Q3 2020 Lindblad Expeditions Holdings Inc Earnings Call
Yeah.
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Ladies and jumping to thank you for spending by and welcome to the Lindblad expeditions incorporated reports third quarter 2020 financial results Conference call. At this time all participants are in a listen only mode. After this.
Our comments May reference non-GAAP financial measures a reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company's earnings release and with that out of the way, let me turn the call over to Seth.
Thanks, Craig and good morning, everyone.
Thank you again for joining us today.
During our last earnings call I spoke to you from French Polynesia, I was there to learn about the possibilities what could be developed in order to position one of our ships there throughout the years I've been fortunate to spend a fair amount of time in this remarkable location and issue think of a place like a recipe French Polynesia has an excess.
Of ingredients.
The incredible lagoons, the turquoise waters reefs fish mountains, Fars flowers everywhere and really some of the nicest and happy as people on Earth.
I was able to spend my time, they're working with local leaders in laying the groundwork for what I believe will be one of the strongest most sustainable expedition experiences we have ever developed.
Now back and Savi, New York, we are all somewhat consumed by an upcoming election and made aware each day of the grips with COVID-19 has on our country and much of the world. This.
This is a stubborn and pandemic that clearly will be with us into next year and will significantly affect our shirt short term plans.
Over the past few months, our startup team has worked diligently to develop a robust set of stringent protocols that would allow us to operate sooner rather than later in a variety of geographies.
We had these protocols vetted by a number of health officials and local authorities who were all impressed with the procedures. We had established and we're willing to work with us to resume operations.
In 21 and beyond with a robust plan that involves every tool in our Arsenal.
We have also announced new concepts and itineraries, which we believe respond well to the times. Please.
Please remember we have a very fortunate circumstance in that because of our size and what we are known for and the reputation. We have developed over these decades, we offer the kind of travel the countries and regions really want close coated world. This.
This I've been told over and over and over again.
We are also largely nature based which means being outdoors and naturally distanced from large human concentrations, our spring and summer finds us almost entirely in the wild Alaska, the Arctic Galapagos, the on Amazon and Polynesia.
As a result of our capital raise in August along with an already significant cash position. We can weather this pause for quite some time.
Our teams have done a remarkable job of paring down expenses, while at the same time, ensuring that we are ready to reactivate when is the right time.
Every aspect of the organization has to undergo an analysis has had to undergo an analysis of what can reasonably be safe without damaging the long term future.
That in essence was the driving force behind the capital raise never never damage your long term future.
Significant capital reserves also allow us to look at and seriously consider strategic opportunities that are compatible and broaden our long term offerings.
Clearly there are and will continue to be such prospects has companies reevaluate their future.
This pause is also a time to look internally and focused on things that never seen possibly when you're at full throttle.
Internalized T systems sales relationship operational structure in other words, the back of the house items that while mostly hidden make a huge difference both financially and in terms of efficiency I.
I've spoken to many colleagues in the industry, who have had the exact same experience. There is little time to efficiently correct course, when you're driving at 100 miles an hour.
Of course, everyone is asking when will this be over when will we get back.
To normal.
And while no one knows for sure when.
Those for sure when clearly this will pass better more rapid testing treatments credible vaccine flattening of curves these will all happen.
And then we will return to an altered world. We were found strengths. We didn't know existed we will learn more about handling stress that we could have ever imagined.
We will be more excited and motivated than ever return to business and we respect and nurture our gas more than ever before when I refer to covert at this time I use the word pause.
Many of sets may spend aren't you besides yourself with whats happening to the business.
Finally, I'm not I'm deeply saddened by what's happened in the world for the people who become sick or died for those who have lost their livelihoods for animals have been killed because their countries simply couldn't afford to protect them.
As to the business covert presented a crisis, we acknowledge it and built a plan to ride out a pause including building a large cash coffer.
And what I do know beyond a shadow of doubt is that when the doors open again, we will be ready with what I believe will be amongst the most relevant sought after opportunities for travelers and that physician will last far into the future.
Then let expeditions and natural habitat celebrate the wonders of our world, whether they be natural cultural or historical.
Our offerings are smart respectful and full of value people.
