Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 – BUSINESS
Organization
Lindblad
Expeditions Holdings, Inc. and its consolidated subsidiaries (the “Company” or “Lindblad”) currently operate
a fleet of seven owned expedition ships and five seasonal charter vessels under the Lindblad brand.
Lindblad’s
mission is to offer life-changing adventures on all seven continents and pioneering innovative ways to allow its guests to connect
with exotic and remote places. The Company’s expedition ships are customized, nimble and intimately-scaled vessels that
are able to venture where larger cruise ships cannot, thus 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 the National Geographic Partners (“National Geographic”), which often provides lecturers and National
Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews.
Through
our subsidiary, Natural Habitat, the Company offers primarily land-based trips around the globe. Natural Habitat’s expeditions
include polar bear tours in Churchill, Canada, Alaskan grizzly bear adventures, small-group Galápagos tours and African
safaris. In addition to its land offerings, Natural Habitat offers select itineraries on six small chartered vessels for parts
of the year. Natural Habitat has partnered with World Wildlife Fund (“WWF”) to offer conservation travel, sustainable
travel that directly protects nature.
The
Company’s common stock and warrants are listed on the NASDAQ Capital Market under the symbols “LIND” and “LINDW,”
respectively.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (“U.S. GAAP”) and applicable rules and regulations of
the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information. 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
condensed consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations
of the SEC. All intercompany balances and transactions have been eliminated in these unaudited condensed consolidated financial
statements. Accordingly, 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, 2017 contained
in the Annual Report on Form 10-K filed with the SEC on March 2, 2018.
Principles
of Consolidation
The
condensed consolidated financial statements of the Company include Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries.
Reclassifications
We
have reclassified certain prior period amounts to conform to the current period presentation, with no impact on consolidated net
income or cash flows.
Use
of Estimates
The
preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets, liabilities, revenues and expenses. Actual results
could differ from such estimates. Management estimates include determining the estimated lives of long-lived assets, determining
the fair value of assets acquired and liabilities assumed in business combinations, the fair value of the Company’s common
stock and related warrants, the valuation of securities underlying stock-based compensation, income tax expense, the valuation
of deferred tax assets, the value of contingent consideration and assessing its litigation, other legal claims and contingencies.
Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements
in the period that they are determined to be necessary.
Revenue
Recognition
Revenues
are measured based on consideration specified in our contracts with guests and are recognized as the related performance obligations
are satisfied.
The
majority of our revenues are derived from guest ticket contracts which are reported as tour revenues in our condensed consolidated
statements of operations. Our primary performance obligation under this contract is to provide an expedition and may include pre-
and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Upon
satisfaction of these performance obligations, the Company recognizes revenue over the duration of each expedition.
Tour
revenues also include revenues from the sale of goods and services onboard our ships, cancellation fees and trip insurance. Revenues
from the sale of goods and services rendered onboard are recognized upon purchase. Guest cancellation fees are recognized as tour
revenues at the time of the cancellation. The Company records a liability for estimated trip insurance claims based on the Company’s
claims history. Proceeds received from trip insurance premiums in excess of this liability are recorded as revenue in the period
in which they are received.
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 sheet when received and are subsequently recognized as tour revenue during 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. We do 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. Unearned passenger revenues presented in our
condensed consolidated balance sheets include contract liabilities of $45.6 million and $40.3 million as of March 31, 2018 and
December 31, 2017, respectively. During the three months ended March 31, 2018, we recognized revenues related to our contract
liabilities as of December 31, 2017 of $38.3 million.
Earnings
per Common Share
Earnings
per common share is computed by dividing net income available to common shareholders, by the weighted average number of common
shares outstanding during the period. 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 or issuable upon the exercise of stock options, using the treasury
stock method.
For
the three months ended March 31, 2018 and 2017, the Company calculated earnings per share as follows:
|
|
For the three months ended
March 31,
|
|
(In thousands, except share and
per share data)
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
Net income available to
common stockholders
|
|
$
|
10,796
|
|
|
$
|
596
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding, basic
|
|
|
45,274,540
|
|
|
|
44,707,273
|
|
Dilutive potential
common shares
|
|
|
393,025
|
|
|
|
1,054,665
|
|
Total weighted average shares outstanding,
diluted
|
|
|
45,667,565
|
|
|
|
45,761,938
|
|
|
|
|
|
|
|
|
|
|
Net income per share
available to Lindblad
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.01
|
|
The
Company’s Board of Directors and stockholders approved a 2015 Long-Term Incentive Plan, which includes the authority to
issue up to 2,500,000 shares of Lindblad common stock. As of March 31, 2018, options to purchase an aggregate of 220,000 shares
of the Company’s common stock with a weighted average exercise price of $9.63 per share were outstanding.
As
of March 31, 2018 and 2017, 10,088,074 and 10,673,015 warrants, respectively, expiring July 8, 2020 to purchase common stock
at a price of $11.50 per share were outstanding. These warrants were anti-dilutive and were not included in the calculation of
diluted weighted average shares outstanding.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with an original maturity of three months or less, as well as deposits in financial
institutions, to be cash and cash equivalents.
Concentration
of Credit Risk
The
Company maintains cash in several financial institutions in the U.S. and other countries which, at times, may exceed the federally
insured limits. Accounts held in the U.S. are guaranteed by the Federal Deposit Insurance Corporation up to certain limits. As
of March 31, 2018 and December 31, 2017, the Company’s cash held in financial institutions outside of the U.S. amounted
to $6.7 million and $4.1 million, respectively.
Restricted
Cash and Marketable Securities
Restricted
cash and marketable securities consist of the following:
|
|
As
of
March 31,
2018
|
|
|
As
of
December 31,
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Federal Maritime Commission
escrow
|
|
$
|
17,383
|
|
|
$
|
4,186
|
|
Credit card processor reserves
|
|
|
1,530
|
|
|
|
1,530
|
|
Certificates
of deposit and other restricted securities
|
|
|
1,324
|
|
|
|
1,341
|
|
Total restricted
cash and marketable securities
|
|
$
|
20,237
|
|
|
$
|
7,057
|
|
The
amounts held in restricted cash and marketable securities represent principally funds required to be held in certificates of deposit
by certain vendors and regulatory agencies and are classified as restricted assets since such amounts cannot be used by the Company
until the restrictions are removed by those vendors and regulatory agencies. Interest income is recognized when earned.
The
Company has classified marketable securities, principally money market funds, as trading securities which are recorded at market
value. Unrealized gains and losses are included in current operations. Gains and losses on the disposition of securities are recognized
by the specific identification method in the period in which they occur.
In
order to operate guest tour expedition vessels from U.S. ports, the Company is required to post a performance bond with the Federal
Maritime Commission or escrow all unearned guest deposits plus an additional 10% in restricted accounts. To satisfy this requirement,
the Company entered into an agreement with a financial institution to escrow all unearned guest revenues collected for sailings
from U.S. ports.
At
March 31, 2018 and December 31, 2017, a cash reserve of approximately $1.5 million is required for credit card deposits by third-party
credit card processors.
Amounts
in the escrow accounts include cash, certificates of deposit and marketable securities. Cost of these short-term investments approximates
fair value.
Marine
Operating Supplies and Inventories
Marine
operating supplies consist primarily of fuel, provisions, spare parts, items required for maintenance and supplies used in the
operation of marine expeditions. Marine operating supplies are stated at the lower of cost or net realizable value. Cost is determined
using the first-in, first-out method.
Inventories
consist primarily of gift shop merchandise and other items for resale and are stated at the lower of cost or net realizable value.
Cost is determined using the first-in, first-out method.
