The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying
notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral
part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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 and operate eco-conscious expeditions
and nature-focused, small-group tours under the Natural Habitat brand.
Lindblad’s
mission is offering 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 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.
Through
its subsidiary, Natural Habitat, Inc. (“Natural Habitat”), the Company offers primarily land-based adventure travel
expeditions around the globe. In addition to its land offerings, Natural Habitat offers select itineraries on small chartered
vessels for parts of the year. Natural Habitat’s expeditions include polar bear tours in Churchill, Canada, Alaskan grizzly
bear adventures, small-group Galápagos tours and African safaris. 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 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
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,
2017 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2018.
Principles
of Consolidation
The
condensed consolidated financial statements include Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period presentation, with no impact on consolidated net
income or cash flows.
Use
of Estimates
The
preparation of condensed 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 and liabilities, the fair value of derivative instruments, 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 condensed consolidated financial statements in the period that they are determined to be necessary.
Revenue
Recognition
Revenues
are measured based on consideration specified in the Company’s contracts with guests and are recognized as the related performance
obligations are satisfied.
The
majority of the Company’s revenues are derived from guest ticket contracts which are reported as tour revenues in the condensed
consolidated statements of operations. The Company’s primary performance obligation under these contracts 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 the Company’s primary performance obligation, revenue is recognized 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 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. Unearned passenger revenues presented in our condensed consolidated
balance sheets include contract liabilities of $63.5 million and $62.1 million as of September 30, 2018 and December 31, 2017,
respectively. All of our contract liabilities as of December 31, 2017 were recognized and reported within
tour revenues
in our condensed consolidated statements of operations for the nine months ended September 30, 2018.
Earnings
per Common Share
Earnings
per common share is computed by dividing net income available to common stockholders 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, shares issuable upon the exercise of stock options and warrants,
using the treasury stock method.
For
the three and nine months ended September 30, 2018 and 2017, the Company calculated earnings per share as follows:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands, except share and per share data)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net income available to common stockholders
|
|
$
|
5,067
|
|
|
$
|
9,278
|
|
|
$
|
15,998
|
|
|
$
|
7,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding, basic
|
|
|
45,423,127
|
|
|
|
44,457,656
|
|
|
|
45,356,438
|
|
|
|
44,528,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2,267,268
|
|
|
|
1,260,857
|
|
|
|
607,231
|
|
|
|
1,080,682
|
|
Total weighted average shares outstanding, diluted
|
|
|
47,690,395
|
|
|
|
45,718,513
|
|
|
|
45,963,669
|
|
|
|
45,609,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.21
|
|
|
$
|
0.35
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.20
|
|
|
$
|
0.35
|
|
|
$
|
0.16
|
|
The
Company’s Board of Directors and stockholders approved the 2015 Long-Term Incentive Plan, which includes the authority to
issue up to 2.5 million shares of Lindblad common stock. As of September 30, 2018, approximately 2.0 million shares were available
for future grants under the plan.
As
of September 30, 2018 and 2017, options to purchase an aggregate of 220,000 and 1,939,764 shares of the Company’s common
stock, respectively, with a weighted average exercise price of $9.63 and $2.65 per share, respectively, were outstanding. As of
September 30, 2018, 113,333 options were exercisable.
As
of September 30, 2018 and 2017, 10,088,074 and 10,673,015 warrants, respectively, expiring July 8, 2020 were outstanding to purchase
common stock at a price of $11.50 per share. These warrants were anti-dilutive for the three and nine months ended September 30,
2017 and were not included in the calculation of diluted weighted average shares outstanding for those periods.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with an original maturity of six 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 September 30, 2018 and December 31, 2017, the Company’s cash held in financial institutions outside of the U.S. amounted
to $6.5 million and $4.1 million, respectively.
Restricted
Cash and Marketable Securities
Restricted
cash and marketable securities consist of the following:
|
|
As of
September 30,
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Federal Maritime Commission escrow
|
|
$
|
5,622
|
|
|
$
|
4,186
|
|
Credit card processor reserves
|
|
|
1,530
|
|
|
|
1,530
|
|
Certificates of deposit and other restricted securities
|
|
|
1,441
|
|
|
|
1,341
|
|
Total restricted cash and marketable securities
|
|
$
|
8,593
|
|
|
$
|
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 either 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 the required amounts.
At
September 30, 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
September 30,
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Prepaid tour expenses
|
|
$
|
11,746
|
|
|
$
|
9,846
|
|
Prepaid air expense
|
|
|
3,222
|
|
|
|
3,621
|
|
Prepaid client insurance
|
|
|
2,097
|
|
|
|
2,525
|
|
Prepaid corporate insurance
|
|
|
1,808
|
|
|
|
1,033
|
|
Prepaid marketing, commissions and other expenses
|
|
|
1,731
|
|
|
|
2,495
|
|
Prepaid port agent fees
|
|
|
1,279
|
|
|
|
1,022
|
|
Prepaid income taxes
|
|
|
34
|
|
|
|
809
|
|
Total prepaid expenses
|
|
$
|
21,917
|
|
|
$
|
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
In
accordance with Accounting Standards Codification (“ASC”) 360, the Company tests for impairment annually as of September
30, or more frequently if warranted. The Company assessed 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, 2018 with no indication of goodwill
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 then 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. 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 September 30, 2018, 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 September 30, 2018, 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
September 30,
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
(In thousands)
|
|
(unaudited)
|
|
|
|
|
Accrued other expense
|
|
$
|
8,333
|
|
|
$
|
7,001
|
|
Accounts payable
|
|
|
6,769
|
|
|
|
7,791
|
|
Bonus compensation liability
|
|
|
3,727
|
|
|
|
3,736
|
|
New build liability
|
|
|
2,836
|
|
|
|
2,730
|
|
Employee liability
|
|
|
2,776
|
|
|
|
2,644
|
|
Royalty payable
|
|
|
1,866
|
|
|
|
1,673
|
|
Travel certificate liability
|
|
|
1,056
|
|
|
|
1,120
|
|
Income tax liabilities
|
|
|
766
|
|
|
|
1,490
|
|
Refunds and commissions payable
|
|
|
749
|
|
|
|
1,805
|
|
Accrued travel insurance expense
|
|
|
427
|
|
|
|
432
|
|
Total accounts payable and accrued expenses
|
|
$
|
29,305
|
|
|
$
|
30,422
|
|
Fair
Value Measurements
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.
|
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.
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.
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, 2018. As of September 30, 2018 and December 31, 2017, the Company had no other significant liabilities that were
measured at fair value on a recurring basis.
The
Company’s derivative assets consist principally of 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.