People will seek out these opportunities in far greater numbers than ever before of that I am 100% certain.
So thank you for your time today and now please I'd like to turn the call back over to Craig.
Thanks and good.
Good morning, and I do hope that we will remain healthy and safe. During these truly unprecedented times I would also like to once again, thank our true across the globe and our office personnel.
During this period and for their diligence in preparing us to return to operations, while simultaneously finding ways to preserve capital. It has been over seven months since we paused our operations and we continue to execute on the comprehensive plan, we put in place back in March to reduce costs and our liquidity position.
Given the uncertainty around when and how quickly we will we will be able to ramp up operations in August we further extended our liquidity runway through the issuance of $85 million in redeemable preferred stock to a diversified group of high quality long.
Long term focused investors I will discuss our overall liquidity position in a moment, but this investment which was substantially oversubscribed will help secure our return to operations and allow us to explore potential strategic opportunities to augment our long term growth profile.
Operationally all of our ships remain safely laid up with minimal minimally required crew and we have eliminated a considerable portion of our ship and land based expedition operating as well as capital costs.
On the advertising and marketing front, we suspended the majority of our spend focused primarily on digital opportunities and team meet that is generating appropriate returns with regards to future bookings and we have significantly lower general and administrative spending through employee furloughs salary reductions and elimination of all non essential travel.
Office expenses and discretionary spending.
Additionally, we've suspended all repurchases of common stock under our existing stock repurchase plan.
On the piano front the measures we have taken enabled us to reduce operating expenses before depreciation and amortization interest and taxes by 76% during the third quarter versus the same quarter a year ago on.
On the cash front, we lowered our cash spend this past quarter to $36 million, which included approximately 20 million in operating costs $5 million in principal and interest payments and less than $1 million in capex there.
The remaining cash usage was primarily were refunds paid to guess, partially offset by payments for future travel.
It has been very encouraging that on the voyages cancel their rescheduled thus far which includes expeditions through the end of the December as well as our upcoming seasons in Antartica, South, Georgia and departments. The majority of our guests have continued to opt for future travel credits as opposed to full refunds and this trend has been very very consistent since March.
Josh.
One other important facet with regards to refunds is that our exposure is significantly lower moving forward as the majority of our unearned revenue is for travel with the guests have already decided on their future travel plans.
Turning to current booking trends as we've highlighted previously we are off to a great start in 2020, we were off to a great start in 2020, private cobot and mobile age cancellations have resulted in current bookings for 2020 down 74% versus 2019, the demand for future expedition travel remains very strong and we are we.
Well positioned for 2021 and beyond.
Bookings for 2021 are still 4% of ahead of 2019 at the same point in 2018, and while bookings are now behind where they were for 2020 at the same point a year ago that is predominantly due to scheduled voyages and cancellations for Q1 of two of next year looking at the last nine months of 2021.
Which is more apples to apples, we remain 12% ahead of the same point a year ago for 2012.
A portion of that growth is certainly from guests on canceled voyages that have opted to reschedule, but we have also generated over $44 million in new bookings since March onest from guest not utilizing future travel credits as a reminder, we have also not yet it's been mentioned resume marketing in earnest, we do anticipate ramping up our marketing effort.
Beginning in Q4 with some additional spend on direct mail and social opportunities as well as increased outreach to trade advertising and travel advisors.
Based on the feedback we are getting from guest directly we believe that there is a significant pent up demand to get out and explore the world's most amazing geographies and these efforts will secure additional bookings for 2021 and 2022.
We ended the third quarter with $130 million in unrestricted cash and $17 million in restricted cash related primarily to deposits on voyages that originally in the United States. This is a $44 million increase of where we ended the second quarter as the cash usage was more than offset by the capital raised through the preferred stock issuance.
Our monthly cash spend this quarter was below original expectations due to targeted cost cutting measures and cash management.
Moving forward, we continue to estimate that our monthly cash usage will be 10 to 15 million on average, including all ship and office operating expenses necessary capital expenditures expected interest and principal payments, but excluding NDS payments for future travel and refunds of previously laid guest payments.
On the debt front, we ended the quarter with $412 million in principle outstanding and have only 500000 and principal payments due for the remainder of the year.