Prepaid
Expenses and Other Current Assets
The
Company records prepaid expenses and other current assets at cost and expenses them in the period the services are provided or
the goods are delivered. The Company’s prepaid expenses and other current assets consist of the following:
|
|
As
of
March 31,
2018
|
|
|
As
of
December 31,
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Prepaid tour expenses
|
|
$
|
9,938
|
|
|
$
|
9,846
|
|
Prepaid air expense
|
|
|
3,546
|
|
|
|
3,621
|
|
Prepaid client insurance
|
|
|
2,560
|
|
|
|
2,525
|
|
Prepaid marketing, commissions and other
expenses
|
|
|
2,511
|
|
|
|
2,495
|
|
Prepaid corporate insurance
|
|
|
2,457
|
|
|
|
1,033
|
|
Prepaid port agent fees
|
|
|
840
|
|
|
|
1,022
|
|
Prepaid income
taxes
|
|
|
809
|
|
|
|
809
|
|
Total
prepaid expenses
|
|
$
|
22,661
|
|
|
$
|
21,351
|
|
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization were computed using
the straight line method over the estimated useful lives of the assets, as follows:
|
|
Years
|
Vessels and
vessel improvements
|
|
15-25
|
Furniture
and equipment
|
|
5
|
Computer
hardware and software
|
|
5
|
Leasehold
improvements, including port facilities
|
|
Shorter
of lease term or related asset life
|
Vessel
improvement costs that add value to the Company’s vessels are capitalized and depreciated over the shorter of the improvements
or the vessel’s estimated remaining useful life, while costs of repairs and maintenance, including minor improvement costs
and drydock expenses, are charged to expense as incurred and included in cost of tours. Drydock costs primarily represent planned
maintenance activities that are incurred when a vessel is taken out of service. For U.S. flagged ships, the statutory requirement
is an annual docking and U.S. Coast Guard inspections, normally conducted in drydock. Internationally flagged ships have scheduled
dockings approximately every 12 months, for a period of up to three to six weeks.
Goodwill
The
authoritative guidance requires that goodwill be assessed annually for impairment. The Company completed the annual impairment
test as of September 30, 2017 with no indication of goodwill impairment. Future impairment tests will be performed annually as
of September 30, or more frequently if warranted. As of March 31, 2018 there was no indication of impairment.
Intangibles,
net
Intangibles,
net include tradenames, customer lists and operating rights. Tradenames are words, symbols, or other devices used in trade or
business to indicate the source of products and to distinguish it from other products and are registered with government agencies
and are protected legally by continuous use in commerce. Customer lists are established relationships with existing customers
that resulted in repeat purchases and customer loyalty. Based on the Company’s analysis, amortization of the tradenames
and customer lists were computed using the estimated useful lives of 15 and 5 years, respectively
The
Company operates two vessels year-round in the Galápagos National Park in Ecuador: the
National Geographic Endeavour
II
with 95 berths and the
National Geographic Islander
with 47 berths. In order to operate these vessels within the
park, the Company is required to have in its possession cupos (licenses) sufficient to cover the total available berths on each
vessel.
In
June 2015, a new Ecuadorian Special Law for Protected Areas was approved and updated in November 2015. A Presidential Decree issued
by President Correa of Ecuador in November 2015 established that cupos, which were in effect since July 2015, will have a validity
of nine years. The Company’s operating rights are up for renewal in July 2024 and, based on the new law, the Company will
begin the renewal process in 2020. The current “owners” of the cupos will have the opportunity to re-apply for them,
but any other enterprise or individual will have the opportunity to bid for the cupos. All bidders must present proof that they
fulfill the conditions to properly utilize the license (access to a vessel, experience in tourism, proven environmental behavior,
marketing, etc.). While the Company believes that, based on the expected criteria to retain cupos and its past operating history
in the Galápagos, there is a strong possibility that the Company will retain its cupos, from an accounting perspective,
it will assume they retain no value after July 2024. Once the renewal process has begun and if it can be determined that the Company
will be successful in its bid, then the Company will adjust its amortization prospectively. Operating rights are amortized over
their remaining government mandated lives.
Upon
the occurrence of a triggering event, the assessment of possible impairment of the Company’s intangibles will be based on
the Company’s ability to recover the carrying value of its asset, which is determined by using the asset’s estimated
undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset,
an impairment charge is recognized for the excess of the asset’s carrying value over its estimated fair value. A significant
amount of judgment is required in estimating the future cash flows and fair values of its tradenames, customer lists and operating
rights. As of March 31, 2018 and December 31, 2017, there was no triggering event and the Company did not record an impairment
for intangible assets.
Long-Lived
Assets
The
Company reviews its long-lived assets, principally its vessels, for impairment whenever events or changes in circumstances indicate
that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment
of possible impairment is based on the Company’s ability to recover the carrying value of its asset, which is determined
by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less
than the carrying value of the asset, an impairment charge is recognized for the excess of the asset’s carrying value over
its estimated fair value. A significant amount of judgment is required in estimating the future cash flows and fair values of
its vessels. As of March 31, 2018 and December 31, 2017, there was no triggering event and the Company did not record an impairment
of its long-lived assets.
Accounts
Payable and Accrued Expenses
The
Company records accounts payable and accrued expenses for the cost of such items when the service is provided or when the related
product is delivered. The Company’s accounts payable and accrued expenses consist of the following:
|
|
As
of
March 31,
2018
|
|
|
As
of
December 31,
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Accrued other expense
|
|
$
|
7,045
|
|
|
$
|
7,001
|
|
Accounts payable
|
|
|
4,321
|
|
|
|
7,791
|
|
New build liability
|
|
|
3,817
|
|
|
|
2,730
|
|
Employee liability
|
|
|
2,744
|
|
|
|
2,644
|
|
Royalty payable
|
|
|
1,605
|
|
|
|
1,673
|
|
Income tax liabilities
|
|
|
1,368
|
|
|
|
1,490
|
|
Bonus compensation liabilty
|
|
|
1,276
|
|
|
|
3,736
|
|
Travel certificate liability
|
|
|
1,128
|
|
|
|
1,120
|
|
Refunds and commissions payable
|
|
|
926
|
|
|
|
1,805
|
|
Accrued travel
insurance expense
|
|
|
472
|
|
|
|
432
|
|
Total
accounts payable and accrued expenses
|
|
$
|
24,702
|
|
|
$
|
30,422
|
|
Fair
Value Measurements and Disclosure
Fair
value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer
a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is
used to prioritize the inputs in measuring fair value as follows:
Level
1
|
Quoted
market prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability
to access at measurement date.
|
|
|
Level
2
|
Quoted
market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, or other inputs that are observable, either directly or indirectly. Fair value is determined
through the use of models or other valuation methodologies.
|
|
|
Level
3
|
Significant
unobservable inputs for assets or liabilities that cannot be corroborated by market data. Fair value is determined by the
reporting entity’s own assumptions utilizing the best information available, and includes situations where there is
little market activity for the investment.
|
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 March 31, 2018. As of March 31, 2018 and December 31, 2017, the Company had no other significant liabilities that were measured
at fair value on a recurring basis.
The
asset’s or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any
input that is significant to the fair value measurement.
Level
3 financial liabilities consist of obligations for which there is no current market for these securities such that the determination
of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the
fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
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 March 31, 2018, and December
31, 2017, the Company had a liability for unrecognized tax benefits of $0.4 million, which was included in other long-term liabilities.
The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense.
During the three months ended March 31, 2018 and 2017, interest and penalties related to uncertain tax positions included in income
tax expense are not significant.
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.
