings at the end of February up 25% for the full year 2020 as compared to the same point a year ago for 2019, and had sold 86% of our originally projected guest ticket revenues for the year. Since that point, we have experienced a substantial impact from the COVID-19 virus including elevated cancellations and softness in near-term demand. As of October 26, 2020, Lindblad segment bookings for travel in 2020 are now 74% below the same point a year ago for 2019 due primarily to the cancelled and rescheduled voyages. We have substantial advanced bookings for travel in 2021 and despite increased cancellations for travel in the first quarter of 2021, total bookings for 2021 are 4% ahead of bookings for 2019 as of the same date in 2018 and only 12% below the same date a year ago for 2020. For the last nine months of 2021 bookings are 12% ahead of the bookings for the same period in 2020 as of the same date a year ago. We continue to see new bookings for future travel including over $44.0 million since March 1, 2020, and we are receiving deposits and final payments for future travel.
For 2020 voyages that have been cancelled or rescheduled, we are providing future travel credits with incremental value or full refunds, as applicable, to our fully paid guests. As of October 26, 2020, the majority of guests have opted for future travel credits.
Balance Sheet and Liquidity
As of September 30, 2020, we had $129.6 million in unrestricted cash and $16.5 million in restricted cash primarily related to deposits on future travel originating from U.S. ports. During the first quarter of 2020 we drew down $45.0 million under our revolving credit facility as a precautionary measure for working capital and general corporate purposes given the uncertainty related to the COVID-19 pandemic and borrowed $107.7 million under our first export credit agreement in conjunction with final payment on delivery of the National Geographic Endurance in March 2020. During April 2020, we drew down $30.6 million under our second export credit agreement in conjunction with the third installment payment on the National Geographic Resolution, scheduled for delivery in the fourth quarter of 2021.
During May 2020, we amended our $2.5 million promissory note, changing the maturity date of the principal payments to be due in three equal installments, with the first payment of due on December 22, 2020, the second due on December 22, 2021 and the final payment due on December 22, 2022.
During June 2020, the Company amended its export credit agreements to defer approximately $9.0 million in aggregate scheduled amortization payments originally due in June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021. On August 7, 2020, the Company amended its term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the term loan has been increased 125 basis points, to be paid-in-kind at maturity, a LIBOR minimum of 0.75% has been added to the term loan and revolving credit facilities and certain covenants have been amended to be more restrictive.
During August 2020, we raised $85.0 million in gross proceeds through the private placement issuance of 85,000 shares of Series A Redeemable Convertible Preferred Stock, that carries a 6.0% annual dividend, which is payable in kind for two years and thereafter in cash or in-kind at the Company’s option. The redeemable convertible preferred stock is convertible into shares of Lindblad common stock at a conversion price of $9.50 per share, representing a premium of 23% to Lindblad’s 30-trading volume weighted average price on the date of issuance. The holders may request redemption of the Preferred Stock at the six-year anniversary of the issuance.
As of September 30, 2020, we had a total debt position of $412.2 million and were in compliance with all of our debt covenants currently in effect. We have no material debt maturities until 2023.
We estimate our monthly cash usage while our vessels are not in operations to be approximately $10-15 million including ship and office operating expenses, necessary capital expenditures and interest and principal payments. This excludes guest payments for future travel and cash refunds requested on previously made guest payments. We continue to evaluate additional strategies to enhance our liquidity position which may include, but are not limited to, further reductions in operating expenses, capital expenditures and administrative costs as well as additional financings.
In April 2020, we received a U.S. Small Business Administration Loan related to the COVID-19 crisis in the amount of $6.6 million. We subsequently returned the funds received from this loan and, as a result, have made additional adjustments to our cost structure.
We have not previously experienced a complete cessation of our operations and, as a consequence, our ability to predict the impact of such cessation on our costs and future prospects is limited. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 virus on our financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be lifted and what the demand for expedition travel will be once these restrictions are no longer in place. The estimates for monthly cash usage reflect our current forecast for operating costs, capital expenditures and expected debt and interest payments. Based on current liquidity, the actions taken to date and our current forecast, which assumes rescheduled operations during 2020 with a ramp up in operations throughout 2021, we believe that our liquidity should be adequate to meet our obligations for the next 12 months from October 29, 2020, the date of this Quarterly Report on Form 10-Q.
Return to Operations
We already have a robust set of operating protocols and, in preparation for the resumption of operations, have been proactively working in close cooperation with various medical policy experts and public health authorities to further augment our procedures and protocols for health and safety onboard our vessels to mitigate the potential impacts of the COVID-19 virus. These protocols encompass, but are not limited to, medical care, screening, testing, social distancing, personal protective equipment, and sanitization during all aspects of an expedition.
While it is uncertain when we will return to operations, we believe there are a variety of strategic advantages that should enable us to deploy our ships safely and quickly once travel restrictions have been lifted. The most notable is the size of our owned and operated vessels which range from 48 to 148 passengers, allowing for a highly controlled environment that includes stringent cleaning protocols. The small nature of our ships should also allow us to efficiently and effectively test our guests and crew prior to boarding. On average, we estimate it will only take a few thousand tests a month to ensure all guests and crew across our entire fleet have been tested. Additionally, the majority of our expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence. We also have the ability to be flexible with regards to existing itineraries and are actively investigating additional itinerary opportunities both internationally and domestically. Lastly, our guests are explorers by nature, eager to travel and have historically been very resilient following periods of uncertainty.