We have deferred $9 million in principle payments related to our export credit agreements from June 2020 through March 2021, and we have no material debt maturities until 2023 with.
With regards to our leverage covenants. The company has worked with its lenders to amend its existing credit agreements, including suspension of leverage ratio covenants through June Thirtyth 2021.
Finally, looking at our new build obligations, if the remaining installment and payments of approximately $62 million on our second new Bluewater ship. The National Geographic resolution are fully covered by our second export credit agreement and are not scheduled until next year with the majority due upon delivery of the ship, which is still anticipated to be towards the end of two.
2021.
While there is unfortunately, no way to be sure when we will resume selling the steps we have taken since the realities of the pandemic became apparent have provided us significant runway to whether the uncertainty as we are continuing to evaluate additional steps to further reduce our operating expenses and enhance our liquidity position. So we can emerge from this unprecedented period as.
Strong company ready to once again capitalize on the growing demand for expedition travel.
Thanks for your time this morning, and now spent and I will be happy to answer any questions you may have.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just one moment to compile to acuity roster.
Your first question comes from the line of Steve Lynskey Stifel.
To the year continued pause in sailings and I and I guess the question is.
Given you don't fall tactically under the Cdcs guidelines I.
I guess, we're probably surprise I think other investors just surprised at this point you Havent tried to get something operational.
Sooner rather than later, so I guess the question. The biggest question is.
You know is the issue here is still trying to get customers to the ships themselves, meaning that that are still kind of a lack of reliable air capacity at this point or is there are there. Other just other factors that are kind of keeping you underwater at this point.
Okay.
Good morning, Stephen Thanks, So.
We discuss elements listening last call, but just to reiterate that sorry for any repetition. So you need a UTI for unit three things primarily in order to reactivate, obviously, you need a credible medical solution, which we developed and we feel felt very strongly about.
You need a welcome mat, meaning that.
Places where growth need to X.
Except you coming.
So for example, Argentina and Chile in the Antarctic as the starting point for the Antarctic technically are off limits to our controversy revenue.
However, we were working very closely on some kind of special dispensation based on our protocols that surge you need ultimately the will of the people the gas to travel.
And this has obviously been an environment of shifting sands. So if you take for example last week. We were we were poised ready and has built to re operate in Antarctica, which had webinars with our guests we.
We had a pretty significant.
Positive reaction from them, we had a marketing plan to fill in the gaps.
We were completely ready and then what happened you had an extraordinary.
Increase in coated cases around the country. Those is dominating the news whether it's two things dominating the news the election covert.
This was and then the CDC on on on October 26 made their announcement and even though technically we are not in the category that the CDC is regulating from us waters by 250 soles and above.
We are below that.
It's still has said to us citizens or.
Or Americans do not travel on cruise ships. So this is the.
Trying to operate in the face of that kind of a recommendation and particularly in other places are really quite far away in a rising tide of Corona.
We were dealing with what we what we clearly imagine will be diminishing returns in terms of the people who said, yes that was going to get further reduced our ability to get new people was going to be further reduced and it.
It just didnt make economic sense to send the ships and the prospect of this getting completely out of hand in the next couple of months prior to when those voyages rescheduled was was clearly a possibility. So from our point of view, it's better to say look we have the reserves.
Lets retool the organization for hopefully a significant starting in April we might be able to do some things between now and April in the United States and in the Galapagos Islands were working on that.
But.
The circumstances, just didnt allow for free.
For us to operate and do it effectively.
So okay. So it sounds like you're just.
When it comes down to is you're just erring on the side of caution at this point is that fair.
No it's not fair because were not erring on the side of caution we're erring on the side of facts that tell us that there is no possibility to effectively operate in an area send to ship down fill it full of fuel.
But crew on.
And do all of that and have it be a good result, it's Craig one of the things that are important to remember when you think about antartica that to see that writes a runs runs from November to call in March so in order to get that season up and running is a whole lot things have to be done in the next season is over unlike a lot of those which was pretty much year round. So.
The decision on the Arctic ahead of delayed by certain point in time and it was just too much uncertainty.
Trust to get going from a cost perspective.
It just wasn't worth it wasn't worth the risk factor, but Steve the reason I react to the word.
Though the word caution.