The
SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), codified as Accounting Standards Update (“ASU”)
2018-05, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available,
prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects
of the Tax Act. SAB 118 is effective for reporting periods that include December 22, 2017. Due to the timing of the enactment
and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and
recorded provisional amounts in its financial statements as of December 31, 2017, resulting in additional tax expense of $12.7
million in that period. As the Company collects and prepares the necessary data, and interprets the Tax Act and any additional
guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it may make adjustments to the provisional
amounts. Those adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the
period in which the adjustments are made. To date, management has not made any adjustments to the provisional amounts for the
remeasurement of deferred tax assets/liabilities and the deemed repatriation of certain foreign subsidiary earnings. The accounting
for the tax effects of the Tax Act will be completed in 2018.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees, non-employee directors or other service providers in accordance with
accounting guidance that requires that awards are recorded at their fair value on the date of grant and are amortized over the
service period of the award. The Company recognizes compensation costs on a straight-line basis over the requisite service period
of the award, which is generally the vesting term of the equity instrument issued.
Segment
Reporting
We
are primarily a specialty cruise operator with operations in two segments, Lindblad and Natural Habitat. We evaluate the performance
of our business based largely on the results of our 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. Our reports provided to the Board of Directors are at a consolidated level and also contain information regarding the separate
results of both segments. Management performance and related compensation is primarily based on total results. While both segments
have similar characteristics, the two operating and reporting segments cannot be aggregated because they fail to meet the requirements
for aggregation.
Recent
Accounting Pronouncements
In
August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-12,
Derivatives and Hedging
(Topic 815)
Targeted Improvements to Accounting for Hedging Activities
. This guidance will make more financial and
nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and
changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management
strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.
Update No. 2017-12 is effective for years beginning after December 15, 2018. Early adoption is permitted. Management is currently
assessing the impact this guidance will have on the financial position or results of operations.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). The guidance requires the recognition of lease right
of use assets and lease liabilities by lessees for those leases previously classified as operating. This guidance was issued to
increase transparency and comparability among organizations by disclosing key information about leasing arrangements and requiring
the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the
changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating
leases. ASU 2016-02 is effective for years beginning after December 15, 2018. Early adoption is permitted. The Company is currently
evaluating the effect adoption of this guidance will have on its consolidated financial statements. The Company does not believe
the adoption of this guidance will have a material impact on our cash flows or results of operations.
Accounting
Pronouncements Recently Adopted
In
2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606). This ASU is based on the principle
that revenue is recognized upon the transfer of goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. There have been multiple clarifying ASU’s
issued subsequent to ASU 2014-09. We adopted the guidance related to revenue recognition beginning January 1, 2018, using the
modified retrospective transition method applied to those contracts which were not completed as of the adoption date. Prior periods
have not been restated. The adoption of this guidance was not material to our financial position and results of operations.
In
January 2017, the FASB issued ASU No. 2017-04,
Intangibles and Othe
r (Topic 350):
Simplifying the Test for Goodwill
Impairment
. The amendment was issued in response from stakeholders’ regarding the cost and complexity of the goodwill
impairment test. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment
test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair
value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Now the entity
compares the fair value of the reporting unit with its carrying amount. The Company adopted this guidance beginning January 1,
2018, which did not have a material impact on our financial position or results of operations.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations
(Topic 805):
Clarifying the Definition of a Business
.
The guidance was issued to clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in
this Update provide a screen to determine when a set (inputs and processes that produce an output) is a business. The screen requires
that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable
asset or a group of similar identifiable assets, the set is not a business. The Company adopted this guidance beginning January
1, 2018, which did not have a material impact on our financial position or results of operations.
NOTE
3 – LONG-TERM DEBT
|
|
As
of
March 31, 2018
|
|
|
As
of
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
(In thousands)
|
|
Principal
|
|
|
Discount
and Deferred Financing Costs, net
|
|
|
Balance
|
|
|
Principal
|
|
|
Discount
and Deferred Financing Costs, net
|
|
|
Balance
|
|
Note payable
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
Credit Facility
|
|
|
200,000
|
|
|
|
(12,544
|
)
|
|
|
187,456
|
|
|
|
170,625
|
|
|
|
(7,214
|
)
|
|
|
163,411
|
|
Total long-term debt
|
|
|
202,525
|
|
|
|
(12,544
|
)
|
|
|
189,981
|
|
|
|
173,150
|
|
|
|
(7,214
|
)
|
|
|
165,936
|
|
Less current
portion
|
|
|
(1,500
|
)
|
|
|
-
|
|
|
|
(1,500
|
)
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
Total long-term
debt, non-current
|
|
$
|
201,025
|
|
|
$
|
(12,544
|
)
|
|
$
|
188,481
|
|
|
$
|
171,400
|
|
|
$
|
(7,214
|
)
|
|
$
|
164,186
|
|
Credit
Facility
On
March 27, 2018, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”)
providing for a refinancing and amendment of the terms of the Company’s existing secured credit facility, dated as of March
7, 2016 (the “Superseded Agreement”).
The
Amended Credit Agreement provides for a $200.0 million senior secured first lien term loan facility (the “Term Facility”),
which represents an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement.
The Term Facility matures March 27, 2025. Consistent with the Superseded Agreement, the Amended Credit Agreement also provides
for a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes
a $5.0 million letter of credit sub-facility. The Company’s obligations under the Amended Credit Agreement remain secured
by substantially all of the assets of the Company.
The
Company capitalized $4.2 million related to lender and third-party fees in connection with the Third Amended and Restated Credit
Agreement. In addition, the entry into the Third Amended and Restated Credit Agreement was considered a debt modification with
a partial extinguishment, as a result the Company incurred costs of $1.0 million during the three months ended March 31, 2018.
Borrowings
under the Term Facility will bear interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration
LIBOR plus a spread of 3.50%, which steps down to 3.25% if the Company’s debt rating from Moody’s and S&P are
both B1 (stable) or better and BB (negative) or better, respectively. The interest rate at March 31, 2018 is 5.95%. Borrowings
under the Revolving Facility will bear interest at an adjusted ICE Benchmark administration LIBOR plus a spread of 3.00%, or,
at the option of the Company, an alternative base rate plus a spread of 2.00%. The Company is also required to pay a 0.5% annual
commitment fee on undrawn amounts under the Revolving Credit Facility, which matures on March 27, 2023.
The
Restated Credit Agreement (i) requires the Company to satisfy certain financial covenants as set forth in the Amended Credit Agreement;
(ii) limits the amount of indebtedness the Company may incur; (iii) limits the amount the Company may spend in connection with
certain types of investments; (iv) requires the delivery of certain periodic financial statements and an operating budget and
(v) requires the mortgaged vessels and related inventory to be maintained in good working condition. As of March 31, 2018, the
Company was in compliance with the covenants.
Borrowings
under the Revolving Credit Facility will be used for general corporate and working capital purposes and related fees and expenses.
As of March 31, 2018, the Company had no borrowings under the Revolving Credit Facility.
For
the three months ended March 31, 2018 and 2017, deferred financing costs charged to interest expense was $0.6 million.
Senior
Secured Credit Agreement
On
January 8, 2018, the Company and its indirect, wholly-owned subsidiary (the “Borrower”) entered into a senior secured
credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt
Norge AS (together with Citi, the “Lenders”). Pursuant to the Export Credit Agreement, the Lenders have agreed to
make available to the Borrower, at the Borrower’s option and subject to certain conditions, 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 the Company’s
new ice class vessel, the
National Geographic Endurance,
targeted to be completed in January 2020. Seventy percent of the
loan will be guaranteed by Garantiinstituttet for Eksportkreditt, the official export credit agency of Norway. If drawn upon,
the loan will be made at the time of delivery of the vessel.