The discussion and analysis of our results of operations and financial condition are organized as follows:
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a description of certain line items and operational and financial metrics we utilize to assist us in managing our business; |
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results and a comparable discussion of our consolidated and segment results of operations for the three and nine months ended September 30, 2020 and 2019; |
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a discussion of our liquidity and capital resources, including future capital and contractual commitments and potential funding sources; and |
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a review of our critical accounting policies. |
Financial Presentation
Description of Certain Line Items
Tour revenues
Tour revenues consist of the following:
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Guest ticket revenues recognized from the sale of guest tickets; and |
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Other tour revenues from the sale of pre- or post-expedition excursions, hotel accommodations, air transportation to and from the ships, goods and services rendered onboard that are not included in guest ticket prices, trip insurance, and cancellation fees. |
Cost of tours
Cost of tours includes the following:
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Direct costs associated with revenues, including cost of pre- or post-expedition excursions, hotel accommodations, and land-based expeditions, air and other transportation expenses, and cost of goods and services rendered onboard; |
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Payroll costs and related expenses for shipboard and expedition personnel; |
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Food costs for guests and crew, including complimentary food and beverage amenities for guests; |
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Fuel costs and related costs of delivery, storage and safe disposal of waste; and |
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Other tour expenses, such as land costs, port costs, repairs and maintenance, equipment expense, drydock, ship insurance, and charter hire costs. |
Selling and marketing
Selling and marketing expenses include commissions, royalties and a broad range of advertising and promotional expenses.
General and administrative
General and administrative expenses include the cost of shoreside vessel support, reservations and other administrative functions, including salaries and related benefits, credit card commissions, professional fees and rent.
Operational and Financial Metrics
We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, Net Yields, Occupancy and Net Cruise Costs, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in the cruise and tourism industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess revenue and cost performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and the related notes thereto also included within.
Adjusted EBITDA is net income (loss) excluding depreciation and amortization, net interest expense, other income (expense), income tax (expense) benefit, (gain) loss on foreign currency, (gain) loss on transfer of assets, reorganization costs, and other supplemental adjustments. Other supplemental adjustments include certain non-operating items such as stock-based compensation, executive severance costs, the National Geographic fee amortization, debt refinancing costs, acquisition-related expenses and other non-recurring charges. We believe Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. We believe Adjusted EBITDA helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements, such as unearned passenger revenues, capital expenditures and related depreciation, principal and interest payments, and tax payments. Our use of Adjusted EBITDA may not be comparable to other companies within the industry.
The following metrics apply to our Lindblad segment:
Adjusted Net Cruise Cost represents Net Cruise Cost adjusted for Non-GAAP other supplemental adjustments which include certain non-operating items such as stock-based compensation, the National Geographic fee amortization, and acquisition-related expenses.
Available Guest Nights is a measurement of capacity and represents double occupancy per cabin (except single occupancy for a single capacity cabin) multiplied by the number of cruise days for the period. We also record the number of guest nights available on our limited land programs in this definition.
Gross Cruise Cost represents the sum of cost of tours plus, selling and marketing expenses, and general and administrative expenses.
Gross Yield represents tour revenues divided by Available Guest Nights.
Guest Nights Sold represents the number of guests carried for the period multiplied by the number of nights sailed within the period.
Maximum Guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin (except single occupancy for a single capacity cabin).
Net Cruise Cost represents Gross Cruise Cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues.
Net Cruise Cost Excluding Fuel represents Net Cruise Cost excluding fuel costs.
Net Revenue represents tour revenues less commissions and direct costs of other tour revenues.
Net Yield represents Net Revenue divided by Available Guest Nights.
Number of Guests represents the number of guests that travel with us in a period.
Occupancy is calculated by dividing Guest Nights Sold by Available Guest Nights.
Voyages represent the number of ship expeditions completed during the period.
Foreign Currency Translation
The U.S. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the condensed consolidated statements of operations.
Seasonality
Traditionally, our tour revenues from the sale of guest tickets are mildly seasonal, historically larger in the first and third quarters. The seasonality of our operating results fluctuates due to our vessels being taken out of service for scheduled maintenance or drydocking, which is typically during nonpeak demand periods, in the second and fourth quarters. Our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work, drydock locations based on ship itineraries, operating conditions experienced especially in the polar regions and the applicable regulations of class societies in the maritime industry, which require more extensive reviews periodically. Drydocking impacts operating results by reducing tour revenues and increasing cost of tours. Natural Habitat is a seasonal business, with the majority of its tour revenue recorded in the third and fourth quarters from its summer season departures and polar bear tours.
Results of Operations - Consolidated
| For the three months ended September 30, |
For the nine months ended September 30, |
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2020 |
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2019 |
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| Tour revenues |
$ | 1,019 | $ | 100,983 | $ | (99,964 | ) | NM | $ | 81,991 | $ | 267,294 | $ | (185,303 | ) | (69 | %) | |||||||||||||||
| Cost of tours |
8,075 | 48,294 | (40,219 | ) | (83 | )% | 62,988 | 124,831 | (61,843 | ) | (50 | %) | ||||||||||||||||||||
| General and administrative |
9,145 | 15,266 | (6,121 | ) | (40 | )% | 36,170 | 47,615 | (11,445 | ) | (24 | %) | ||||||||||||||||||||
| Selling and marketing |
2,128 | 15,531 | (13,403 | ) | (86 | )% | 18,413 | 42,100 | (23,687 | ) | (56 | %) | ||||||||||||||||||||
| Depreciation and amortization |
8,485 | 6,233 | 2,252 | 36 | % | 23,728 | 18,603 | 5,125 | 28 | % | ||||||||||||||||||||||
| Operating (loss) income |
$ | (26,814 | ) | $ | 15,659 | $ | (42,473 | ) | NM | $ | (59,308 | ) | $ | 34,145 | $ | (93,453 | ) | NM | ||||||||||||||
| Net (loss) income |
$ | (27,535 | ) | $ | 2,726 | $ | (30,261 | ) | NM | $ | (69,929 | ) | $ | 18,656 | $ | (88,585 | ) | NM | ||||||||||||||
| Undistributed (loss) earnings per share available to stockholders |
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| Basic |
$ | (0.56 | ) | $ | (0.01 | ) | $ | (0.55 | ) | $ | (1.40 | ) | $ | 0.32 | $ | (1.72 | ) | |||||||||||||||
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$ | (0.56 | ) | $ | (0.01 | ) | $ | (0.55 | ) | $ | (1.40 | ) | $ | 0.31 | $ | (1.71 | ) | |||||||||||||||
Comparison of the Three and Nine Months Ended September 30, 2020 and 2019 - Consolidated
Tour Revenues
Tour revenues for the three months ended September 30, 2020 decreased $100.0 million, or 99%, compared to the same period in 2019 as a result of rescheduling nearly all expeditions due to COVID-19.