Derivative
Instruments and Hedging Activities
By
entering into derivative instrument contracts, the Company exposes itself, from time to time, to counterparty credit risk. Counterparty
credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a
derivative contract is in an asset position, the counterparty has a liability to the Company, which creates credit risk for the
Company. The Company continues to monitor counterparty credit risk as part of its ongoing hedge assessments.
The
Company records derivatives on a gross basis in other long-term assets and other liabilities in the condensed consolidated balance
sheets at fair value. The accounting for changes in value of the derivative depends on whether or not the transaction has been
designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair
value through earnings.
The
Company applies hedge accounting to its interest rate derivatives entered into for risk management purposes. To qualify for hedge
accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition,
key aspects of achieving hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception
and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective
of offsetting changes in the cash flows of the hedged item for the risk being hedged. The effective portion of changes in the
fair value of derivatives designated in a hedge relationship and that qualify as cash flow hedges is recorded in accumulated other
comprehensive income, net of tax, and is subsequently reclassified into earnings in the period that the hedged transaction affects
earnings.
The
Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and
the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking
cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. The Company also
formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used
are highly effective in offsetting changes in fair values or cash flows of the hedged items.
The
Company is exposed to market risks attributable to changes in interest rates on its term loan facility and seeks to hedge the
risk of variability in cash flows associated with the changes in US$-LIBOR-Intercontinental Exchange associated with interest
payments on its Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”).
During
the second quarter 2018, the Company entered into interest rate cap agreements to hedge its exposure to interest rate movements
and to manage its interest expense related to the first lien loan facility (the “Term Facility”) under its Amended
Credit Agreement and designated these interest rate caps as a cash flow hedge. The Company receives payments on the cap for any
period that the one-month USD LIBOR rate increase beyond the strike rate. The termination date of the cap agreement is May 31,
2023. The detailed terms of the interest rate caps and the portion of the corporate Term Facility that they hedge are as follows:
|
|
Interest Rate Caps
|
|
Corporate Debt
|
Trade date and borrowing date
|
|
May 29, 2018
|
|
March 27, 2018
|
Effective date
|
|
September 27, 2018
|
|
Not applicable
|
Termination date
|
|
May 31, 2023
|
|
March 27, 2025
|
Notional amount
|
|
$100,000,000
|
|
$100,000,000
|
Fixed interest rate (plus spread)
|
|
2.50% until November 30, 2018
|
|
Not applicable
|
|
|
2.75% December 1, 2018 until April 30, 2019
|
|
|
|
|
3.00% May 1, 2019 until maturity
|
|
|
Variable interest rate
|
|
1 month LIBOR
|
|
1 month LIBOR + 3.50%
|
Settlement
|
|
Monthly on last day of each month
|
|
Monthly on last day of each month
|
Interest payment dates
|
|
Monthly on last day of each month
|
|
Monthly on last day of each month
|
Reset dates
|
|
Last day of each month
|
|
Last day of each month
|
The
notional amount of outstanding debt associated with the interest rate cap agreements was $100.0 million as of September 30, 2018,
with a fair value of $1.6 million recorded within other long-term assets. Changes in the fair value of this interest rate cap
are recorded in accumulated other comprehensive income, pursuant to the guidelines of cash flow hedge accounting as outlined in
ASC 815 and ASU 2017-12. During the three and nine months ended September 30, 2018, the Company recorded approximately $0.2 million
and $0.2 million, respectively, of gains in accumulated other comprehensive income related to the change in fair value. The Company
does not expect any gains currently recorded in accumulated other comprehensive income to be recognized in earnings over the next
12 months. The cost of the interest rate cap will be amortized to interest expense over its life, from the effective date through
termination date.
The
effects of cash flow hedge accounting on accumulated other comprehensive income were as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(in thousands, unaudited)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Beginning balance:
|
|
$
|
73
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net change in period
|
|
|
157
|
|
|
|
-
|
|
|
|
230
|
|
|
|
-
|
|
Accumulated Other Comprehensive Income
|
|
$
|
230
|
|
|
$
|
-
|
|
|
$
|
230
|
|
|
$
|
-
|
|
The
amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer
be considered effective. No amount of the hedge was considered to be ineffective and included in net income for the period ended
September 30, 2018. The Company will continue to assess the effectiveness of the hedge on an ongoing basis.
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, 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 and nine months ended September 30, 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
The
Company is primarily a specialty cruise operator with operations in two 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 two operating and reporting
segments cannot be aggregated because they fail to meet the requirements for aggregation.
Recent
Accounting Pronouncements
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15
Intangibles—Goodwill and
Other—Internal-Use Software
(Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a Service Contract
. The amendments in this Update align the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
ASU 2018-15 is effective for fiscal years beginning after December 15, 2018. Management is currently assessing the effect of this
guidance on its consolidated financial statements and related disclosures.
In
August 2018, the FASB issued ASU 2018-13
Fair Value Measurement
(Topic 820):
Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement
. This amendment is intended to improve the effectiveness of fair value
measurement disclosures by adding and modifying a few disclosure requirements, as well as eliminating several disclosures. ASU
2018-13 is effective for fiscal years beginning after December 15, 2018. Management is currently assessing the effect of this
guidance on its consolidated financial statements and related disclosures.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842) and in July 2018 ASU 2018-11,
Leases
(Topic 842):
Targeted Improvements
. 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 assets and
lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use assets
and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018. Early adoption is permitted. The Company will adopt this guidance on January 1, 2019, as required. The
adoption of this guidance will have a material impact on the Company’s balance sheet for the present value of its lease
liabilities and related right-of-use assets. The Company does not believe that the adoption of this guidance will have a material
effect on its future results of operations or cash flows.
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. The Company adopted the revenue recognition guidance 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 the Company’s 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 FASB 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 its 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 guidance 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 its financial position or results of operations.
In
August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities
(ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present
the economic effects of risk management activities in the financial statements. The amendments also ease the application of hedge
accounting in certain situations, including eliminating the requirement to separately measure and report hedge ineffectiveness
for cash flow hedges. ASU 2017-12 is effective for fiscal years beginning after December 31, 2018, and earlier adoption is permitted.
The Company has elected early adoption of ASU 2017-12 and has accounted for its cash flow hedges in accordance with the amended
rules.