At
the Borrower’s election, the loan will bear interest either at a fixed interest rate effectively equal to 5.78% or a floating
interest rate equal to three-month LIBOR plus a margin of 3.00% per annum. The loan will amortize quarterly based on a twelve-year
profile, with 70% maturing over twelve years from drawdown, and 30% maturing over five years from drawdown. The loan will be secured
by a first priority mortgage over the new vessel and the assignment of related insurances. The Export Credit Agreement also contains
customary events of default and mandatory prepayment events for, among other things, non-payment, breach of covenants, default
on certain other indebtedness, certain large judgments and a change of control of the Company or the Borrower. In addition to
paying interest on any outstanding loans under the facility, the Borrower is required to pay customary coordination, arrangement,
agency, collateral and commitment fees. Amounts drawn under the Export Credit Agreement may be voluntarily prepaid at any time
subject to customary breakage costs. All obligations of the Borrower under the Export Credit Agreement are guaranteed by the Company.
Note
Payable
On
May 4, 2016, in connection with the Natural Habitat acquisition, Natural Habitat issued an unsecured promissory note to Benjamin
L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $2.5 million due at maturity on December
31, 2020. The promissory note accrues interest at a rate of 1.44% annually, with interest payable every six months.
NOTE
4 – EMPLOYEE BENEFIT PLAN
The
Company has a 401(k) profit sharing plan and trust for its employees. The Company matches 30% of employee contributions up to
annual maximum of $2,100 as of March 31, 2018 and 2017. For the three months ended March 31, 2018 and 2017, the Company’s
benefit plan contribution was $0.1 million. The benefit plan contribution is included in general and administrative expenses on
the accompanying condensed consolidated statements of operations.
NOTE
5 – STOCKHOLDERS’ EQUITY
Capital
Stock
The
Company has 1,000,000 shares of preferred stock authorized, $0.0001 par value and 200,000,000 shares of common stock authorized,
$0.0001 par value.
Stock
and Warrant Repurchase Plan
On
November 2, 2016, the Company’s Board of Directors approved a $15.0 million increase to the Company’s existing stock
and warrant repurchase plan (“Repurchase Plan”), to $35.0 million. This Repurchase Plan, which was authorized in November
2015, authorizes the Company to purchase from time to time the Company’s outstanding common stock and 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 the Company’s Board of Directors. The repurchases exclude shares repurchased to settle
statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. All repurchases were
made using cash resources. During the three months ended March 31, 2018 the Company repurchased 9,030 shares of common stock for
$0.1 million and 568,446 warrants for $0.8 million. The Company has cumulatively repurchased 864,806 shares of common stock for
$8.1 million and 6,011,926 warrants for $14.7 million, since plan inception. The balance as of April 30, 2018 for the repurchase
plan was $12.1 million.
2018
Long-Term Incentive Compensation
In
March 2017, the Company’s compensation committee approved awards of restricted stock units (“RSUs”) and performance
share units (“PSUs”) to key employees under the Company’s 2015 Long-Term Incentive Plan. The Company granted
132,741 RSUs on March 30, 2018 at a grant price of $10.27. The RSU’s will vest in equal installments on each of the first
three anniversaries of the grant date, subject to the recipient’s continued employment or service with us or our subsidiaries
on the applicable vesting date.
The
PSUs are performance-vesting equity incentive awards that will be earned based on our performance against metrics relating to
annual Adjusted EBITDA, annual revenue, and guest satisfaction. Awards will vest after a three-year performance period and may
be earned at a level ranging from 0%-200% of the number of PSUs granted, depending on performance. On March 30, 2018, the Company
awarded 88,851 of targeted PSUs with the number of shares determined based upon the closing price of our common stock on March
30, 2018 of $10.27.
Stock
Options
During
the three months ended March 31, 2018, 955,424 stock options were exercised at an exercise price of $1.76 per share in
a cashless transaction.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Fleet
Expansion
On
December 2, 2015, the Company entered into two separate Vessel Construction Agreements, (collectively, the “Agreements”)
with Ice Floe, LLC, a Washington limited liability company doing business as Nichols Brothers Boat Builders (the “Builder”).
The Agreements provide for the Builder to construct two new 236-foot 100-passenger cruise vessels.
The
first vessel, the
National Geographic Quest
, was delivered in July 2017. The Company amended the agreement for the second
vessel, the
National Geographic Venture
, in October 2017. The current contract price is $57.3 million and the vessel is
scheduled to be completed in the fourth quarter of 2018, subject to extension for certain events, such as change orders. As of
March 31, 2018, the Company has paid Ice Floe, LLC $34.8 million related to the
National Geographic Venture
. The Company
may terminate the applicable Agreement in the event the builder fails to deliver the vessel within 180 days of the applicable
due date or the builder becomes insolvent or otherwise bankrupt. The Agreement also contains customary representations, warranties,
covenants and indemnities.
In
November 2017, the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel, the
National
Geographic Endurance,
with a total purchase price of 1,066.0 million Norwegian Kroner (NOK). Subsequently, the Company exercised
its right to make payments in United States Dollars, which resulted in a purchase price of $134.6 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, and is due in installments. The first twenty percent of the purchase price was paid shortly after
execution of the Agreement with the remaining eighty percent due upon delivery and acceptance of the vessel. The vessel is targeted
to be delivered in January 2020, with potential accelerated delivery to November 2019. The contract also includes options to build
two additional ice class vessels.
Royalty
Agreement – National Geographic
The
Company is engaged in 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 voyage extensions. A voyage extension occurs when a guest extends his or her trip with
pre- or post-voyage hotel nights and is included within tour revenues on the accompanying condensed consolidated statements of
operations. The royalty expense is recognized at the time of revenue recognition. See Note 2 – Summary of Significant Accounting
Policies for a description of the Company’s revenue recognition policy. Royalty expense for the three months ended March
31, 2018 and 2017 totaled $1.6 million and $1.2 million, respectively.
The
balances outstanding to National Geographic as of March 31, 2018 and December 31, 2017 are $1.6 million and $1.7 million, respectively,
and are included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.
Royalty
Agreement – World Wildlife Fund
Natural
Habitat has a license agreement with World Wildlife Fund, 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. The annual royalty payment and gross sales fees are
paid on a quarterly basis. For the three months ended March 31, 2018 and 2017, these fees totaled $0.2 million.
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 March 31, 2018 are as follows:
For
the years ended December 31,
|
|
Amount
|
|
(In thousands)
|
|
(unaudited)
|
|
2018 (nine months)
|
|
$
|
6,027
|
|
2019
|
|
|
8,451
|
|
2020
|
|
|
130
|
|
Total
|
|
$
|
14,608
|
|
NOTE
7 – SEGMENT INFORMATION
The
Company evaluates the performance of its business segments based largely on tour revenues and operating income, and results of
the segments without allocating other income and expenses, net, income taxes and interest expense, net. For the three months ended
March 31, 2018 and 2017 operating results were:
|
|
For
the three months ended
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Tour revenues:
|
|
(unaudited)
|
|
Lindblad
|
|
$
|
70,453
|
|
|
$
|
53,202
|
|
|
$
|
17,251
|
|
|
|
32
|
%
|
Natural
Habitat
|
|
|
11,957
|
|
|
|
9,926
|
|
|
|
2,031
|
|
|
|
20
|
%
|
Total tour revenues
|
|
$
|
82,410
|
|
|
$
|
63,128
|
|
|
$
|
19,282
|
|
|
|
31
|
%
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
13,439
|
|
|
$
|
1,266
|
|
|
$
|
12,173
|
|
|
|
NM
|
|
Natural
Habitat
|
|
|
932
|
|
|
|
99
|
|
|
|
833
|
|
|
|
NM
|
|
Total operating
income
|
|
$
|
14,371
|
|
|
$
|
1,365
|
|
|
$
|
13,006
|
|
|
|
NM
|
|
As
of March 31, 2018 and December 31, 2017, total assets for the Lindblad segment and for the Natural Habitat segment were
$395.2 million and $53.6 million, respectively, and $382.7 million and $49.6 million, respectively. As of March 31, 2018
and December 31, 2017, there were $4.6 million and $4.8 million, respectively, of intangibles, net related to the Lindblad
segment. As of March 31, 2018 and December 31, 2017, there was $22.1 million in goodwill and $4.6 million and $4.8 million in
intangibles, respectively, that were related to the Natural Habitat segment.
