Q3 2023 Lindblad Expeditions Holdings Inc Earnings Call

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Good morning, everyone and welcome to the Lindblad expeditions for call. It 2023 third quarter financial results. My name is Chad should not be the coordinator for your call today.

During the presentation you can register to ask the question by pressing star one on.

On your telephone keypad, if you do change your mind, you, but my breasts Oh by Chase.

I would now like to hand over the call she Craig <unk> Chief Financial Officer again.

Ahead.

Thank you operator, good morning, everyone and thank you for joining us for <unk> 2023 third quarter earnings call with me on the call today assembling blood Midwest founder and Chief Executive Officer, then we will begin with some opening comments and then I will follow with some details on our financial results balance sheet and current 2023 expectation.

Before we open the call for Q&A.

You can find our latest earnings release in the Investor Relations section of our website.

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. The company cannot guarantee the accuracy of any forecast or estimates and we undertake.

No obligation to update any such forward looking statements.

You would like more information on their business involved in forward statements. Please see the company's SEC filings. In addition, 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.

Thank you Craig and good morning, everybody and thank you for joining us.

Greg will discuss our record financial results in a moment.

He does I would like to take a few minutes to discuss some momentum across our operations along with where we are focused as a company to further take advantage of.

The earnings potential of our platform and the growing demand for experiential travel when.

When I returned as CEO in June I made it clear to the organization that we have three key priorities first as has been the number one principal since we founded the company back in 1979 ensure that everything we do elevates and enhances the guest experience.

Second given the fixed cost nature of our fleet still our expanded capacity to the same levels. We were doing so prior to the pandemic and third continue to rapidly grow the diverse businesses, we have acquired while strategically and selectively looking for accretive acquisitions, where we can.

Further broaden our offerings and when appropriate create cross marketing opportunities that provide meaningful incremental value.

I'd like to provide a little color on each of these priorities starting with the guest experience.

Ensuring our quality is the highest level possible.

Before during and.

To the expedition has always been essential because it is our promise to guests.

Quality is what they reasonably expect entities.

It's even more important today, given the evolving competitive landscape.

We are proud of the consistently excellent guest satisfaction scores, we have always achieved and we are dedicated to continuing to earn those results as we continue to grow in the months and years ahead.

There have been some short term challenges on the pre voyage shrunk it changes.

Our operating environment and changes.

Changes to our company infrastructure have presented but we have been diligently addressing each had an external factors such as lingering lingering remnants of COVID-19 changing political circumstances, and evolving geographic nuances that created much deeper and longer conversations between guests and our service teams.

This takes more time to ensure that they have the information needed for our upcoming perspective voyages.

So we have adjusted the employee number is dedicated to this effort shows to institute swiftly accommodate the rise in inbound call volume.

At the same time, we are adapting to a massive change in technology as we significantly upgraded our digital stack with a rollout of a new CRM system reservation platform content management system customer data platform and company website.

Fully integrating these tools will provide far greater efficiency for our guests and employees and after the expected initial challenges as we integrated 15 critical systems across the company, including sales marketing accounting operational and analytical tools. We are beginning to see the benefits from these investments.

As we focus on our pre voyage interactions and integrating technology. We are also now back to full force with research and development. It is the lifeblood.

Lifeblood of providing unparalleled experience.

Having significant boots on the ground planning and developing itineraries as an essential ingredient to cultivating new experiences in parts of the world. We have been visiting for years and Curating, new expeditions and additional destinations worldwide.

The same can be said for in person training of our field staff Marine personnel and hotel operations.

Key ingredients to the unparalleled service and experiences.

Linda has been synonymous with over the last five decades.

Turning to our second priority filling our ships. This is obviously an imperative is they are basically fixed cost platforms. The vast majority of each additional guests beyond our current occupancy drops to the bottom line and each bed because unsold as a lost opportunity to maximize our platform and increase margins.

We have discussed in the past every part of our occupancy is worth approximately $4 million to $5 million all else being equal so it's not hard to see the tremendous upside in getting from the current occupancies to historic levels.

The key to doing so it's multifaceted starting with the right balance of inventory as we strategically expanded our fleet beginning in 2016, we focused on maintaining that balance investing in capacity that would serve the guests demand we were seeing across the globe.

By doing so we expanded our U S fleet nearly tripling our capacity in key areas, such as Alaska, while maintaining high occupancy levels and increasing yields.

We were on the same path through the same with our expanded blue water fleet when Covid hit.

Which was further exacerbated by Russia's invasion of Ukraine of course in the recent.