Tour revenues for the nine months ended September 30, 2020 decreased $185.3 million, or 69%, to $82.0 million, compared to $267.3 million for the nine months ended September 30, 2019. The Lindblad segment tour revenues decreased by $148.0 million, primarily related to cancelled, disrupted and rescheduled expeditions due to COVID-19. At the Natural Habitat segment, tour revenues decreased $37.3 million over the prior year period, primarily related to cancelled, disrupted and rescheduled expeditions due to COVID-19.
Cost of Tours
Total cost of tours for the three months ended September 30, 2020 decreased $40.2 million, or 83%, to $8.1 million compared to $48.3 million for the three months ended September 30, 2019. At the Lindblad segment, cost of tours decreased $25.5 million, primarily related to rescheduled expeditions due to COVID-19, partially offset by costs incurred while ships are laid up and from the addition of the National Geographic Endurance to our fleet in March 2020. At the Natural Habitat segment, cost of tours decreased $14.7 million due to rescheduled trips directly related to COVID-19.
Total cost of tours for the nine months ended September 30, 2020 decreased $61.8 million, or 50%, to $63.0 million, compared to $124.8 million for the nine months ended September 30, 2019. At the Lindblad segment, cost of tours decreased $39.2 million, primarily related to cancelled, disrupted and rescheduled expeditions due to COVID-19, partially offset by costs incurred while ships are laid up, and from the addition of the National Geographic Endurance to our fleet in March 2020. At the Natural Habitat segment, cost of tours decreased $22.6 million, primarily due to cancelled, disrupted and rescheduled trips directly related to COVID-19.
General and Administrative
General and administrative expenses for the three months ended September 30, 2020 decreased $6.1 million, or 40%, to $9.1 million compared to $15.3 million for the three months ended September 30, 2019. At the Lindblad segment, general and administrative expenses decreased $3.6 million over the prior year period primarily due to reduced credit card commissions and personnel costs related to the disruption of operations due to COVID-19. At the Natural Habitat segment, general and administrative expenses decreased $2.5 million, primarily due to a decrease in personnel costs related to the disruption of operations due to COVID-19.
General and administrative expenses for the nine months ended September 30, 2020 decreased $11.4 million, or 24%, to $36.2 million, compared to $47.6 million for the nine months ended September 30, 2019. At the Lindblad segment, general and administrative expenses decreased $6.8 million primarily due to reduced personnel costs and credit card commissions related to the disruption of operations due to COVID-19. At the Natural Habitat segment, general and administrative expenses decreased $4.6 million, primarily due to a decrease in personnel costs related to the disruption of operations due to COVID-19.
Selling and Marketing
Selling and marketing expenses for the three months ended September 30, 2020 decreased $13.4 million, or 86%, to $2.1 million compared to $15.5 million for the three months ended September 30, 2019. At the Lindblad segment, selling and marketing expenses decreased $12.1 million, primarily due to lower commission expenses related to the impact of COVID-19 on revenue and decreased advertising expenditures. At the Natural Habitat segment, selling and marketing expenses decreased $1.3 million, primarily driven by a decrease in advertising expenditures.
Selling and marketing expenses for the nine months ended September 30, 2020 decreased $23.7 million, or 56%, to $18.4 million, compared to $42.1 million for the nine months ended September 30, 2019. At the Lindblad segment, selling and marketing expenses decreased $20.9 million, primarily due to lower commission expenses related to the impact of COVID-19 on revenue and decreased advertising expenditures. At the Natural Habitat segment, selling and marketing expenses decreased $2.8 million, primarily driven by a decrease in advertising expenditures.
Depreciation and Amortization
Depreciation and amortization expenses for the three months ended September 30, 2020 increased $2.3 million, or 36%, to $8.5 million, compared to $6.2 million for the three months ended September 30, 2019, primarily due to the addition of the National Geographic Endurance to the fleet in March 2020.
Depreciation and amortization expenses for the nine months ended September 30, 2020 increased $5.1 million, or 28%, to $23.7 million, compared to $18.6 million for the nine months ended September 30, 2019, primarily due to the addition of the National Geographic Endurance to the fleet in March 2020.
