Q3 2022 Lindblad Expeditions Holdings Inc Earnings Call
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Hello, and welcome to today's Lindblad expeditions Holdings incorporated third quarter 2020 financial results call. My name is Bailey and I'll be your moderator for today's call.
All lines will be muted during the presentation portion of nickel with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by one on your telephone keypad.
I would now like to pass the conference over to Craig <unk> Chief Financial Officer. Please go ahead, when you're ready.
Thank you Billy and good morning, everyone and thank you for joining us for <unk> 2022 third quarter earnings call with me on the call today is Dov Burley Windblast Chief Executive Officer.
<unk> will begin with some opening comments and then I will follow with some details on our financial results and liquidity before we open the call for Q&A you can find our latest earnings release in the Investor Relations section of our website before.
Before we get started let me remind everyone that the company's comments today may include forward looking statements those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations.
We cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any such forward looking statements. If you would like more information on the risks involved in forward looking statements. Please see the company's SEC filings. In addition, our comments may reference non-GAAP financial measures a reconciliation of the <unk>.
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 Tom.
Thanks, Craig Good morning, and thank you all for joining us on the call today.
Third quarter was an extremely rewarding one for lindblad expeditions on multiple fronts highlighted by strong financial results diligent operational execution and further progress across a variety of strategic initiatives. The entire team has been extremely focused on continuing to deliver amazing guest experiences.
Tracking a broader audience of guests across our platform returning the company to profitability.
Building, the combination of talent systems, and operating capabilities, which will support future growth and ensuring the acquisitions. We made last year are performing well.
I am excited about all that we accomplished and grateful for the efforts by our team and our partners across the globe, who have gone above and beyond to make this progress happen.
On our Q2 earnings call, we foreshadowed that we anticipated returning to profitability on the EBITDA front in Q3, not only did we do just that but the $18 6 million and EBITDA lindblad generated exceeded the expectations. We had for Q3 only a few months earlier.
Craig will be sharing greater details on the factors behind this performance, but in broad strokes. They included higher occupancy levels driven by strong summer seasons across Alaska, the Galapagos and the Arctic significant demand across our land based businesses.
Focusing of our marketing approach across the company and.
And the efforts of our entire team to maintain efficiencies, while delivering extraordinary guest experiences.
One of the operational highlights from this past quarter was deciding of perhaps the largest number of narwhal, we've ever encountered in our 50 plus year heritage up in the northwest passage. This sighting delighted our guests and was made possible by the advanced ice capabilities of our newest chips the national.
Rafik endurance and the National geographic resolution, who made their inaugural voyages into this beautiful part of our planet.
Experiences such as these are reminder, to our guests and our team of how exhilarating and how memorable voyages with lindblad expeditions continue to be.
As we executed operationally this past quarter, we were also able to capitalize on certain changes in marketplace dynamics.
Key among these were an evolution in the restrictions around Covid, which certainly raised the comfort and confidence levels towards travel on the part of our guests.
Relaxation of Covid testing quarantine rules and masked mandates and most of the countries, where we operate including most notably the lifting of the requirement to test before returning to the U S removed significant concerns for travelers at the same time over the course of the quarter in close consultation with medical experts. We also may.
Adjustments to our company policies and protocols fleet wide, we have now removed all pre departure testing across our fleet are only testing guests as necessary during each voyage and the requirement to wear masks has been lifted.
The safety of our crew and guests remains a top priority and we will continue to evaluate and amend our protocols as necessary.
Overall, the combination of relaxed protocols broader immunization levels and a reduction in the severity of the most recent COVID-19 variance have created a positive shift in the psyche of our guests a manifestation of this shift is the tremendous zeal. We are noting on the part of our guests to return to voyaging there is great enthusiasm.
Yes, I'm foreseeing the world's natural wonders learning from our naturalists and guides and sharing this experience with travelling companions.
We're not only seeing this excitement onboard our fleet everyday but we are also seeing this enthusiasm with regards to demand for future travel part of this is certainly pent up demand that built up over the last two and a half years, but prior to the pandemic. There was a growing population of travelers who are interested to experienced adventure travel and that <unk>.
<unk> appears to be picking back up again.
We're not only seeing strong bookings from our loyal returning guests, but also from a whole new cohort of first timers, who are looking for immersive and authentic travel experiences.