NOTE
3 – LONG-TERM DEBT
|
|
As of
September 30,
2018
|
|
|
As of
December 31,
2017
|
|
|
|
(unaudited)
|
|
|
|
|
(In thousands)
|
|
Principal
|
|
|
Deferred Financing Costs, net
|
|
|
Balance
|
|
|
Principal
|
|
|
Deferred Financing Costs, net
|
|
|
Balance
|
|
Note payable
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
Credit Facility
|
|
|
199,500
|
|
|
|
(11,864
|
)
|
|
|
187,636
|
|
|
|
170,625
|
|
|
|
(7,214
|
)
|
|
|
163,411
|
|
Total long-term debt
|
|
|
202,025
|
|
|
|
(11,864
|
)
|
|
|
190,161
|
|
|
|
173,150
|
|
|
|
(7,214
|
)
|
|
|
165,936
|
|
Less current portion
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
Total long-term debt, non-current
|
|
$
|
200,025
|
|
|
$
|
(11,864
|
)
|
|
$
|
188,161
|
|
|
$
|
171,400
|
|
|
$
|
(7,214
|
)
|
|
$
|
164,186
|
|
Credit
Facility
On
March 27, 2018, the Company entered into the Amended Credit Agreement providing for a refinancing and amendment of the terms of
the Company’s prior secured credit facility, dated as of March 7, 2016 (the “Superseded Agreement”).
The
Amended Credit Agreement provided for a $200.0 million senior secured Term Facility, which represented 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.
In
connection with the Amended Credit Agreement, the Company capitalized $4.2 million related to lender and third-party fees. In
addition, the entry into the Amended Credit Agreement was considered a debt modification with a partial extinguishment, as a result
the Company expensed $1.0 million of related costs during the nine months ended September 30, 2018, which is included in general
and administrative expenses on the accompanying condensed consolidated statements of operations.
Borrowings
under the Term Facility 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 September 30, 2018 is 5.74% under the Term
Facility. 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 Facility, which matures on March 27, 2023.
The
Amended 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 September 30, 2018,
the Company was in compliance with the covenants.
Borrowings
under the Revolving Facility may be used for general corporate and working capital purposes and related fees and expenses. As
of September 30, 2018, the Company had no borrowings under the Revolving Facility.
For
the three months ended September 30, 2018 and 2017, deferred financing costs charged to interest expense was $0.4 million and
$0.6 million, respectively. For the nine months ended September 30, 2018 and 2017, deferred financing costs charged to interest
expense was $1.5 million and $1.7 million, respectively.
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 Company is also
required to pay an annual commitment fee of 1.3% until drawdown of the Export Credit Agreement. 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.
As of September 30, 2018, the Company was in compliance with the covenants.
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
an annual maximum of $2,100 as of September 30, 2018 and 2017. For the three months ended September 30, 2018 and 2017, the Company’s
benefit plan contribution was $0.1 million and $0.1 million, respectively. For the nine months ended September 30, 2018 and 2017,
the Company’s benefit plan contribution was $0.3 million and $0.2 million, respectively. 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
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 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. These 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 nine months ended September
30, 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 for the Repurchase Plan was $12.1 million as of September 30, 2018.
2018
Long-Term Incentive Compensation
In
2017, the Company’s compensation committee approved an employee incentive plan which authorizes awarding restricted stock
units (“RSUs”) and performance share units (“PSUs”) to key employees under the Company’s 2015 Long-Term
Incentive Plan.
During
the nine months ended September 30, 2018, the Company granted 171,947 RSUs with a weighted average grant price of $10.63. The
RSUs 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 the Company or its 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 and annual revenue. 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. During the nine months ended September 30, 2018,
the Company awarded 88,851 of targeted PSUs with a weighted average grant price of $10.27. The number of shares were determined
based upon the closing price of our common stock on the date of the award.
Stock
Options
During
the nine months ended September 30, 2018, 955,424 stock options were exercised at a weighted average exercise price of $1.76 per
share in cashless transactions, resulting in the net issuance of 442,820 shares of common stock.
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 provided for the Builder to construct two 236-foot, 100-passenger cruise vessels.
The first vessel, the
National Geographic Quest
, was delivered in July 2017. The second vessel, the
National Geographic Venture,
has a
contract price of $57.7 million and is scheduled for delivery in the fourth quarter of 2018. As of September 30, 2018, the Company
had paid Ice Floe, LLC $53.0 million related to the vessel. 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. 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.
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. A pre- and post-expedition 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
and nine months ended September 30, 2018 totaled $1.5 million and $4.6 million, respectively, and for the three and nine months
ended September 30, 2017 totaled $1.6 million and $3.9 million, respectively.
The
balances outstanding to National Geographic as of September 30, 2018 and December 31, 2017 was $1.9 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 September 30, 2018 and 2017, these fees totaled $0.3 million and $0.2 million,
respectively. For the nine months ended September 30, 2018 and 2017, these fees totaled $0.6 million and $0.4 million, respectively.
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, 2018 are as follows:
For the years ended December 31,
|
|
Amount
|
|
(In thousands)
|
|
(unaudited)
|
|
2018 (three months)
|
|
$
|
2,549
|
|
2019
|
|
|
8,276
|
|
2020
|
|
|
7,010
|
|
2021
|
|
|
2,031
|
|
2022
|
|
|
1,850
|
|
Total
|
|
$
|
21,716
|
|
NOTE
7 – SEGMENT INFORMATION
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, 2018
and 2017, operating results were as follows:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Tour revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
64,507
|
|
|
$
|
67,451
|
|
|
$
|
(2,944
|
)
|
|
|
(4
|
%)
|
|
$
|
194,516
|
|
|
$
|
167,891
|
|
|
$
|
26,625
|
|
|
|
16
|
%
|
Natural Habitat
|
|
|
22,735
|
|
|
|
17,133
|
|
|
|
5,602
|
|
|
|
33
|
%
|
|
|
44,609
|
|
|
|
35,392
|
|
|
|
9,217
|
|
|
|
26
|
%
|
Total tour revenues
|
|
$
|
87,242
|
|
|
$
|
84,584
|
|
|
$
|
2,658
|
|
|
|
3
|
%
|
|
$
|
239,125
|
|
|
$
|
203,283
|
|
|
$
|
35,842
|
|
|
|
18
|
%
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
8,209
|
|
|
$
|
12,070
|
|
|
$
|
(3,861
|
)
|
|
|
(32
|
%)
|
|
$
|
26,755
|
|
|
$
|
12,386
|
|
|
$
|
14,369
|
|
|
|
116
|
%
|
Natural Habitat
|
|
|
2,072
|
|
|
|
1,479
|
|
|
|
593
|
|
|
|
40
|
%
|
|
|
2,105
|
|
|
|
873
|
|
|
|
1,232
|
|
|
|
141
|
%
|
Total operating income
|
|
$
|
10,281
|
|
|
$
|
13,549
|
|
|
$
|
(3,268
|
)
|
|
|
(24
|
%)
|
|
$
|
28,860
|
|
|
$
|
13,259
|
|
|
$
|
15,601
|
|
|
|
118
|
%
|
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,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
4,645
|
|
|
$
|
3,994
|
|
|
$
|
651
|
|
|
|
16
|
%
|
|
$
|
13,954
|
|
|
$
|
10,989
|
|
|
$
|
2,965
|
|
|
|
27
|
%
|
Natural Habitat
|
|
|
379
|
|
|
|
360
|
|
|
|
19
|
|
|
|
5
|
%
|
|
|
1,108
|
|
|
|
1,023
|
|
|
|
85
|
|
|
|
8
|
%
|
Total depreciation and amortization
|
|
$
|
5,024
|
|
|
$
|
4,354
|
|
|
$
|
670
|
|
|
|
15
|
%
|
|
$
|
15,062
|
|
|
$
|
12,012
|
|
|
$
|
3,050
|
|
|
|
25
|
%
|
The
following table presents our total assets, intangibles, net and goodwill by segment:
|
|
As of
September 30,
|
|
|
As of
December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Total Assets:
|
|
(unaudited)
|
|
|
|
|
Lindblad
|
|
$
|
399,998
|
|
|
$
|
371,081
|
|
Natural Habitat
|
|
|
64,817
|
|
|
|
53,267
|
|
Total assets
|
|
$
|
464,815
|
|
|
$
|
424,348
|
|
Intangibles, net:
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
4,232
|
|
|
$
|
4,776
|
|
Natural Habitat
|
|
|
4,138
|
|
|
|
4,778
|
|
Total intangibles, net
|
|
$
|
8,370
|
|
|
$
|
9,554
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
-
|
|
|
$
|
-
|
|
Natural Habitat
|
|
|
22,105
|
|
|
|
22,105
|
|
Total goodwill
|
|
$
|
22,105
|
|
|
$
|
22,105
|
|
For
the three months ended September 30, 2018 and 2017 there were $1.2 million and $0.7 million in intercompany tour revenues between
the Lindblad and Natural Habitat segments eliminated in consolidation, respectively. For the nine months ended September 30, 2018
and 2017, there were $2.6 million and $1.1 million, respectively, in intercompany tour revenues between the Lindblad and Natural
Habitat segments eliminated in consolidation.