Scheduling and many of our new exciting itineraries like crossing the northeast passage and any other itinerary involving Russia.

These itineraries had to be re crafted remarketed and they have to be done. So while we also lost two years of generating new pass guests due to COVID-19.

This past guests are critical to generating strong demand for all of our more esoteric itineraries. They have already traveled with us once have an appreciation for what we do have recency as drivers. So it is imperative that we rebuild that passed gas pipeline to maximize that opportunity across our fleet.

We are already making significant inroads on that front itineraries that are drivers of new guests Alaska. Galapagos. For example are already performing near historic levels and so the system is now fully active again, producing the necessary pipeline were balanced across the board occupancy in future years.

At the same time as I laid out on our last call. We continue to focus on creating the most modern marketing and sales platform to propel growth.

Marrying that historically successful approach, which centered around direct mail and targeted E mails with meaningful digital lead generation focusing on driving first time bookings through elevated search campaigns to capture and convert new audiences.

We're also continuing to grow our relationship with travel advisers across the globe as more advisors are booking their clients on execution cruises.

Ever before and we hired industry, leading salespeople to help us grow our share from these important distribution partners.

As we grow occupancy we are also focused on ensuring that we maintain our premium price point and given the experience. We deliver this requires that we continue to reinforce the messaging around our value proposition with an emphasis on the differentiated high quality expedition, we can provide given our heritage experience and knowledge base.

As well as our long standing partnership with National geographic for <unk>.

Many travelers destinations I can talk to you guys in Washington, a lifetime experience, we believe strongly that touch and experience should not be compromised and with us it won't be <unk>.

Clearly has the best and most experienced navigators expedition leaders naturalists as well as the best shifts both from the perspective of that.

Driving expedition excellence and elegance.

The first priority is to continue to drive the results across our landfill the final priority.

To drive the results across our land portfolio. The rapid growth we are delivering at natural habitat design classic journeys and off the beaten path is a testament to the founders and leaders of these businesses who share my commitment to the guest experience we.

We had significant momentum coming out of Covid and 2022 and are certainly building on that success in 2023 with.

The collaboration and sharing of best practices with regard to product marketing and operations is helping to attract more and more travelers and we believe we are just scratching the surface of opportunity the land portfolio has to offer.

As we grow our existing business. We also continue to explore additional opportunities to further broaden our product offerings.

We recognize that our travelers are omnivorous in their interest.

Person may be with us in Antarctic in December and on Safari in Africa in September the more diverse options. We can provide the better. So we are very focused and excited about selectively to selectively finding additional companies that are best in class in the lines from a mission perspective to bring into the fold.

The biggest opportunity we have in the short term is to increase the execution of our existing portfolio, but augmenting our long term growth opportunity with additional drivers remains a priority.

Overall, we are very excited by the momentum across our entire company as we delivered strong results today, while setting ourselves up to further leverage the premium platform.

In many ways, we are much different company now than we were right before the pandemic with a fleet that is 40% larger land portfolio that has quadrupled and then involves technological footprint and overall company company infrastructure.

While there is significant opportunity there will also be a lot of hard work involved in ensuring the success of the priorities I've laid out, but the organization fully understands and embraces their importance and we look forward to delivering continued growth in the months and years ahead and with that I will turn the call back to Craig.

Thanks, Ed.

Mentioned lindblad delivered record third quarter results building on the momentum we generated during the first half of the year as we further ramped operations with broader deployment of our expanded fleet and additional departures across our diversified portfolio of businesses.

Equally as important as we deliver sustained year on year growth, we continue to take the necessary operational and strategic steps to further position us to take full advantage of the growing demand for high quality experiential travel.

Earnings potential of the company has increased dramatically from pre pandemic levels and the significant investments we have made in our overall infrastructure technological footprint in marketing and sales capabilities will allow us to maximize that earnings potential in the years ahead.

Turning to the.

Specifically total company revenue of $176 million increased $31 million or 22% versus the third quarter a year ago. As we continued to ramp operations with strong growth across both of our operating segments at the Lindblad segment revenue of $109 million increased $25 million or 30%.

The third quarter, a year ago, the year on year growth was driven by a 21% expansion in available guest nights from broader utilization of the fleet and by increased pricing, which contributed to a 9% increase in net yields to $1110 per available guest night occupancy of 81% was in line with the third.

Quarter, a year ago, despite the significant increase in available guest nights year over year.

At the land experienced the segment revenue of $67 million increased $6 million or 10% versus the third quarter of 2020 to.

