Earnings Transcript for LIND - Q3 Fiscal Year 2024

Operator: Thanks for standing by. My name is Mandeep, and I'll be your operator today. At this time I'd like to welcome everyone to the Lindblad Expeditions Holdings, Inc. 2024 Third Quarter Financial Results Call. All lines have been placed on mute to prevent any background noise. After speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Dyson Dryden, CFO. You may begin.

Dyson Dryden: Thank you, Mandeep. Appreciate it. Good morning, everyone and thank you for joining us for the Lindblad's 2024 third quarter earnings call. With me on the call today is Sven Lindblad, our Founder and CEO. Sven will begin with some opening comments and then I will follow with some details on the financial results and current 2024 expectations, 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. If you'd like more information on the risks involved in forward-looking statements, please see our 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 please turn the call over to Sven.

Sven Lindblad: Thank you, Dyson and good morning, everyone. We appreciate your joining us today on Election Day. Our record third quarter results set the stage for another year of double-digit growth in 2024. Dyson will provide additional color on our financial performance this past quarter but before he does, let me take a few minutes to discuss some of the drivers of the continued growth this year as well as the steps we are taking to sustain that momentum in the years ahead. Let's start with the Lindblad business segment. I'm excited to report that bookings to date for future travel in our Lindblad segment increased 26% versus the same period in 2023. During the quarter, all of our 2026 inventory was released for sale and we also are selling inventory for our own fleet through Q1 of 2027. A key metric occupancy is on a positive trajectory, particularly when paired with yield. Available guest nights increased by 7% and occupancy rose from 81% to 82%, while maintaining price integrity with an increase of 9% in net yield per available guest night compared to 2023. We continue to see significant discounting from competitors. However, we are able to manage through the noise in the market this quarter. Interestingly, the fervor for building new expedition ships seems to have abated. We remain focused as an organization on returning as quickly as possible to our historic occupancies. And based on our current booking trends, we feel confident, we are on a path to do exactly that. At the same time we have stayed committed to price integrity which is fundamental to our business model. To reliably return to the occupancy levels we historically have enjoyed, we are building back our past guest base. This customer cohort is the backbone for a segment of our itineraries