During the third quarter, we saw a 71% increase in gross bookings for in your travel and a 31% increase in bookings for next year travel compared to Q3 2019.
Overall, we remain very well positioned for the year ahead with bookings for 2023, 23% ahead of where our bookings were for 2020 at the same point in 2019 prior to the pandemic.
There are a variety of steps we are taking to further accelerate our marketing and booking capabilities and let me touch upon <unk> III <unk>.
First we are at a stage in our digital transformation, where we can see real traction with our Omnichannel marketing approach.
Assignment in our search engine marketing, a focusing of our messaging on the differentiators behind the Lindblad brand and a blending in of our traditionally very successful print and E mail marketing approaches has us reaching a wider audience of qualified guests.
We have invested in additional sales and marketing leadership under our new Chief Commercial officer, Noah Brodsky by adding experienced talent in both the global head of sales and also brand and communications.
Third in our guest contact center, we have added highly experienced leadership and increased the number of guest facing frontline experts. This has greatly improved our response times in that critical function enables us to amplify the impact of our messaging around these life changing trips for our guests and greatly reduced.
Any friction guests have in the booking their voyages.
While optimism is the prevailing sentiment. It is important to know that there are still challenges we are addressing in this business environment. Despite the strong results in Q3 the.
Financial performance would have been even better had it not been for the impact of the Russia, Ukraine conflict on eight voyages, including our northeast passage itineraries and the cancellation of five Japan voyages on the National Geographic resolution.
The good news is the majority of the guests that were impacted have rescheduled for future voyages and we don't foresee any restrictions on currently scheduled geographies moving ahead.
Another item that impacted the quarter along with parts of 2023 is an increase in guest cancellations, while gross bookings continue to far exceed cancellations every week, we're seeing cancellations run higher than pre pandemic levels with post often noted reasons related to the logistics and cost of air travel and some lingering COVID-19 can.
<unk>.
The majority of these cancellations are not looking for refunds, but are pushing their voyages to later dates which speaks to the robust and sustainable demand for expedition travel.
We also continued to manage through higher fuel costs and supply chain headwinds fuel costs, while still high have begun to abate a bit and we are minimizing the supply chain impact by working closely with suppliers and sourcing even more locally when advantageous.
Let me now turn to the latest additions to the company starting with the newest ship in our fleet the National Geographic Island are too.
This all suite ship launched in the Galapagos During August and the initial response has been nothing short of outstanding 48 passenger ship has been perfectly renovated to deliver our signature immersive experience in this amazing geography chief.
Key features diverse exploration tools and amenities, along with indoor outdoor dining options and comfortable and stylish public places to view the incredible wildlife and landscape under the watchful eye of our highly experienced staff and crew many of whom have been with the company for many years.
We're also seeing strong momentum across our expanded platform of land companies.
As many of you know last year, we broadened and deepened our platform of adventure and experiential travel opportunities with the acquisitions of cycling company do mind cycling an adventure off the beaten path, which focuses primarily on the U S National Parks and classic journeys a leader in walking tours across the world <unk>.
Flowing the blueprint, we used to drive the growth of natural habitat. Our intention is to build these companies aggressively leveraging the cross selling opportunities and the scale and support that resides in our large larger company.
That growth has already started as all of these companies, including natural habitat had been able to capitalize on the significant demand coming out of the pandemic.
They are ideally situated to attract travelers who want to get out and explore given their focus on unique experiences with small groups of travellers in remote locations.
We have already significantly surpassed the contributions from our land business back in 2019, and we've just begun to scratch scratch the surface of what these combined entities can do together.
By way of summary, we are very optimistic about the future for lindblad expeditions, although challenging and at times painful the pandemic months, where at a time when we focused on building the capability of the company from a marketing systems and operational standpoint.
A number of these investments have been technical such as our investment in a new website and our marketing technology stack, but just as importantly, we have invested in building the leadership capabilities in the company.
While there is still some uncertainty ahead, we know we are well prepared and highly practiced in our ability to keep guests and our crew safe and deliver remarkable guest experiences. We're energized by the momentum we are generating generating across all facets of the company and we're excited by the opportunity to build upon this success to drive <unk>.
Additional earnings growth in the months and years ahead, and now I will turn the call over to Craig.