Other Expense
Other expenses, for the three months ended September 30, 2020, decreased $2.0 million to $3.6 million from $5.6 million for the three months ended September 30, 2019, primarily due to the following:
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A $1.0 million gain in foreign currency translation in 2020, related to the strengthening of the U.S dollar primarily in relation to the Canadian dollar, South African Rand and British Pound Sterling, compared to a $2.3 million loss in 2019, primarily due to a loss of $1.6 million loss on the maturity of a foreign currency hedge related to the installment payment for the National Geographic Resolution. |
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A $1.3 million increase in interest expense, net to $4.5 million in 2020 primarily due to increased borrowings related to our new vessel builds, the draw down under the revolving credit facility during the first quarter and increased rates under the term loan and revolving credit facilities. |
Other expenses, for the nine months ended September 30, 2020, increased $7.6 million to $18.3 million from $10.7 million for the nine months ended September 30, 2019, primarily due to the following:
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A $6.3 million loss in foreign currency translation in 2020 due primarily to a loss of $5.3 million on the maturity of a foreign currency hedge related to the installment payment for the National Geographic Resolution, compared to a $1.2 million loss in 2019, primarily due to a loss of $1.6 million on the maturity of a foreign currency hedge related to the installment payment for the National Geographic Resolution. |
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A $2.4 million increase in interest expense, net to $11.8 million in 2020, primarily due to increased borrowings related to our new vessel builds, the draw down under the revolving credit facility during the first quarter and an increase in rates under the term loan and revolving credit facilities. |
Results of Operations – Segments
Selected information for our segments is below. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
| For the three months ended September 30, |
For the nine months ended September 30, |
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2020 |
2019 |
Change |
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2019 |
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| Tour revenues: |
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| Lindblad |
$ | 16 | $ | 76,581 | $ | (76,565 | ) | NM | $ | 69,533 | $ | 217,549 | $ | (148,016 | ) | (68 | %) | |||||||||||||||
| Natural Habitat |
1,003 | 24,402 | (23,399 | ) | NM | 12,458 | 49,745 | (37,287 | ) | (75 | %) | |||||||||||||||||||||
| Total tour revenues |
$ | 1,019 | $ | 100,983 | $ | (99,964 | ) | NM | $ | 81,991 | $ | 267,294 | $ | (185,303 | ) | (69 | %) | |||||||||||||||
| Operating (loss) income: |
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| Lindblad |
$ | (24,835 | ) | $ | 12,570 | $ | (37,405 | ) | NM | $ | (54,287 | ) | $ | 31,514 | $ | (85,801 | ) | NM | ||||||||||||||
| Natural Habitat |
(1,979 | ) | 3,089 | (5,068 | ) | NM | (5,021 | ) | 2,631 | (7,652 | ) | NM | ||||||||||||||||||||
| Total operating (loss) income |
$ | (26,814 | ) | $ | 15,659 | $ | (42,473 | ) | NM | $ | (59,308 | ) | $ | 34,145 | $ | (93,453 | ) | NM | ||||||||||||||
| Adjusted EBITDA: |
||||||||||||||||||||||||||||||||
| Lindblad |
$ | (16,088 | ) | $ | 20,600 | $ | (36,688 | ) | NM | $ | (29,001 | ) | $ | 54,802 | $ | (83,803 | ) | NM | ||||||||||||||
| Natural Habitat |
(1,382 | ) | 3,510 | (4,892 | ) | NM | (3,368 | ) | 3,854 | (7,222 | ) | NM | ||||||||||||||||||||
| Total adjusted EBITDA |
$ | (17,470 | ) | $ | 24,110 | $ | (41,580 | ) | NM | $ | (32,369 | ) | $ | 58,656 | $ | (91,025 | ) | NM | ||||||||||||||
Results of Operations – Lindblad Segment
The following table sets forth our Available Guest Nights, Guest Nights Sold, Occupancy, Maximum Guests, Number of Guests and Voyages for the three and nine months ended September 30, 2020 and 2019:
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Available Guest Nights |
- | 63,386 | 51,624 | 176,038 | ||||||||||||
| Guest Nights Sold |
- | 59,682 | 46,050 | 161,511 | ||||||||||||
| Occupancy |
- | 94 | % | 89 | % | 92 | % | |||||||||
| Maximum Guests |
- | 7,721 | 6,512 | 21,863 | ||||||||||||
| Number of Guests |
- | 7,294 | 5,564 | 20,095 | ||||||||||||
| Voyages |
- | 98 | 85 | 278 | ||||||||||||
The following table shows the calculations of Gross Yield and Net Yield for the three and nine months ended September 30, 2020 and 2019. Gross Yield is calculated by dividing Tour Revenues by Available Guest Nights and Net Yield is calculated by dividing Net Revenue by Available Guest Nights:
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| (In thousands, except for Available Guest Nights, Gross and Net Yield) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Guest ticket revenues |
$ | - | $ | 70,319 | $ | 60,351 | $ | 195,845 | ||||||||
| Other tour revenue |
16 | 6,262 | 9,182 | 21,704 | ||||||||||||
| Tour Revenues |
16 | 76,581 | 69,533 | 217,549 | ||||||||||||
| Less: Commissions |
(818 | ) | (5,716 | ) | (8,080 | ) | (16,475 | ) | ||||||||
| Less: Other tour expenses |
(308 | ) | (4,051 | ) | (7,021 | ) | (14,155 | ) | ||||||||
| Net Revenue |
$ | (1,110 | ) | $ | 66,814 | $ | 54,432 | $ | 186,919 | |||||||
| Available Guest Nights |
- | 63,386 | 51,624 | 176,038 | ||||||||||||
| Gross Yield |
NM | $ | 1,208 | $ | 1,347 | $ | 1,236 | |||||||||
| Net Yield |
NM | 1,054 | 1,054 | 1,062 | ||||||||||||
The following table shows the calculations of Gross Cruise Cost per Available Guest Night and Net Cruise Costs per Available Guest Night for the three and nine months ended September 30, 2020 and 2019:
| Calculation of Gross Cruise Cost and Net Cruise Cost |
