UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-35898
LINDBLAD EXPEDITIONS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-4749725 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
96 Morton Street, 9th (212) 261-9000 (Address of principal executive offices) (Zip Code) (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 per share LIND The NASDAQ Stock Exchange LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of 96 Morton Street, 9th Floor, New York, New York, 10014(212) 261-9000(Registrant’s telephone number, including area code)and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No(Do not check if a smaller reporting company)☒☒☐OctoberJuly 31, 2018, 45,815,4252019, 49,627,732 shares of common stock, par value $0.0001 per share, were issued and outstanding.
LINDBLAD EXPEDITIONS HOLDINGS, INC.IN
Quarterly Report On Form 10-Q
For The Quarter Ended SeptemberJune 30, 20182019
Table of Contents
Page(s) | ||
ITEM 1. | ||
Notes to the Condensed Consolidated Financial Statements (Unaudited) | ||
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
ITEM 3. | 27 | |
ITEM 4. | ||
ITEM 1. | ||
ITEM 1A. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 5. | ||
ITEM 6. | ||
PART 1. | FINANCIAL INFORMATION |
FINANCIAL STATEMENTS |
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
As of | As of | |||||||
ASSETS | (unaudited) | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 78,746 | $ | 113,396 | ||||
Restricted cash | 33,305 | 8,755 | ||||||
Marine operating supplies | 5,086 | 5,165 | ||||||
Inventories | 1,715 | 1,604 | ||||||
Prepaid expenses and other current assets | 31,297 | 21,263 | ||||||
Total current assets | 150,149 | 150,183 | ||||||
Property and equipment, net | 316,709 | 285,979 | ||||||
Goodwill | 22,105 | 22,105 | ||||||
Intangibles, net | 7,185 | 7,975 | ||||||
| Deferred tax asset | 1,319 | - | ||||||
Right-to-use lease assets | 5,808 | - | ||||||
Other long-term assets | 5,219 | 7,167 | ||||||
Total assets | $ | 508,494 | $ | 473,409 | ||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Unearned passenger revenues | $ | 145,089 | $ | 123,489 | ||||
Accounts payable and accrued expenses | 31,200 | 33,944 | ||||||
Lease liabilities - current | 947 | - | ||||||
Long-term debt - current | 2,000 | 2,000 | ||||||
Total current liabilities | 179,236 | 159,433 | ||||||
Long-term debt, less current portion | 185,660 | 188,089 | ||||||
Deferred tax liabilities | - | 2,787 | ||||||
Lease liabilities | 5,046 | - | ||||||
Other long-term liabilities | 1,259 | 554 | ||||||
Total liabilities | 371,201 | 350,863 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
REDEEMABLE NONCONTROLLING INTEREST | 6,771 | 6,502 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value, 200,000,000 shares authorized; 45,801,025 and | 5 | 5 | ||||||
Additional paid-in capital | 41,617 | 41,539 | ||||||
Retained earnings | 90,832 | 75,171 | ||||||
Accumulated other comprehensive income | (1,932 | ) | (671 | ) | ||||
Total stockholders' equity | 130,522 | 116,044 | ||||||
Total liabilities, stockholders' equity and redeemable noncontrolling interest | $ | 508,494 | $ | 473,409 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| As of September 30, | As of December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | (unaudited) | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 105,688 | $ | 96,443 | ||||
| Restricted cash and marketable securities | 8,593 | 7,057 | ||||||
| Marine operating supplies | 5,024 | 5,045 | ||||||
| Inventories | 1,646 | 1,794 | ||||||
| Prepaid expenses and other current assets | 21,917 | 21,351 | ||||||
| Total current assets | 142,868 | 131,690 | ||||||
| Property and equipment, net | 282,455 | 250,952 | ||||||
| Goodwill | 22,105 | 22,105 | ||||||
| Intangibles, net | 8,370 | 9,554 | ||||||
| Other long-term assets | 9,017 | 10,047 | ||||||
| Total assets | $ | 464,815 | $ | 424,348 | ||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Unearned passenger revenues | $ | 112,694 | $ | 112,238 | ||||
| Accounts payable and accrued expenses | 29,305 | 30,422 | ||||||
| Long-term debt - current | 2,000 | 1,750 | ||||||
| Total current liabilities | 143,999 | 144,410 | ||||||
| Long-term debt, less current portion | 188,161 | 164,186 | ||||||
| Deferred tax liabilities | 5,097 | 2,444 | ||||||
| Other long-term liabilities | 706 | 684 | ||||||
| Total liabilities | 337,963 | 311,724 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| REDEEMABLE NONCONTROLLING INTEREST | 6,409 | 6,302 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock, $0.0001 par value, 200,000,000 shares authorized; 45,815,425 and 45,427,030 issued, 45,442,728 and 44,787,608 outstanding as of September 30, 2018 and December 31, 2017, respectively | 5 | 5 | ||||||
| Additional paid-in capital | 40,391 | 42,498 | ||||||
| Retained earnings | 79,817 | 63,819 | ||||||
| Accumulated other comprehensive income | 230 | |||||||
| Total stockholders’ equity | 120,443 | 106,322 | ||||||
| Total liabilities, stockholders’ equity and redeemable noncontrolling interest | $ | 464,815 | $ | 424,348 | ||||
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)
(unaudited)
For the three months ended | For the six months ended | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Tour revenues | $ | 76,658 | $ | 69,473 | $ | 166,311 | $ | 151,883 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of tours | 37,520 | 33,810 | 76,537 | 69,681 | ||||||||||||
General and administrative | 16,268 | 15,879 | 32,350 | 30,929 | ||||||||||||
Selling and marketing | 12,567 | 10,583 | 26,569 | 22,656 | ||||||||||||
Depreciation and amortization | 6,182 | 4,994 | 12,370 | 10,038 | ||||||||||||
Total operating expenses | 72,537 | 65,266 | 147,826 | 133,304 | ||||||||||||
Operating income | 4,121 | 4,207 | 18,485 | 18,579 | ||||||||||||
Other expense: | ||||||||||||||||
Interest expense, net | (3,188 | ) | (2,870 | ) | (6,176 | ) | (5,604 | ) | ||||||||
Gain (loss) on foreign currency | 501 | (1,141 | ) | 1,157 | (1,592 | ) | ||||||||||
Other expense | (30 | ) | (128 | ) | (49 | ) | (120 | ) | ||||||||
Total other expense | (2,717 | ) | (4,139 | ) | (5,068 | ) | (7,316 | ) | ||||||||
Income before income taxes | 1,404 | 68 | 13,417 | 11,263 | ||||||||||||
Income tax expense (benefit) | 553 | 227 | (2,513 | ) | 503 | |||||||||||
Net income (loss) | 851 | (159 | ) | 15,930 | 10,760 | |||||||||||
Net (loss) income attributable to noncontrolling interest | (137 | ) | (293 | ) | 269 | (172 | ) | |||||||||
Net income available to common stockholders | $ | 988 | $ | 134 | $ | 15,661 | $ | 10,932 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 46,155,981 | 45,894,155 | 45,607,307 | 45,322,541 | ||||||||||||
Diluted | 49,485,004 | 46,442,611 | 48,281,002 | 45,594,980 | ||||||||||||
Net income per share available to common stockholders | ||||||||||||||||
Basic | $ | 0.02 | $ | - | $ | 0.34 | $ | 0.24 | ||||||||
Diluted | $ | 0.02 | $ | - | $ | 0.32 | $ | 0.24 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of OperationsComprehensive Income
(In thousands, except share and per share data)thousands)
(unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Tour revenues | $ | 87,242 | $ | 84,584 | $ | 239,125 | $ | 203,283 | ||||||||
| Cost of tours | 44,964 | 38,480 | 114,645 | 99,780 | ||||||||||||
| Gross profit | 42,278 | 46,104 | 124,480 | 103,503 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 14,718 | 16,526 | 45,647 | 46,710 | ||||||||||||
| Selling and marketing | 12,255 | 11,676 | 34,911 | 31,521 | ||||||||||||
| Depreciation and amortization | 5,024 | 4,354 | 15,062 | 12,012 | ||||||||||||
| Total operating expenses | 31,997 | 32,556 | 95,620 | 90,243 | ||||||||||||
| Operating income | 10,281 | 13,548 | 28,860 | 13,260 | ||||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense, net | (2,409 | ) | (2,802 | ) | (8,013 | ) | (7,192 | ) | ||||||||
| Gain (loss) on foreign currency | 163 | 224 | (1,430 | ) | 1,047 | |||||||||||
| Other income (expense) | 1 | 59 | (118 | ) | (97 | ) | ||||||||||
| Total other expense | (2,245 | ) | (2,519 | ) | (9,561 | ) | (6,242 | ) | ||||||||
| Income before income taxes | 8,036 | 11,029 | 19,299 | 7,018 | ||||||||||||
| Income tax expense (benefit) | 2,690 | 1,586 | 3,194 | (473 | ) | |||||||||||
| Net income | 5,346 | 9,443 | 16,105 | 7,491 | ||||||||||||
| Net income attributable to noncontrolling interest | 279 | 165 | 107 | 149 | ||||||||||||
| Net income available to common stockholders | $ | 5,067 | $ | 9,278 | $ | 15,998 | $ | 7,342 | ||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 45,423,127 | 44,457,656 | 45,356,438 | 44,528,878 | ||||||||||||
| Diluted | 47,690,395 | 45,718,513 | 45,963,669 | 45,609,560 | ||||||||||||
| Net income per share available to common stockholders | ||||||||||||||||
| Basic | $ | 0.11 | $ | 0.21 | $ | 0.35 | $ | 0.16 | ||||||||
| Diluted | $ | 0.11 | $ | 0.20 | $ | 0.35 | $ | 0.16 | ||||||||
For the three months ended | For the six months ended | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income (loss) | $ | 851 | $ | (159 | ) | $ | 15,930 | $ | 10,760 | |||||||
Other comprehensive income: | ||||||||||||||||
Cash flow hedges: | ||||||||||||||||
Net unrealized gain (loss) | 377 | 73 | (1,261 | ) | 73 | |||||||||||
Total other comprehensive income (loss) | 377 | 73 | (1,261 | ) | 73 | |||||||||||
Total comprehensive income (loss) | 1,228 | (86 | ) | 14,669 | 10,833 | |||||||||||
Less: comprehensive (loss) income attributive to non-controlling interest | (137 | ) | (293 | ) | 269 | (172 | ) | |||||||||
Comprehensive income attributable to common shareholders | $ | 1,365 | $ | 207 | $ | 14,400 | $ | 11,005 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive IncomeStockholders’ Equity
(In thousands, except share and per share data)
(unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income | $ | 5,346 | $ | 9,443 | $ | 16,105 | $ | 7,491 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Cash flow hedges: | ||||||||||||||||
| Net unrealized gain | 157 | - | 230 | - | ||||||||||||
| Total other comprehensive income | 157 | - | 230 | - | ||||||||||||
| Total comprehensive income | $ | 5,503 | $ | 9,443 | $ | 16,335 | $ | 7,491 | ||||||||
Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
Balance as of January 1, 2019 | 45,814,925 | $ | 5 | $ | 41,539 | $ | 75,171 | $ | (671 | ) | $ | 116,044 | ||||||||||||
Stock-based compensation | - | - | 753 | - | - | 753 | ||||||||||||||||||
Issuance of stock for equity compensation plans, net | (44,315 | ) | - | (1,167 | ) | - | - | (1,167 | ) | |||||||||||||||
Repurchase of shares and warrants | (1,895 | ) | - | (23 | ) | - | - | (23 | ) | |||||||||||||||
Other comprehensive loss, net | - | - | - | - | (1,638 | ) | (1,638 | ) | ||||||||||||||||
Net income available to common stockholders | - | - | - | 14,673 | - | 14,673 | ||||||||||||||||||
Balance as of March 31, 2019 | 45,768,715 | $ | 5 | $ | 41,102 | $ | 89,844 | $ | (2,309 | ) | $ | 128,642 | ||||||||||||
Stock-based compensation | - | - | 1,001 | - | - | 1,001 | ||||||||||||||||||
Issuance of stock for equity compensation plans, net | 32,310 | - | (486 | ) | - | - | (486 | ) | ||||||||||||||||
Other comprehensive income, net | - | - | - | - | 377 | 377 | ||||||||||||||||||
Net income available to common stockholders | - | - | - | 988 | - | 988 | ||||||||||||||||||
Balance as of June 30, 2019 | 45,801,025 | $ | 5 | $ | 41,617 | $ | 90,832 | $ | (1,932 | ) | $ | 130,522 | ||||||||||||
Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
Balance as of January 1, 2018 | 45,427,030 | $ | 5 | $ | 42,498 | $ | 63,819 | - | $ | 106,322 | ||||||||||||||
Stock-based compensation | - | - | 866 | - | - | 866 | ||||||||||||||||||
Issuance of stock for equity | 349,643 | - | (4,179 | ) | - | - | (4,179 | ) | ||||||||||||||||
Repurchase of shares and warrants | (9,030 | ) | - | (854 | ) | - | - | (854 | ) | |||||||||||||||
Net income available to common stockholders | - | - | - | 10,798 | - | 10,798 | ||||||||||||||||||
Balance as of March 31, 2018 | 45,767,643 | $ | 5 | $ | 38,331 | $ | 74,617 | $ | - | $ | 112,953 | |||||||||||||
Stock-based compensation | - | - | 1,119 | - | - | 1,119 | ||||||||||||||||||
Issuance of stock for equity | 8,005 | - | (278 | ) | - | - | (278 | ) | ||||||||||||||||
Repurchase of shares and warrants | - | - | - | - | - | - | ||||||||||||||||||
Other comprehensive income, net | - | - | - | - | 73 | 73 | ||||||||||||||||||
Net income available to common stockholders | - | - | - | 134 | - | 134 | ||||||||||||||||||
Balance as of June 30, 2018 | 45,775,648 | $ | 5 | $ | 39,172 | $ | 74,751 | $ | 73 | $ | 114,001 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ EquityCash Flows
(In thousands, except share data)thousands)
(unaudited)
| Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income | Equity | |||||||||||||||||||
| Balance as of January 1, 2018 | 45,427,030 | $ | 5 | $ | 42,498 | $ | 63,819 | $ | - | $ | 106,322 | |||||||||||||
| Stock-based compensation | - | - | 3,256 | - | - | 3,256 | ||||||||||||||||||
| Issuance of stock for equity compensation plans, net | 397,425 | - | (4,509 | ) | - | - | (4,509 | ) | ||||||||||||||||
| Repurchase of shares and warrants | (9,030 | ) | - | (854 | ) | - | - | (854 | ) | |||||||||||||||
| Other comprehensive income, net | - | - | - | - | 230 | 230 | ||||||||||||||||||
| Net income | - | - | - | 15,998 | - | 15,998 | ||||||||||||||||||
| Balance as of September 30, 2018 | 45,815,425 | $ | 5 | $ | 40,391 | $ | 79,817 | $ | 230 | $ | 120,443 | |||||||||||||
For the six months ended | ||||||||
2019 | 2018 | |||||||
Cash Flows From Operating Activities | ||||||||
Net income | $ | 15,930 | $ | 10,760 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 12,370 | 10,038 | ||||||
Amortization of National Geographic fee | 1,454 | 1,454 | ||||||
Amortization of deferred financing costs and other, net | 911 | 1,045 | ||||||