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 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;
|
|
|
|
|
●
|
delays
and costs overruns with respect to the construction and delivery of newly constructed vessels;
|
|
|
|
|
●
|
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 debt agreements;
|
|
|
|
|
●
|
adverse
publicity regarding the cruise industry in general;
|
|
|
|
|
●
|
loss
of business due to competition;
|
|
|
|
|
●
|
the
result of future financing efforts;
|
|
|
|
|
●
|
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, as filed
with the SEC on March 2, 2018.
|
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
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.
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 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.
Highlights
In
July 2018, the Company’s Board of Directors authorized the building of an additional polar ice class ship anticipated for
delivery in 2021.
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 provided for a $200.0 million senior secured first lien term loan facility (the “Term Facility”),
which represented 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.
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.
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 and nine months ended September
30, 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, 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 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, 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 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
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
Tour revenues
|
|
$
|
87,242
|
|
|
$
|
84,584
|
|
|
$
|
2,658
|
|
|
|
3
|
%
|
|
$
|
239,125
|
|
|
$
|
203,283
|
|
|
$
|
35,842
|
|
|
|
18
|
%
|
Cost of tours
|
|
|
44,964
|
|
|
|
38,480
|
|
|
|
6,484
|
|
|
|
17
|
%
|
|
|
114,645
|
|
|
|
99,780
|
|
|
|
14,865
|
|
|
|
15
|
%
|
Gross profit
|
|
|
42,278
|
|
|
|
46,104
|
|
|
|
(3,826
|
)
|
|
|
(8
|
%)
|
|
|
124,480
|
|
|
|
103,503
|
|
|
|
20,977
|
|
|
|
20
|
%
|
General and administrative
|
|
|
14,718
|
|
|
|
16,526
|
|
|
|
(1,808
|
)
|
|
|
(11
|
%)
|
|
|
45,647
|
|
|
|
46,710
|
|
|
|
(1,063
|
)
|
|
|
(2
|
%)
|
Selling and marketing
|
|
|
12,255
|
|
|
|
11,676
|
|
|
|
579
|
|
|
|
5
|
%
|
|
|
34,911
|
|
|
|
31,521
|
|
|
|
3,390
|
|
|
|
11
|
%
|
Depreciation and amortization
|
|
|
5,024
|
|
|
|
4,354
|
|
|
|
670
|
|
|
|
15
|
%
|
|
|
15,062
|
|
|
|
12,012
|
|
|
|
3,050
|
|
|
|
25
|
%
|
Operating income
|
|
$
|
10,281
|
|
|
$
|
13,548
|
|
|
$
|
(3,267
|
)
|
|
|
(24
|
%)
|
|
$
|
28,860
|
|
|
$
|
13,260
|
|
|
$
|
15,600
|
|
|
|
118
|
%
|
Net income
|
|
$
|
5,346
|
|
|
$
|
9,443
|
|
|
$
|
(4,097
|
)
|
|
|
(43
|
%)
|
|
$
|
16,105
|
|
|
$
|
7,491
|
|
|
$
|
8,614
|
|
|
|
115
|
%
|
Earnings per
share avail. to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.21
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.16
|
|
|
$
|
0.19
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.20
|
|
|
|
(0.09
|
)
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.16
|
|
|
|
0.19
|
|
|
|
|
|
Comparison
of the Three and Nine months Ended September 30, 2018 to Three and Nine months Ended September 30, 2017 - Consolidated
Tour
Revenues
Tour
revenues for the three months ended September 30, 2018 increased $2.7 million, or 3%, to $87.2 million compared to $84.6 million
for the three months ended September 30, 2017. The Lindblad segment tour revenues decreased by $2.9 million primarily driven by
a decrease in Available Guest Nights during 2018 due to
timing of vessel drydocks in 2018
compared to 2017, as well as a decrease in Net Yields. 2017 results also included the impact of the cancellation of four highly
booked voyages on the
National Geographic Quest
due to the delayed delivery of the vessel.
At the Natural Habitat
segment, tour revenues increased $5.6 million over the prior year period primarily due
to
additional departures and an increase in pricing
.
Tour
revenues for the nine months ended September 30, 2018 increased $35.8 million, or 18%, to $239.1 million compared to $203.3 million
for the nine months ended September 30, 2017. The Lindblad segment tour revenues increased by $26.6 million driven by higher guest
ticket revenue, primarily from an increase in Available Guest Nights during 2018 due to the addition of the
National Geographic
Quest
to the fleet in the third quarter of 2017
. 2017 results also included the
impact of voyage cancellations on the
National Geographic Orion
and the
National Geographic Sea Lion
, as well as
the impact of the delayed delivery of the
National Geographic Quest
. At the Natural Habitat segment, tour revenues increased
$9.2 million over the prior year period primarily due
to additional departures and an increase
in pricing
.