For
the Lindblad segment, capital expenditures for the three months ended March 31, 2018 and 2017 were $14.4 million and $22.8 million,
respectively. Depreciation and amortization expense for the three months ended March 31, 2018 and 2017 was $4.7 million and $3.4
million, respectively. For the three months ended March 31, 2018 and 2017, amortization expense related to operating rights was
$0.2 million.
For
the Natural Habitat segment for the three months ended March 31, 2018 and 2017, amortization of tradenames and customer lists
was $0.2 million. For the three months ended March 31, 2018 and 2017 there was $0.4 million and $0.3 million in depreciation and
amortization expense, respectively, and $0.1 million in capital expenditures.
There
were $1.0 million and $0.2 million in intercompany tour revenues between the Lindblad and Natural Habitat segments eliminated
in consolidation for the three months ended March 31, 2018 and 2017, respectively.
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 its unaudited condensed consolidated
financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as its
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 on March 2, 2018.
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:
|
●
|
general
economic conditions;
|
|
|
|
|
●
|
unscheduled
disruptions in our business due to weather events, mechanical failures, or other events;
|
|
|
|
|
●
|
changes
adversely affecting the business in which we are engaged;
|
|
|
|
|
●
|
management
of our growth and our ability to execute on our planned growth;
|
|
|
|
|
●
|
our
business strategy and plans;
|
|
|
|
|
●
|
compliance
with laws and regulations,
|
|
|
|
|
●
|
compliance
with the financial and/or operating covenants in our Third Amended & Restated Credit Agreement (“Amended Credit
Agreement”);
|
|
|
|
|
●
|
adverse
publicity regarding the cruise industry in general;
|
|
|
|
|
●
|
loss
of business due to competition;
|
|
|
|
|
●
|
the
result of future financing efforts;
|
|
|
|
|
●
|
delays
and costs overruns with respect to the construction and delivery of newly constructed vessels;
|
|
|
|
|
●
|
the
inability to meet revenue and Adjusted EBITDA projections; and
|
|
|
|
|
●
|
those
risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.
|
We
urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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
Lindblad
provides expedition cruising and adventure travel experiences that include itineraries that feature up-close encounters with wildlife
and nature, history and culture and promote guest empowerment and interactivity. Our mission is offering life-changing adventures
on all seven continents and pioneering innovative ways to allow our guests to connect with exotic and remote places. We operate
a fleet of seven owned expedition ships. The Company has contracted for two additional vessels, the
National Geographic Venture
,
a coastal vessel, expected to be completed in the fourth quarter of 2018, and the
National Geographic Endurance
, a polar
ice class vessel targeted to be completed in January 2020, with potential accelerated delivery to November 2019. The polar ice
class contract includes options to build two additional ice class vessels.
In
addition, the Company operates 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 also 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, since 2004, 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.
On
March 27, 2018, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”)
with Credit Suisse, as Administrative Agent and Collateral Agent, providing for a refinancing and amendment of the terms of the
Company’s existing secured credit facility, dated as of March 7, 2016 (the “Superseded Agreement”).The Amended
Credit Agreement provides for a $200.0 million senior secured first lien term loan facility (the “Term Facility”),
which represents an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement.
Consistent with the Superseded Agreement, the Amended Credit Agreement also provides for a $45.0 million senior secured incremental
revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility.
See Note 3 – Long-Term Debt to the condensed consolidated financial statements for additional information regarding the
Restated Credit Agreement.
In
the fourth quarter of 2016, the National Geographic Orion experienced an issue with its main engine and as a result we cancelled
four voyages during the first quarter of 2017 for necessary engine repairs. In addition, in the first quarter of 2017, the National
Geographic Sea Lion cancelled two voyages to repair the air conditioning system. It is estimated that the impact of the cancellations
was approximately $9.1 million in tour revenues and $6.5 million in Adjusted EBITDA for the three months ended March 31, 2017.
The
discussion and analysis of our results of operations and financial condition are organized as follows
:
|
●
|
a
description of certain line items and operational and financial metrics we utilize to assist us in managing our business;
|
|
|
|
|
●
|
results
and a comparable discussion of our consolidated and segment results of operations for the three months ended March 31, 2018
and 2017;
|
|
|
|
|
●
|
a
discussion of our liquidity and capital resources, including future capital and contractual commitments and potential funding
sources; and
|
|
|
|
|
●
|
a
review of our critical accounting policies.
|
Financial
Presentation
Description
of Certain Line Items
Tour
revenues
Tour
revenues consist of the following:
|
●
|
Guest
ticket revenues recognized from the sale of guest tickets; and
|
|
|
|
|
●
|
Other
tour revenues from the sale of pre- or post-expedition excursions, hotel accommodations, and land-based expeditions; 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:
|
●
|
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;
|
|
|
|
|
●
|
Payroll
costs and related expenses for shipboard and expedition personnel;
|
|
|
|
|
●
|
Food
costs for guests and crew, including complimentary food and beverage amenities for guests;
|
|
|
|
|
●
|
Fuel
costs and related costs of delivery, storage and safe disposal of waste; and
|
|
|
|
|
●
|
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 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, merger-related expenses, debt refinancing costs and acquisition-related
expenses. The Company believes 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. The Company believes Adjusted EBITDA helps provide a more complete understanding of the
underlying operating results and trends and an enhanced overall understanding of the Company’s 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. The Company’s 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, merger-related expenses, 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 merger-related expenses, selling and marketing expenses, and general
and administrative expenses.
Gross
Yield
represents tour revenues less insurance proceeds 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 insurance proceeds, 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
Lindblad
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 increases due to our vessels being taken out of service for scheduled maintenance or drydocking, which
is typically during non-peak 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 higher tour revenue recorded in the fourth quarter than
other quarters related to polar bear tour revenues.
Results
of Operations - Consolidated
|
|
For
the three months ended
March 31,
|
|
(In thousands, except
per share data)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Tour revenues
|
|
$
|
82,410
|
|
|
$
|
63,128
|
|
|
$
|
19,282
|
|
|
|
31
|
%
|
Cost of tours
|
|
|
35,871
|
|
|
|
32,603
|
|
|
|
3,268
|
|
|
|
10
|
%
|
Gross profit
|
|
|
46,539
|
|
|
|
30,525
|
|
|
|
16,014
|
|
|
|
52
|
%
|
General and administrative
|
|
|
15,050
|
|
|
|
15,101
|
|
|
|
(51
|
)
|
|
|
(0
|
%)
|
Selling and marketing
|
|
|
12,073
|
|
|
|
10,296
|
|
|
|
1,777
|
|
|
|
17
|
%
|
Depreciation
and amortization
|
|
|
5,045
|
|
|
|
3,763
|
|
|
|
1,282
|
|
|
|
34
|
%
|
Operating income
|
|
$
|
14,371
|
|
|
$
|
1,365
|
|
|
$
|
13,006
|
|
|
|
NM
|
|
Net income
|
|
$
|
10,917
|
|
|
$
|
625
|
|
|
$
|
10,292
|
|
|
|
NM
|
|
Earnings per share available to common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.01
|
|
|
$
|
0.23
|
|
|
|
NM
|
|
Diluted
|
|
|
0.24
|
|
|
|
0.01
|
|
|
|
0.23
|
|
|
|
NM
|
|
Comparison
of Three Months Ended March 31, 2018 to Three Months Ended March 31, 2017 - Consolidated
Tour
Revenues
Tour
revenues for the three months ended March 31, 2018 increased $19.3 million, or 31%, to $82.4 million compared to $63.1 million
for the three months ended March 31, 2017. The Lindblad segment increased tour revenues by $17.3 million driven by higher guest
ticket revenue, primarily from an increase in available guest nights due to the addition of the
National Geographic Quest
to our fleet in the third quarter of 2017,
as well as from the impact of cancelled
voyages in the first quarter of 2017. At the Natural Habitat segment tour revenues increased $2.0 million over the prior year
period primarily due
to additional departures and an increase in pricing
. Excluding
the estimated $9.1 million impact from the voyage cancellations in the first quarter of 2017, tour revenues would have increased
$10.1 million, or 14%, for the three months ended March 31, 2018.