Stock-based compensation | 1,754 | 1,985 | ||||||
Deferred income taxes | (4,106 | ) | 152 | |||||
(Gain) loss on foreign currency | (1,157 | ) | 1,592 | |||||
Write-off of unamortized issuance costs related to debt refinancing | - | 359 | ||||||
Loss on write-off of assets | - | 129 | ||||||
Changes in operating assets and liabilities | ||||||||
Marine operating supplies and inventories | (32 | ) | (39 | ) | ||||
Prepaid expenses and other current assets | (10,033 | ) | (7,048 | ) | ||||
Right-to-use lease assets | (5,808 | ) | - | |||||
Lease liabilities | 5,993 | - | ||||||
Unearned passenger revenues | 21,600 | 9,915 | ||||||
Other long-term assets | (767 | ) | (1,120 | ) | ||||
Other long-term liabilities | 706 | 15 | ||||||
Accounts payable and accrued expenses | (1,587 | ) | (4,457 | ) | ||||
Net cash provided by operating activities | 37,228 | 24,780 | ||||||
Cash Flows From Investing Activities | ||||||||
Purchases of property and equipment | (42,311 | ) | (31,502 | ) | ||||
Net cash used in investing activities | (42,311 | ) | (31,502 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Proceeds from long-term debt | - | 200,000 | ||||||
Repayments of long-term debt | (1,000 | ) | (170,625 | ) | ||||
Payment of deferred financing costs | (2,340 | ) | (6,486 | ) | ||||
Repurchase under stock-based compensation plans and related tax impacts | (1,653 | ) | (4,457 | ) | ||||
Repurchase of warrants and common stock | (23 | ) | (854 | ) | ||||
Net cash (used in) provided by financing activities | (5,016 | ) | 17,578 | |||||
Effect of exchange rate changes on cash | - | 8 | ||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (10,099 | ) | 10,864 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 122,150 | 103,500 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 112,051 | $ | 114,364 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period: | ||||||||
Interest | $ | 6,999 | $ | 6,534 | ||||
| Income taxes | $ | 564 | $ | 776 | ||||
Non-cash investing and financing activities: | ||||||||
Additional paid-in capital exercise proceeds of option shares | $ | 225 | $ | 1,682 | ||||
Additional paid-in capital exchange proceeds used for option shares | $ | (225 | ) | $ | (1,682 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| For the nine months ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income | $ | 16,105 | $ | 7,491 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 15,062 | 12,012 | ||||||
| Amortization of National Geographic fee | 2,181 | 2,180 | ||||||
| Amortization of deferred financing costs and other, net | 1,477 | 1,662 | ||||||
| Stock-based compensation | 3,256 | 9,464 | ||||||
| Deferred income taxes | 2,653 | (2,017 | ) | |||||
| Loss (gain) on foreign currency | 1,430 | (1,047 | ) | |||||
| Loss on write-off of assets | 129 | - | ||||||
| Changes in operating assets and liabilities | ||||||||
| Marine operating supplies and inventories | 169 | (516 | ) | |||||
| Prepaid expenses and other current assets | (1,806 | ) | (1,087 | ) | ||||
| Unearned passenger revenues | 449 | 8,062 | ||||||
| Write-off of unamortized issuance costs related to debt refinancing | 359 | - | ||||||
| Other long-term assets | (1,981 | ) | 192 | |||||
| Other long-term liabilities | 22 | 14 | ||||||
| Accounts payable and accrued expenses | (247 | ) | (6,964 | ) | ||||
| Net cash provided by operating activities | 39,258 | 29,446 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | (45,510 | ) | (44,089 | ) | ||||
| Transfer to restricted cash and marketable securities | (1,536 | ) | 311 | |||||
| Net cash used in investing activities | (47,046 | ) | (43,778 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from long-term debt | 200,000 | - | ||||||
| Repayments of long-term debt | (171,125 | ) | (1,312 | ) | ||||
| Payment of deferred financing costs | (6,486 | ) | (312 | ) | ||||
| Repurchase under stock-based compensation plans and related tax impacts | (4,509 | ) | (1,182 | ) | ||||
| Repurchase of warrants and common stock | (854 | ) | (6,166 | ) | ||||
| Net cash provided by (used in) financing activities | 17,026 | (8,972 | ) | |||||
| Effect of exchange rate changes on cash | 7 | 204 | ||||||
| Net increase (decrease) in cash and cash equivalents | 9,245 | (23,100 | ) | |||||
| Cash and cash equivalents at beginning of period | 96,443 | 135,416 | ||||||
| Cash and cash equivalents at end of period | $ | 105,688 | $ | 112,316 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period: | ||||||||
| Interest | $ | 9,952 | $ | 7,841 | ||||
| Income taxes, net | $ | 468 | $ | 965 | ||||
| Non-cash investing and financing activities: | ||||||||
| Additional paid-in capital exercise proceeds of option shares | $ | 1,682 | $ | 168 | ||||
| Additional paid-in capital exchange proceeds used for option shares | $ | (1,682 | ) | $ | (168 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Lindblad Expeditions Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – BUSINESS AND BASIS OF PRESENTATION
OrganizationBusiness
Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries (the “Company” or “Lindblad”) currently operate a fleet of seven owned expedition ships and five seasonal charter vessels under the Lindblad brand and operate eco-conscious expeditions and nature-focused, small-group tours under the Natural Habitat brand.
Lindblad’s mission is offering life-changing adventures on all seven continentsaround the world and pioneering innovative ways to allow its guests to connect with exotic and remote places. The Company’sCompany currently operates a fleet of eight owned expedition ships areand five seasonal charter vessels under the Lindblad brand and operates eco-conscious expeditions and nature-focused, small-group tours under the Natural Habitat, Inc. (“Natural Habitat”) brand.
The Company operates the following reportable business segments:
Lindblad – Offers primarily ship-based expeditions aboard customized, nimble and intimately-scaled vessels that are able to venture where larger cruise ships cannot, thus allowing Lindblad to offer up-close experiences in the planet’s wild and remote places and capitals of culture. Many of these expeditions involve travel to remote places with limited infrastructure and ports (such as Antarctica and the Arctic) or places that are best accessed by a ship (such as the Galápagos, Alaska, Baja’s Sea of Cortez, Costa Rica and Panama), and foster active engagement by guests. Each expedition ship is designed to be comfortable and inviting, while being fully equipped with state-of-the-art tools for in-depth exploration. The Company has an alliance with National Geographic Partners (“National Geographic”), which provides for lecturers and National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, to join many of the Company’s expeditions.
Through its subsidiary, Natural Habitat Inc. (“Natural Habitat”), the Company offers – Offers primarily land-based adventure travel expeditions around the globe. In addition to its land offerings, Natural Habitat offersglobe, as well as select itineraries on small chartered vessels for parts of the year.year, with unique itineraries designed to offer intimate encounters with nature and our planet's wild destinations. Natural Habitat’sHabitat creates opportunities for adventure and discovery that transform lives with expeditions that include polar bear tours in Churchill, Canada, Alaskan grizzly bear adventures, small-group Galápagos tours and African safaris. Natural Habitat has partnered with World Wildlife Fund (“WWF”) to offer conservation travel, which is sustainable travel that contributes to the protection of nature and wildlife.
The Company’s common stock and warrants areis listed on the NASDAQ Capital Market under the symbolssymbol “LIND” and “LINDW,” respectively..
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information.information and include the accounts and transactions of the Company. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial statements for the periods presented. Operating results for the periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonality and other factors. Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC for interim reporting. All intercompany balances and transactions have been eliminated in these unaudited condensed consolidated financial statements. These unaudited condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 20172018 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2018.
Principles of ConsolidationFebruary 28, 2019 (the “2018 Annual Report”).
The presentation of certain prior year items in the notes to the condensed consolidated financial statements include Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries.
Reclassifications
Certain prior period amountsof the Company have been reclassified to conform to the current period presentation, with2019 presentation. The reclassifications had no impacteffect on consolidated net incomepreviously reported results of operations or cash flows.retained earnings.
There have been no significant changes to the Company’s accounting policies from those disclosed in the 2018 Annual Report other than those noted below.
Use of Estimates
The preparationCompany accounts for its various operating leases in accordance with Accounting Standards Codification (“ASC”) 842-Leases, as updated by Accounting Standards Update (“ASU”) 2016-02. At the inception of condensed consolidated financial statements requires management to make estimates and assumptions that affecta lease, the reported amounts ofCompany recognizes right-of-use lease assets and related lease liabilities measured as the present value of future lease payments on its balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. The Company reviewed its contracts with vendors and the disclosurecustomers, determining that its right-to-use lease assets consisted primarily of contingent assets, liabilities, revenues and expenses. Actual results could differ from such estimates. Management estimates includeoffice space operating leases. In determining the estimated livesright-to-use lease assets and related lease liabilities, the Company did not recognize any lease extension options and elected to exclude leases with terms of long-lived assets, determining12-months or less. During the fair valuethree and six months ended June 30, 2019, the Company recognized $0.4 million and $0.7 million, respectively, in operating lease expense. During the three and six months ended June 30, 2018, the Company recognized $0.3 million and $0.6 million, respectively, in operating lease expense. As of assets acquired and liabilities assumed in business combinations, the fair value ofJune 30, 2019, the Company’s common stockremaining weighted average operating lease terms were approximately 69 months. A reconciliation of operating lease payments undiscounted cash flows to lease liabilities recognized as of June 30, 2019 is as follows:
(In thousands) | Operating Lease Payments | |||
(unaudited) | ||||
2019 (six months) | $ | 581 | ||
2020 | 1,190 | |||
2021 | 1,222 | |||
2022 | 1,283 | |||
2023 | 1,165 | |||
Thereafter | 1,603 | |||
Present value discount (6% weighted average) | (1,051 | ) | ||
Total lease liability | $ | 5,993 | ||
Accounting Pronouncements Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) and related warrants,in July 2018 issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The guidance requires the valuationrecognition of securities underlying stock-based compensation, income tax expense, the valuation of deferred taxlease right-of-use assets and lease liabilities by lessees for those leases previously classified as operating. This guidance was issued to increase transparency and comparability among organizations by disclosing key information about leasing arrangements and requiring the fair valuerecognition of derivative instruments,current and non-current right-of-use assets and lease liabilities on the value of contingent consideration and assessing its litigation, other legal claims and contingencies. Estimates and assumptions are reviewed periodically, andbalance sheet. Most prominent among the effects of revisions are reflectedchanges in the condensed consolidated financial statements instandard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019, as required, electing to apply retrospectively at the period that they are determined to be necessary.
Revenue Recognition
Revenues are measured based on consideration specified in the Company’s contractsof adoption with guests and are recognized as the related performance obligations are satisfied.
practical expedients. The majorityadoption of the Company’s revenues are derived from guest ticket contracts which are reported as tour revenues in the condensed consolidated statements of operations. The Company’s primary performance obligation under these contracts is to provide an expedition and may include pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Upon satisfaction of the Company’s primary performance obligation, revenue is recognized over the duration of each expedition.
Tour revenues also include revenues from the sale of goods and services onboard our ships, cancellation fees and trip insurance. Revenues from the sale of goods and services rendered onboard are recognized upon purchase. Guest cancellation fees are recognized as tour revenues at the time of the cancellation. The Company recordsthis guidance had a liability for estimated trip insurance claims basedmaterial impact on the Company’s claims history. Proceeds received from trip insurance premiums in excessbalance sheet by virtue of thisincluding the present value of its future operating lease payments as a liability are recordedof $6.2 million and related right-to-use lease assets as revenue inof January 1, 2019.
In August 2018, the period in which they are received.
FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820): Customer DepositsDisclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This amendment is intended to improve the effectiveness of fair value measurement disclosures by adding and Contract Liabilities
The Company’s guests remit deposits in advance of tour embarkation. Guest deposits consist of guest ticket revenuesmodifying a few disclosure requirements, as well as revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the condensed consolidated balance sheet when received and are subsequently recognized as tour revenue over the duration of the expedition. Accounting Standards Codification,Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customereliminating several disclosures. ASU 2018-13 is effective for which the entity has received consideration from the customer.fiscal years beginning after December 15, 2018. The Company doesadopted this guidance on January 1, 2019, as required, and it did not consider guest depositshave a material impact on the Company’s financial position or results of operations.
In August 2018, the FASB issued ASU 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to bedevelop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and early adoption was permitted. The Company adopted this guidance on January 1, 2019, and it did not have a contract liability untilmaterial impact on the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. Unearned passenger revenues presented in our condensed consolidated balance sheets include contract liabilities of $63.5 million and $62.1 million as of September 30, 2018 and December 31, 2017, respectively. All of our contract liabilities as of December 31, 2017 were recognized and reported withintour revenues in our condensed consolidated statements of operations for the nine months ended September 30, 2018.Company's financial statements.
NOTE 2 – EARNINGS PER SHARE
Earnings per Common Share
Earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the dilutive incremental common shares associated with restricted stock awards, shares issuable upon the exercise of stock options and warrants, using the treasury stock method.
For the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the Company calculated earnings per share as follows:
For the three months ended | For the six months ended | |||||||||||||||
(In thousands, except share and per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net income available to common stockholders | $ | 988 | $ | 134 | $ | 15,661 | $ | 10,932 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Total weighted average shares outstanding, basic | 46,155,981 | 45,894,155 | 45,607,307 | 45,322,541 | ||||||||||||
Dilutive potential common shares | 3,329,023 | 548,456 | 2,673,695 | 272,439 | ||||||||||||
Total weighted average shares outstanding, diluted | 49,485,004 | 46,442,611 | 48,281,002 | 45,594,980 | ||||||||||||
Net income per share available to common stockholders | ||||||||||||||||
Basic | $ | 0.02 | $ | - | $ | 0.34 | $ | 0.24 | ||||||||
Diluted | $ | 0.02 | $ | - | $ | 0.32 | $ | 0.24 | ||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| (In thousands, except share and per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Net income available to common stockholders | $ | 5,067 | $ | 9,278 | $ | 15,998 | $ | 7,342 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Total weighted average shares outstanding, basic | 45,423,127 | 44,457,656 | 45,356,438 | 44,528,878 | ||||||||||||
| Dilutive potential common shares | 2,267,268 | 1,260,857 | 607,231 | 1,080,682 | ||||||||||||
| Total weighted average shares outstanding, diluted | 47,690,395 | 45,718,513 | 45,963,669 | 45,609,560 | ||||||||||||
| Net income per share available to common stockholders | ||||||||||||||||
| Basic | $ | 0.11 | $ | 0.21 | $ | 0.35 | $ | 0.16 | ||||||||
| Diluted | $ | 0.11 | $ | 0.20 | $ | 0.35 | $ | 0.16 | ||||||||
For the three and six months ended June 30, 2019, 0.1 million restricted shares are excluded from dilutive potential common shares as they were anti-dilutive. For the three months ended June 30, 2018, 0.2 million restricted shares and 0.2 million options are excluded from dilutive potential common shares as they were anti-dilutive. For the six months ended June 30, 2018, 0.2 million restricted shares, 0.2 million options and 10.1 million warrants are excluded from dilutive potential common shares as they were anti-dilutive.
On July 17, 2019, the Company completed a consent solicitation and exchange offer relating to the Company’s outstanding warrants (see Note 13 – Subsequent Event for more information).
NOTE 3 – REVENUES
Customer Deposits and Contract Liabilities
The Company’s Boardguests remit deposits in advance of Directorstour embarkation. Guest deposits consist of guest ticket revenues as well as revenues from the sale of pre- and stockholders approvedpost-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the 2015 Long-Term Incentive Plan,ships. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the condensed consolidated balance sheets when received and are subsequently recognized as tour revenue over the duration of the expedition. Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which includes the authorityentity has received consideration from the customer. The Company does not consider guest deposits to issue upbe a contract liability until the guest no longer has the right, resulting from the passage of time, to 2.5 million shares of Lindblad common stock. As of September 30, 2018, approximately 2.0 million shares were available for future grants under the plan.cancel their reservation and receive a full refund.
As of September 30, 2018 and 2017, options to purchase an aggregate of 220,000 and 1,939,764 shares of The change in contract liabilities within unearned passenger revenues presented in the Company’s common stock, respectively, with a weighted average exercise price of $9.63 and $2.65 per share, respectively, were outstanding. As of September 30, 2018, 113,333 options were exercisable.Company's condensed consolidated balance sheets are as follows:
Contract Liabilities | ||||
(In thousands) | (unaudited) | |||
Balance as of January 1, 2019 | $ | 70,903 | ||
Recognized in tour revenues during the period | (70,903 | ) | ||
Additional contract liabilities in period | 82,416 | |||
Balance as of June 30, 2019 | $ | 82,416 | ||
As of September 30, 2018 and 2017, 10,088,074 and 10,673,015 warrants, respectively, expiring July 8, 2020 were outstanding to purchase common stock at a price of $11.50 per share. These warrants were anti-dilutive for the three and nine months ended September 30, 2017 and were not included in the calculation of diluted weighted average shares outstanding for those periods.
The following table disaggregates total revenues by revenue type:
For the three months ended | For the six months ended | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In thousands) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
Guest ticket revenues | $ | 69,737 | $ | 63,415 | $ | 150,070 | $ | 137,745 | ||||||||
Other tour revenue | 6,921 | 6,058 | 16,241 | 14,138 | ||||||||||||
Tour revenues | $ | 76,658 | $ | 69,473 | $ | 166,311 | $ | 151,883 | ||||||||
Cash and Cash Equivalents
NOTE 4 – FINANCIAL STATEMENT DETAILS
The Company considers all highly liquid instruments with an original maturityfollowing is a reconciliation of six months or less, as well as deposits in financial institutions,cash, cash equivalents and restricted cash to bethe statement of cash and cash equivalents.
Concentration of Credit Riskflows:
The Company maintains cash in several financial institutions in the U.S. and other countries which, at times, may exceed the federally insured limits. Accounts held in the U.S. are guaranteed by the Federal Deposit Insurance Corporation up to certain limits. As of September 30, 2018 and December 31, 2017, the Company’s cash held in financial institutions outside of the U.S. amounted to $6.5 million and $4.1 million, respectively.
Restricted Cash and Marketable Securities
For the six months ended | ||||||||
(In thousands) | 2019 | 2018 | ||||||
(unaudited) | (unaudited) | |||||||
Cash and cash equivalents | $ | 78,746 | $ | 91,561 | ||||
Restricted cash | 33,305 | 22,803 | ||||||
Total cash, cash equivalents and restricted cash as presented in the statement of cash flows | $ | 112,051 | $ | 114,364 | ||||
Restricted cash and marketable securities consistconsists of the following:
| As of September 30, | As of December 31, | |||||||
| 2018 | 2017 | |||||||
| (In thousands) | (unaudited) | |||||||
| Federal Maritime Commission escrow | $ | 5,622 | $ | 4,186 | ||||
| Credit card processor reserves | 1,530 | 1,530 | ||||||
| Certificates of deposit and other restricted securities | 1,441 | 1,341 | ||||||
| Total restricted cash and marketable securities | $ | 8,593 | $ | 7,057 | ||||
As of | As of | |||||||
(In thousands) | (unaudited) | |||||||
Federal Maritime Commission escrow | $ | 32,000 | $ | 5,823 | ||||
Certificates of deposit and other restricted securities | 1,305 | 1,402 | ||||||
Credit card processor reserves | - | 1,530 | ||||||
Total restricted cash | $ | 33,305 | $ | 8,755 | ||||
The amounts held in restricted cash and marketable securities represent principally funds required to be held in certificates of deposit by certain vendors and regulatory agencies and are classified as restricted assets since such amounts cannot be used by the Company until the restrictions are removed by those vendors and regulatory agencies. Interest income is recognized when earned.
The Company has classified marketable securities, principally money market funds, as trading securities which are recorded at market value. Unrealized gains and losses are included in current operations. Gains and losses on the disposition of securities are recognized by the specific identification method in the period in which they occur.
In order to operate guest tour expedition vessels from U.S. ports, the Company is required to either post a performance bond with the Federal Maritime Commission or escrow all unearned guest deposits plus an additional 10% in restricted accounts. To satisfy this requirement, the Company entered into an agreement with a financial institution to escrow the required amounts.
At September 30, 2018 and December 31, 2017, a cash reserve of approximately $1.5 million is required for credit card deposits by third-party credit card processors.
Amounts in the escrow accounts include cash, certificates of deposit and marketable securities. Cost of these short-term investments approximates fair value.
Marine Operating Supplies and Inventories
Marine operating supplies consist primarily of fuel, provisions, spare parts, items required for maintenance and supplies used in the operation of marine expeditions. Marine operating supplies are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
Inventories consist primarily of gift shop merchandise and other items for resale and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
Prepaid Expenses and Other Current Assets
The Company records prepaid expenses and other current assets at cost and expenses them in the period the services are provided, or the goods are delivered. The Company’s prepaid expenses and other current assets consist of the following:
| As of September 30, | As of December 31, | |||||||
| 2018 | 2017 | |||||||
| (In thousands) | (unaudited) | |||||||
| Prepaid tour expenses | $ | 11,746 | $ | 9,846 | ||||
| Prepaid air expense | 3,222 | 3,621 | ||||||
| Prepaid client insurance | 2,097 | 2,525 | ||||||
| Prepaid corporate insurance | 1,808 | 1,033 | ||||||
| Prepaid marketing, commissions and other expenses | 1,731 | 2,495 | ||||||
| Prepaid port agent fees | 1,279 | 1,022 | ||||||
| Prepaid income taxes | 34 | 809 | ||||||
| Total prepaid expenses | $ | 21,917 | $ | 21,351 | ||||
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization were computed using the straight-line method over the estimated useful lives of the assets, as follows:
(In thousands) | As of | As of | ||||||
(unaudited) | ||||||||
Prepaid tour expenses | $ | 18,860 | $ | 10,617 | ||||
Prepaid corporate insurance | 2,688 | 1,158 | ||||||
Prepaid client insurance | 2,663 | 2,436 | ||||||
Prepaid air expense | 2,585 | 2,973 | ||||||
Prepaid port agent fees | 2,377 | 1,433 | ||||||
Prepaid marketing, commissions and other expenses | 2,001 | 2,622 | ||||||
Prepaid income taxes | 123 | 24 | ||||||
Total prepaid expenses | $ | 31,297 | $ | 21,263 | ||||
Vessel improvement costs that add value to the Company’s vessels are capitalized and depreciated over the shorter of the improvements or the vessel’s estimated remaining useful life, while costs of repairs and maintenance, including minor improvement costs and drydock expenses, are charged to expense as incurred and included in cost of tours. Drydock costs primarily represent planned maintenance activities that are incurred when a vessel is taken out of service. For U.S. flagged ships, the statutory requirement is an annual docking and U.S. Coast Guard inspections, normally conducted in drydock. Internationally flagged ships have scheduled dockings approximately every 12 months, for a period of up to three to six weeks.
Goodwill
In accordance with Accounting Standards Codification (“ASC”) 360, the Company tests for impairment annually as of September 30, or more frequently if warranted. The Company assessed qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount. The Company completed the annual impairment test as of September 30, 2018 with no indication of goodwill impairment.
Intangibles, net
Intangibles, net include tradenames, customer lists and operating rights. Tradenames are words, symbols, or other devices used in trade or business to indicate the source of products and to distinguish it from other products and are registered with government agencies and are protected legally by continuous use in commerce. Customer lists are established relationships with existing customers that resulted in repeat purchases and customer loyalty. Based on the Company’s analysis, amortization of the tradenames and customer lists were computed using the estimated useful lives of 15 and 5 years, respectively.
The Company operates two vessels year-round in the Galápagos National Park in Ecuador: theNational Geographic Endeavour II with 95 berths and theNational Geographic Islander with 47 berths. In order to operate these vessels within the park, the Company is required to have in its possession cupos (licenses) sufficient to cover the total available berths on each vessel.
In June 2015, a new Ecuadorian Special Law for Protected Areas was approved and then updated in November 2015. A Presidential Decree issued by President Correa of Ecuador in November 2015 established that cupos, which were in effect since July 2015, will have a validity of nine years. The Company’s operating rights are up for renewal in July 2024. The current “owners” of the cupos will have the opportunity to re-apply for them, but any other enterprise or individual will have the opportunity to bid for the cupos. All bidders must present proof that they fulfill the conditions to properly utilize the license (access to a vessel, experience in tourism, proven environmental behavior, marketing, etc.). While the Company believes that, based on the expected criteria to retain cupos and its past operating history in the Galápagos, there is a strong possibility that the Company will retain its cupos, from an accounting perspective, it will assume they retain no value after July 2024. Once the renewal process has begun and if it can be determined that the Company will be successful in its bid, then the Company will adjust its amortization prospectively. Operating rights are amortized over their remaining government mandated lives.
Upon the occurrence of a triggering event, the assessment of possible impairment of the Company’s intangibles will be based on the Company’s ability to recover the carrying value of its asset, which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess of the asset’s carrying value over its estimated fair value. A significant amount of judgment is required in estimating the future cash flows and fair values of its tradenames, customer lists and operating rights. As of September 30, 2018, there was no triggering event and the Company did not record an impairment for intangible assets.