Cost
of Tours
Total
cost of tours for the three months ended September 30, 2018 increased $6.5 million, or 17%, to $45.0 million compared to $38.5
million for the three months ended September 30
, 2017. At the Lindblad segment, cost of
tours increased $2.3 million primarily due to an increase in drydock expenses related to timing of planned vessel drydock maintenance.
At the Natural Habitat segment, cost of tours increased $4.2 million due to additional departures.
Total
cost of tours for the nine months ended September 30, 2018 increased $14.9 million, or 15%, to $114.6 million compared to $99.8
million for the nine months ended September 30
, 2017. At the Lindblad segment, cost of tours
increased $8.9 million primarily due to costs related to the
National Geographic Quest
, the impact of cancelled voyages
in the first quarter of 2017, an increase in
Available Guest Nights
across the fleet,
and higher fuel costs. At the Natural Habitat segment, cost of tours increased $5.9 million due to additional departures.
General
and Administrative
General
and administrative expenses for the three months ended September 30, 2018 decreased $1.8 million, or 11%, to $14.7 million
compared to $16.5 million for the three months ended September 30, 2017. At the Lindblad segment, general and administrative
expenses decreased $2.4 million over the prior year period as a result of $1.8 million in lower stock compensation expense,
mainly due to higher costs in prior year related to option grants that were fully expensed as of December 31, 2017, as well
as a decrease in executive severance cost of $1.6 million, partially offset by higher personnel and other costs. At the
Natural Habitat segment, general and administrative expenses increased $0.6 million primarily due to an increase in personnel
and other costs.
General and administrative
expenses for the nine months ended September 30, 2018 decreased $1.1 million, or 2%, to $45.6 million compared to $46.7 million
for the nine months ended September 30, 2017. At the Lindblad segment, general and administrative expenses decreased $2.7 million
over the prior year as a result of $6.2 million in lower stock compensation expense, mainly due to higher costs in prior year related
to the 2016 CEO Allocation Grant and option grants that were fully expensed as of December 31, 2017 and the 2017 executive severance
costs, partially offset by debt refinancing costs incurred in the first quarter of 2018 and an increase in personnel costs and
credit card fees. At the Natural Habitat segment, general and administrative expenses increased $1.6 million primarily due to an
increase in personnel and other costs.
Selling
and Marketing
Selling
and marketing expenses for the three months ended September 30, 2018 increased $0.6 million, or 5%, to $12.3 million compared
to $11.7 million for the three months ended September 30, 2017. At the Lindblad segment, selling and marketing expenses increased
$0.4 million primarily due to increased commission expenses. At the Natural Habitat segment, selling and marketing expenses increased
$0.2 million primarily driven by an increase in advertising expenditures.
Selling
and marketing expenses for the nine months ended September 30, 2018 increased $3.4 million, or 11%, to $34.9 million compared
to $31.5 million for the nine months ended September 30, 2017. At the Lindblad segment, selling and marketing expenses increased
$3.1 million primarily due to increased commission and royalty expense associated with the higher tour revenues. At the Natural
Habitat segment, selling and marketing expenses increased $0.3 million primarily driven by an increase in advertising expenditures.
Depreciation
and Amortization
Depreciation
and amortization expenses for the three months ended September 30, 2018 increased $0.7 million, or 15%, to $5.0 million, compared
to $4.4 million for the three months ended September 30, 2017 primarily due to the addition of the
National Geographic Quest
to the Lindblad segment in July 2017.
Depreciation
and amortization expenses for the nine months ended September 30, 2018 increased $3.1 million, or 25%, to $15.1 million, compared
to $12.0 million for the nine months ended September 30, 2017 primarily due to the addition of the
National Geographic Quest
to the Lindblad segment in July 2017.
Other
Expense
Other
expenses for the three months ended September 30, 2018 decreased $0.3 million to $2.2 million from $2.5 million for the three
months ended September 30, 2017, primarily due to the following:
|
●
|
Interest
expense, net, decreased $0.4 million to $2.4 million in 2018 from $2.8 million in 2017 due to higher capitalized interest
for the
National Geographic Endurance
and the
National Geographic Venture
, partially offset by additional borrowings
under our amended credit facility and commitment fees related to our new senior secured credit agreement.
|
Other
expenses for the nine months ended September 30, 2018 increased $3.4 million to $9.6 million from $6.2 million for the nine months
ended September 30, 2017, primarily due to the following:
|
●
|
In
2018, we incurred a $1.4 million loss in foreign currency translation compared to a gain of $1.0 million in 2017, due to the weakening
of the U.S. dollar primarily in relation to the Canadian dollar.
|
|
|
|
|
●
|
Interest
expense, net, increased $0.8 million to $8.0 million in 2018 from $7.2 million in 2017 due to additional borrowings and the
commitment fees related to our new senior secured credit agreement, and our first lien term loan facility, partially offset
by higher capitalized interest for the
National Geographic Endurance
and the
National Geographic Venture.