Cost
of Tours
Total
cost of tours for the three months ended March 31, 2018 increased $3.3 million, or 10%, to $35.9 million compared to $32.6 million
for the three months ended March 31
, 2017. The increase was primarily due to a $2.3 million
increase at the Lindblad segment mainly from costs related to the
National Geographic Quest
and the impact of cancelled
voyages in the first quarter of 2017
,
partially offset by a decrease in charter expense due to a planned reduction in chartered
voyages. At the Natural Habitat segment, cost of tours increased $1.0 million due to additional departures.
General
and Administrative
General
and administrative expenses for the three months ended March 31, 2018 and 2017 were $15.1 million. At the Lindblad segment, general
and administrative expenses decreased $0.4 million over the prior year period as a result of $3.3 million in lower stock compensation
expense, mainly due to higher costs in the first quarter a year ago from the 2016 CEO Allocation Grant and option grants fully
expensed on December 31, 2017, partially offset by debt refinancing and higher personnel costs. At the Natural Habitat segment,
general and administrative expenses increased $0.4 million primarily due to an increase in personnel costs and credit card commissions.
Selling
and Marketing
Selling
and marketing expenses for the three months ended March 31, 2018 increased $1.8 million, or 17%, to $12.1 million compared to
$10.3 for the three months ended March 31, 2017 primarily due to a $1.9 million increase at the Lindblad segment due to increased
commission and royalty expense associated with the higher tour revenues. At the Natural Habitat segment, selling and marketing
expenses decreased $0.2 million primarily driven by a decrease in promotional offers.
Depreciation
and Amortization
Depreciation
and amortization expenses for the three months ended March 31, 2018 increased $1.3 million, or 34%, to $5.0 million, compared
to $3.7 million for the three months ended March 31, 2017 primarily due to a $1.2 million increase at the Lindblad segment mainly
due to the addition of the
National Geographic Quest
to the fleet in July 2017.
Other
Expense
Other
expenses for the three months ended March 31, 2018 increased $0.9 million to $3.2 million from $2.3 million for the three months
ended March 31, 2017, primarily due to the following:
|
●
|
In
2018, we recorded a $0.5 million loss in foreign currency translation compared to a gain
of $0.3 million in 2017 due to the weakening of the U.S. dollar in relation to the Canadian
dollar and the Euro.
|
|
|
|
|
●
|
Interest
expense, net, increased $0.4 million to $2.7 million in 2018 from $2.3 million in 2017 due to higher interest rates.
|
|
|
|
|
●
|
In
2017, we incurred $0.2 million of costs related to the retirement of the
National Geographic Endeavour.
No such costs
were incurred in 2018.
|
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
March 31,
|
|
(In
thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Tour revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
70,453
|
|
|
$
|
53,202
|
|
|
$
|
17,251
|
|
|
|
32
|
%
|
Natural
Habitat
|
|
|
11,957
|
|
|
|
9,926
|
|
|
|
2,031
|
|
|
|
20
|
%
|
Total
tour revenues
|
|
|
82,410
|
|
|
|
63,128
|
|
|
|
19,282
|
|
|
|
31
|
%
|
Impact
of voyage cancellations
|
|
|
-
|
|
|
|
9,140
|
|
|
|
(9,140
|
)
|
|
|
NA
|
|
Total
tour revenues excluding voyage cancellations
|
|
$
|
82,410
|
|
|
$
|
72,268
|
|
|
$
|
10,142
|
|
|
|
14
|
%
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
13,439
|
|
|
$
|
1,266
|
|
|
$
|
12,173
|
|
|
|
NM
|
|
Natural
Habitat
|
|
|
932
|
|
|
|
99
|
|
|
|
833
|
|
|
|
NM
|
|
Total
operating income
|
|
|
14,371
|
|
|
|
1,365
|
|
|
|
13,006
|
|
|
|
NM
|
|
Impact
of voyage cancellations
|
|
|
-
|
|
|
|
6,464
|
|
|
|
(6,464
|
)
|
|
|
NA
|
|
Total
operating income excluding voyage cancellations
|
|
$
|
14,371
|
|
|
$
|
7,829
|
|
|
$
|
6,542
|
|
|
|
84
|
%
|
Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
20,889
|
|
|
$
|
9,842
|
|
|
$
|
11,047
|
|
|
|
112
|
%
|
Natural
Habitat
|
|
|
1,293
|
|
|
|
422
|
|
|
|
871
|
|
|
|
NM
|
|
Total
adjusted EBITDA
|
|
|
22,182
|
|
|
|
10,264
|
|
|
|
11,918
|
|
|
|
116
|
%
|
Impact
of voyage cancellations
|
|
|
-
|
|
|
|
6,464
|
|
|
|
(6,464
|
)
|
|
|
NA
|
|
Total
adjusted EBITDA excluding voyage cancellations
|
|
$
|
22,182
|
|
|
$
|
16,728
|
|
|
$
|
5,454
|
|
|
|
33
|
%
|
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 months ended March 31, 2018 and 2017:
|
|
For
the three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Available
Guest Nights
|
|
|
53,917
|
|
|
|
42,722
|
|
Guest
Nights Sold
|
|
|
48,935
|
|
|
|
37,064
|
|
Occupancy
|
|
|
90.8
|
%
|
|
|
86.8
|
%
|
Maximum
Guests
|
|
|
6,899
|
|
|
|
5,268
|
|
Number
of Guests
|
|
|
6,177
|
|
|
|
4,601
|
|
Voyages
|
|
|
95
|
|
|
|
81
|
|
The
following table shows the calculations of Gross Yield and Net Yield for the three months ended March 31, 2018 and 2017. 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:
Calculation
of Gross Yield and Net Yield
Lindblad
Segment
|
|
For the three months ended
March 31,
|
|
(In thousands, except for Available Guest
Nights, Gross and Net Yield)
|
|
2018
|
|
|
2017
|
|
Guest
ticket revenues
|
|
$
|
62,681
|
|
|
$
|
45,045
|
|
Other
tour revenues
|
|
|
7,772
|
|
|
|
8,157
|
|
Tour
Revenues
|
|
|
70,453
|
|
|
|
53,202
|
|
Less:
Orion Insurance Proceeds
|
|
|
-
|
|
|
|
(1,900
|
)
|
Adjusted
Tour Revenues
|
|
|
70,453
|
|
|
|
51,302
|
|
Less:
Commissions
|
|
|
(5,554
|
)
|
|
|
(4,102
|
)
|
Less:
Other tour expenses
|
|
|
(4,118
|
)
|
|
|
(4,118
|
)
|
Net
Revenue
|
|
$
|
60,781
|
|
|
$
|
43,082
|
|
Available
Guest Nights
|
|
|
53,917
|
|
|
|
42,722
|
|
Gross
Yield
|
|
$
|
1,307
|
|
|
$
|
1,201
|
|
Net
Yield
|
|
|
1,127
|
|
|
|
1,008
|
|
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 months ended March 31, 2018 and 2017:
(In thousands, except for Available
Guest Nights,
|
|
For the three months ended
March 31,
|
|
Gross and Net Cruise Cost per Avail.