Long-Lived Assets
The Company reviews its long-lived assets, principally its vessels, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset, which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess of the asset’s carrying value over its estimated fair value. A significant amount of judgment is required in estimating the future cash flows and fair values of its vessels. As of September 30, 2018, there was no triggering event and the Company did not record an impairment of its long-lived assets.
Accounts Payable and Accrued Expenses
The Company records accounts payable and accrued expenses for the cost of such items when the service is provided or when the related product is delivered. The Company’s accounts payable and accrued expenses consist of the following:
(In thousands) | As of | As of | ||||||||||||||
| As of September 30, | As of December 31, | (unaudited) | ||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (In thousands) | (unaudited) | |||||||||||||||
| Accrued other expense | $ | 8,333 | $ | 7,001 | $ | 10,778 | $ | 11,851 | ||||||||
| Accounts payable | 6,769 | 7,791 | 7,944 | 9,326 | ||||||||||||
| Bonus compensation liability | 3,727 | 3,736 | 3,444 | 5,195 | ||||||||||||
| New build liability | 2,836 | 2,730 | ||||||||||||||
| Employee liability | 2,776 | 2,644 | 3,147 | 2,943 | ||||||||||||
Income tax liabilities | 1,988 | 576 | ||||||||||||||
| Royalty payable | 1,866 | 1,673 | 1,425 | 1,005 | ||||||||||||
Refunds and commissions payable | 1,107 | 1,533 | ||||||||||||||
| Travel certificate liability | 1,056 | 1,120 | 940 | 1,088 | ||||||||||||
| Income tax liabilities | 766 | 1,490 | ||||||||||||||
| Refunds and commissions payable | 749 | 1,805 | ||||||||||||||
| Accrued travel insurance expense | 427 | 432 | 427 | 427 | ||||||||||||
| Total accounts payable and accrued expenses | $ | 29,305 | $ | 30,422 | $ | 31,200 | $ | 33,944 | ||||||||
Fair Value Measurements
NOTE 5 – LONG-TERM DEBT
As of | As of | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(In thousands) | Principal | Deferred Financing Costs, net | Balance | Principal | Deferred Financing Costs, net | Balance | ||||||||||||||||||
Note payable | $ | 2,525 | $ | - | $ | 2,525 | $ | 2,525 | $ | - | $ | 2,525 | ||||||||||||
Credit Facility | 198,000 | (12,865 | ) | 185,135 | 199,000 | (11,436 | ) | 187,564 | ||||||||||||||||
Total long-term debt | 200,525 | (12,865 | ) | 187,660 | 201,525 | (11,436 | ) | 190,089 | ||||||||||||||||
Less current portion | (2,000 | ) | - | (2,000 | ) | (2,000 | ) | - | (2,000 | ) | ||||||||||||||
Total long-term debt, non-current | $ | 198,525 | $ | (12,865 | ) | $ | 185,660 | $ | 199,525 | $ | (11,436 | ) | $ | 188,089 | ||||||||||
For the three and six months ended June 30, 2019, deferred financing costs charged to interest expense was $0.5 million and $0.9 million, respectively. For the three and six months ended June 30, 2018, deferred financing costs charged to interest expense was $0.4 million and $1.0 million, respectively.
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 3 financial liabilities consist of obligations for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.Credit Facility
In March 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), providing for a $200.0 million senior secured first lien term loan facility (the “Term Facility”), maturing March 2025, and a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. The asset’s or liability’s fair value measurement within the fair value hierarchy is based upon the lowest levelTerm Facility bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of any input that is significant to the fair value measurement.
The carrying amounts3.25%, for an aggregated rate of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments.
The carrying value of long-term debt approximates fair value given that the terms of the agreement were comparable to the market5.648% as of SeptemberJune 30, 2018.2019. Borrowings under the Revolving Facility may be used for general corporate and working capital purposes and related fees and expenses. As of SeptemberJune 30, 2018 and December 31, 2017,2019, the Company had no other significant liabilitiesborrowings under the Revolving Facility.
Senior Secured Credit Agreements
In January 2018, the Company entered into a senior secured credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch and Eksportkreditt Norge AS, to make available to the Company a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of the Company’s new ice class vessel, the National Geographic Endurance, targeted to be completed in January 2020. If drawn upon, the loan will be made at the time of delivery of the vessel. The Export Credit Agreement, at the Company's election, will bear interest either at a fixed interest rate effectively equal to 5.78% or a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum.
On April 8, 2019, the Company entered into a senior secured credit agreement (the “Second Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (“EK” and together with Citi, the “Lenders”). Pursuant to the Second Export Credit Agreement, the Lenders have agreed to make available to the Company, at the Company's option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $122.8 million for the purpose of providing pre- and post- delivery financing for up to 80% of the purchase price of the Company’s new expedition ice-class cruise vessel targeted to be completed in September 2021. The Second Export Credit Agreement will bear an interest rate, at the Company’s option, of either a fixed rate of 6.36% or a variable rate equal to three-month LIBOR plus a margin of 3.00% per annum. 30% of the borrowing will mature over five years from drawdown, and 70% of the borrowing will mature over twelve years from drawdown. Additionally, 70% percent of the loan will be guaranteed by Garantiinstituttet for eksportkreditt, the official export credit agency of Norway. The Company incurred approximately $2.3 million in financing fees related to the Second Export Agreement, recorded as deferred financing costs as part of long-term debt.
Note Payable
In connection with the Natural Habitat acquisition in May 2016, Natural Habitat issued an unsecured promissory note to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $2.5 million due at maturity on December 31, 2020. The promissory note accrues interest at a rate of 1.44% annually, with interest payable every six months.
Covenants
The Company’s Amended Credit Agreement, Export Credit Agreement and Second Export Credit Agreement contain financial and restrictive covenants that were measured at fair valueinclude among others, net leverage ratios, limits on a recurring basis.additional indebtedness and limits on certain investments. As of June 30, 2019, the Company was in compliance with its covenants.
NOTE 6 – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Instruments and Hedging Activities
The Company’s derivative assets and liabilities consist principally of foreign exchange forward contracts and interest rate caps and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as quoted market prices are not readily available. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves and counterparty credit risks.
Currency Risk
Derivative Instruments. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S.-dollar denominated receivables and Hedging Activitiespayables. The Company primarily hedges a portion of its current-year currency exposure to the Canadian and New Zealand dollars, the Brazilian Real, South African Rand, Indian Rupee, the Euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge.
By entering into derivative instrument contracts,In March 2019, the Company exposes itself, from timeentered into foreign exchange forward contracts, designated as cash flow hedges, to time,hedge its exposure to counterparty credit risk. Counterparty credit risk isNorwegian Kroner ("NOK"), related to the failureCompany’s contract to purchase the new polar ice-class vessel (see Note 11 – Commitments and Contingencies). The cost of the counterpartyforeign exchange forward contracts will be amortized to perform underinterest expense over their lives, from the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to the Company, which creates credit risk for the Company.effective date through settlement dates.
Interest Rate Risk. The Company continuesuses interest rate caps, designated as cash flow hedges, to monitor counterparty creditmanage the risk as part ofrelated to its ongoing hedge assessments.floating rate corporate debt.
The Company records derivatives on a gross basis in other long-term assets and other liabilities in the condensed consolidated balance sheets at fair value. The accounting for changes in value of the derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings.
The Company applies hedge accounting to its interest rate derivatives entered into for risk management purposes. To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, key aspects of achieving hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting changes in the cash flows of the hedged item for the risk being hedged. The effective portion of changes in the fair value of derivatives designated in a hedge relationship and that qualify asits cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized. Any changes in fair values of hedges that are determined to be ineffective are immediately reclassified from accumulated other comprehensive income (loss) into earnings. No gains or losses of the Company’s cash flow hedges were considered to be ineffective and reclassified from other comprehensive income (loss) to earnings for the six-month period ended June 30, 2019. The Company estimates that approximately $0.4 million of losses currently recorded in accumulated other comprehensive income net(loss) will be recognized in earnings over the next 12 months due to maturity of tax,the cash flow hedge and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.item. The Company will continue to assess the effectiveness of the hedges on an ongoing basis.
The Company formally documentsheld the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether thefollowing derivative instruments that are used are highly effective in offsetting changes inwith absolute notional values as of June 30, 2019:
(in thousands) | Absolute Notional Value | |||
Interest rate caps | $ | 100,000 | ||
Foreign exchange contracts | 157,316 | |||
Estimated fair values or cash flows(Level 2) of the hedged items.
The Company is exposed to market risks attributable to changes in interest rates on its term loan facility and seeks to hedge the risk of variability in cash flows associated with the changes in US$-LIBOR-Intercontinental Exchange associated with interest payments on its Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”).
During the second quarter 2018, the Company entered into interest rate cap agreements to hedge its exposure to interest rate movements and to manage its interest expense related to the first lien loan facility (the “Term Facility”) under its Amended Credit Agreement and designated these interest rate caps as a cash flow hedge. The Company receives payments on the cap for any period that the one-month USD LIBOR rate increase beyond the strike rate. The termination date of the cap agreement is May 31, 2023. The detailed terms of the interest rate caps and the portion of the corporate Term Facility that they hedge arederivative instruments were as follows:
As of June 30, 2019 | As of December 31, 2018 | |||||||||||||||
(unaudited) | ||||||||||||||||
(in thousands) | Fair Value, Asset Derivatives | Fair Value, Liability Derivatives | Fair Value, Asset Derivatives | Fair Value, Asset Derivatives | ||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Foreign exchange forward (a) | $ | - | $ | 1,536 | $ | - | $ | - | ||||||||
Interest rate cap (b) | 420 | - | 710 | - | ||||||||||||
Total | $ | 420 | $ | 1,536 | $ | 710 | $ | - | ||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Foreign exchange forward (c) | $ | - | $ | 171 | $ | - | $ | 1,328 | ||||||||
Total | $ | - | $ | 171 | $ | - | $ | 1,328 | ||||||||
_________
| Interest Rate Caps | Corporate Debt | |||
| Trade date and borrowing date | May 29, 2018 | March 27, 2018 | ||
| Effective date | September 27, 2018 | Not applicable | ||
| Termination date | May 31, 2023 | March 27, 2025 | ||
| Notional amount | $100,000,000 | $100,000,000 | ||
| Fixed interest rate (plus spread) | 2.50% until November 30, 2018 | Not applicable | ||
| 2.75% December 1, 2018 until April 30, 2019 | ||||
| 3.00% May 1, 2019 until maturity | ||||
| Variable interest rate | 1 month LIBOR | 1 month LIBOR + 3.50% | ||
| Settlement | Monthly on last day of each month | Monthly on last day of each month | ||
| Interest payment dates | Monthly on last day of each month | Monthly on last day of each month | ||
| Reset dates | Last day of each month | Last day of each month |
(a) | Recorded in accounts payable and accrued expenses and other long-term liabilities. |
(b) | Recorded in prepaid expenses and other current assets and other long-term assets. |
(c) | Recorded in accounts payable and accrued expenses. |
The notional amount of outstanding debt associated with the interest rate cap agreements was $100.0 million as of September 30, 2018, with a fair value of $1.6 million recorded within other long-term assets. Changes in the fair value of this interest rate capthe Company’s hedging instruments are recorded in accumulated other comprehensive income, pursuant to the guidelines of cash flow hedge accounting as outlined in ASC 815 and ASU 2017-12. During the three and nine months ended September 30, 2018, the Company recorded approximately $0.2 million and $0.2 million, respectively, of gains in accumulated other comprehensive income related to the change in fair value. The Company does not expect any gains currently recorded in accumulated other comprehensive income to be recognized in earnings over the next 12 months. The cost of the interest rate cap will be amortized to interest expense over its life, from the effective date through termination date.815.
The effects of cash flow hedge accounting on accumulated other comprehensive incomederivatives recognized in the Company’s condensed consolidated financial statements were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Derivatives designated as hedging instruments (a): | ||||||||||||||||
Foreign exchange forward contracts | $ | (516 | ) | $ | - | $ | 972 | $ | - | |||||||
Interest rate caps | 140 | (73 | ) | 289 | (73 | ) | ||||||||||
Derivatives not designated as hedging instruments (b): | ||||||||||||||||
Foreign exchange forward contracts | 501 | (1,141 | ) | 1,157 | (1,592 | ) | ||||||||||
Total | $ | 125 | $ | (1,214 | ) | $ | 2,418 | $ | (1,665 | ) | ||||||
__________
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, unaudited) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Beginning balance: | $ | 73 | $ | - | $ | - | $ | - | ||||||||
| Net change in period | 157 | - | 230 | - | ||||||||||||
| Accumulated Other Comprehensive Income | $ | 230 | $ | - | $ | 230 | $ | - | ||||||||
(a) | Recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity. |
(b) | Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged. During the three and six months ended June 30, 2019, a gain of $0.5 million and $1.2 million, respectively, was recognized in gain (loss) on foreign currency. During the three and six months ended June 30, 2018, a loss of $1.1 million and $1.6 million, respectively, was recognized in gain (loss) on foreign currency. |
The amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered effective. No amount of the hedge was considered to be ineffective and included in net income for the period ended September 30, 2018. The Company will continue to assess the effectiveness of the hedge on an ongoing basis.
Income TaxesFair Value Measurements
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. The determination of the required valuation allowance against net deferred tax assets was made without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.
The Company accounts for income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts of cash and the tax bases of existing assetscash equivalents, accounts payable and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of our foreign and U.S. companies to determine the appropriate level of valuation allowances.