|
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,
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
Tour revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
64,507
|
|
|
$
|
67,451
|
|
|
$
|
(2,944
|
)
|
|
(4%
|
)
|
$
|
194,516
|
|
|
$
|
167,891
|
|
|
$
|
26,625
|
|
|
16%
|
Natural Habitat
|
|
|
22,735
|
|
|
|
17,133
|
|
|
|
5,602
|
|
|
33%
|
|
|
44,609
|
|
|
|
35,392
|
|
|
|
9,217
|
|
|
26%
|
Total tour revenues
|
|
$
|
87,242
|
|
|
$
|
84,584
|
|
|
$
|
2,658
|
|
|
3%
|
|
$
|
239,125
|
|
|
$
|
203,283
|
|
|
$
|
35,842
|
|
|
18%
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
8,209
|
|
|
$
|
12,070
|
|
|
$
|
(3,861
|
)
|
|
(32%)
|
|
$
|
26,755
|
|
|
$
|
12,386
|
|
|
$
|
14,369
|
|
|
116%
|
Natural Habitat
|
|
|
2,072
|
|
|
|
1,479
|
|
|
|
593
|
|
|
40%
|
|
|
2,105
|
|
|
|
873
|
|
|
|
1,232
|
|
|
141%
|
Total operating income
|
|
$
|
10,281
|
|
|
$
|
13,549
|
|
|
$
|
(3,268
|
)
|
|
(24%)
|
|
$
|
28,860
|
|
|
$
|
13,259
|
|
|
$
|
15,601
|
|
|
118%
|
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, 2018 and 2017 at the Lindblad segment:
|
|
For the three months ended September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Available Guest Nights
|
|
|
55,741
|
|
|
|
56,398
|
|
|
|
160,575
|
|
|
|
142,291
|
|
Guest Nights Sold
|
|
|
50,993
|
|
|
|
51,122
|
|
|
|
145,714
|
|
|
|
124,951
|
|
Occupancy
|
|
|
91.5
|
%
|
|
|
90.6
|
%
|
|
|
90.7
|
%
|
|
|
87.8
|
%
|
Maximum Guests
|
|
|
7,137
|
|
|
|
7,518
|
|
|
|
20,388
|
|
|
|
17,727
|
|
Number of Guests
|
|
|
6,582
|
|
|
|
6,846
|
|
|
|
18,553
|
|
|
|
15,758
|
|
Voyages
|
|
|
93
|
|
|
|
97
|
|
|
|
269
|
|
|
|
244
|
|
The
following table shows the calculations of Gross Yield and Net Yield for the three and nine months ended September 30, 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 at the Lindblad segment:
Calculation
of Gross Yield and Net Yield
Lindblad
Segment
|
|
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)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Guest ticket revenues
|
|
$
|
58,187
|
|
|
$
|
61,715
|
|
|
$
|
174,699
|
|
|
$
|
147,504
|
|
Other tour revenues
|
|
|
6,320
|
|
|
|
5,736
|
|
|
|
19,817
|
|
|
|
20,387
|
|
Tour Revenues
|
|
|
64,507
|
|
|
|
67,451
|
|
|
|
194,516
|
|
|
|
167,891
|
|
Less: Orion Insurance Proceeds
(a)
|
|
|
-
|
|
|
|
(248
|
)
|
|
|
-
|
|
|
|
(2,148
|
)
|
Adjusted Tour Revenues
|
|
|
64,507
|
|
|
|
67,203
|
|
|
|
194,516
|
|
|
|
165,743
|
|
Less: Commissions
|
|
|
(5,055
|
)
|
|
|
(4,559
|
)
|
|
|
(14,977
|
)
|
|
|
(12,321
|
)
|
Less: Other tour expenses
|
|
|
(4,673
|
)
|
|
|
(3,532
|
)
|
|
|
(12,952
|
)
|
|
|
(10,622
|
)
|
Net Revenue
|
|
$
|
54,779
|
|
|
$
|
59,112
|
|
|
$
|
166,587
|
|
|
$
|
142,800
|
|
Available Guest Nights
|
|
|
55,741
|
|
|
|
56,398
|
|
|
|
160,575
|
|
|
|
142,291
|
|
Gross Yield
|
|
$
|
1,157
|
|
|
$
|
1,192
|
|
|
$
|
1,211
|
|
|
$
|
1,165
|
|
Net Yield
|
|
|
983
|
|
|
|
1,048
|
|
|
|
1,037
|
|
|
|
1,004
|
|
|
(a)
|
Insurance
proceeds received from the Orion voyage cancellations from Q1 2017.
|
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, 2018 and 2017 at the Lindblad segment:
(In thousands, except for Available Guest Nights, Gross and Net
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
Cruise Cost per Avail. Guest Night)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Cost of tours
|
|
$
|
29,647
|
|
|
$
|
27,374
|
|
|
$
|
85,837
|
|
|
$
|
76,915
|
|
Plus: Selling and marketing
|
|
|
10,754
|
|
|
|
10,358
|
|
|
|
31,699
|
|
|
|
28,629
|
|
Plus: General and administrative
|
|
|
11,252
|
|
|
|
13,656
|
|
|
|
36,271
|
|
|
|
38,972
|
|
Gross Cruise Cost
|
|
|
51,653
|
|
|
|
51,388
|
|
|
|
153,807
|
|
|
|
144,516
|
|
Less: Commission expense
|
|
|
(5,055
|
)
|
|
|
(4,559
|
)
|
|
|
(14,977
|
)
|
|
|
(12,321
|
)
|
Less: Other tour expenses
|
|
|
(4,673
|
)
|
|
|
(3,532
|
)
|
|
|
(12,952
|
)
|
|
|
(10,622
|
)
|
Net Cruise Cost
|
|
|
41,925
|
|
|
|
43,297
|
|
|
|
125,878
|
|
|
|
121,573
|
|
Less: Fuel expense
|
|
|
(2,168
|
)
|
|
|
(1,894
|
)
|
|
|
(6,876
|
)
|
|
|
(4,858
|
)
|
Net Cruise Cost Excluding Fuel
|
|
|
39,757
|
|
|
|
41,403
|
|
|
|
119,002
|
|
|
|
116,715
|
|
Non-GAAP Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(1,271
|
)
|
|
|
(3,057
|
)
|
|
|
(3,256
|
)
|
|
|
(9,464
|
)
|
National Geographic fee amortization
|
|
|
(727
|
)
|
|
|
(727
|
)
|
|
|
(2,181
|
)
|
|
|
(2,180
|
)
|
Reorganization costs
|
|
|
(31
|
)
|
|
|
(29
|
)
|
|
|
(324
|
)
|
|
|
(346
|
)
|
Debt refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(997
|
)
|
|
|
-
|
|
Executive severance costs
|
|
|
215
|
|
|
|
(1,400
|
)
|
|
|
(71
|
)
|
|
|
(1,400
|
)
|
Adjusted Net Cruise Cost Excluding Fuel
|
|
$
|
37,943
|
|
|
$
|
36,190
|
|
|
$
|
112,173
|
|
|
$
|
103,325
|
|
Adjusted Net Cruise Cost
|
|
$
|
40,111
|
|
|
$
|
38,084
|
|
|
$
|
119,049
|
|
|
$
|
108,183
|
|
Available Guest Nights
|
|
|
55,741
|
|
|
|
56,398
|
|
|
|
160,575
|
|
|
|
142,291
|
|
Gross Cruise Cost per Available Guest Night
|
|
$
|
927
|
|
|
$
|
911
|
|
|
$
|
958
|
|
|
$
|
1,016
|
|
Net Cruise Cost per Available Guest Night
|
|
|
752
|
|
|
|
768
|
|
|
|
784
|
|
|
|
854
|
|
Net Cruise Cost Excl. Fuel per Available Guest Night
|
|
|
713
|
|
|
|
734
|
|
|
|
741
|
|
|
|
820
|
|
Adj. Net Cruise Cost Excl. Fuel per Avail. Guest Night
|
|
|
681
|
|
|
|
642
|
|
|
|
699
|
|
|
|
726
|
|
Adjusted Net Cruise Cost per Available Guest Night
|
|
|
720
|
|
|
|
675
|
|
|
|
741
|
|
|
|
760
|
|
Comparison
of Three and Nine months Ended September 30, 2018 to Three and Nine months Ended September 30, 2017 at the Lindblad Segment
Tour
Revenues
Tour revenues for the
three months ended September 30, 2018 decreased $2.9 million, or 4%, to $64.5 million compared to $67.5 million for the three months
ended September 30, 2017. The decrease was driven by lower guest ticket revenue primarily from a decrease in Available Guest Nights
due to the
timing of planned vessel drydocks in 2018 compared to 2017. Net Yields decreased
for the three months ended September 30, 2018 to $983 compared to $1,048 for the three months ended September 30, 2017.