Led by additional departures and guests across our land companies, including natural habitat trips to Africa, Alaska, Canada, and the U S National parks.

Off the beaten path trips to Alaska, and the U S National parks designs back towards in Italy, France, and Portugal, and classic journey trips across Europe.

Our strong revenue performance across both segments generated significant operating leverage with total company adjusted EBITDA of $34 million in the third quarter, an increase of 83% versus the third quarter, a year ago, driven by a $15 million increase at the Lindblad segment with strength in Alaska, the Galapagos and the Arctic.

Yeah.

Looking a little closer at the cost side of the business operating expenses before depreciation and amortization stock based compensation interest and taxes increased $16 million or 13% versus the third quarter of 2022 led by a 9% increase in cost of tours, primarily related to the ramp in ship utilization.

As well as expenses related to operating additional land based strips.

Fuel cost with 3% of revenue as compared to 6% of revenue in the third quarter of 2022, reflecting the increased revenue profile and lower fuel prices versus a year ago. We have seen a steady increase in fuel cost from the second quarter of this year, which will likely impact our fourth quarter and 2024 results but.

Overall fuel remains a relatively small component of our operating costs.

Sales and marketing cost increased 21% versus a year ago, primarily due to higher commissions and royalties related to the increase in revenue as well as additional marketing spend to drive future bookings.

<unk> also included some additional costs associated with our digital initiatives, most notably associated with the integration of our new reservation system.

G&A expense during the quarter increased 18% versus a year ago, excluding stock based compensation and one time items, primarily due to higher personnel costs as we ramp operations and position the company for future growth as well as from the increased credit card commissions related to final payments for upcoming itineraries and higher deposits on.

New reservations for future travel.

Total company net income available to stockholders of $4 5 million or eight cents per diluted share improved $14 3 million versus a net loss available to common stockholders of $9 8 million or <unk> 18 per diluted share reported in the third quarter a year ago.

The improvement primarily reflects the significant ramp in operations, partially offset by additional interest expense of $3 1 million associated with higher rates and increased borrowings related to our debt refinancing in may.

Turning to the balance sheet, we ended the quarter with $205 million in cash and short term investments of $7 million increase from the end of the second quarter. The company generated positive operating cash flow of $27 million during the quarter, which was partially offset by interest payments of $12 million and capex of $8 million include.

<unk> maintenance capex and spending on our digital initiatives.

So turning to the full year 2023, we are excited by the sustained operating momentum across our portfolio and continue to anticipate significant growth as we ramp operations and capitalize on our expanded platform the.

The Lindblad segment has already booked nearly all of its full year projected ticket revenues for the year and we continue to expect total company tour revenue in 2023 between 550 and $575 million and adjusted EBITDA between $70 million to $80 million.

Please note as we mentioned last quarter, the fourth quarter results will be impacted by the heavy dry dock and transit times across our fleet.

Or shoulder season inventory and seasonality for our land businesses. We have made several of the repositioning trips across the Pacific and down the Atlantic available to guests, which will increase our available guest nights and contribute to revenue growth versus a year ago, but we do anticipate lower occupancy on these wages given their nature.

Additionally, occupancy will be impacted by the heightened cancellations on our Egypt wages as a result of recent worldwide events.

Okay.

We continue to be excited about the opportunity ahead, but there may be short term fluctuations the investments we have made in strengthening our existing operations and expanding our product platform is delivering more guests today than ever before and ideally situates us to further capitalize on the growing demand for high quality authentic and immersive experiential.

Travel. Thank you for your time this morning, and now Shannon I would be happy to answer any questions on that.

Thank you Craig I'd like to ask a question press Star followed by one on your tenant. Thank you Pat now if you change your mind. Please press star one.

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Our first question today comes from Steve question from Stifel. Please go ahead.

Hi, This is Jackson bonds.

First of all excellent quarter really nice balanced performance across land based and crews.

<unk> ahead of consensus EBITDA.

Given the beat can you talk about what went into the decision to leave guidance unchanged here and what sort of question marks still remain that might push you towards the top or bottom of that $70 million to $80 million range.

Sure. Thanks, Jackson I appreciate it.

So there's a couple of things obviously, we are pretty much well into the fourth quarter and we have a pretty good visibility into where the rest of the year plays out and the reason we didn't change anything at this point really circles around I would say three items, which are probably more.

Variable debt.

<unk>.

Less visibility here moving forward. The first certainly is cancellation levels, yes, we don't know for sure what cancellation levels are going to look like cancellation levels. Thus far aside from Egypt, which we'll get into in a second had been relatively minimal still trending a little bit above 2019 levels, but they certainly have come down significantly from where they were at the store.