Thanks.
Lindblad strong return to positive adjusted EBITDA in the third quarter demonstrates the resiliency of the company over the last few years and the opportunity moving forward given the growing audience for high quality adventure travel.
This financial milestone would not have been possible without the sustained hard work and dedication of our teams across our fleet and offices and I would like to once again, thank them for their extraordinary efforts.
Throughout the pandemic, we were consistently focused on emerging as a strong and vibrant company well positioned with a strong balance sheet to ramp operations quickly and with a robust platform to deliver sustained long term growth.
We have done just that.
The strategic steps, we have taken over the last several years to expand our fleet capacity and diversify our product offerings are delivering strong financial results today, while significantly increasing our earnings potential from pre pandemic levels at the same time the financial diligence, we have employed should allow us to weather any short term uncertainty.
<unk> as we further ramp operations to fully capitalize on this expanded potential.
Looking at the third quarter of 2022, we have just begun to scratch the surface of this opportunity total company revenue of $144 8 million increased $80 3 million versus the same quarter, a year ago, and was $43 8 million or 43% higher than Q3 2019 due in large part to our <unk>.
Ended fleet and additional land focused offerings.
At the Lindblad segment revenue of $83 7 million increased $56 million year on year, and $7 2 million or 9% versus the third quarter of 2019, primarily due to the ramp in operations, which included additional available guest nights from new capacity and higher pricing across the fleet.
Occupancy in the quarter was 81% and while guest counts are not yet back to 2019 levels. You can see the revenue opportunity we have across the expanded fleet as we grow occupancy levels and increased yields.
The current quarter also included $61 million of revenue with the land experiences segment, an increase of $29 6 million year on year and $36 6 million from 2019.
The current quarter results were led by the ramp in operations across our land companies, including natural habitat trips to Alaska, Galapagos and Iceland off the beaten path trips to U S National Parks Divines bike tours in Italy, and France, and classic journey trips in Europe , and Latin America.
Turning to adjusted EBITDA, the strong revenue growth across the company drove adjusted EBITDA of $18 6 million during the third quarter, an increase of $25 2 million versus the third quarter a year ago. The significant returned to positive results demonstrates the strong operating leverage inherent in our business model as we continue to.
<unk> occupancy levels and maintain high price points.
Looking at the cost side of the business operating expenses before depreciation and amortization interest and taxes increased $55 1 million or 71% versus the third quarter a year ago led by a $42 million increase in cost of tours versus the same period, a year ago, primarily related to the ramp in ship expeditions.
Which included higher fuel costs as well as from expenses related to operating additional land based strips.
Fuel was six 2% of revenue this quarter as compared to three 7% of revenue in the third quarter of 2021.
Selecting higher fuel prices and an increase in the number of ships in operation.
Sales and marketing costs increased $5 8 million versus the third quarter, a year ago, primarily due to higher commissions related to the increase in revenue and from increased search and direct mail marketing to drive future bookings.
G&A spending increased $7 $3 million, excluding stock based compensation and onetime items versus the third quarter, a year ago, primarily due to higher personnel costs as we ramp operations and increased credit card commissions related to final payments for upcoming itineraries and higher deposits on new reservations for future travel.
Total company net loss available to stockholders in the quarter of $9 8 million or <unk> 18 per diluted share improved dramatically versus a net loss available to common stockholders of $25 7 million or <unk> 50 per diluted share reported in the third quarter a year ago.
The $15 $6 million improvement reflects the ramp in operations, partially offset by $2 3 million of additional interest expense net associated with higher rates and increased borrowings mostly related to the delivery of the national Geographic resolution September 2021, and our debt refinancing in February 2022.
The current quarter also includes a $1 $5 million increase in depreciation versus the same quarter a year ago related primarily to the launch of the resolution.
And lastly in the third quarter a year ago included $4 4 million of other income primarily related to the utilization utilization of the service correct.
Turning to the balance sheet, we remain well positioned to continue to ramp operations and whether any additional short term uncertainties. We ended the third quarter with $116 million in unrestricted cash and $30 million in restricted cash primarily related to deposits on voyages that originated in the United States as well as credit card reserves.
The $146 million of total cash decreased $30 million versus the end of the second quarter, primarily due to principal and interest payments of $21 7 million, including the semiannual interest payment on our senior notes and Capex spending of $6 1 million, which included renovations on the national geographic either the two ahead of our August launch.