The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of FASB’s authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reductionaccrued expenses, approximate fair value due to the tax benefits previously recorded on its condensed consolidated financial statements or may exceed the current income tax reserves in amounts that could be material. Asshort-term nature of September 30, 2018, and December 31, 2017, the Company had a liability for unrecognized tax benefitsthese instruments. The carrying value of $0.4 million, which was included in other long-term liabilities. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. During the three and nine months ended September 30, 2018 and 2017, interest and penalties related to uncertain tax positions included in income tax expense are not significant.
The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns for the current year and three prior years remain subject to examination by tax authorities and the Company’s foreign tax returns for the current year and four prior years remain subject to examination by tax authorities.
The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), codified as Accounting Standards Update (“ASU”) 2018-05, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 is effective for reporting periods that include December 22, 2017. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of December 31, 2017, resulting in additional tax expense of $12.7 million in that period. As the Company collects and prepares the necessary data, and interprets the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it may make adjustments to the provisional amounts. Those adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. To date, management has not made any adjustments to the provisional amounts for the remeasurement of deferred tax assets/liabilities and the deemed repatriation of certain foreign subsidiary earnings. The accounting for the tax effects of the Tax Act will be completed in 2018.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees, non-employee directors or other service providers in accordance with accounting guidance that requires that awards are recorded at theirdebt approximates fair value on the date of grant and are amortized over the service period of the award. The Company recognizes compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the equity instrument issued.
Segment Reporting
The Company is primarily a specialty cruise operator with operations in two segments, Lindblad and Natural Habitat. The Company evaluates the performance of the business based largely on the results of its operating segments. The chief operating decision maker, or CODM, and management review operating results monthly, and base operating decisions on the total results at a consolidated level, as well as at a segment level. The reports provided to the Board of Directors are at a consolidated level and also contain information regarding the separate results of both segments. While both segments have similar characteristics, the two operating and reporting segments cannot be aggregated because they fail to meet the requirements for aggregation.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangementgiven that is a Service Contract. The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2018. Management is currently assessing the effect of this guidance on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13Fair Value Measurement (Topic 820):Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This amendment is intended to improve the effectiveness of fair value measurement disclosures by adding and modifying a few disclosure requirements, as well as eliminating several disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2018. Management is currently assessing the effect of this guidance on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842) and in July 2018 ASU 2018-11,Leases (Topic 842):Targeted Improvements. The guidance requires the recognition of lease right-of-use assets and lease liabilities by lessees for those leases previously classified as operating. This guidance was issued to increase transparency and comparability among organizations by disclosing key information about leasing arrangements and requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company will adopt this guidance on January 1, 2019, as required. The adoption of this guidance will have a material impact on the Company’s balance sheet for the present value of its lease liabilities and related right-of-use assets. The Company does not believe that the adoption of this guidance will have a material effect on its future results of operations or cash flows.
Accounting Pronouncements Recently Adopted
In 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606). This ASU is based on the principle that revenue is recognized upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. There have been multiple clarifying ASU’s issued subsequent to ASU 2014-09. The Company adopted the revenue recognition guidance beginning January 1, 2018, using the modified retrospective transition method applied to those contracts which were not completed as of the adoption date. Prior periods have not been restated. The adoption of this guidance was not material to the Company’s financial position and results of operations.
In January 2017, the FASB issued ASU No. 2017-04,Intangibles and Other (Topic 350):Simplifying the Test for Goodwill Impairment. The amendment was issued in response from stakeholders’ regarding the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Now the entity compares the fair value of the reporting unit with its carrying amount. The Company adopted this guidance beginning January 1, 2018, which did not have a material impact on its financial position or results of operations.
In January 2017, the FASB issued ASU No. 2017-01,Business Combinations (Topic 805):Clarifying the Definition of a Business. The guidance was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this guidance provide a screen to determine when a set (inputs and processes that produce an output) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Company adopted this guidance beginning January 1, 2018, which did not have a material impact on its financial position or results of operations.
In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendments also ease the application of hedge accounting in certain situations, including eliminating the requirement to separately measure and report hedge ineffectiveness for cash flow hedges. ASU 2017-12 is effective for fiscal years beginning after December 31, 2018, and earlier adoption is permitted. The Company has elected early adoption of ASU 2017-12 and has accounted for its cash flow hedges in accordance with the amended rules.
NOTE 3 – LONG-TERM DEBT
| As of September 30, 2018 | As of December 31, 2017 | |||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (In thousands) | Principal | Deferred Financing Costs, net | Balance | Principal | Deferred Financing Costs, net | Balance | ||||||||||||||||||
| Note payable | $ | 2,525 | $ | - | $ | 2,525 | $ | 2,525 | $ | - | $ | 2,525 | ||||||||||||
| Credit Facility | 199,500 | (11,864 | ) | 187,636 | 170,625 | (7,214 | ) | 163,411 | ||||||||||||||||
| Total long-term debt | 202,025 | (11,864 | ) | 190,161 | 173,150 | (7,214 | ) | 165,936 | ||||||||||||||||
| Less current portion | (2,000 | ) | - | (2,000 | ) | (1,750 | ) | - | (1,750 | ) | ||||||||||||||
| Total long-term debt, non-current | $ | 200,025 | $ | (11,864 | ) | $ | 188,161 | $ | 171,400 | $ | (7,214 | ) | $ | 164,186 | ||||||||||
Credit Facility
On March 27, 2018, the Company entered into the Amended Credit Agreement providing for a refinancing and amendment of the terms of the Company’s prior secured credit facility, datedagreement were comparable to the market as of March 7, 2016 (the “Superseded Agreement”).
The Amended Credit Agreement provided for a $200.0 million senior secured Term Facility, which represented an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement. The Term Facility matures March 27, 2025. Consistent with the Superseded Agreement, the Amended Credit Agreement also provides for a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. The Company’s obligations under the Amended Credit Agreement remain secured by substantially all of the assets of the Company.
In connection with the Amended Credit Agreement, the Company capitalized $4.2 million related to lender and third-party fees. In addition, the entry into the Amended Credit Agreement was considered a debt modification with a partial extinguishment, as a result the Company expensed $1.0 million of related costs during the nine months ended SeptemberJune 30, 2018, which is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
Borrowings under the Term Facility bear interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of 3.50%, which steps down to 3.25% if the Company’s debt rating from Moody’s and S&P are both B1 (stable) or better and BB (negative) or better, respectively. The interest rate at September 30, 2018 is 5.74% under the Term Facility. Borrowings under the Revolving Facility will bear interest at an adjusted ICE Benchmark administration LIBOR plus a spread of 3.00%, or, at the option of the Company, an alternative base rate plus a spread of 2.00%. The Company is also required to pay a 0.5% annual commitment fee on undrawn amounts under the Revolving Facility, which matures on March 27, 2023.
The Amended Credit Agreement (i) requires the Company to satisfy certain financial covenants as set forth in the Amended Credit Agreement; (ii) limits the amount of indebtedness the Company may incur; (iii) limits the amount the Company may spend in connection with certain types of investments; (iv) requires the delivery of certain periodic financial statements and an operating budget and (v) requires the mortgaged vessels and related inventory to be maintained in good working condition.2019. As of SeptemberJune 30, 2018, the Company was in compliance with the covenants.
Borrowings under the Revolving Facility may be used for general corporate2019 and working capital purposes and related fees and expenses. As of September 30,December 31, 2018, the Company had no borrowings under the Revolving Facility.other significant liabilities that were measured at fair value on a recurring basis.
For the three months ended September 30, 2018 and 2017, deferred financing costs charged to interest expense was $0.4 million and $0.6 million, respectively. For the nine months ended September 30, 2018 and 2017, deferred financing costs charged to interest expense was $1.5 million and $1.7 million, respectively.
Senior Secured Credit Agreement
On January 8, 2018, the Company and its indirect, wholly-owned subsidiary (the “Borrower”) entered into a senior secured credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (together with Citi, the “Lenders”). Pursuant to the Export Credit Agreement, the Lenders have agreed to make available to the Borrower, at the Borrower’s option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of the Company’s new ice class vessel, theNational Geographic Endurance, targeted to be completed in January 2020. Seventy percent of the loan will be guaranteed by Garantiinstituttet for Eksportkreditt, the official export credit agency of Norway. If drawn upon, the loan will be made at the time of delivery of the vessel.
At the Borrower’s election, the loan will bear interest either at a fixed interest rate effectively equal to 5.78% or a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum. The loan will amortize quarterly based on a twelve-year profile, with 70% maturing over twelve years from drawdown, and 30% maturing over five years from drawdown. The Company is also required to pay an annual commitment fee of 1.3% until drawdown of the Export Credit Agreement. The loan will be secured by a first priority mortgage over the new vessel and the assignment of related insurances. The Export Credit Agreement also contains customary events of default and mandatory prepayment events for, among other things, non-payment, breach of covenants, default on certain other indebtedness, certain large judgments and a change of control of the Company or the Borrower. In addition to paying interest on any outstanding loans under the facility, the Borrower is required to pay customary coordination, arrangement, agency, collateral and commitment fees. Amounts drawn under the Export Credit Agreement may be voluntarily prepaid at any time subject to customary breakage costs. All obligations of the Borrower under the Export Credit Agreement are guaranteed by the Company. As of September 30, 2018, the Company was in compliance with the covenants.
Note Payable
On May 4, 2016, in connection with the Natural Habitat acquisition, Natural Habitat issued an unsecured promissory note to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $2.5 million due at maturity on December 31, 2020. The promissory note accrues interest at a rate of 1.44% annually, with interest payable every six months.
NOTE 4 – EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan and trust for its employees. The Company matches 30% of employee contributions up to an annual maximum of $2,100 as of September 30, 2018 and 2017. For the three months ended September 30, 2018 and 2017, the Company’s benefit plan contribution was $0.1 million and $0.1 million, respectively. For the nine months ended September 30, 2018 and 2017, the Company’s benefit plan contribution was $0.3 million and $0.2 million, respectively. The benefit plan contribution is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
NOTE 57 – STOCKHOLDERS’ EQUITY
Capital Stock
The Company has 1,000,000 shares of preferred stock authorized, $0.0001 par value and 200,000,000 shares of common stock authorized, $0.0001 par value.
Stock and Warrant Repurchase Plan
The Company’s Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $35.0 million in November 2016. The Repurchase Plan authorizes the Company to purchase, from time to time, the Company’s outstanding common stock and warrants. Any shares and warrants purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. All repurchases were made using cash resources. During the ninethree and six months ended SeptemberJune 30, 20182019, the Company repurchased 9,0301,895 shares of common stock for $0.1 million and 568,446 warrants for $0.8 million.approximately $23,000. The Company has cumulatively repurchased 864,806866,701 shares of common stock for $8.1$8.2 million and 6,011,926 warrants for $14.7 million, since plan inception. The balance for the Repurchase Plan was $12.1 million as of SeptemberJune 30, 2018.
2018 Long-Term Incentive Compensation2019.
In 2017, the Company’s compensation committee approved an employee incentive plan which authorizes awarding restricted stock units (“RSUs”) and performance share units (“PSUs”) to key employees under the Company’s 2015 Long-Term Incentive Plan.Warrants
During the ninesix months ended SeptemberJune 30, 2019, 2,600 warrants to purchase the Company's common stock were exercised. As of June 30, 2019, 10,085,474 warrants were outstanding to purchase common stock at a price of $11.50 per share. On July 17, 2019, the Company completed a consent solicitation and exchange offer relating to the Company’s outstanding warrants (see Note 13 – Subsequent Event for more information).
NOTE 8 – STOCK-BASED COMPENSATION
The Company is authorized to issue up to 2.5 million shares of common stock under the 2015 Long-Term Incentive Plan to key employees, and as of June 30, 2019, approximately 1.3 million shares were available to be granted.
As of June 30, 2019, and December 31, 2018, options to purchase an aggregate of 200,000 and 220,000 shares, respectively, of the Company’s common stock, with a weighted average exercise price of $9.47 and $9.63, respectively, were outstanding. As of June 30, 2019, 100,000 options were exercisable.
The Company recorded stock-based compensation expense of $1.0 million and $1.8 million during the three and six months ended June 30, 2019, respectively, and $1.1 million and $2.0 million during the three and six months ended June 30, 2018, respectively.
2019 Long-Term Incentive Compensation
During the six months ended June 30, 2019, the Company granted 171,947 RSUs105,406 restricted stock units ("RSUs") with a weighted average grant price of $10.63.$15.16. The RSUs will vest in equal installments on each of the first three anniversaries of the grant date, subject to the recipient’s continued employment or service with the Company or its subsidiaries on the applicable vesting date.
During the six months ended June 30, 2019, the Company awarded 61,631 of targeted performance stock units ("PSUs") with a weighted average grant price of $15.25. The PSUs are performance-vesting equity incentive awards that willmay be earned based on ourthe Company's performance against metrics relating to annual Adjusted EBITDA and annual revenue. Awards, if earned, will vest after a three-year performance period and may be earned at a level ranging from 0%-200% of the number of PSUs granted, depending on performance. During the nine months ended September 30, 2018, the Company awarded 88,851 of targeted PSUs with a weighted average grant price of $10.27. The number of shares were determined based upon the closing price of ourthe Company's common stock on the date of the award.