For the year.

Yes.

So where they ultimately end up will have an impact on the fourth quarter like it like a do traditionally at this time of year, because youre not seeing a whole lot of new bookings kind of get into the fourth quarter given the timeframe of our booking window second item is Egypt, obviously, we have a presence in Egypt today, which is being impacted a little bit on what's going on in the world.

How cancellations ratchet up with regard to <unk>, specifically, we will have an impact in the quarter.

Have better visibility of that probably here in the next two to three weeks and then the last item I would say is the fuel prices I did mentioned Heather increasing here versus where they were prior.

Prior to the year, but.

How high they ultimately increase and what the impact of that is on the fourth quarter still a little bit of variability. So those three things are what's kind of keeping us where we are today and we'll see how they play out over the next several weeks and months.

Okay, Great really appreciate all the detail there.

I could ask one more.

I would just say in your release you noted 2023 bookings remained solidly ahead of pre pandemic, 42%.

But can you give any commentary around 2020 for bookings in recent booking trends and I guess, specifically have you noticed any hesitance from your customer base further out.

Just kind of tied to the heightened geopolitical tensions globally.

Sure so.

Here's what I'll say is the booking trends have been relatively consistent so when we look at kind of the bookings during the third quarter. For example, gross production in the third quarter was up close to 20% versus where it was in 2022 in the third quarter. So we continue to see really nice growth year on year in terms of the volumes that we're bringing in.

In terms of where we are for 'twenty four it will provide more color on that certainly in February on our year end earnings call, what I will say is.

From a percentage of sale of our available inventory for next year.

And it really nice spot heading into 2024, we are behind where we were for 2023, a year ago, but that was predominantly because a year ago. We had some benefit from all the people who have canceled or pushed your bookings from travel in 2021 and 2022. So we had a little bit of a bigger base, but we're closing that gap every single week.

We expect to be in really good shape as we head into 2024, we have not seen any real impact yet other than the cancellations from Egypt with regards to what's going on.

World The <unk>.

Booking window for next year remains pretty consistently in that.

<unk> nine month window.

People are booking so no real change yet obviously, we don't know if that continues but today, we're not seeing any impact.

Okay, great. Thanks, Craig.

Yes.

Thank you.

The next question on the line is from Alex Fuhrman from <unk>.

Craig Hallum Capital. Please go ahead.

Hey, guys. Thanks for taking my questions I.

Wanted to ask about about the occupancy.

It looks like unchanged here from last year at 81% can you kind of breakdown.

What the difference is between that 81% and the 90% or so that you were operating at for the most part prior to the pandemic I think you mentioned that.

Short term cancellations are our.

Starting to come down a little bit with that still the lion's share of the delta there in Q3.

And then how much of the.

The shortfall in occupancy relative to 2019 is just a function of needing more time to ramp up.

<unk> done the new shift, especially in the shoulder season.

Yes.

It's a complicated equation, but I'll try and keep it as is.

As clear as I, possibly can.

We have certain products, which are drivers for new people coming in.

Mostly bucket list destinations.

Alaska for example in the Galapagos.

And then we have a certain.

Number of itineraries, particularly on the Blue water ships that are more esoteric into south specific Papa New Guinea certain parts of the Arctic.

South America.

These are really.

Quite heavily dependent on past guests.

And so we had 2020 and 2021.

A week or.

A bit of a weaker 2022, where we were.

Where we're not generating the same numbers of new guests and so the pipeline got.

Stagnant, if you will or didn't expand in those years and so our inventory was a bit out of balance and also a key factor.

Was that we had a lot of new itineraries plan, primarily involving parts of Russia.

The northeast passage for example.

Had originally just completely flown off the shelves and filled and.

And obviously, we had to reroute.

Involve a lot of geography that was less new.

And a lot of those past guests had already been through those areas. So so there's a bit of rebalancing of inventory needed until that pipeline gets back to the level that it's meant to be in order to provide the fuel if you will for those esoteric program.

And we're sort of in the middle of that for example, we've already done some of that rebalancing.

For 24, and we are going to do some more some more work on that front for 25 and by 26, I think we will be back sort of at a normal cadence of them.

Great. That's really helpful. Appreciate that.

As a reminder, if you'd like to ask any questions. Please press star followed by one on your tapping Deepak.

It appears we have no further questions.

Great. Thank you operator for your time and thank you everybody else for joining us I know, it's a busy morning, a variety of fronts. So if you have additional questions.