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||
| (In thousands, except for Available Guest Nights, Gross and Net Cruise Cost per Avail. Guest Night) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Cost of tours |
$ | 7,534 | $ | 33,031 | $ | 55,237 | $ | 94,470 | ||||||||
| Plus: Selling and marketing |
1,678 | 13,804 | 16,862 | 37,767 | ||||||||||||
| Plus: General and administrative |
7,751 | 11,364 | 29,646 | 36,416 | ||||||||||||
| Gross Cruise Cost |
16,963 | 58,199 | 101,745 | 168,653 | ||||||||||||
| Less: Commissions |
(818 | ) | (5,716 | ) | (8,080 | ) | (16,475 | ) | ||||||||
| Less: Other tour expenses |
(308 | ) | (4,051 | ) | (7,021 | ) | (14,155 | ) | ||||||||
| Net Cruise Cost |
15,837 | 48,432 | 86,644 | 138,023 | ||||||||||||
| Less: Fuel Expense |
(1,026 | ) | (2,251 | ) | (4,350 | ) | (7,397 | ) | ||||||||
| Net Cruise Cost Excluding Fuel |
14,811 | 46,181 | 82,294 | 130,626 | ||||||||||||
| Non-GAAP Adjustments: |
||||||||||||||||
| Stock-based compensation |
(310 | ) | (917 | ) | (1,911 | ) | (2,671 | ) | ||||||||
| National Geographic fee amortization |
- | (727 | ) | (727 | ) | (2,181 | ) | |||||||||
| Warrant exchange and debt refinancing costs |
(438 | ) | (504 | ) | (438 | ) | (970 | ) | ||||||||
| Other |
(111 | ) | (70 | ) | (135 | ) | (86 | ) | ||||||||
| Adjusted Net Cruise Cost Excluding Fuel |
$ | 13,952 | $ | 43,963 | $ | 79,083 | $ | 124,718 | ||||||||
| Adjusted Net Cruise Cost |
$ | 14,978 | $ | 46,214 | $ | 83,433 | $ | 132,115 | ||||||||
| Available Guest Nights |
- | 63,386 | 51,624 | 176,038 | ||||||||||||
| Gross Cruise Cost per Available Guest Night |
NM | $ | 918 | $ | 1,971 | $ | 958 | |||||||||
| Net Cruise Cost per Available Guest Night |
NM | 764 | 1,678 | 784 | ||||||||||||
| Net Cruise Cost Excluding Fuel per Available Guest Night |
NM | 729 | 1,594 | 742 | ||||||||||||
| Adjusted Net Cruise Cost Excluding Fuel per Available Guest Night |
NM | 694 | 1,532 | 708 | ||||||||||||
| Adjusted Net Cruise Cost per Available Guest Night |
NM | 729 | 1,616 | 750 | ||||||||||||
Comparison of Three and Nine Months Ended September 30, 2020 and 2019
Tour Revenues
Tour revenues for the three months ended September 30, 2020 decreased $76.6 million, or 100%, to $0.0 million compared to $76.6 million for the three months ended September 30, 2019. The decrease was a result of rescheduling all expeditions due to COVID-19.
Tour revenues for the nine months ended September 30, 2020 decreased $148.0 million, or 68%, to $69.5 million, compared to $217.5 million for the nine months ended September 30, 2019. The decrease was primarily driven by cancelled, disrupted and rescheduled expeditions due to COVID-19.
Operating Income
Operating income decreased $37.4 million to a loss of $24.8 million for the three months ended September 30, 2020, compared to $12.6 million operating income for the three months ended September 30, 2019. The decrease was primarily a result of rescheduling all expeditions due to COVID-19.
Operating income decreased $85.8 million to a loss of $54.3 million for the nine months ended September 30, 2020, compared to operating income of $31.5 million for the nine months ended September 30, 2019. The decrease was primarily driven by lower revenue from cancelled, disrupted and rescheduled voyages due to COVID-19 and costs associated with adding the National Geographic Endurance to the fleet in March 2020.
Results of Operations – Natural Habitat Segment
Comparison of Three and Nine Months Ended September 30, 2020 and 2019
Tour Revenues
Tour revenues for the three months ended September 30, 2020 decreased $23.4 million, compared to $24.4 million for the three months ended September 30, 2019, as a result of cancelled and rescheduled expeditions due to COVID-19.
Tour revenues for the nine months ended September 30, 2020 decreased $37.3 million, or 75%, to $12.4 million compared to $49.7 million for the nine months ended September 30, 2019, due primarily to cancelled, disrupted and rescheduled expeditions due to COVID-19.
Operating Income
Operating income for the three months ended September 30, 2020 decreased $5.1 million to a loss of $2.0 million compared to income of $3.1 million for the three months ended September 30, 2019. The decrease was primarily a result of cancelled and rescheduled expeditions due to COVID-19.
Operating income for the nine months ended September 30, 2020 decreased $7.6 million to a loss of $5.0 million compared to income of $2.6 million for the nine months ended September 30, 2019. The decrease was primarily a result of cancelled, disrupted and rescheduled expeditions due to COVID-19.
Adjusted EBITDA
The following table outlines the reconciliation to net income and calculation of consolidated Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
| Consolidated |
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||
| (In thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Net (loss) income |
$ | (27,535 | ) | $ | 2,726 | $ | (69,929 | ) | $ | 18,656 | ||||||
| Interest expense, net |
4,529 | 3,214 | 11,763 | 9,391 | ||||||||||||
| Income tax (benefit) expense |
(2,893 | ) | 7,351 | (7,664 | ) | 4,838 | ||||||||||
| Depreciation and amortization |
8,485 | 6,233 | 23,728 | 18,603 | ||||||||||||
| (Gain) loss on foreign currency |
(989 | ) | 2,338 | 6,334 | 1,181 | |||||||||||
| Other expense |
74 | 30 | 188 | 79 | ||||||||||||
| Stock-based compensation |
310 | 917 | 1,911 | 2,671 | ||||||||||||
| National Geographic fee amortization |
- | 727 | 727 | 2,181 | ||||||||||||
| Warrant exchange and financing costs |
438 | 504 | 438 | 970 | ||||||||||||
| Other |
111 | 70 | 135 | 86 | ||||||||||||
| Adjusted EBITDA |
$ | (17,470 | ) | $ | 24,110 | $ | (32,369 | ) | $ | 58,656 | ||||||
The following tables outline the reconciliation for each segment from operating income to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019.