Occupancy rates increased for the three months ended September 30, 2018 to 92% compared to 91% for the three months ended September
30, 2017, reflecting higher demand across the fleet.
2017 results also included the impact
of the cancellation of four highly booked voyages on the
National Geographic Quest
due to the delayed delivery of the vessel.
Tour
revenues for the nine months ended September 30, 2018 increased $26.6 million, or 16%, to $194.5 million compared to $167.9 million
for the nine months ended September 30, 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
. In addition, Net Yield for the nine months ended September 30, 2018 increased to
$1,037 compared to $1,004 for the nine months ended September 30, 2017, primarily driven by price increases and changes in itineraries.
Occupancy rates increased for the nine months ended September 30, 2018 to 91% compared to 88% for the nine months ended September
30, 2017, reflecting higher demand across the fleet. 2017 results also included the impact of voyage cancellations on the
National
Geographic Orion
and the
National Geographic Sea Lion
, as well as the impact of the delayed delivery of the
National
Geographic Quest
.
Operating
Income
Operating
income decreased $3.9 million to $8.2 million for the three months ended September 30, 2018 compared to $12.1 million for the
three months ended September 30, 2017. The decrease was driven primarily by lower tour revenues and higher dry dock expenses due
to timing of planned vessel drydocks, as well as higher fuel costs and personnel costs. This was partially offset by a decrease
in stock compensation expense related to option grants that were fully expensed as of December 31, 2017.
2017
results also included the impact of the cancellation of four highly booked voyages on the
National Geographic Quest
due
to the delayed delivery of the vessel.
Operating
income increased $14.4 million to $26.8 million for the nine months ended September 30, 2018 compared to $12.4 million for the
nine months ended September 30, 2017. The increase was driven by increased tour revenue and a decrease in stock compensation expense
due to higher costs in the prior year related to the 2016 CEO Allocation Grant and option grants that were fully expensed as of
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, increased Available Guest Nights across the fleet, as well as the impact of cancelled
voyages in the first quarter of 2017 and higher fuel costs and commissions. 2017 results were impacted by voyage cancellations
of the
National Geographic Orion
and the
National Geographic Sea Lion
, as well as the impact of the delayed delivery
of the
National Geographic Quest
.
Results
of Operations – Natural Habitat Segment
Comparison
of Three and Nine months Ended September 30, 2018 to Three and Nine months Ended September 30, 2017
Tour
Revenues
Tour
revenues for the three months ended September 30, 2018 increased $5.6 million, or 33%, to $22.7 million compared to $17.1 million
for the three months ended September 30, 2017 due to additional departures, as well as price increases.
Tour
revenues for the nine months ended September 30, 2018 increased $9.2 million, or 26%, to $44.6 million compared to $35.4 million
for the nine months ended September 30, 2017 due to additional departures, as well as price increases.
Operating
income
Operating
income for the three months ended September 30, 2018 increased $0.6 million to $2.1 million compared to $1.5 million for the three
months ended September 30, 2017, due to growth in tour revenue, partially offset by higher operating costs related to additional
departures, as well as higher personnel and marketing costs to support future growth initiatives.
Operating
income for the nine months ended September 30, 2018 increased $1.2 million to $2.1 million compared to $0.9 million for the nine
months ended September 30, 2017, due to growth in tour revenue, partially offset by higher operating costs related to the additional
departures, as well as higher personnel and marketing costs to support future growth initiatives.
Results
of Operations – Adjusted EBITDA – Consolidated
The
following table outlines the reconciliation to net income and calculation of consolidated Adjusted EBITDA for the three and nine
months ended September 30, 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.
Reconciliation of Net Income to Adjusted EBITDA
Consolidated
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net income
|
|
$
|
5,346
|
|
|
$
|
9,443
|
|
|
$
|
16,105
|
|
|
$
|
7,491
|
|
Interest expense, net
|
|
|
2,409
|
|
|
|
2,802
|
|
|
|
8,013
|
|
|
|
7,192
|
|
Income tax expense (benefit)
|
|
|
2,690
|
|
|
|
1,586
|
|
|
|
3,194
|
|
|
|
(473
|
)
|
Depreciation and amortization
|
|
|
5,024
|
|
|
|
4,354
|
|
|
|
15,062
|
|
|
|
12,012
|
|
(Gain) loss on foreign currency
|
|
|
(163
|
)
|
|
|
(224
|
)
|
|
|
1,430
|
|
|
|
(1,047
|
)
|
Other (income) expense, net
|
|
|
(1
|
)
|
|
|
(59
|
)
|
|
|
118
|
|
|
|
97
|
|
Stock-based compensation
|
|
|
1,271
|
|
|
|
3,057
|
|
|
|
3,256
|
|
|
|
9,464
|
|
National Geographic fee amortization
|
|
|
727
|
|
|
|
727
|
|
|
|
2,181
|
|
|
|
2,180
|
|
Reorganization costs
|
|
|
31
|
|
|
|
29
|
|
|
|
324
|
|
|
|
346
|
|
Debt refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
997
|
|
|
|
-
|
|
Executive severance costs
|
|
|
(215
|
)
|
|
|
1,400
|
|
|
|
71
|
|
|
|
1,400
|
|
Adjusted EBITDA
|
|
$
|
17,119
|
|
|
$
|
23,115
|
|
|
$
|
50,751
|
|
|
$
|
38,662
|
|
The
following tables outline the reconciliation for each segment from operating income to Adjusted EBITDA for the three and nine months
ended September 30, 2018 and 2017.