Is that we had developed a.
An unbelievable set of protocols that would keep people safe that people all over the industry and in countries, where we're using as models for for what they said was literally the best.
And the most well thought out protocols they had ever seen and so we felt.
We felt absolutely secure that we could bring people to the Antarctic and do it safely and give them a great experience at the same time.
It was just as to when the forces.
Outside the EU have absolutely no control over and when a government institution like this center for disease control makes a statement like that Thats, a very that creates a huge headwind in terms of trying to go up against.
Okay understood. Thanks for that and then second question would be.
That that new booking numbers that you laid out there, which is which is 44 million I think since March but that is that's that's an increase of 14 million versus where you were three months ago. So like I guess the question is.
Is that 14 million.
It seems like you've seen a little bit of a sequential.
A slowdown there in that in that booking number it is that would that be kind of normal to see that slowdown and I'll be on a normal type environment or is that slowing down just because again folks have no idea when.
You guys. What you guys will resume cruising again, hopefully that makes sense.
Yes, Steve this slowdown it has not really been a slowdown the remember that the early days in Brooklyn. The March timeframe, we're still very heavy because there is still a fair amount of new bookings coming in when I look at the new booking is call. It over the last four to five months. It actually has been very consistent. So every leaders look very similar.
There isn't some.
The higher lead to lower rates, but if you look at the average is the average per week I've actually been very very consistent even.
Even right now heading into the election, we're still seeing the same consistency, whereas in the past we've seen a little bit of a slowdown heading into the election, we haven't seen that with regards to new bookings, albeit that numbers are lot smaller.
Okay got you good here thanks, guys appreciate it thanks.
Thank you.
Your next question comes from the line of Alex Fuhrman of Craig Hallum Capital.
Yes.
Question I was wondering if you could talk a little bit about the range of scenarios that you are planning for on the in terms of the ability for Americans to travel to other countries.
When when you think you might see that wages and redeem and other countries and then on.
If it ends up being both to 2021, where it's at impractical to get.
Eric into Europe, and Argentina, and Chile are there possibilities, where you could really ramp up youre in that it grew again, maybe in the Continental US. In addition to two Alaska to help mitigate the cash burn next year.
Yes, Thats a great question.
So a couple of things one I think we pretty much believes are we believe that if you think about all of the different components that will come into play as it relates to.
Allowing for a robust reactivation of traveled broadly.
Vaccine, obviously better treatments, obviously better testing and it seems like all those are.
Our along the way right and they probably will.
B, they probably will be available somewhat earlier than they would in sort of normal times because there obviously is a lot of urgency around around accomplishing those things so.
We believe that there's a good chance that.
April more or less onwards.
We will be able to operate in a lot of the areas that we traditionally do now remember that it's.
If you take the summer broadly the.
Our ship our newest ship the hundreds is in the Arctic are for American ships are in Alaska. The explorer is in the Arctic.
The Orion is in the South Pacific. So we are we are really in areas that.
That.
Our our way less stressed in terms of coated I mean, if we had voyages in the Mediterranean, let's say or on the west coast of Europe or.
Places, where there are large human populations I would be way way more concerned.
I'm still concerned by the way obviously I mean, we're all concerned were tried this is like trying to reach into a crystal ball and figure out an answer that that clearly unclear. However, geography matters, a great deal and we can shift some of those geographies or so I'll just give you an interesting example, and I think this is key.
One of our voyages in Antarctica. This year, two we had two departures at least 30 day voyages.
From Argentina down to the peninsula of Antarctica across Western Antarctica, finishing in New Zealand.
30 days.
They are completely full and these are voyages the cost 65 to $100000 pending on cabin section per per session per person.
We realized we could not go to New Zealand because New Zealand was closed we had all these people on our Webinars and say we're completely changing the itinerary, we're not going to New Zealand, we're going to concentrate and enhance our peer and south, Georgia, and the softens and other geography sort of sub Antarctic items and.
Do you still want to go and most of them who were going to go we're willing to travel anywhere said, absolutely Thats fine, yes, we wanted to go to.
This is what we bought in your offering something that's different but it's equally compelling and were going to go. So we do have an enormous amount of latitude in terms of how we can shift itineraries. If there's a good reason to do so and if the alternative is equally compelling.