| Lindblad Segment |
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||
| (In thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Operating (loss) income |
$ | (24,835 | ) | $ | 12,570 | $ | (54,287 | ) | $ | 31,514 | ||||||
| Depreciation and amortization |
7,888 | 5,812 | 22,075 | 17,380 | ||||||||||||
| Stock-based compensation |
310 | 917 | 1,911 | 2,671 | ||||||||||||
| National Geographic fee amortization |
- | 727 | 727 | 2,181 | ||||||||||||
| Warrant exchange and financing costs |
438 | 504 | 438 | 970 | ||||||||||||
| Other |
111 | 70 | 135 | 86 | ||||||||||||
| Adjusted EBITDA |
$ | (16,088 | ) | $ | 20,600 | $ | (29,001 | ) | $ | 54,802 | ||||||
| Natural Habitat Segment |
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||
| (In thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Operating loss |
$ | (1,979 | ) | $ | 3,089 | $ | (5,021 | ) | $ | 2,631 | ||||||
| Depreciation and amortization |
597 | 421 | 1,653 | 1,223 | ||||||||||||
| Adjusted EBITDA |
$ | (1,382 | ) | $ | 3,510 | $ | (3,368 | ) | $ | 3,854 | ||||||
Liquidity and Capital Resources
Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, we suspended or rescheduled the majority of expeditions and fleet operations departing March 16, 2020 through November 30, 2020 and have been working with guests to reschedule travel plans and refund payments, as applicable. The COVID-19 pandemic has already had a material negative impact on our operations and financial results and we expect the evolving pandemic to have ongoing material negative effects on operations, financial results and liquidity. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 virus on our financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be lifted and what the demand for expedition travel will be once these restrictions are no longer in place.
As of September 30, 2020, we had approximately $412.2 million in long-term debt obligations, including the current portion of long-term debt. We estimate that our monthly cash usage while our vessels are not in operations is approximately $10-15 million, excluding guest payments for future travel and cash refunds requested on previously made guest payments. To date, the majority of guests on rescheduled voyages have requested future travel credits. Additionally, we continue to see deposits for future travel. We believe that our cash on hand, our Second Export Credit Agreement and expected future operating cash inflows will be sufficient to fund operations, debt service requirements, and necessary capital expenditures. However, there can be no assurance that we will commence operating in the near term or if we do commence operations, that the level of initial demand will generate cash flows from operations will be sufficient enough to fund future obligations. We are continuing to evaluate additional strategies to enhance our liquidity position. These strategies may include, but are not limited to, pursuing additional financing from both the public and private markets through the issuance of equity and/or debt. The timing and structure of any transaction, if completed, will depend on market conditions. There can be no assurance that debt or equity financing will be available to us on favorable terms or at all.
Sources and Uses of Cash for the Nine Months Ended September 30, 2020 and 2019
Net cash used by operating activities was $71.7 million in 2020 compared to $41.6 million provided by operations in 2019, primarily due to the rescheduling of expeditions due to COVID-19 pandemic.
Net cash used in investing activities was $152.8 million in 2020 compared to $76.7 million in 2019. The $76.1 million increase was primarily due to the final payment for the completion of the National Geographic Endurance, and a $30.6 million contracted installment payment for the National Geographic Resolution during the current year, partially offset by the $30.2 million initial down-payment for the National Geographic Resolution in the first quarter of 2019 and other capital expenditures.
Net cash provided by financing activities was $261.4 million in 2020 compared to $25.1 million in 2019. The $236.3 million increase in cash provided was primarily due to borrowing $107.7 million under the first senior secured credit agreement for the final contracted payment of the National Geographic Endurance, $85.0 million generated from the issuance of Preferred Stock, borrowing $30.6 million under the second senior secured credit agreement for a contracted installment payment on the National Geographic Resolution and a $45.0 million drawdown of our revolving credit facility, partially offset by the 2019 borrowing of $30.5 million under the second senior secured credit agreement for a contracted installment payment on the National Geographic Resolution.
Funding Sources
Debt Facilities
Revolving Credit Facility
Our Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), provides a $200.0 million senior secured first lien term loan facility (the “Term Facility”), maturing March 2025, and a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. During March 2020, we drew $45.0 million on our Revolving Facility, maturing March 2023. The Term Facility bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR, with a minimum of 0.75%, plus a spread of 4.50%, or 5.25% as of September 30, 2020, and the Revolving Facility bears interest at ICE LIBOR, with a minimum of 0.75%, plus a spread of 3.00%, or 3.75% as of September 30, 2020. In 2018, we entered into interest rate cap agreements to hedge our exposure to interest rate movements and manage our interest rate expense related to the Term Facility.
Senior Secured Credit Agreements
Our senior secured credit agreement (the “Export Credit Agreement”) made available a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of our new polar ice class vessel, the National Geographic Endurance. During March 2020, we took possession of the National Geographic Endurance and borrowed the $107.7 million under the Export Credit Agreement for the final payment. The Export Credit Agreement bears interest at a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, or 3.25% for the period covered as of September 30, 2020.
Our senior secured credit agreement (the “Second Export Credit Agreement”) makes available to us a loan in an aggregate principal amount not to exceed $122.8 million for the purpose of providing pre- and post- delivery financing for up to 80% of the purchase price of Company’s new expedition ice-class vessel, the National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021. The Second Export Credit Agreement bears a variable interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, or 3.23% for the period covered as of September 30, 2020. After completion of the vessel, the Second Export Credit Agreement, at our option, will bear an interest rate of either a fixed rate of 6.36% or a variable rate equal to three-month LIBOR plus a margin of 3.00% per annum. In September 2019 and April 2020, we drew approximately $30.5 million and $30.6 million, respectively, under the Second Export Credit Agreement for the second and third contracted payments, respectively, on the National Geographic Resolution.
During June 2020, we amended our export credit agreements to defer approximately $9.0 million in aggregate scheduled amortization payments originally due June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021.