Guest Night)
|
|
2018
|
|
|
2017
|
|
Cost of tours
|
|
$
|
28,680
|
|
|
$
|
26,372
|
|
Plus: Selling and marketing
|
|
|
11,262
|
|
|
|
9,312
|
|
Plus: General
and administrative
|
|
|
12,388
|
|
|
|
12,812
|
|
Gross Cruise Cost
|
|
|
52,330
|
|
|
|
48,496
|
|
Less: Commission expense
|
|
|
(5,554
|
)
|
|
|
(4,102
|
)
|
Less: Other tour
expenses
|
|
|
(4,118
|
)
|
|
|
(4,118
|
)
|
Net Cruise Cost
|
|
|
42,658
|
|
|
|
40,276
|
|
Less: Fuel expense
|
|
|
(2,110
|
)
|
|
|
(1,668
|
)
|
Net Cruise Cost Excluding
Fuel
|
|
|
40,548
|
|
|
|
38,608
|
|
Non-GAAP Adjustments:
|
|
|
|
|
|
|
|
|
Debt refinancing costs
|
|
|
(993
|
)
|
|
|
-
|
|
Stock-based compensation
|
|
|
(866
|
)
|
|
|
(4,202
|
)
|
National Geographic fee amortization
|
|
|
(727
|
)
|
|
|
(727
|
)
|
Reorganization
costs
|
|
|
(180
|
)
|
|
|
(207
|
)
|
Adjusted
Net Cruise Cost Excluding Fuel
|
|
$
|
37,782
|
|
|
$
|
33,472
|
|
Adjusted
Net Cruise Cost
|
|
$
|
39,892
|
|
|
$
|
35,140
|
|
Available Guest Nights
|
|
|
53,917
|
|
|
|
42,722
|
|
Gross Cruise Cost per Available Guest
Night
|
|
$
|
971
|
|
|
$
|
1,135
|
|
Net Cruise Cost per Available Guest
Night
|
|
|
791
|
|
|
|
943
|
|
Net Cruise Cost Excl. Fuel per Available
Guest Night
|
|
|
752
|
|
|
|
904
|
|
Adj. Net Cruise Cost Excl. Fuel per
Avail. Guest Night
|
|
|
701
|
|
|
|
783
|
|
Adjusted Net Cruise
Cost per Available Guest Night
|
|
|
740
|
|
|
|
823
|
|
Comparison
of Three Months Ended March 31, 2018 to Three Months Ended March 31, 2017
Tour
Revenues
Tour
revenues for the three months ended March 31, 2018 increased $17.3 million, or 32%, to $70.5 million compared to $53.2 million
for the three months ended March 31, 2017. The increase was driven by higher guest ticket revenue primarily from an increase in
available guest nights due to the addition of the
National Geographic Quest
to our
fleet in the third quarter of 2017,
as well as from the impact of cancelled voyages in the first quarter of 2017. In addition,
Net Yield for the three months ended March 31, 2018 increased to $1,127 compared to $1,008 for the three months ended March 31,
2017, primarily driven by price increases and changes in itineraries. Occupancy rates increased for the three months ended March
31, 2018 to 91% compared to 87% for the three months ended March 31, 2017 reflecting higher demand across the fleet. Excluding
the estimated $9.1 million impact from the voyage cancellations in the first quarter of 2017, tour revenues would have increased
$8.1 million, or 13%, for the three months ended March 31, 2018.
Operating
Income
Operating
income increased $12.2 million to $13.4 million for the three months ended March 31, 2018 compared to $1.3 million for the three
months ended March 31, 2017. The increase was primarily driven by additional tour revenue. In addition, stock compensation expense decreased due to higher costs in the prior year’s quarter from the 2016 CEO Allocation Grant and option grants fully expensed
on December 31, 2017. This was partially offset by higher operating costs due to the addition of the
National Geographic Quest
to our fleet in the third quarter of 2017, as well as the impact of cancelled voyages in the first quarter of 2017.
Results
of Operations – Natural Habitat Segment
Comparison
of Years Ended March 31, 2018 to March 31, 2017
Tour
Revenues
Tour
revenues for the three months ended March 31, 2018 increased $2.0 million, or 20%, to $11.9 million compared to $9.9 million for
the three months ended March 31, 2017.
The increase was primarily due to additional departures,
as well as price increases.
Operating
Income
Operating
income for the three months ended March 31, 2018 increased $0.8 million to $0.9 million compared to $0.1 million for the three
months ended March 31, 2017. The increase was primarily due to the revenue growth, partially offset by higher operating costs.
Adjusted
EBITDA – Consolidated
The
following table outlines the reconciliation to net income and calculation of consolidated Adjusted EBITDA for the three months
ended March 31, 2018 and 2017. 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
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Net income
|
|
$
|
10,917
|
|
|
$
|
625
|
|
Interest expense, net
|
|
|
2,734
|
|
|
|
2,315
|
|
Income tax expense
(benefit)
|
|
|
277
|
|
|
|
(1,592
|
)
|
Depreciation and amortization
|
|
|
5,045
|
|
|
|
3,763
|
|
Loss (gain) on foreign currency
|
|
|
451
|
|
|
|
(246
|
)
|
Other (income) expense, net
|
|
|
(8
|
)
|
|
|
263
|
|
Debt refinancing costs
|
|
|
993
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
866
|
|
|
|
4,202
|
|
National Geographic fee amortization
|
|
|
727
|
|
|
|
727
|
|
Reorganization
costs
|
|
|
180
|
|
|
|
207
|
|
Adjusted EBITDA
|
|
|
22,182
|
|
|
|
10,264
|
|
Impact of voyage
cancellations
|
|
|
-
|
|
|
|
6,464
|
|
Adjusted
EBITDA excluding impact of voyage cancellations
|
|
$
|
22,182
|
|
|
$
|
16,728
|
|
The
following tables outline the reconciliation for each segment from operating income to Adjusted EBITDA for the three months ended
March 31, 2018 and 2017.
Reconciliation
of Operating Income to Adjusted EBITDA
Lindblad
Segment
|
|
For the three months ended
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Operating income
|
|
$
|
13,439
|
|
|
$
|
1,266
|
|
Depreciation and amortization
|
|
|
4,684
|
|
|
|
3,440
|
|
Debt refinancing costs
|
|
|
993
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
866
|
|
|
|
4,202
|
|
National Geographic fee amortization
|
|
|
727
|
|
|
|
727
|
|
Reorganization
costs
|
|
|
180
|
|
|
|
207
|
|
Adjusted EBITDA
|
|
|
20,889
|
|
|
|
9,842
|
|
Impact of voyage
cancellations
|
|
|
-
|
|
|
|
6,464
|
|
Adjusted
EBITDA excluding impact of voyage cancellations
|
|
$
|
20,889
|
|
|
$
|
16,306
|
|
Reconciliation
of Operating Income to Adjusted EBITDA
Natural
Habitat Segment
|
|
For the three months ended
|
|
|
|
March
31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Operating income
|
|
$
|
932
|
|
|
$
|
99
|
|
Depreciation
and amortization
|
|
|
361
|
|
|
|
323
|
|
Adjusted EBITDA
|
|
$
|
1,293
|
|
|
$
|
422
|
|
Liquidity
and Capital Resources
Sources
and Uses of Cash for the Three Months Ended March 31, 2018 and 2017
Net
cash provided by operating
activities was $10.5 million in 2018 compared to $2.7 million in 2017. The $7.8 million increase
was primarily due to the improved operating results.