Dyson Dryden: Thank you, Sven. Lindblad's strong year-on-year growth continued during the third quarter. We are pleased to report both record revenue and earnings growth as well as record level of bookings for future travel. As we deliver sustained year-on-year growth, we continue to take the operational and strategic steps necessary to take full advantage of the earnings potential of the company. Turning to the third quarter total revenue of $206 million increased $30 million, or 17% versus the third quarter of 2023. Lindblad segment tour revenue was $121.3 million which is an increase of $12.5 million, or 12% compared to the third quarter a year ago. The increase was driven by a 6% increase in available guest nights a 9% increase in net yield per available guest night to $1,205 and a 1% increase in occupancy to 82%. Land Experiences tour revenues were $84.7 million, which is an increase of $17.5 million or 26% compared to the third quarter a year ago led by additional guests and higher pricing. As Sven mentioned, on July 31 we also closed the acquisition of Wineland-Thomson Adventures an adventure travel group that primarily operates African safaris. This also contributed to the quarter's strong growth. As a reminder, the aggregate purchase price was $30 million and we financed the purchase through $24 million of cash on hand and the issuance of $6 million in common stock. Third quarter adjusted EBITDA was $45.8 million and increased 35% year-over-year driven by a 30% increase at the Lindblad segment, and a 42% increase at the Land Experiences segment. Lindblad segment adjusted EBITDA of $26.2 million increased $6.1 million as compared to the same period in 2023, primarily due to increased tour revenues, partially offset by increased marketing spend to drive long-term growth initiatives higher general and administrative costs, primarily due to increased personnel costs and increased royalties associated with the expanded National Geographic agreement. Land Experiences segment adjusted EBITDA of $19.6 million increased $5.7 million as compared to the same period in 2023 due to increased tour revenues and the addition of the Wineland-Thomson Adventures, partially being offset by increased operating and personnel costs, higher marketing spend to drive future growth and credit card fees and commission expense. Looking closer at the cost side of the business operating expenses before depreciation and amortization, interest and taxes increased $18.8 million or 13% versus the quarter a year ago. Cost of tours increased by $8.9 million or 9.3%. Sales and marketing costs increased by $5.6 million or 29% versus a year ago; again primarily due to the increased royalties associated with the expanded National Geographic agreement and additional marketing spend to drive future bookings. Fuel costs were stable at about 4.5% of revenue in the third quarter which was down about 0.5% compared to the third quarter a year ago. General and administrative costs excluding stock-based compensation and transaction-related costs increased $3.6 million or 13.5% versus a year ago primarily due to increased payroll costs as well as credit card commissions associated with continued bookings growth. As we highlighted last quarter, we remain focused on improving efficiency throughout the organization. We've identified areas for continuous improvement of existing processes and systems which we believe will further improve operational efficiency and reduce certain costs Our North Star is to achieve these objectives while maintaining or where possible improving our guest experience. Turning to the balance sheet, our liquidity position remains strong. Total cash was $224.6 million as of September 30, 2024 as compared with $187.3 million as of December 31, 2023. This increase reflects $90.7 million in cash from operations due primarily to increased bookings for future travel. We used $34.4 million of cash for investing activities year-to-date including $10.7 million used in the Wineland-Thomson Adventures acquisition net of the cash acquired as well as $23.6 million for the purchase of property and equipment. Closing of our previously announced purchase of two purpose-built Galapagos expedition vehicles is on track for 2025. As Sven has highlighted, we've already begun adding additional bookings for the National Geographic Gemini and the National Geographic Delfina ships to effectively use the time we have between signing and closing. And upon closing the ships will undergo revitalizations before embarking on their inaugural voyages in late first quarter 2025. Consistent with our stated strategy, we will continue to explore growth opportunities in the years ahead, including further diversifying our product portfolio or opportunistically expanding our fleet to capitalize on the continued growth in the demand for experiential travel. Turning to the full year 2024, we continue to anticipate significant growth driven by higher guest counts and increased net yields across the fleet as well as additional travelers across the growing Land business. We continue to expect tour revenue in 2024 between $610 million and $630 million and adjusted EBITDA between $88 million and $98 million. The acquisition of Thomson Safaris is expected to have a minimal contribution this year due to certain planned investments in the business. However, it is expected to be a more meaningful contributor for the full year 2025. Overall, we're very pleased with the operating momentum across our business. Thank you for your interest. And now Sven and I would be happy to answer any questions you may have.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Steve Wieczynski with Stifel. Please go ahead.

Steve Wieczynski: Hey, guys. Good morning. So Sven you talked about using your past guest base in order to drive occupancy back to historical levels. Did I hear you right that you expect to be back to that level by 2026? And I'm guessing there might be some benefit from Disney moving forward. But look if my math is right and you guys would get back to that, kind of, let's call it upper-80s, low-90s in terms of occupancy and look you've talked about every occupancy point is about $4 million plus in EBITDA, just with occupancy that would get you guys back into that mid-120s call it in terms of EBITDA by 2026, and that's going to be without any pricing action or benefit from your land-based operations. So that's kind of a way of me asking if you from a high level agree with that math as we think about the EBITDA progression and where this company can really go moving forward.

Sven Lindblad: Yeah. So just to answer the first part of the question, and just to reiterate for anyone else who's listening, the way our itineraries are constructed and the kinds of ships that we have you are going to be in areas with certain ships at certain times that are particularly dependent on people who have traveled with you before. And having lost basically two years of that community we were set back and that has been rebuilt. And by 2026 it will be completely back to a level, which is appropriate for the balancing of our inventory. And so to then get to the numbers you're talking about, Dyson you may want to clarify in greater detail but that sounds about right.

Dyson Dryden: Yeah. I think, Steve and great to speak with you, we're not giving long-term guidance on the call or 2025 guidance yet. But I think directionally speaking; the earnings power of the business will increase significantly. And I think you saw a lot of that even without the increased occupancy, meaningful increase in occupancy this quarter just how much operating leverage we saw in available guest nights and pricing increases. So we're excited about the future potential here.

Steve Wieczynski: Okay, great. Thanks for that guys. And then second question, Dyson or Sven whoever wants to take this, I mean look you guys are now building a pretty healthy cash position at this point. And just wondering what your updated thoughts are in terms of free cash flow uses moving forward. I would assume continuing to drive down your debt levels does remain a priority. But Sven you made a comment about how your peers don't seem to be building as much in the out years. So does that change your view of maybe starting to think about order ships again in order to capture longer term demand?