As well as spending on our digital initiatives.
Cash used in operations was $2 4 million, reflecting the significant guest payments for upcoming voyages and deposits for future travel offset by the costs associated with operating ship and land itineraries and marketing spend to drive future bookings.
Do you see Q3 is traditionally a cash usage quarter given the guest payments for summer travel takes place predominantly in the first half of the year and the operating expense are mostly incurred in Q3.
Year to date cash generated from operations was approximately $23 million offset by principal and interest payments net of approximately $20 million and capex of $30 million, which included growth capex of $15 million.
Looking ahead, we are excited by the sustained operating momentum across our platform given.
Given the seasonality of our business, including the heavy Drydock and transit times across our fleet and a slower season for most of our land companies as well as the higher short term cancellations that Don mentioned earlier, we do anticipate adjusted EBITDA loss in the fourth quarter of 2022 before a return to significant profitability in the first quarter of next year.
Overall, we are well positioned for strong results in 2020, given current guest demand.
A significant portion of our anticipated revenue for 2023 already on the books at our percentage of sales reached similar to what it was back in 2018 for 2019, despite having 39% more capacity available for sale.
Sure.
Bookings nearly every week continue to exceed bookings in the same week in 2019 and there is no question that there is significant pent up demand to get out and explore the worlds amazing geographies.
While there will likely be short term choppiness. The world has reopened and our guests are once again experiencing the thrill of exploration, we have ample liquidity to weather any immediate headwinds and with a strong booking position moving forward along with an expanded fleet and a broader set of product offerings. We are well situated to build upon our results prior to the pandemic.
And deliver additional shareholder value in the months and years ahead. Thanks for your time this morning, and I'll Dolphin I would be happy to answer any questions you may have.
Yes.
Thank you.
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The first question today comes from the line Steve Rucinski from Stifel. Please go ahead. Your line is now open.
Hey, guys good morning.
So Craig or John I wanted to ask about the uptick in cancellations that you guys are seeing right now and I guess, what I'm trying to understand is if these cancellation rates have been still accelerating have they been steady or are they plateaued at this point and are now starting to.
<unk> returned to normal levels and then.
Maybe how those could be impacting the fourth quarter and then also how the how the resolution has booked out so far for the fourth quarter as well.
Sure. Thanks, Steve I appreciate the question so.
Cancellation front and when we say cancellations, it's always important to remember that these are not cancellations that people are just taking their money back and going home, what we're seeing with the vast majority of these cancellations as people are moving their bookings to either later in 2023 or until the early part of 2024 with regards to the trend that we're seeing actually the cancellation in.
The trend in Cancelations has improved pretty much every week since we reported earnings back in early part of August for Q2.
We have not seen yet is it to return to the same levels that it was prior to the pandemic. So the trend is actually very much a positive with regards to how it's done over the last several months, but it is not quite back to the level, where we want it to be.
That pre pandemic levels with regards to the resolution and the move from her from Japan in Q3 to the earlier start in Antartica in Q4.
She has done fairly well from a booking perspective.
Originally anticipated or doing for voyages in the fourth quarter now it looks like we'll probably have only do two maybe three voyages in the fourth quarter.
The voyages that are still on the books have significant occupancy levels not to the same level that you would normally see for chip that was launched a year and a half for sale, but for chip.
<unk> was initiated in the last few months the occupancy levels are at a very nice level voyages will be very profitable for us.
Okay got you thanks for that Greg and then second question just maybe around your <unk>.
Our buyback program and obviously the stock has been kind of stuck here.
In that upper single digit range for for a while at this point in.
With a very solid outlook for 2023, I would suspect that you guys would.
Or could start to buy your stock.
Once you are allowed to which I believe is I think February of next year. So maybe just.
Some thoughts around the potential for the buyback to start back up.
Sure so.
Minder for those who are not aware.
Because of the main street loan that we had taken on and paid back in February of 2022, we are precluded from buying back our shares until the year is expired from that point. So we are not able to buy back shares until February of next year with what I would say with regards to capital allocation overall is that.
We always look at our available capital and look at the opportunities that we have in front of us through the same lens, which is if we have the opportunity to invest in organic growth opportunities. We have the opportunity to make acquisitions that will increase the growth potential of the company that is certainly something that we want to do in the absence of that we will absolutely.