On August 7, 2020, we amended our term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the term loan has been increased 125 basis points, to be paid-in-kind at maturity, a LIBOR minimum of 0.75% has been added to our term loan and revolving credit facilities and certain covenants have been amended to be more restrictive.
The Amended Credit Agreement, the Export Credit Agreement and the Second Export Credit Agreement contain financial and restrictive covenants. As of September 30, 2020, we were in compliance with our covenants.
Equity
Preferred Stock
On August 31, 2020, we issued and sold 85,000 shares of Series A Redeemable Convertible Preferred Stock, par value of $0.0001, (“Preferred Stock”) for $1,000 per share for gross proceeds of $85.0 million. The Preferred Stock has senior and preferential ranking to our common stock. The Preferred Stock is entitled to cumulative dividends of 6.00% per annum, and for the first two years, the dividends will be paid-in-kind. After the second anniversary of the issuance date, the dividends may be paid-in-kind or be paid in cash at our option. The Preferred Stock is convertible at any time, at the holder’s election, into a number of shares of our common stock equal to the quotient obtained by dividing the then-current accrued value by the conversion price of $9.50. At any time after the third anniversary of the issuance, we may, at our option, convert all, but not less than all, of the Preferred Stock into common stock if the closing price of shares of common stock is at least 150% of the conversion price for 20 out of 30 consecutive trading days. The number of shares of common stock received in such conversion shall be equal to the quotient obtained by dividing the then-current accrued value by the conversion price. At the six-year anniversary of the closing date, each investor has the right to request that we repurchase their Preferred Stock and any Preferred Stock not requested to be repurchased shall be converted into our common shares equal to the quotient obtained by dividing the then-current accrued value by the conversion price.
Funding Needs
We generally rely on a combination of cash flows provided by operations and the incurrence of additional debt to fund obligations. A vast majority of guest ticket receipts are collected in advance of the applicable expedition date. These advance passenger receipts remain a current liability until the expedition date and the cash generated from these advance receipts is used interchangeably with cash on hand from other cash from operations. The cash received as advanced receipts can be used to fund operating expenses for the applicable future expeditions or otherwise, pay down credit facilities, make long-term investments or any other use of cash. As of September 30, 2020 and December 31, 2019, we had working capital of $14.6 million and a working capital deficit of $36.3 million, respectively. As of September 30, 2020 and December 31, 2019, we had $129.6 million and $101.6 million, respectively, in cash and cash equivalents, excluding restricted cash.
Our Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $35.0 million in November 2016. The Repurchase Plan authorizes us to purchase from time to time our outstanding common stock and our previously outstanding warrants. Any shares and warrants purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of our Board of Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. During March 2020, the Repurchase Plan was suspended due to the uncertain impact of the COVID-19 virus. Prior to its suspension, we repurchased 8,517 shares of common stock for approximately $127,000 during 2020. We have cumulatively repurchased 875,218 shares of common stock for $8.3 million and 6,011,926 warrants for $14.7 million, since plan inception. All repurchases were made using cash resources. The balance for the Repurchase Plan was $12.0 million as of September 30, 2020.
In February 2019, we entered into an agreement with Ulstein Verft to construct a polar ice-class vessel, the National Geographic Resolution, with a total purchase price of 1,291.0 million Norwegian Kroner (NOK). In March 2019, we entered into foreign exchange forward contract hedges to lock in a purchase price of $153.5 million, including hedging costs. The purchase price is subject to potential adjustments from contract specifications for variations in speed, deadweight, fuel consumption and delivery date. The purchase price is due in installments, with 20% paid shortly after execution of the agreement, 20% paid in September 2019 and 20% paid in April 2020, with a future payment of 10% due in April 2021 and the final 30% due upon delivery and acceptance of the vessel. The vessel is scheduled to be delivered in the fourth quarter of 2021. In September 2019 and April 2020, we drew approximately $30.5 million and $30.6 million, respectively, under the Second Export Credit Agreement for the contracted installment payments. The remaining purchase price of the vessel is expected to be funded through a combination of cash available on our balance sheet, our Second Export Credit Agreement and excess cash flows generated by our existing operations.
During March 2020, we borrowed the $107.7 million under the Export Credit Agreement for the final contracted payment of the National Geographic Endurance and drew $45.0 million on our Revolver Facility. During April 2020, we drew $30.6 million under the Second Export Credit Agreement for a contracted installment payment on the National Geographic Resolution. During May 2020, we amended the maturity dates of the note payable and during June 2020, we amended the senior secured credit agreements. The additional borrowings and amendments created material changes in our future obligations from those reported in our 2019 Annual Report. The additional or amended related obligations as of September 30, 2020 are as follows:
| (In thousands) |
Total |
Current |
2-3 years |
4-5 years |
Thereafter |
|||||||||||||||
| Export Credit Agreement |
$ | 107,695 | $ | 5,609 | $ | 22,436 | $ | 38,815 | $ | 40,835 | ||||||||||
| Second Export Credit Agreement |
30,644 | - | - | - | 30,644 | |||||||||||||||
| Revolver |
45,000 | - | 45,000 | - | - | |||||||||||||||
| Note Payable |
2,525 | 842 | 1,683 | - | - | |||||||||||||||
Off-Balance Sheet Arrangements
In 2019, we entered into a Second Export Credit Agreement as described above.
Critical Accounting Policies
For a detailed discussion of the Critical Accounting Policies, please see our 2019 Annual Report.
| Item 3. |
There have been no material changes in our exposure to market risks from the information set forth in the “Quantitative and Qualitative Disclosures About Market Risk” sections contained in our 2019 Annual Report.