Reconciliation of Operating Income to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Operating income
|
|
$
|
8,209
|
|
|
$
|
12,070
|
|
|
$
|
26,755
|
|
|
$
|
12,387
|
|
Depreciation and amortization
|
|
|
4,645
|
|
|
|
3,994
|
|
|
|
13,954
|
|
|
|
10,989
|
|
Stock-based compensation
|
|
|
1,271
|
|
|
|
3,057
|
|
|
|
3,256
|
|
|
|
9,464
|
|
National Geographic fee amortization
|
|
|
727
|
|
|
|
727
|
|
|
|
2,181
|
|
|
|
2,180
|
|
Reorganization costs
|
|
|
31
|
|
|
|
29
|
|
|
|
324
|
|
|
|
346
|
|
Debt refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
997
|
|
|
|
-
|
|
Executive severance costs
|
|
|
(215
|
)
|
|
|
1,400
|
|
|
|
71
|
|
|
|
1,400
|
|
Adjusted EBITDA
|
|
$
|
14,668
|
|
|
$
|
21,277
|
|
|
$
|
47,538
|
|
|
$
|
36,766
|
|
Reconciliation of Operating Income to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Habitat Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Operating income
|
|
$
|
2,072
|
|
|
$
|
1,478
|
|
|
$
|
2,105
|
|
|
$
|
873
|
|
Depreciation and amortization
|
|
|
379
|
|
|
|
360
|
|
|
|
1,108
|
|
|
|
1,023
|
|
Adjusted EBITDA
|
|
$
|
2,451
|
|
|
$
|
1,838
|
|
|
$
|
3,213
|
|
|
$
|
1,896
|
|
Liquidity
and Capital Resources
Sources
and Uses of Cash for the Nine months Ended September 30, 2018 and 2017
Net
cash provided by operating activities
was $39.3 million in 2018 compared to $29.4 million in 2017. The $9.8 million increase
was primarily due to the improved operating results.
Net
cash used in investing activities
was $47.0 million in 2018 compared to $43.8 million in 2017. The $3.3 million decrease was
primarily due to an increase in purchases of property and equipment related to the construction of the
National Geographic
Endurance
and the
National Geographic Venture
, as well as higher deposits from our Federal Maritime Commission escrow
for travel on the Company’s U.S. flagged vessels.
Net
cash provided by financing activities
was $17.0 million in 2018 compared to
net cash used in financing activities
of
$9.0 million in 2017. The $26.0 million increase was primarily due to the $200.0 million in proceeds from refinancing the credit
facility, partially offset by the $171.1 million repayment of the previous senior debt and payment of $6.5 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, make long-term investments or any other use of cash. As
of September 30, 2018 and December 31, 2017, we had a working capital deficit of $1.1 million and $12.7 million, respectively.
As of September 30, 2018 and December 31, 2017, we had $105.7 million and $96.4 million, respectively, in cash and cash equivalents,
excluding restricted cash.
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 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. These 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 nine months ended September
30, 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 for the Repurchase Plan was $12.1 million as of September 30, 2018.
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
$57.7 million and is scheduled for delivery in the fourth quarter of 2018. As of September 30, 2018, the Company had paid the
builder $53.0 million related to vessel.
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. 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 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 September 30, 2018, we had approximately $202.0 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 provided for a $200.0 million senior secured first lien term loan facility (the “Term Facility”),
which represented 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.
During the second
quarter of 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.
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 June 30, 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. As of September 30, 2018, we were
in compliance with the covenants.
The
following table shows the contractual obligation of the Amended Credit agreement for the next five years and thereafter as of
September 30, 2018:
|
|
Payments due by period
|
|
(In thousands)
|
|
Total
|
|
|
Current
|
|
|
1-2 years
|
|
|
3-5 years
|
|
|
Thereafter
|
|
Long-term debt obligations
|
|
$
|
199,500
|
|
|
$
|
2,000
|
|
|
$
|
4,000
|
|
|
$
|
6,000
|
|
|
$
|
187,500
|
|
Interest on long-term debt
|
|
|
75,698
|
|
|
|
11,989
|
|
|
|
23,649
|
|
|
|
34,551
|
|
|
|
5,509
|
|
|
|
$
|
275,198
|
|
|
$
|
13,989
|
|
|
$
|
27,649
|
|
|
$
|
40,551
|
|
|
$
|
193,009
|
|
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.
The
Export Credit Agreement contains financial covenants that, among other things, 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 $25.0 million of the unrestricted cash
and cash equivalents to Adjusted EBITDA (as defined in the Export Credit Agreement) for the trailing 12-month period) of 4.50
to 1.00.
Off-Balance
Sheet Arrangements
On
January 8, 2018, the Company entered into an Export Credit Agreement as described above.
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.
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There
have been no material changes in our exposure to market risk from the information set forth in the “Quantitative and Qualitative
Disclosures About Market Risk” sections contained in the Company’s Annual Report for the year ended December 31, 2017
on Form 10-K.
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 (increase and decrease) in interest rates. For additional information regarding our long-term borrowings see Notes
2 and 3 to our Consolidated Condensed Financial Statements.
As
of September 30, 2018, 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, 2018 was $100.0 million. Based on our September 30, 2018 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.
Item
4.
|
Controls
and Procedures
|
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, 2018, 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
2.
|
OTHER
INFORMATION
|
Item
1.
|
LEGAL
PROCEEDINGS
|
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.
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 the Company’s Annual Report on Form 10-K
for the year ended December 31, 2017 filed on March 2, 2018.
Item
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Recent
Sales by the Company of Unregistered Securities
There
were no unregistered sales of equity securities during the quarter ended September 30, 2018.
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 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. No shares or warrants were repurchased under the Repurchase Plan during the three months ended September 30,
2018.
The
following table represents information with respect to shares withheld from vesting of stock-based compensation awards for employee
income taxes, for the periods indicated:
Period
|
|
Total number of shares purchased
(a)
|
|
|
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, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,124,786
|
|
August 1 through August 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,124,786
|
|
September 1 through September 30, 2018
|
|
|
3,500
|
|
|
|
15.35
|
|
|
|
-
|
|
|
|
12,124,786
|
|
Total
|
|
|
3,500
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
(a)
|
Amounts
in the table above relate solely to shares withheld from vesting’s of stock-based
compensation awards for employee income tax withholding.
|
Item
3.
|
DEfaults
upon senior securities
|
Not
applicable.
Item
4.
|
MINE
SAFETY DISCLOSURES
|
Not
applicable.
Item
5.
|
Other
information
|
Not
applicable
Number
|
|
Description
|
|
Included
|
|
Form
|
|
Filing Date
|
10.1
|
|
Amendment No. 1 dated as of September 4, 2018 to Employment Agreement between the Company and Dean (Trey) Byus.
|
|
By Reference
|
|
8-K
|
|
September 6, 2018
|
31.1
|
|
Certification of Chief Executive Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
|
|
Herewith
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
|
|
Herewith
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Herewith
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Herewith
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
Herewith
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy extension schema document
|
|
Herewith
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy extension calculation link base document
|
|
Herewith
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy extension label link base document
|
|
Herewith
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy extension presentation link base document
|
|
Herewith
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Link base
|
|
Herewith
|
|
|
|
|
SIGNATURE
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 November 2, 2018.
|
LINDBLAD
EXPEDITIONS HOLDINGS, INC.
|
|
(Registrant)
|
|
|
|
|
By
|
/s/
Sven-Olof Lindblad
|
|
|
Sven-Olof
Lindblad
|
|
|
Chief
Executive Officer and President
|