Look to buy back shares of the company, we have done that in the past prior to the pandemic and we have no questions.
To do in the future.
Certainly with the stock sits today, we think that there is a significant opportunity from here given the earnings potential of the company you can see the earnings that we generated in the third quarter. We look at the earnings opportunity that we're going to generate in 2023, then certainly 2024 and beyond as significantly growth from there so with regards to buying back stocks we do.
Think that the stock is an attractive alternative for us once that opportunity presents itself starting in February .
Okay, great. Good color. Thanks, guys appreciate it.
Thanks, Steve Thank you.
Thank you.
Your next question today comes from the line of Ryan Sundby from William Blair. Please go ahead. Your line is now open.
Yeah, Hey, guys good morning, and congrats on a really nice quarter here.
That's where occupancy of 81 occupant.
Occupancy of 81% continues to move closer to it but what are you guys.
Can you maybe just walk us through some of the key hurdles that you need to clear to close the rest of that gap is it certain that you guys can grab it hasnt come back is there a geography, that's really holding that back.
Yes.
An impact here from endurance and regulation coming out that's having an impact there too.
Sure. So when you look at occupancy across the fleet.
Obviously believe that we will get back to pre pandemic levels, which will have us.
The high <unk> low, 90% occupancy levels, and we believe that we can even get higher than that given the demand for expedition travel.
Offering that we provide.
Is it pretty ideal match. So we think that that is certainly where we are headed back to it when you look at some of the headwinds that you have today.
One is that remember that the average booking window for us tends to be about nine months. So a lot of what youre seeing here has our bookings that we are still done at times when the pandemic was still a little bit hotter than it is today.
Certainly impacted guest demand.
A little bit about the cancellation rates that we're seeing if you take the cancellation rates back to a more normalized level you would see occupancy rates somewhere in the mid to high 80% already and then the last thing is you want to make sure that youre not constantly moving the pieces of your puzzle around with regards to the fleet when you move a ship.
I would say is within three months to six months of departure you are likely not to have the same occupancy levels that you would have historically.
Because we've added inventory back in 2017, and 2018 in Alaska, which is a high demand area because we added.
Inventory in the polar region with the endurance of the resolution.
We fully expect that the occupancy levels of the company will get back to the levels that we have had in the past. We also think its important at the same time to make sure that we're <unk>.
Turning that high price point right. So when you look at the opportunities from a revenue perspective, it's a marriage of delivering on that occupancy levels, but also maintaining that high pricing.
As you expand capacity and we've certainly done that in the past and would look to do that in the future. So we would certainly expect to be back at really high occupancy is when you look out to 2023 and Ryan. This is Adolfo I'll just add that we're investing and seeing some nice returns in search marketing.
Which is really broadening we think the audience of people that were reaching who will have a real interest in this product.
And historically, we've had such a good experience with our.
Brochure marketing that we've made adjustments to our websites, where we're greatly increasing the interest in people receiving our catalogs and we believe that those are both things that will allow us to compress the cycle four.
For people booking and capitalizing on this demand. So we are making active efforts to try to compress the cycle, but that Craig referenced.
That's very helpful question, probably color there.
Maybe just kind of one follow up on Steve's question.
If you look at the itineraries that did take place in the quarter or maybe the future demand curve.
Are you seeing any trade down or mix shift and maybe get a lower price.
Shorter duration trips trips there just trying to understand if you're seeing any kind of pull back in.
Outside of that calculation.
No I think the trends overall are relatively similar what you are seeing.
<unk>.
When you look at the demographics of people who are booking certainly continues to be very high domestic bookings you continue to see.
Very high proportion of repeat business, 40% repeat business, which is consistent with what we've seen historically.
The overall booking trends have been remarkably consistent I would say the one thing that you probably have seen which is a little bit different is the booking window with shortening.
Over the last several months you were seeing that nine month window kind of compressed a little bit. However, we just sent out our exploration annual mailing, which is a pretty.
Robust.
Metal offering that we do every time every year in the fourth quarter and when you do that you start to see a bunch of bookings for the end of 2023 into 2024 as people got really excited about the opportunities in the future. So that window is lengthening a little bit again, but overall I think that's the only real change that we've seen.