Stock OptionsNOTE 9 – RELATED PARTY TRANSACTIONS
The Company and National Geographic Society collaborate on exploration, research, technology and conservation in order to provide travel experiences and disseminate geographic knowledge around the globe. The Lindblad/National Geographic Society alliance is set forth in (i) an Alliance and License Agreement and (ii) a Tour Operator Agreement. The extension of the agreements, entered into July 2015, between the Company and National Geographic Society was contingent on the execution by Mr. Lindblad, the Company's Chief Executive Officer, of an option agreement granting National Geographic Society the right to purchase from Mr. Lindblad, for a per share price of $10.00 per share, five percent of the issued and outstanding shares of the Company’s common stock as of July 8, 2015, including all outstanding options, warrants or other derivative securities (excluding options granted under the 2015 Plan and shares issuable upon the exercise of warrants). During March 2019, National Geographic Society exercised its rights in full under the option agreement to acquire the shares, and in a cashless transaction acquired shares from Mr. Lindblad.
NOTE 10 – INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. The determination of the required valuation allowance against net deferred tax assets was made without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.
The Company accounts for income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of its foreign and U.S. companies to determine the appropriate level of valuation allowances.
The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of FASB’s authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on its condensed consolidated financial statements or may exceed the current income tax reserves in amounts that could be material. As of June 30, 2019, and December 31, 2018, the Company had a liability for unrecognized tax benefits of $0.1 million and $0.6 million, respectively, which was included in other long-term liabilities. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. During the ninethree and six months ended SeptemberJune 30, 2019 and 2018, 955,424 stock options were exercised atinterest and penalties related to uncertain tax positions included in income tax expense are not significant. The Company's effective tax rate for the six months ended June 30, 2019 and 2018 was a weighted average exercise pricebenefit of $1.76 per share18.7% and an expense of 4.5%, respectively.
The Company is subject to tax audits in cashless transactions, resulting inall jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns for the net issuance of 442,820 shares of common stock.current year and three prior years remain subject to examination by tax authorities and the Company’s foreign tax returns for the current year and four prior years remain subject to examination by tax authorities (except for the Ecuador entities, where the Company's foreign tax returns for the current year and three prior years remain subject to examination by tax authorities).
NOTE 611 – COMMITMENTS AND CONTINGENCIES
Fleet Expansion
On December 2, 2015, the Company entered into two separate Vessel Construction Agreements (collectively, the “Agreements”) with Ice Floe, LLC, a Washington limited liability company doing business as Nichols Brothers Boat Builders (the “Builder”). The Agreements provided for the Builder to construct two 236-foot, 100-passenger cruise vessels.
The first vessel, theNational Geographic Quest, was delivered in July 2017. The second vessel, theNational Geographic Venture, has a contract price of $57.7 million and is scheduled for delivery in the fourth quarter of 2018. As of September 30, 2018, the Company had paid Ice Floe, LLC $53.0 million related to the vessel. The Agreement also contains customary representations, warranties, covenants and indemnities.
In November 2017, the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel, theNational Geographic Endurance, with a total purchase price of 1,066.0 million Norwegian Kroner.NOK. Subsequently, the Company exercised its right to make payments in United States Dollars, which resulted in a purchase price of $134.6 million, including hedging costs. The purchase price is subject to potential adjustments from contract specifications for variations in speed, deadweight,dead weight, fuel consumption and delivery date, and is due in installments. The first twenty percent of the purchase price was paid shortly after execution of the Agreementagreement with the remaining eighty percent due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in January 2020, with potential accelerated delivery to November 2019.2020.
During February 2019, the Company entered into an agreement with Ulstein Verft, to construct a second polar ice class vessel, a sister ship of the National Geographic Endurance, with a total purchase price of 1,291.0 million NOK. The purchase price is subject to potential adjustments from contract specifications for variations in speed, dead weight, fuel consumption and delivery date. The purchase price is due in installments, with the first 20% paid shortly after execution of the agreement, 50% to be paid over the duration of the build and the final 30% due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in September 2021. During March 2019, the Company entered into foreign exchange forward contracts to lock in a purchase price for the second polar ice class vessel of $153.5 million, subject to potential contract specification adjustments.
Royalty Agreement – National Geographic
The Company is party to an alliance and license agreement with National Geographic, which allows the Company to use the National Geographic name and logo. In return for these rights, the Company is charged a royalty fee. The royalty fee is included within selling and marketing expense on the accompanying condensed consolidated statements of operations.income. The amount is calculated based upon a percentage of certain ticket revenues less travel agent commission, including the revenues received from cancellation fees and any revenues received from the sale of pre- and post-expedition extensions. A pre- and post-expedition extension occurs when a guest extends his or her trip with pre- or post-voyage hotel nightsnights. Royalty expense was $1.8 million and is included within tour revenues on the accompanying condensed consolidated statements of operations. The royalty expense is recognized at the time of revenue recognition. See Note 2 – Summary of Significant Accounting Policies for a description of the Company’s revenue recognition policy. Royalty expense$3.3 million, for the three and ninesix months ended SeptemberJune 30, 2018 totaled $1.52019, respectively, and $1.3 million and $4.6$2.1 million, respectively, and for the three and ninesix months ended SeptemberJune 30, 2017 totaled $1.6 million and $3.9 million,2018, respectively.
The balancesroyalty balance outstanding to National Geographic as of SeptemberJune 30, 20182019 and December 31, 20172018 was $1.9$1.4 million and $1.7$1.0 million, respectively, and are included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.
Royalty Agreement – World Wildlife Fund
Natural Habitat has a license agreement with World Wildlife Fund,WWF, which allows it to use the WWF name and logo. In return for these rights, Natural Habitat is charged a royalty fee and a fee based on annual gross sales. The fees are included within selling and marketing expense on the accompanying condensed consolidated statements of operations. The annualincome. This royalty payment and gross sales fees are paid on a quarterly basis. For the three months ended September 30, 2018 and 2017, these fees totaled $0.3 million andfee expense was $0.2 million, respectively. For the nine months ended September 30, 2018 and 2017, these fees totaled $0.6 million and $0.4 million for the three and six months ended June 30, 2019, respectively, and $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively.
Charter Commitments
From time to time, the Company enters into agreements to charter vessels onto which it holds its tours and expeditions. Future minimum payments on its charter agreements as of SeptemberJune 30, 20182019 are as follows:
Charter Commitments | ||||
For the years ended December 31, | Amount | |||
(In thousands) | (unaudited) | |||
2019 (six months) | $ | 4,230 | ||
2020 | 11,215 | |||
2021 | 2,765 | |||
2022 | 1,850 | |||
Total | $ | 20,060 | ||
| For the years ended December 31, | Amount | |||
| (In thousands) | (unaudited) | |||
| 2018 (three months) | $ | 2,549 | ||
| 2019 | 8,276 | |||
| 2020 | 7,010 | |||
| 2021 | 2,031 | |||
| 2022 | 1,850 | |||
| Total | $ | 21,716 | ||
Legal Proceedings
From time to time, the Company is party to litigation and regulatory matters and claims. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated. The results of complex proceedings and reviews are difficult to predict and the Company’s view of these matters may change in the future as events related thereto unfold. An unfavorable outcome to any legal or regulatory matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.
NOTE 712 – SEGMENT INFORMATION
The Company is primarily a specialty cruise and adventure expedition operator with operations in two segments, Lindblad and Natural Habitat. The Company evaluates the performance of the business based largely on the results of its operating segments. The chief operating decision maker and management review operating results monthly, and base operating decisions on the total results at a consolidated level, as well as at a segment level. The reports provided to the Board of Directors are at a consolidated level and also contain information regarding the separate results of both segments. While both segments have similar characteristics, the two operating and reporting segments cannot be aggregated because they fail to meet the requirements for aggregation.
The Company evaluates the performance of its business segments based largely on tour revenues and operating income, without allocating other income and expenses, net, income taxes and interest expense, net. For the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, operating results were as follows:
For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | 2019 | 2018 | Change | % | 2019 | 2018 | Change | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | Change | % | 2018 | 2017 | Change | % | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tour revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lindblad | $ | 64,507 | $ | 67,451 | $ | (2,944 | ) | (4 | %) | $ | 194,516 | $ | 167,891 | $ | 26,625 | 16 | % | $ | 64,930 | $ | 59,556 | $ | 5,374 | 9 | % | $ | 140,968 | $ | 130,009 | $ | 10,959 | 8 | % | |||||||||||||||||||||||||||||||
| Natural Habitat | 22,735 | 17,133 | 5,602 | 33 | % | 44,609 | 35,392 | 9,217 | 26 | % | 11,728 | 9,917 | 1,811 | 18 | % | 25,343 | 21,874 | 3,469 | 16 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total tour revenues | $ | 87,242 | $ | 84,584 | $ | 2,658 | 3 | % | $ | 239,125 | $ | 203,283 | $ | 35,842 | 18 | % | $ | 76,658 | $ | 69,473 | $ | 7,185 | 10 | % | $ | 166,311 | $ | 151,883 | $ | 14,428 | 9 | % | ||||||||||||||||||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lindblad | $ | 8,209 | $ | 12,070 | $ | (3,861 | ) | (32 | %) | $ | 26,755 | $ | 12,386 | $ | 14,369 | 116 | % | $ | 5,302 | $ | 5,107 | $ | 195 | 4 | % | $ | 18,943 | $ | 18,547 | $ | 396 | 2 | % | |||||||||||||||||||||||||||||||
| Natural Habitat | 2,072 | 1,479 | 593 | 40 | % | 2,105 | 873 | 1,232 | 141 | % | (1,181 | ) | (900 | ) | (281 | ) | (31 | )% | (458 | ) | 32 | (490 | ) | NM | ||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 10,281 | $ | 13,549 | $ | (3,268 | ) | (24 | %) | $ | 28,860 | $ | 13,259 | $ | 15,601 | 118 | % | $ | 4,121 | $ | 4,207 | $ | (86 | ) | (2% | ) | $ | 18,485 | $ | 18,579 | $ | (94 | ) | (1% | ) | |||||||||||||||||||||||||||||
Depreciation and amortization are included in segment operating income as shown below:
For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | 2019 | 2018 | Change | % | 2019 | 2018 | Change | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | Change | % | 2018 | 2017 | Change | % | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lindblad | $ | 4,645 | $ | 3,994 | $ | 651 | 16 | % | $ | 13,954 | $ | 10,989 | $ | 2,965 | 27 | % | $ | 5,774 | $ | 4,626 | $ | 1,148 | 25 | % | $ | 11,568 | $ | 9,309 | $ | 2,259 | 24 | % | ||||||||||||||||||||||||||||||||
| Natural Habitat | 379 | 360 | 19 | 5 | % | 1,108 | 1,023 | 85 | 8 | % | 408 | 368 | 40 | 11 | % | 802 | 729 | 73 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total depreciation and amortization | $ | 5,024 | $ | 4,354 | $ | 670 | 15 | % | $ | 15,062 | $ | 12,012 | $ | 3,050 | 25 | % | $ | 6,182 | $ | 4,994 | $ | 1,188 | 24 | % | $ | 12,370 | $ | 10,038 | $ | 2,332 | 23 | % | ||||||||||||||||||||||||||||||||
The following table presents ourthe total assets, intangibles, net and goodwill by segment:
| As of September 30, | As of December 31, | As of | As of | |||||||||||||
| (In thousands) | 2018 | 2017 | (unaudited) | |||||||||||||
| Total Assets: | (unaudited) | |||||||||||||||
| Lindblad | $ | 399,998 | $ | 371,081 | $ | 428,055 | $ | 409,622 | ||||||||
| Natural Habitat | 64,817 | 53,267 | 80,439 | 63,787 | ||||||||||||
| Total assets | $ | 464,815 | $ | 424,348 | $ | 508,494 | $ | 473,409 | ||||||||
| Intangibles, net: | ||||||||||||||||
| Lindblad | $ | 4,232 | $ | 4,776 | $ | 3,688 | $ | 4,050 | ||||||||
| Natural Habitat | 4,138 | 4,778 | 3,497 | 3,925 | ||||||||||||
| Total intangibles, net | $ | 8,370 | $ | 9,554 | $ | 7,185 | $ | 7,975 | ||||||||
| Goodwill | ||||||||||||||||
Goodwill: | ||||||||||||||||
| Lindblad | $ | - | $ | - | $ | - | $ | - | ||||||||
| Natural Habitat | 22,105 | 22,105 | 22,105 | 22,105 | ||||||||||||
| Total goodwill | $ | 22,105 | $ | 22,105 | $ | 22,105 | $ | 22,105 | ||||||||
For the three and six months ended SeptemberJune 30, 2018 and 20172019 there were $1.2$0.7 million and $0.7$2.5 million in intercompany tour revenues between the Lindblad and Natural Habitat segments eliminated in consolidation, respectively. For the ninethree and six months ended SeptemberJune 30, 2018 and 2017, there were $2.6$0.4 million and $1.1$1.4 million respectively, in intercompany tour revenues between the Lindblad and Natural Habitat segments eliminated in consolidation.consolidation, respectively.
NOTE 13 – SUBSEQUENT EVENT
On June 14, 2019, the Company announced an offer to exchange all warrants to purchase common stock of the Company (the "Warrant Exchange"). The Warrant Exchange provided (i) an offer to each holder of the Company's outstanding warrants to receive 0.385 shares of common stock in exchange for each warrant tendered by the holder and exchanged pursuant to the Warrant Exchange, and (ii) the solicitation of consents (the "Consent Solicitation") from holders of the warrants to amend the warrant agreement that governs all of the warrants to permit the Company to require that each outstanding warrant not tendered in the Warrant Exchange be converted into 0.36575 shares of common stock. The Warrant Exchange and Consent Solicitation closed on July 17, 2019, with 9,935,000 warrants tendered via the Warrant Exchange for an aggregate of 3,824,959 shares of Company common stock, and approval was received to amend the warrant agreement to provide the Company with the right to require the holders of warrants not tendered in the Warrant Exchange to exchange their warrants for common stock of the Company at an exchange ratio of 0.36575 shares of common stock for each warrant. An aggregate of 150,474 warrants have not been tendered via the Warrant Exchange and will be converted into approximately 55,000 shares of Company common stock. Following such conversion, no warrants will remain outstanding.