Sven Lindblad: Well, there are two pathways, and remember how the company was originally built. The company was originally built by purchasing ships that had failed in other enterprises at very, very reasonable rates. And so I would imagine that in the future there is going to be again inventory available, i.e. ships available, because certain companies will not have found that business successful. And so we then will have -- our job is to look at the future from the perspective of building new or acquiring ships that have already been built and we've had a good deal of experience in both those lanes. And so we're kind of excited about the opportunity to think about ships that have already been built that may become available.

Steve Wieczynski: Okay, got you. Thanks guys. Congrats on a very solid quarter.

Dyson Dryden: Thanks, Steve.

Sven Lindblad: Thank you.

Operator: Our next question comes from the line of Eric Wold with B. Riley. Please go ahead.

Eric Wold: Thanks. Good morning. Thanks for taking my questions. Dyson, a couple of questions around kind of the numbers, I guess. One, can you give us an update on what percentage of your tour revenues have been booked for this year? I know you gave 98% on the last quarter call. So maybe an update to that. And then maybe talk about the decision to maintain 2024 guidance. If I look at it, reaching the high end of the range at $630 million would have the lowest growth rate of any quarter this year, even with kind of strengthening bookings and the acquisitions in the Land segment. Is there any incremental headwinds we should think about for Q4 that maybe have come up? And then, second part of that is what would need to happen to actually reach the low end at $610 million at this point in the year?

Dyson Dryden: Yeah. Thank you for the questions. Let me hit a couple of points here. I think the first just on seasonality. As you know, but maybe for some that may be new to the company, our quarterly results do fluctuate due to seasonality, and the third quarter benefited from more complete fleet usage and peak seasons across really our fleet and our land businesses. And conversely the fourth quarter will be impacted by less available guest nights due to heavy dry dock and transit time across the marine fleet and there's more shoulder season inventory and seasonality across our land businesses. So there is a natural kind of ebb and flow to the results and I think that's an important factor. To your question on the guidance range and I'll talk about the booking position, we haven't seen anything significant that would change our revenue or EBITDA guidance. I'd note that kind of the Wall Street analyst estimates have us on the lower end of the guidance, I'm sure you've seen and we don't think that's inappropriate, given we've had some voyage cancellations earlier in the year and we've continued to ramp sales and marketing investments, which we believe will benefit future years; and I think you've already seen that given the record booking position that we're in today. We're currently sitting in a booking position that accounts for approximately 99% of full year projected revenue for 2024 on the marine side. And any new revenue could be offset by cancellations. We are in a normal kind of cancellation environment, but that can ebb and flow and it can be difficult to predict even in the last few months of the year. So we feel confident that we're in a good position here and that's why we've reiterated the range. But between those factors, that's why we haven't increased guidance at this point. Hopefully that's helpful.

Eric Wold: Yeah. That's very helpful. I think my last question, maybe dive into the meaningful increase in net yields in the quarter, up 8.5% year-over-year. Anything to call out as the major driver there, I guess? I know you talked about holding price in a competitive environment, but does that actually reflect taking price where you can versus maybe how much of that was driven by mix of expeditions voyages?

Dyson Dryden: So…

Sven Lindblad: I'll -- okay, go ahead.

Dyson Dryden: Go ahead, Sven.

Sven Lindblad: Well, I was just going to say part of that is we -- this is really the first year where we are beginning to see the effects of dynamic pricing. So that for example, if you take an area like Alaska, already now for next year, we've changed prices like five or six times. And for this year, I can't remember exactly how many times we've changed it, but we were able to raise the prices as the season went on and the demand showed the strength that it showed. So that is certainly part of the reason. Dyson?

Dyson Dryden: Yeah. I was going to say the same thing. I think that's -- the dynamic pricing and really full implementation of our new technology systems. I mean, we still -- the team refers to we have a Ferrari, and I don't think we're professional drivers yet, but we're getting pretty close. And so that's a real benefit to the company, and we think that's helping. I wouldn't forecast net yield growth going forward at that level. We've talked about the overall environment. There is still a lot of discounting out there. We're in a really good position. But going forward, and we can talk more when we do guidance early next year, I think there's a good opportunity here to take more occupancy gains, going forward. So I wouldn't extrapolate out sort of this type of pricing increases going forward necessarily. But we do think we're in a good position, relatively speaking.