Alright, thats great to hear thanks.
That's great. Thank you.
Thank you.
The next question today comes from the line of Tyler victory from Oppenheimer. Please go ahead. Your line is now open.
Okay.
Hi, Good morning, guys. This is Jonathan on for Tyler, Thanks for taking our questions and congrats on the quarter.
First one for me just wanted to follow up on the cancellation can you remind us your cancellation policy and any high level commentary on the return to a more normalized policy and I guess, how much of a potential driver of the elevated cancellation could be attributable to like a different policy compared to pre COVID-19.
It's a great question, Jonathan So one of the reasons that we feel the cancellations were high in recent months is that we had a much more lenient account cancellation policy.
Over the course of the pandemic than than at anytime previous.
Reinstituted a.
A more strict cancellation policy.
Now, which is up to 15% of.
There is various stages.
Length of time before.
Okay.
Trip plays off that has different different levels of.
Requirement to pay but we've now reinstituted, what's a more rigorous policy that way and so a lot of what we're seeing in terms of any cancellations above previous levels is really just the remnants of people who booked under the policy that was more lenient in recent months and that's now coming down quite.
A bit but yes, we've returned to a more strict cancellation policy.
Okay, great. Thank you for all the color and then Craig you mentioned your expectation for an expected even though EBITDA loss in the fourth quarter can you just walk us through kind of the puts and takes there and the primary drivers. So that is something that maybe how they differ from the fourth quarter 2019, where I believe there was an adjusted EBITDA gain.
George when you look at the fourth quarter, while we did deliver.
Positive EBITDA in the fourth quarter of 2019 overall, the fourth quarter is a weaker quarter for us traditionally just given.
What I would say.
<unk>.
Usage in the quarter traditionally we have a whole lot of drydocks going on in the quarter, we have a whole lot of transit days.
Ships are moving from other parts of the world down to the polar region. In many cases, so that ultimately does tend to drive lower results in the fourth quarter. When you look at the fourth quarter of 2022. The biggest driver is going to be the lower occupancy across the fleet for that fourth quarter. So you'll have a natural.
Transit times and natural dry dock times, but you also have lower occupancy levels.
Because you have the resolution was moved.
But I would say at a later date from Japan down too.
Antartica earlier and well she will be somewhat profitable voyages that she operates she does have transit time in the quarter and the time, where she is not operating it will obviously have cost on that front. The other thing to remember in the fourth quarter for us is that out of the land companies. While natural habitat will certainly have a strong.
<unk> fourth quarter. The other land companies that we acquired it is a seasonally slow quarter for them.
Before they ratchet up again heading back into 2023, so all of those things combined are going to be the primary drivers behind the projected loss in the fourth quarter and then certainly the cancellations that Doug mentioned earlier are still running hotter than we would normally expect.
Which will drive occupancy rates are lower now it is possible certainly that we have some strength in last minute bookings cancellations could drop if those things happen, we could have some upside here, but given current trends, we expect it to be a loss in Q4.
Okay very clear. Thank you for that and then last one for me if I could the new land based offered offering obviously very strong any early color on how those acquisitions are trending compared to your original expectation does the strength you've seen there so far increase your appetite to do additional bolt on land acquisition.
Well, that's a great question and we were very pleased with the momentum there and we realized that the psyche of guests around smaller group plan to travel is slightly different than the way they felt about cruising and.
In recent months and we're seeing the fruits of that.
We're extremely pleased with the leadership in those companies. These are the entrepreneurial Ceos, who continue to run those companies and so.
We believe that.
We're more than on track in terms of.
Of expectations, and we think it can grow from here as we spend more time with them and they actually learn.
From one another as it relates to potential further acquisitions, we maintain.
A strong point of view.
And a platform company.
<unk>.
The idea of being able to cross market between various pools of guests is still a very good one and so we remain opportunistic we're being thoughtful around liquidity in terms of the strength of the balance sheet as we emerge from the pandemic and so we're balancing the appetite for growth that way with just being.
Financially, but we're certainly in the marketplace.
Trying to.
Think about what the next strategic.
Move that would be most helpful for the company is in that regard.
And look forward to continuing to expand the company in that way.
Very helpful. Thank you for all the quality that's all from me.
Thanks, Jonathan Thank you.