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
The following discussion and analysis addresses material changes in the financial condition and results of operations of the Company for the periods presented. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 2, 2018.February 28, 2019.
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to:
● | general economic conditions; | |
● | unscheduled disruptions in our business due to weather events, mechanical failures, or other events; | |
● | changes adversely affecting the business in which we are engaged; | |
● | management of our growth and our ability to execute on our planned growth; | |
● | our business strategy and plans; | |
● | our ability to maintain our relationship with National Geographic; | |
● | compliance with new and existing laws and regulations, including environmental regulations; | |
● | compliance with the financial and/or operating covenants in our debt arrangements; | |
● | adverse publicity regarding the cruise industry in general; | |
● | loss of business due to competition; | |
● | the result of future financing efforts; | |
● | delays and costs overruns with respect to the construction and delivery of newly constructed vessels; | |
● | ||
the inability to meet revenue and Adjusted EBITDA projections; and | ||
● | those risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, |
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Unless the context otherwise requires, in this Form 10-Q, “Company,” “Lindblad,” “we,” “us,” “our,” and “ours” refer to Lindblad Expeditions Holdings, Inc., and its subsidiaries.
Business Overview
Lindblad provides expedition cruising and land-based adventure travel experiences, that includeusing itineraries that feature up-close encounters with wildlife, and nature, history and culture, and promote guest empowerment and interactivity. Our mission is offeringto offer life-changing adventures on all seven continents and pioneeringwildlife experiences around the world and pioneer innovative ways to allow our guests to connect with exotic and remote places. Many of these expeditions involve travel to remote places, such as the Arctic, Antarctica, the Galápagos, Alaska, Baja's Sea of Cortez, Costa Rica, Panama, polar bear tours in Churchill, Canada, Alaskan grizzly bear adventures and African safaris.
We operate a fleet of seveneight owned expedition ships. The Company hasships and we have also contracted for two additionalnew polar ice class vessels, theNational Geographic Venture, a coastal vessel expected to be completed in the fourth quarter of 2018, and theNational Geographic Endurance, a polar ice class vessel targeted to be completed in January 2020, with potential accelerated deliveryand a sister ship of the National Geographic Endurance, targeted to November 2019.
be completed in September 2021. In addition, the Company operateswe operate five seasonal charter vessels under the Lindblad brand. We deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximize yields. We use our charter inventory as a mechanism to both increase travel options for our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs.
We have a longstanding relationship with the National Geographic Society dating back to 2004, which is based on a shared interest in exploration, research, technology and conservation. This relationship includes co-selling, co-marketing and branding arrangements with National Geographic Partners, LLC (“National Geographic”) whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions through their internal travel divisions. We collaborate with National Geographic on expedition planning to enhance the guest experience by having National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, join our expeditions. Guests have the ability to interface with these experts through lectures, excursions, dining and other experiences throughout their expedition.
2019 Highlights
In July 2018, the Company’s Board of Directors authorized the building ofDuring February 2019, we entered into an additionalagreement to construct a second polar ice class vessel, a sister ship anticipatedof the National Geographic Endurance, with a total purchase price of 1,291.0 million Norwegian Kroner ("NOK"). In March 2019, we entered into a foreign exchange forward contract hedge to lock in a purchase price of approximately $153.5 million. The purchase price is subject to potential adjustments from contract specifications for variations in speed, deadweight, fuel consumption and delivery date. The purchase price is due in installments, with the first 20% paid shortly after execution of the agreement, 50% to be paid over the duration of the build and the final 30% due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in September 2021.
On March 27, 2018, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Credit Suisse, as Administrative Agent and Collateral Agent, providing for a refinancing and amendment of the terms of the Company’s existing secured credit facility, dated as of March 7, 2016 (the “Superseded Agreement”). The Amended Credit Agreement provided for a $200.0 million senior secured first lien term loan facility (the “Term Facility”), which represented an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement. Consistent with the Superseded Agreement, the Amended Credit Agreement also provides for a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. See Note 3 – Long-Term Debt to the condensed consolidated financial statements for additional information regarding the Restated Credit Agreement.
On January 8, 2018, the Company and its indirect, wholly-owned subsidiary (the “Borrower”)During April 2019, we entered into a senior secured credit agreement (the “Export“Second Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (together(“EK” and together with Citi, the “Lenders”). Pursuant to the Second Export Credit Agreement, the Lenders have agreed to make available to the Borrower,us, at the Borrower’sour option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $107.7$122.8 million for the purpose of providing pre- and post- delivery financing for up to 80% of the purchase price of the Company’sour new polar ice classexpedition ice-class cruise vessel the National Geographic Endurance, targeted to be completed in January 2020. Seventy percentSeptember 2021. The Second Export Credit Agreement will bear an interest rate, at our option, of the loan will be guaranteed by Garantiinstituttet for Eksportkreditt, the official export credit agencyeither a fixed rate of Norway. If drawn upon, the loan will be made at the time6.36% or a variable rate equal to three-month LIBOR plus a margin of delivery of the vessel.3.00% per annum.
The discussion and analysis of our results of operations and financial condition are organized as follows:
● | a description of certain line items and operational and financial metrics we utilize to assist us in managing our business; | |
● | results and a comparable discussion of our consolidated and segment results of operations for the three and | |
● | a discussion of our liquidity and capital resources, including future capital and contractual commitments and potential funding sources; and | |
● | a review of our critical accounting policies. |
Financial Presentation
Description of Certain Line Items
Tour revenues
Tour revenues consist of the following:
● | Guest ticket revenues recognized from the sale of guest tickets; and | |
● | Other tour revenues from the sale of pre- or post-expedition excursions, hotel accommodations, |
Cost of tours
Cost of tours includes the following:
● | Direct costs associated with revenues, including cost of pre- or post-expedition excursions, hotel accommodations, and land-based expeditions, air and other transportation expenses, and cost of goods and services rendered onboard; | |
● | Payroll costs and related expenses for shipboard and expedition personnel; | |
● | Food costs for guests and crew, including complimentary food and beverage amenities for guests; | |
● | Fuel costs and related costs of delivery, storage and safe disposal of waste; and | |
● | Other tour expenses, such as land costs, port costs, repairs and maintenance, equipment expense, drydock, ship insurance, and charter hire costs. |
Selling and marketing
Selling and marketing expenses include commissions, royalties and a broad range of advertising and promotional expenses.
General and administrative
General and administrative expenses include the cost of shoreside vessel support, reservations and other administrative functions, including salaries and related benefits, credit card commissions, professional fees and rent.
Operational and Financial Metrics
We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, Net Yields, Occupancy and Net Cruise Costs, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in the cruise and tourism industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess revenue and cost performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and the related notes thereto also included within.
Adjusted EBITDAis net income (loss) excluding depreciation and amortization, net interest expense, other income (expense), income tax (expense) benefit, (gain) loss on foreign currency, (gain) loss on transfer of assets, reorganization costs, and other supplemental adjustments. Other supplemental adjustments include certain non-operating items such as stock-based compensation, executive severance costs, the National Geographic fee amortization, debt refinancing costs and acquisition-related expenses. The Company believescertain other items. We believe Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. The Company believesWe believe Adjusted EBITDA helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of the Company’sour financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements, such as unearned passenger revenues, capital expenditures and related depreciation, principal and interest payments, and tax payments. The Company’sOur use of Adjusted EBITDA may not be comparable to other companies within the industry.
The following metrics apply to our Lindblad segment:
Adjusted Net Cruise Costrepresents Net Cruise Cost adjusted for Non-GAAP other supplemental adjustments which include certain non-operating items such as stock-based compensation, the National Geographic fee amortization, and acquisition-related expenses.certain other items.
Available Guest Nightsis a measurement of capacity and represents double occupancy per cabin (except single occupancy for a single capacity cabin) multiplied by the number of cruise days for the period. We also record the number of guest nights available on our limited land programs in this definition.
Gross Cruise Cost represents the sum of cost of tours plus, selling and marketing expenses, and general and administrative expenses.
Gross Yieldrepresents tour revenues less insurance proceeds divided by Available Guest Nights.
Guest Nights Soldrepresents the number of guests carried for the period multiplied by the number of nights sailed within the period.
Maximum Guestsis a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin (except single occupancy for a single capacity cabin).
Net Cruise Costrepresents Gross Cruise Cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues.
Net Cruise Cost Excluding Fuelrepresents Net Cruise Cost excluding fuel costs.
Net Revenuerepresents tour revenues less insurance proceeds, commissions and direct costs of other tour revenues.
Net Yieldrepresents Net Revenue divided by Available Guest Nights.
Number of Guestsrepresents the number of guests that travel with us in a period.
Occupancyis calculated by dividing Guest Nights Sold by Available Guest Nights.
Voyagesrepresent the number of ship expeditions completed during the period.
Foreign Currency Translation
The U.S. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the condensed consolidated statements of operations.income.
Seasonality
LindbladOur tour revenues from the sale of guest tickets are mildly seasonal, historically larger in the first and third quarters. The seasonality of our operating results increasesfluctuates due to our vessels being taken out of service for scheduled maintenance or drydocking, which is typically during non-peaknonpeak demand periods, in the second and fourth quarters. Our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work, drydock locations based on ship itineraries, operating conditions experienced especially in the polar regions and the applicable regulations of class societies in the maritime industry, which require more extensive reviews periodically. Drydocking impacts operating results by reducing tour revenues and increasing cost of tours. Natural Habitat is a seasonal business, with higherthe majority of its tour revenue recorded in the third and fourth quarter than other quarters related tofrom its summer season departures and polar bear tour revenues.tours.
Results of Operations - Consolidated
| For the three months ended September 30, | For the nine months ended September 30, | For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except per share data) | 2018 | 2017 | Change | % | 2018 | 2017 | Change | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | 2019 | 2018 | Change | % | 2019 | 2018 | Change | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tour revenues | $ | 87,242 | $ | 84,584 | $ | 2,658 | 3 | % | $ | 239,125 | $ | 203,283 | $ | 35,842 | 18 | % | $ | 76,658 | $ | 69,473 | $ | 7,185 | 10 | % | $ | 166,311 | $ | 151,883 | $ | 14,428 | 9 | % | ||||||||||||||||||||||||||||||||
| Cost of tours | 44,964 | 38,480 | 6,484 | 17 | % | 114,645 | 99,780 | 14,865 | 15 | % | 37,520 | 33,810 | 3,710 | 11 | % | 76,537 | 69,681 | 6,856 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 42,278 | 46,104 | (3,826 | ) | (8 | %) | 124,480 | 103,503 | 20,977 | 20 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 14,718 | 16,526 | (1,808 | ) | (11 | %) | 45,647 | 46,710 | (1,063 | ) | (2 | %) | 16,268 | 15,879 | 389 | 2 | % | 32,350 | 30,929 | 1,421 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Selling and marketing | 12,255 | 11,676 | 579 | 5 | % | 34,911 | 31,521 | 3,390 | 11 | % | 12,567 | 10,583 | 1,984 | 19 | % | 26,569 | 22,656 | 3,913 | 17 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 5,024 | 4,354 | 670 | 15 | % | 15,062 | 12,012 | 3,050 | 25 | % | 6,182 | 4,994 | 1,188 | 24 | % | 12,370 | 10,038 | 2,332 | 23 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 10,281 | $ | 13,548 | $ | (3,267 | ) | (24 | %) | $ | 28,860 | $ | 13,260 | $ | 15,600 | 118 | % | $ | 4,121 | $ | 4,207 | $ | (86 | ) | (2 | %) | $ | 18,485 | $ | 18,579 | $ | (94 | ) | (1 | %) | |||||||||||||||||||||||||||||
| Net income | $ | 5,346 | $ | 9,443 | $ | (4,097 | ) | (43 | %) | $ | 16,105 | $ | 7,491 | $ | 8,614 | 115 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share avail. to common stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 851 | $ | (159 | ) | $ | 1,010 | NM | $ | 15,930 | $ | 10,760 | $ | 5,170 | 48 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income per share available to common stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.11 | $ | 0.21 | $ | (0.10 | ) | $ | 0.35 | $ | 0.16 | $ | 0.19 | $ | 0.02 | $ | - | $ | 0.02 | $ | 0.34 | $ | 0.24 | $ | 0.10 | |||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.11 | $ | 0.20 | (0.09 | ) | $ | 0.35 | $ | 0.16 | 0.19 | $ | 0.02 | $ | - | $ | 0.02 | $ | 0.32 | $ | 0.24 | $ | 0.08 | |||||||||||||||||||||||||||||||||||||||||
Comparison of the Three and Nine monthsSix Months Ended SeptemberJune 30, 20182019 to Three and Nine monthsSix Months Ended SeptemberJune 30, 20172018 - Consolidated
Tour Revenues
Tour revenues for the three months ended SeptemberJune 30, 20182019 increased $2.7$7.2 million, or 3%10%, to $87.2$76.7 million, compared to $84.6$69.5 million for the three months ended SeptemberJune 30, 2017.2018. The Lindblad segment tour revenues decreasedincreased by $2.9$5.4 million, primarily driven by a decreasean increase in Available Guest Nights during 2018 due totiming of vessel drydocks in 2018 compared to 2017, as well as a decrease in Net Yields. 2017 results also included the impact of the cancellation of four highly booked voyages on theNational Geographic Quest2019, due to the delayed deliveryaddition of the vessel.National Geographic Venture to our fleet in the fourth quarter of 2018. At the Natural Habitat segment, tour revenues increased $5.6$1.8 million over the prior year period, primarily dueto additional departures and an increase in pricing.increased pricing.