Net
cash used in investing activities
was $27.7 million in 2018 compared to $27.3 million in 2017. The $0.4 million increase was
primarily related to higher deposits into our Federal Maritime Commission escrow for travel on the Company’s U.S. flagged
vessels offset by a decrease in purchases of property and equipment.
Net
cash provided by financing activities
was $18.0 million in 2018 compared to
Net cash used in financing activities
of
$7.1 million in 2017. The $25.1 million increase was primarily related to the $200.0 million in proceeds from refinancing the
credit facility, partially offset by the $170.6 million repayment of the previous senior debt and payment of $6.3 million in deferred
financing costs.
Funding
Needs and Sources
We
have historically relied on a combination of cash flows provided by operations and the incurrence of additional debt and/or the
refinancing of existing debt to fund obligations. Similar to others in the industry, we have historically operated with a meaningful
working capital deficit. This historical deficit is mainly attributable to the fact that, under our business model, 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, invest in long-term investments or any other use of cash.
As a result of the proceeds from the Restated Credit Facility, we had working capital of $10.0 million and a working capital deficit
of $12.7 million as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, we had $97.3 million in cash
and cash equivalents, excluding restricted cash.
On
November 2, 2016, the Company’s Board of Directors approved a $15.0 million increase to the Company’s existing stock
and warrant repurchase plan (“Repurchase Plan”), to $35.0 million. This Repurchase Plan, which was authorized in November
2015, authorizes the Company to purchase from time to time the Company’s outstanding common stock and 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 the Company’s Board of Directors. The repurchases exclude shares repurchased to settle
statutory employee tax withholding related to the vesting of stock awards. All repurchases were made using cash resources. During
the three months ended March 31, 2018 the Company repurchased 9,030 shares of common stock for $0.1 million and 568,446 warrants
for $0.8 million. The Company has cumulatively repurchased 864,806 shares of common stock for $8.1 million and 6,011,926 warrants
for $14.7 million, since plan inception. The balance as of April 30, 2018 for the repurchase plan was $12.1 million.
In
December 2015, we executed definitive agreements for the construction of two new coastal vessels. The first vessel, the
National
Geographic Quest
, was delivered in the third quarter of 2017. The second vessel, the
National Geographic Venture
, has
a contract price of $57.3 million and is scheduled to be completed in the fourth quarter of 2018, subject to extension for certain
events, such as change orders. As of March 31, 2018, the Company has paid Ice Floe, LLC $34.8 million related to the
National
Geographic Venture
. The Company may terminate the applicable Agreement in the event the builder fails to deliver the vessel
within one hundred eighty days of the applicable due date or the builder becomes insolvent or otherwise bankrupt.
In
November 2017, the Company executed a contract to build a polar ice class vessel, the
National Geographic Endurance,
targeted
to be competed in January 2020, with potential accelerated delivery to November 2019, with a total purchase price of 1,066.0 million
Norwegian Kroner (NOK). Subsequently, the Company exercised its right to make payments in United States Dollars, which resulted
in a purchase price of $134.6 million, including hedging costs. The first twenty percent of the purchase price was paid shortly
after execution of the Agreement with the remaining eighty percent due upon delivery and acceptance of the vessel. The contract
includes options to build two additional ice class vessels. The remaining purchase price of the ship will be funded through a
combination of cash available on our balance sheet, our Export Credit Agreement, our revolving credit facility and excess cash
flows generated by our existing operations.
As
of March 31, 2018, we had approximately $202.5 million in long-term debt obligations, including the current portion of long-term
debt. We believe that our cash on hand, our new revolving credit facility, our Export Credit Agreement and expected future operating
cash inflows will be sufficient to fund operations, debt service requirements, capital expenditures for our newbuilds and other
assets, acquisitions, and our Repurchase Plan. However, there can be no assurance that cash flows from operations will be available
in the future to fund future obligations.
Debt
Facilities
Revolving
Credit Facility
On
March 27, 2018, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”),
providing for a refinancing and amendment of the terms of the Company’s existing secured credit facility, dated as of March
7, 2016 (the “Superseded Agreement”).
The
Amended Credit Agreement provides for a $200.0 million senior secured first lien term loan facility (the “Term Facility”),
which represents an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement.
The Term Facility matures March 27, 2025. Consistent with the Superseded Agreement, the Amended Credit Agreement also provides
for a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes
a $5.0 million letter of credit sub-facility. The Company’s obligations under the Amended Credit Agreement remain secured
by substantially all of the assets of the Company.
Borrowings
under the Term Facility will bear interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration
LIBOR plus a spread of 3.50%, which steps down to 3.25% if the Company’s debt rating from Moody’s and S&P are
both B1 (stable) or better and BB (negative) or better, respectively. Borrowings under the Revolving Facility will bear interest
at an adjusted ICE Benchmark administration LIBOR plus a spread of 3.00%, or, at the option of the Company, an alternative base
rate plus a spread of 2.00%. The Company is also required to pay a 0.5% annual commitment fee on undrawn amounts under the Revolving
Credit Facility, which matures on March 27, 2023.
The
Amended Credit Agreement contains financial covenants that, among other things, (i) require us to maintain a total net leverage
ratio (defined as on any date of determination, the ratio of total debt on such date, less up to $50.0 million of the unrestricted
cash and cash equivalents to Adjusted EBITDA (as defined in the Amended Credit Agreement) for the trailing 12-month period) of
5.25 to 1.00 initially, with 0.25 equal reductions every two years thereafter until March 31, 2022 when the total net leverage
ratio shall be 4.75 to 1.00 thereafter; (ii) limit the amount of indebtedness we may incur generally and specifically for intercompany
debt, debt incurred to finance acquisitions and improvements, for capital and synthetic lease obligations, for standby letters
of credit, and in connection with refinancing; (iii) limit the amount we may spend in connection with certain types of investments;
and (iv) require the delivery of certain periodic financial statements and an operating budget.
The
following table shows the contractual obligation of the Amended Credit agreement for the next five years and thereafter as of
March 31, 2018:
|
|
Payments
due by period
|
|
(In
thousands)
|
|
Total
|
|
|
Current
|
|
|
1-2
years
|
|
|
3-5
years
|
|
|
Thereafter
|
|
Long-term
debt obligations
|
|
$
|
200,000
|
|
|
$
|
1,500
|
|
|
$
|
4,000
|
|
|
$
|
6,000
|
|
|
$
|
188,500
|
|
Interest
on long-term debt
|
|
|
81,879
|
|
|
|
12,174
|
|
|
|
23,770
|
|
|
|
34,733
|
|
|
|
11,202
|
|
|
|
$
|
281,879
|
|
|
$
|
13,674
|
|
|
$
|
27,770
|
|
|
$
|
40,733
|
|
|
$
|
199,702
|
|
Senior
Secured Credit Agreement
On
January 8, 2018, the Company and its indirect, wholly-owned subsidiary (the “Borrower”) entered into a senior secured
credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt
Norge AS (together with Citi, the “Lenders”). Pursuant to the Export Credit Agreement, the Lenders have agreed to
make available to the Borrower, at the Borrower’s option and subject to certain conditions, 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 the Company’s
new polar ice class vessel, the
National Geographic Endurance
, targeted to be completed in January 2020. Seventy percent
of the loan will be guaranteed by Garantiinstituttet for Eksportkreditt, the official export credit agency of Norway. If drawn
upon, the loan will be made at the time of delivery of the vessel.
Critical
Accounting Policies
For
a detailed discussion of the Critical Accounting Policies, please see the Company’s Annual Report for the year ended December
31, 2017 on Form 10-K filed on March 2, 2018 with the Securities and Exchange Commission.
Off-Balance
Sheet Arrangements
On
January 8, 2018, the Company entered into an Export Credit Agreement as described above.