The next question today comes from the line of Chris <unk> from <unk>.
Deutsche Bank. Please go ahead. Your line is now open.
Hey, good morning, guys. Thanks for all the details so far.
So a question on if you will.
Look forward and maybe it's more of a 2020 for question at this point, but.
Are you having are you thinking about that.
Adjusting some of the geographies in itineraries and when you think about some of the issues with Baltic region, and even even parts of Asia.
At what point do you make a call and say, we're going to adjust until further notice.
Beyond those regions and what kind of impact do you think that can that have a can you recover yields on that because I know those are generally higher higher yielding itineraries.
Thanks, Yes, well, let me let me first begin by saying that we do think that there is room for expansion within our current strongholds.
Which is Antarctica as you know Alaska.
Overtime in the Galapagos.
And.
In the high Arctic and so we know that there is real demand we have waiting lists in many cases for ships that are scheduled to be in those areas going forward and so we will continue to.
Really think hard about how we can maximize the strength of those itineraries youre absolutely right that there are some geographies that.
And we have to really keep a close eye on and we do that as a matter of course I think the company always has done that that's part of our natural routine one of the things I feel great about is that the company demonstrated a strong ability to pivot in the last 18 months. When we knew we had challenge. The example of the restaurant.
Ukraine contract conflict, and then pivoting harder into the North northeast passage is one example of that so we are remaining vigilant.
We have to keep track not only of what's going on from a governmental standpoint, but also really.
We kind of get sentiment right get confidence in these regions.
At the moment.
We are planning full itineraries across the world.
Not not probably Russia, but elsewhere for 2024, but in the next few months, we'll we'll double down on what we think the most profitable and successful voyages can be and.
And I think we will.
A much better sense of how confident we can be over the next few months the world is still evolving and emerging in such a way that it's.
Less predictable its more predictable than it was six months ago and it is less predictable than it was prior to the pandemic and so.
I realize there is that sort of a nuanced answer, but that's how we're thinking about it.
Okay, yes. Thanks.
Thanks, Paul.
Yes.
Follow up.
It's obviously been a really big effort to kind of get everything back up and running and question is kind of on marketing. Some of these sales and marketing costs going forward you covered a lot of ground there but.
Do you think the margin profile of the business has changed dramatically.
Marketing costs do we think those cycle off at some point next year or given that you're focused on growth should we kind of run rate what we're what we're seeing now.
Sure So Chris when you think about.
Sales and marketing costs, one of the first things I would say is you got to remember that a big driver of the growth in sales and marketing cost is higher commissions related to the higher revenue right. So as we continue to grow the company Youre going to continue to see commission costs that would be a bigger part of that which has helped.
Helping us to drive that revenue higher.
So that is the first thing secondly, I will say is when you look at the company and how we grow.
We absolutely think there's an opportunity to expand margins from 2019 levels now you're not going to do that overnight certainly the biggest driver of margins is going to be revenue and if you can get occupancy rates back to where they were previously you should have some nice margin expansion.
The good thing for US is as we add additional shifts to the equation those ships tend to operate at a gross margin.
Well over 50% in some cases, well over 60%. So there's a natural margin expansion as you add hardware. If you can continue to build that hardware at the high occupancy levels and at the higher.
<unk>, so we feel pretty good about that there is one item that is I would say working against margin expansion and that is the success of the land based companies well it is a.
Very big positive for us from a cash flow perspective in a very big positive to us from an EBITDA growth perspective, those companies do tend to operate at a lower margin. Overall. So there is a natural minor headwind because of that but we do think that there is a significant opportunity to expand margins.
As we grow the business moving forward.
Okay very helpful. Thanks, guys.
Thank you.
Yes.
Thank you.
The next question today comes from the line of Alex.
Simon <unk> from Craig Hallum. Please go ahead. Your line is now open.
Hey, guys. Thanks for taking my question and congratulations on the return to profitability here I wanted to ask about your bookings for 'twenty three the strong increase that youre seeing above the pre pandemic level can you give us some color on which geographies have really been driving that.
You mentioned there continues to be some volatility.
And and.
Headline risk around some places in Asia as an example.
Of course, you've locked that sir.
Certain routes around the northeast passage in the IR deck because of the Russia situation at those regions been kind of underperforming in the bookings or has it been pretty much around the world that that you've been you've been kind of getting to that double digit growth number.