Eric Wold: Perfect. Thank you both.

Operator: Our next question comes from the line of Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Alex Fuhrman: Hey, guys. Thanks for taking my question. It sounds like you're starting to see some pretty strong demand from travelers in the U.K. and Europe. I know, historically, your business has mostly been focused on American travelers. Curious where those British and European travelers are booking? Are they mostly booking the Arctic and your European itineraries? Or are they venturing over to the Western Hemisphere as well?

Sven Lindblad : In terms of -- the real beginnings of the European bookings are coming out of Great Britain, where we put in a particular effort to begin signing a GSA. And so it's very, very early stages in terms of -- it's not going to be, as we said earlier, very, very much this year, but we believe that it's going to increase dramatically next year. And there's a lot of testing going on at the moment to try and figure out which of our programs are most attractive and cost effective to market. But we have an enormous belief that the National Geographic brand, this is one of the key elements going forward in terms of the long-term agreement we made with Disney and National Geographic, was the National Geographic brand in Europe is really, really important and we believe will help us a great deal. We suspect that polar regions will be very, very popular. The Galapagos, certainly. Alaska, absolutely. And so we see, in all likelihood, quite a diverse participation.

Alex Fuhrman: Okay. That's really helpful. Thank you. And then can you talk a little bit about just the time line of going after additional international markets, including Asia, over time? When you talk about getting to something resembling normalized occupancy in 2026, is international going to be a big part of that? Or is that perhaps an even longer tail opportunity down the road?

Sven Lindblad: We look upon the international opportunity as potentially being significant over time, but we haven't sort of baked that in to our thinking in any significant degree yet. We believe that the traditional mechanisms that we have had in place will get us to where we were talking about for 2026 and the international business would be on top of that, which is great and would accelerate our ability to grow. So I would say this is very much an experimental phase still as it relates to Europe. We literally just signed on a GSA in Britain, a couple of months ago. We are now going to look -- there's a lot of interest in Holland, Belgium, Switzerland for example, as there are large English-speaking populations and we feel that that's probably the best way for us to go at the moment. We've started doing some work in India, which is -- I know for a fact that more and more people without us even having made an effort, are joining our expeditions from India. We have some charters in China, that we are beginning to experiment with. So I think, by next year, we will be able to be much more specific in terms of how we feel this is going to develop.

Alex Fuhrman: Okay. that’s really helpful. Thank you very much.

Sven Lindblad: Thank you.

Operator: Our next question comes from the line of David Hargreaves [ph] with Barclays. Please go ahead.

Q – Unidentified Analyst: Thanks very much. Great quarter. I was curious, as to what happened with the tax inflection. I don't -- maybe I missed it. I didn't hear. What happened there?

Dyson Dryden: Yes. David, I'll have to follow up with you on that, post the call. Let me get that data in front of me and I'll give you a call.

Q – Unidentified Analyst: It doesn't look like there's a write-down or anything of that nature. I was just wondering. And then, when we look at the market...

Dyson Dryden: We only -- I mean our cash taxes, it's all sort of accounting, our cash taxes this year will be a couple of million dollars, $1 million to $2 million. So we have significant NOLs. But, I'll get you the accounting answer on that.

Q – Unidentified Analyst: Okay. And when we look at your margins now with the commissions and royalties under the new contracts, is that fully reflected? Or are we going to see that being implemented over time?

Dyson Dryden: You'll see it being implemented over time. It's not fully reflected. So, I think we've talked about on past calls, that the Disney-National Geographic agreement there's step-ups in part, because the benefits that we're going to be fully receiving from all the activities with a nine-month booking window it takes some time to come to fruition. So, the step-ups happen. Next year, there's a more modest step-up and then there's another step-up in 2026. But we haven't for strategic reasons, disclosed what those amounts are.

Q – Unidentified Analyst: Okay. I'm just wondering where we are inning-wise. Thank you very much.

Dyson Dryden: Thank you.

Operator: That concludes today's Q&A session. I would now like to turn the call back to Dyson for closing remarks.

Dyson Dryden: Well, thank you again, everyone, for joining the call today. We're really pleased with the momentum we have across the business. And if you have any further questions for our team, Sven and I would be happy to answer them. Just reach out.

Sven Lindblad: Thank you everybody.

Operator: This concludes today's call. You may now disconnect.