We are exposed to a market risk for interest rates related to our variable rate debt. We assess our market risks based on changes in interest rates utilizing a sensitivity analysis that measures the potential impact on earnings and cash flows based on a hypothetical 1.0% change in interest rates. For additional information regarding our long-term borrowings see Note 5 to our Condensed Consolidated Financial Statements. As of September 30, 2020, we had interest rate cap agreements to hedge a portion of our exposure to interest rate movements of our variable rate debt and to manage our interest expense. The notional amount of outstanding debt associated with interest rate cap agreements as of September 30, 2020 was $100.0 million. Based on our September 30, 2020 outstanding variable rate debt balance, a hypothetical 1.0% change in the six-month LIBOR interest rates would impact our annual interest expense by approximately $1.0 million.
As of September 30, 2020, we had foreign currency forward contracts to hedge our exposure to foreign currency exchange rate risk related to our ship construction contracts denominated in NOK. For the nine months ended September 30, 2020, we recorded a loss of approximately $2.3 million in other comprehensive income related to these foreign exchange derivatives. The strengthening of the NOK at September 30, 2020 by a hypothetical 10%, would result in an approximately $6.1 million gain being recorded in other comprehensive income. The weakening of the NOK at September 30, 2020 by a hypothetical 10%, would result in an approximately $5.0 million loss being recorded in other comprehensive income.
| Item 4. |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarter ended September 30, 2020, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Part II. |
| Item 1. |
The Company is involved in various claims, legal actions and regulatory proceedings arising from time to time in the ordinary course of business. We have protection and indemnity insurance that would be expected to cover any damages.
| ITEM 1A. |
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The risks and uncertainties that we believe are most important for you to consider are discussed under the heading “Risk Factors” in our 2019 Annual Report filed on February 26, 2020, and those discussed in Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, as filed on May 6, 2020.
| Item 2. |
Recent Sales by the Company of Unregistered Securities
On August 31, 2020, we issued and sold 85,000 shares of Preferred Stock at $1,000 per share, for $85.0 million in gross proceeds. See Note 7 to the Condensed Consolidated Financial Statements for more information about the Preferred Stock. The offer and sale of the shares of Preferred Stock were made in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
There were no other unregistered sales of equity securities during the quarter ended September 30, 2020.
Repurchases of Securities
The Company’s Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $35.0 million in November 2016. The Repurchase Plan authorizes the Company to purchase, from time to time, the Company’s outstanding common stock and previously outstanding warrants. Any shares purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. Since March 2020, the Repurchase Plan has been suspended due to the uncertain impact of the COVID-19 virus. Prior to its suspension, the Company repurchased 8,517 shares of common stock for approximately $127,000 during 2020. The Company has cumulatively repurchased 875,218 shares of common stock for $8.3 million and 6,011,926 warrants for $14.7 million since plan inception. All repurchases were made using cash resources. The remaining balance for the Repurchase Plan was $12.0 million as of September 30, 2020.
No shares were repurchased under the Repurchase Plan during the three months ended September 30, 2020. The following table represents information with respect to shares of common stock repurchased under the Repurchase Plan as well as shares withheld from vesting of stock-based compensation awards for employee income taxes, for the periods indicated:
| Period |
Total number of shares purchased |
Average price paid per share |
Dollar value of shares purchased as part of publicly announced plans or programs |
Maximum dollar value of warrants and shares that may be purchased under approved plans or programs |
||||||||||||
| July 1 through July 31, 2020 (a) |
189 | $ | 8.16 | $ | - | $ | 11,974,787 | |||||||||
| August 1 through August 31, 2020 (a) |
144 | 8.54 | - | 11,974,787 | ||||||||||||
| September 1 through September 30, 2020 (a) |
3,397 | 11.64 | - | 11,974,787 | ||||||||||||
| Total |
3,730 | $ | - | |||||||||||||
| ________ | |
| (a) |
Amount relates to shares withheld from vesting's of stock-based compensation awards for employee income tax withholding. |
| Item 3. |
Not applicable.
| Item 4. |
Not applicable.
| Item 5. |
Not applicable.
| Item 6. |
| Number |
|
Description |
|
Included |
|
Form |
|
Filing Date |
|
| 3.1 |
Incorporated by reference |
8-K |
August 31, 2020 |
||||||
| 4.1 |
Incorporated by reference |
8-K |
August 31, 2020 |
||||||
| 10.1 |
|
|
Incorporated by reference |
|
8-K |
|
June 15, 2020 |
||
| 10.2 |
|
|
Incorporated by reference |
|
8-K |
|
June 15, 2020 |
||
| 10.3 |
Incorporated by reference |
8-K | August 27, 2020 |
||||||
| 10.4 |
Incorporated by reference |
8-K |
October 5, 2020 |
||||||
| 31.1 |
|
|
Herewith |
|
|
|
|
||
| 31.2 |
|
|
Herewith |
|
|
|
|
||
| 32.1 |
|
|
Herewith |
|
|
|
|
||
| 32.2 |
|
|
Herewith |
|
|
|
|
||
| 101.INS |
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
||||||||
| 101.SCH |
|
Inline XBRL Taxonomy extension schema document |
|
Herewith |
|
|
|
|
|
| 101.CAL |
|
Inline XBRL Taxonomy extension calculation link base document |
|
Herewith |
|
|
|
|
|
| 101.DEF |
|
Inline XBRL Taxonomy Extension Definition Link base |
|
Herewith |
|
|
|
|
|
| 101.LAB |
|
Inline XBRL Taxonomy extension label link base document |
|
Herewith |
|
|
|
|
|
| 101.PRE |
|
Inline XBRL Taxonomy extension presentation link base document |
|
Herewith |
|
|
|
|
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
||||||||
|
|
|
||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 29, 2020.
|
|
LINDBLAD EXPEDITIONS HOLDINGS, INC. |
|
|
|
(Registrant) |
|
|
|
|
|
|
|
By |
/s/ Sven-Olof Lindblad |
|
|
|
Sven-Olof Lindblad |
|
|
|
Chief Executive Officer and President |