Yeah.
Sure. Thanks, Alex so the strength in bookings has actually been very very broad based which is nice to see youre seeing really nice.
Uptick in I would say Alaska in the Galapagos in large part to newer guests guests that are not part of Lindblad family previously that are now traveling with us. So it's nice to see there and when you look at the polar regions in the Arctic and as well as the Antarctic Youre seeing a nice return from a lot of our previous guests who have traveled with US who are looking to get out.
There and start to explore the world again, so we are not seeing one geography drive things, it's been pretty broad based and even some of the shoulder season inventory is doing relatively well.
So we feel pretty good about the itineraries that we have in place for 2023 today, if you're really good about what lies ahead for 2024 and we expect these trends to continue moving forward.
Great that's really helpful. Thanks, Greg.
Yeah.
Thanks, Alex.
Thank you.
I remind you if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from the line of Christine wet from Artisan partners. Please go ahead. Your line is now open.
Hey, guys congratulations on the great Claire.
Just wanted to follow back up on that on a cancellation rates can you maybe tell us pre COVID-19 sort of what that rate.
And as you exited three Q, what you're trending at and then I know you used the word canceled a lot of them are rescheduled could you maybe just tell us the mix. So what portion of the cancellations, you're seeing are rescheduled versus actual cash refunds.
Yes, let me answer the second part of that first and then I'll get into the cancellation rate. When you look at the refund level. The refund level is very very low even the guests that haven't necessarily.
Cancel and rebook, they haven't canceled and asked for a refund that had cancelled then are deciding what they want to do so in terms of the refund levels that were out there giving today.
It is still not down to 2019 levels. It is very very far below where it was at the height of the pandemic. It we're not seeing much cash go out the door from a refund perspective, but one exception to that from time to time, because when we have canceled the voyage overall, we did cancel.
Japan, There was obviously a little higher whether it was still a high uptake from a lot of those people to the following year. It was at a higher than normal.
Related to that kind of a switch with regards to cancellation rates. It's a hard question to answer because when you say cancellation rate as a percentage of what so what I would say the best way to look at cancellations is when you look at cancellations as a percentage of bookings coming in the door.
The percentage that we are seeing today, and we're not going to speak to the specific percentage is probably two five to three X. What it was back in 2019, if I look back to the second quarter. It was probably three or four X. What it was back in 2019. So you can see that it's starting to step down.
They look at for example in October unto itself. It was probably only about one X where it was back in 2019. So the trends are favorable right now in terms of where they were over the last several months to where they are today, but not quite yet where we want them to be overall.
Got it okay that's great.
And then for individuals that are rescheduling or potentially canceling or looking to see what they want to move on with next.
If they choose to reschedule do they roll into a more strict policy or do they get to keep existing lenient policy. Assuming this is a guess that booked during the COVID-19 period, where they had lenient option for canceling their trip.
Yes, if they've changed their bookings.
This period to the next period, we will certainly hold them to the same cancellation policies that are new guests are booking today that said, we have as a company throughout the pandemic worked with our guests because our guests tend to be very very loyal and we will continue to work with our guests to make sure that they have the flexibility of the options they need to book travel.
Actually somebody who stuck with us throughout the pandemic, but we haven't gone back to our traditional cancellation policies and our goal is to keep those pretty firm here moving forward for what its worth some amount of cancellations occur because someone actually comes down with COVID-19 or someone in their party has COVID-19 or someone in their family has COVID-19 and so.
We think that that what's going on with Covid.
In People's individual lives. In addition to whatever policies there might be in any given country related to quarantine are still the biggest factor behind what's going on with people canceling and so all of those trends seem to be going in a good direction as it relates to reducing cancellations in.
Future, but thats, what we experienced over the last couple of months.
Okay perfect. Thanks, so much guys I appreciate it.
Thank you.
Thank you.
There are no additional questions waiting at the moment, so I'd like to pass the conference back over to Craig Bernstein for any closing remarks. Please go ahead.
Yeah.
Thanks, Bill and thank you everybody for joining us. This morning, we look forward to continuing to dialogue with you as we head off this call and if you have additional questions. Please reach out and we're happy to talk thank you. Thanks, everyone.
This concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
Okay.