And I feel this or I'm sorry, this is bit of a long answer but I mean, it's it's it's an important question you asked and flexibility. So revenue if you're stuck with a situation where you have to use a dark inner city on a certain day you have in essence, a slot and if you Miss that slot you got a problem.
We don't have slots anywhere we can go pretty much wherever we want and and we are constantly looking at the landscape and we are constantly.
We currently have a plan b in Atlanta see in terms of how to move these ships.
In accordance with external circumstance.
Great Thats really helpful. Thank you.
Your next question comes from the line of Chris.
We're want that of Deutsche Bank.
Hey, good morning, guys.
Wanted to ask you if you have done any work around trying to understand the opportunity to potentially.
It gets some folks who may have been loyal to one of the bigger cruise brands and now they're looking for post covert a different experience is there any way to kind of gauge or.
How do you direct your marketing efforts to some of those people.
Yeah. That's also again Thats a great question.
One of the things I personally learned during this period of covered which was a great away sort of an awakening of sorts.
Well I always felt that travel advisor community or travel agents or some people may refer to them was important what I realized during this period is there a way more important than I had really fully realized.
And they have a real relationship.
With with their clients and Dave.
Really do act as advisors, just like a financial adviser would act in relationship to finances. They act they advise in relationship to their travel opportunities, which they know really really important of the people they deal with and today and we've had conversations with many of them about this very subject I mean people are going to change their.
Answers and.
And I think thats going to bode well from our perspective, because I think the idea of being on in any sort of large gathering is just going to become less attractive people are just going to be less attracted to crowds and obviously, a large cruise ship and I'm not saying I don't want to denigrate that in any way shape or form, but it's a effective.
Yes, it's a critical mass that is significant.
And in our situation is a critical mass that is way way lower and and people and certainly people in the travel trade recognize this and they're going to be instrumental in an acceleration of shift in our favor and that isn't just something I believe that's something we discuss or something else.
Heard over and over again and something we will really really nurture.
Hey, Chris one other thing.
I'll add is when you look at that the new bookings that were getting in right now versus those that are being scheduled out of the new bookings, it's pretty much split down the middle between.
Yes that have been here previously, but also new guests and that percentage of new guests is nice for us to see especially during this time. So we are seeing just natural in non interest on top of some of the work extensively during some of the best third party travelers.
And incidentally, but that's not the only thats not the only avenue, but I just wanted to illustrate that is a specific avenue, obviously in our communication in our marketing and.
We are completely sort of rebranding not.
Not rebranding, but our our for example, our catalog.
The one piece that is like critical every year that sort of launches the following year and the year after.
We are completely re.
Reinventing it if you will in terms of emphasis and focusing on getting back into and developing a different relationship with wild places. So the combination of size and the combination of geography, I think is a very potent mix.
Okay, Great appreciate all that color and then just.
Do you think about starting up again and whether to April or before.
And you think about some of the protocols that are probably still going to be in place and hopefully eventually to go away but.
Does that change to dramatically change the economics if you're.
He is paying for testing and some of the other things you have to do and I know you. It will be a great trade to get sailing again, but as we think about kind of modeling that out is it a different margin profile for the first.
X number of months or quarters.
Yes, certainly there is a couple of things are going to happen in aggregate for us ill leave you need to get all the crew of eroding and get them from where they are to the ships and they get the ships ultimately ready to sail into ships down to where they ultimately are going to take guess that will certainly be additional cost in the startup process nothing that we have been planned for.
And part of the overall economics, when we factor in whether it makes sense to sell or not so that shouldn't be too two out of the ordinary there will be when you start up depending on the geography. Some additional costs certain geographies are going to require charter planes potentially certain geographies or acquire.
More medical capabilities certain geography, they decide to pull some cabins out of service. So I would say in the short term margins will be a little bit impacted albeit not too dramatically you'll still be significantly profitable. We think about these shifts in general the majority of our shifts operated gross margins well over 50%. So we would still expect to have.
Very high margins on the ships, we operate them and then those costs will certainly dissipate over time, so I would expect the first year margins to be impacted but when you look out to years, two and three we should get back to the places where we've been historically.