Tour revenues for the ninesix months ended SeptemberJune 30, 20182019 increased $35.8$14.4 million, or 18%9%, to $239.1$166.3 million, compared to $203.3$151.9 million for the ninesix months ended SeptemberJune 30, 2017.2018. The Lindblad segment tour revenues increased by $26.6$11.0 million, primarily driven by higher guest ticket revenue, primarily from an increase in Available Guest Nights during 20182019, mainly due to the addition of theNational Geographic QuestVentureto theour fleet in the thirdfourth quarter of 2017. 2017 results also included the impact of voyage cancellations on theNational Geographic Orion and theNational Geographic Sea Lion, as well as the impact of the delayed delivery of theNational Geographic Quest.2018. At the Natural Habitat segment, tour revenues increased $9.2$3.5 million over the prior year period, primarily dueto additional departures and an increase in pricing.increased pricing.
Cost of Tours
Total cost of tours for the three months ended SeptemberJune 30, 20182019 increased $6.5$3.7 million, or 17%11%, to $45.0$37.5 million, compared to $38.5$33.8 million for the three months ended SeptemberJune 30,, 2017. 2018. At the Lindblad segment, cost of tours increased $2.3$2.6 million, primarily due to an increase in drydock expenses related to timing of planned vessel drydock maintenance. At the Natural Habitat segment, cost of tours increased $4.2 million due to additional departures.
Total cost of tours for the nine months ended September 30, 2018 increased $14.9 million, or 15%, to $114.6 million compared to $99.8 million for the nine months ended September 30, 2017. At the Lindblad segment, cost of tours increased $8.9 million primarily due toincremental costs related to theNational Geographic QuestVenture, the impact of cancelled voyages in the first quarter of 2017, an increase inAvailable Guest Nightsacross the fleet, and higher fuelpartially offset by lower drydock costs. At the Natural Habitat segment, cost of tours increased $5.9$1.1 million, due to additional departures.
Total cost of tours for the six months ended June 30, 2019 increased $6.9 million, or 10%, to $76.5 million, compared to $69.7 million for the six months ended June 30, 2018. At the Lindblad segment, cost of tours increased $5.2 million, primarily due to incremental costs related to the National Geographic Venture, partially offset by lower drydock. At the Natural Habitat segment, cost of tours increased $1.6 million, due to additional departures.
General and Administrative
General and administrative expenses for the three months ended SeptemberJune 30, 2018 decreased $1.82019 increased $0.4 million, or 11%2%, to $14.7$16.3 million, compared to $16.5$15.9 million for the three months ended SeptemberJune 30, 2017.2018. At the Lindblad segment, general and administrative expenses decreased $2.4$0.2 million over the prior year period as a result of $1.8 million in lower stockvalue-added tax ("VAT") expense and stock-based compensation expense, mainly due to higher costs in prior year related to option grants that were fully expensed as of December 31, 2017, as well as a decrease in executive severance cost of $1.6 million, partially offset by higherincreased credit card commissions and personnel and other costs. At the Natural Habitat segment, general and administrative expenses increased $0.6 million, primarily due to an increase in personnel and other costs.
General and administrative expenses for the ninesix months ended SeptemberJune 30, 2018 decreased $1.12019 increased $1.4 million, or 2%5%, to $45.6$32.3 million, compared to $46.7$30.9 million for the ninesix months ended SeptemberJune 30, 2017.2018. At the Lindblad segment, general and administrative expenses decreased $2.7 million overwere in line with a year ago as lower VAT expense and stock-based compensation, as well as the prior year as a resultabsence of $6.2 million in lower stock compensation expense, mainly due to higher costs in prior year related to the 2016 CEO Allocation Grant and option grants that were fully expensed as of December 31, 2017 and the 2017 executive severance costs, partially offset by debt refinancingdeal financing costs incurred in the first quarter of 2018, and an increase inwas offset by increased personnel costs and credit card fees.commissions. At the Natural Habitat segment, general and administrative expenses increased $1.6$1.4 million, primarily due to an increase in personnel and other costs.
Selling and Marketing
Selling and marketing expenses for the three months ended SeptemberJune 30, 20182019 increased $0.6$2.0 million, or 5%19%, to $12.3$12.6 million, compared to $11.7$10.6 million for the three months ended SeptemberJune 30, 2017.2018. At the Lindblad segment, selling and marketing expenses increased $0.4$1.6 million, primarily due to higher advertising spend and increased commission expenses. At the Natural Habitat segment, selling and marketing expenses increased $0.2$0.4 million, primarily driven by an increase in advertising expenditures.
Selling and marketing expenses for the ninesix months ended SeptemberJune 30, 20182019 increased $3.4$3.9 million, or 11%17%, to $34.9$26.6 million, compared to $31.5$22.7 million for the ninesix months ended SeptemberJune 30, 2017.2018. At the Lindblad segment, selling and marketing expenses increased $3.1$3.0 million, primarily due to higher advertising spend and increased commission and royalty expense associated with the higher tour revenues.expenses. At the Natural Habitat segment, selling and marketing expenses increased $0.3$0.9 million, primarily driven by an increase in advertising expenditures.
Depreciation and Amortization
Depreciation and amortization expenses for the three months ended SeptemberJune 30, 20182019 increased $0.7$1.2 million, or 15%24%, to $5.0$6.2 million, compared to $4.4$5.0 million for the three months ended SeptemberJune 30, 20172018, primarily due to the addition of theNational Geographic QuestVenture to the Lindblad segment in July 2017.December 2018.
Depreciation and amortization expenses for the ninesix months ended SeptemberJune 30, 20182019 increased $3.1$2.3 million, or 25%23%, to $15.1$12.4 million, compared to $12.0$10.0 million for the ninesix months ended SeptemberJune 30, 20172018, primarily due to the addition of theNational Geographic QuestVenture to the Lindblad segment in July 2017.December 2018.
Other Expense
Other expenses, for the three months ended SeptemberJune 30, 20182019, decreased $0.3$1.4 million to $2.2$2.7 million from $2.5$4.1 million for the three months ended SeptemberJune 30, 2017,2018, primarily due to the following:
● | A $0.5 million gain in foreign currency translation in 2019 compared to |
● | A $0.3 million increase in interest expense, net of $3.2 million in |
Other expenses, for the ninesix months ended SeptemberJune 30, 2018 increased $3.42019, decreased $2.2 million to $9.6$5.1 million from $6.2$7.3 million for the ninesix months ended SeptemberJune 30, 2017,2018, primarily due to the following:
● |
|
● | ||
A $0.6 million increase in interest expense, net |
Income Taxes
During the three months ended June 30, 2019, the Company recognized an income tax expense of $0.6 million, compared to an expense of $0.2 million in the prior year. The increase is due to changes in certain itineraries and the improved operating performance of the Company.
During the six months ended June 30, 2019, the Company recognized an income tax benefit of $2.5 million, compared to an expense of $0.5 million in the prior year. The change is due to itinerary timing and the release of certain uncertain tax positions.
Results of Operations – Segments
Selected information for our segments is below.The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
| For the three months ended September 30, | For the nine months ended September 30, | For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | Change | % | 2018 | 2017 | Change | % | 2019 | 2018 | Change | % | 2019 | 2018 | Change | % | ||||||||||||||||||||||||||||||||||||||||||||
| Tour revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lindblad | $ | 64,507 | $ | 67,451 | $ | (2,944 | ) | (4% | ) | $ | 194,516 | $ | 167,891 | $ | 26,625 | 16% | $ | 64,930 | $ | 59,556 | $ | 5,374 | 9 | % | $ | 140,968 | $ | 130,009 | $ | 10,959 | 8 | % | ||||||||||||||||||||||||||||
| Natural Habitat | 22,735 | 17,133 | 5,602 | 33% | 44,609 | 35,392 | 9,217 | 26% | 11,728 | 9,917 | 1,811 | 18 | % | 25,343 | 21,874 | 3,469 | 16 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total tour revenues | $ | 87,242 | $ | 84,584 | $ | 2,658 | 3% | $ | 239,125 | $ | 203,283 | $ | 35,842 | 18% | $ | 76,658 | $ | 69,473 | $ | 7,185 | 10 | % | $ | 166,311 | $ | 151,883 | $ | 14,428 | 9 | % | ||||||||||||||||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lindblad | $ | 8,209 | $ | 12,070 | $ | (3,861 | ) | (32%) | $ | 26,755 | $ | 12,386 | $ | 14,369 | 116% | $ | 5,302 | $ | 5,107 | $ | 195 | 4 | % | $ | 18,943 | $ | 18,547 | $ | 396 | 2 | % | |||||||||||||||||||||||||||||
| Natural Habitat | 2,072 | 1,479 | 593 | 40% | 2,105 | 873 | 1,232 | 141% | (1,181 | ) | (900 | ) | (281 | ) | (31% | ) | (458 | ) | 32 | (490 | ) | NM | ||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 10,281 | $ | 13,549 | $ | (3,268 | ) | (24%) | $ | 28,860 | $ | 13,259 | $ | 15,601 | 118% | $ | 4,121 | $ | 4,207 | $ | (86 | ) | (2% | ) | $ | 18,485 | $ | 18,579 | $ | (94 | ) | (1% | ) | |||||||||||||||||||||||||||
Adjusted EBITDA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lindblad | $ | 13,270 | $ | 11,982 | $ | 1,288 | 11 | % | $ | 34,200 | $ | 32,871 | $ | 1,329 | 4 | % | ||||||||||||||||||||||||||||||||||||||||||||
Natural Habitat | (773 | ) | (532 | ) | (241 | ) | (45% | ) | 344 | 761 | (417 | ) | (55% | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Total adjusted EBITDA | $ | 12,497 | $ | 11,450 | $ | 1,047 | 9 | % | $ | 34,544 | $ | 33,632 | $ | 912 | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Results of Operations – Lindblad Segment
The following table sets forth our Available Guest Nights, Guest Nights Sold, Occupancy, Maximum Guests, Number of Guests and Voyages for the three and nine months ended September 30, 2018 and 2017 at the Lindblad segment:Voyages:
For the three months ended | For the six months ended | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Available Guest Nights | 53,983 | 50,917 | 112,652 | 104,834 | ||||||||||||
Guest Nights Sold | 48,216 | 45,786 | 101,829 | 94,721 | ||||||||||||
Occupancy | 89 | % | 90 | % | 90 | % | 90 | % | ||||||||
Maximum Guests | 6,829 | 6,242 | 14,142 | 13,047 | ||||||||||||
Number of Guests | 6,269 | 5,684 | 12,801 | 11,767 | ||||||||||||
Voyages | 87 | 81 | 180 | 176 | ||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Available Guest Nights | 55,741 | 56,398 | 160,575 | 142,291 | ||||||||||||
| Guest Nights Sold | 50,993 | 51,122 | 145,714 | 124,951 | ||||||||||||
| Occupancy | 91.5 | % | 90.6 | % | 90.7 | % | 87.8 | % | ||||||||
| Maximum Guests | 7,137 | 7,518 | 20,388 | 17,727 | ||||||||||||
| Number of Guests | 6,582 | 6,846 | 18,553 | 15,758 | ||||||||||||
| Voyages | 93 | 97 | 269 | 244 | ||||||||||||
The following table shows the calculations of Gross Yield and Net Yield for the three and nine months ended September 30, 2018 and 2017.Yield. Gross Yield is calculated by dividing Tour Revenues by Available Guest Nights and Net Yield is calculated by dividing Net Revenue by Available Guest Nights at the Lindblad segment:Nights:
Calculation of Gross Yield and Net Yield
Lindblad Segment
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| (In thousands, except for Available Guest Nights, Gross and Net Yield) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Guest ticket revenues | $ | 58,187 | $ | 61,715 | $ | 174,699 | $ | 147,504 | ||||||||
| Other tour revenues | 6,320 | 5,736 | 19,817 | 20,387 | ||||||||||||
| Tour Revenues | 64,507 | 67,451 | 194,516 | 167,891 | ||||||||||||
| Less: Orion Insurance Proceeds(a) | - | (248 | ) | - | (2,148 | ) | ||||||||||
| Adjusted Tour Revenues | 64,507 | 67,203 | 194,516 | 165,743 | ||||||||||||
| Less: Commissions | (5,055 | ) | (4,559 | ) | (14,977 | ) | (12,321 | ) | ||||||||
| Less: Other tour expenses | (4,673 | ) | (3,532 | ) | (12,952 | ) | (10,622 | ) | ||||||||
| Net Revenue | $ | 54,779 | $ | 59,112 | $ | 166,587 | $ | 142,800 | ||||||||
| Available Guest Nights | 55,741 | 56,398 | 160,575 | 142,291 | ||||||||||||
| Gross Yield | $ | 1,157 | $ | 1,192 | $ | 1,211 | $ | 1,165 | ||||||||
| Net Yield | 983 | 1,048 | 1,037 | 1,004 | ||||||||||||
Calculation of Gross Yield and Net Yield | For the three months ended | For the six months ended | ||||||||||||||
(In thousands, except for Available Guest Nights, Gross and Net Yield) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Guest ticket revenues | $ | 58,416 | $ | 53,832 | $ | 125,526 | $ | 116,512 | ||||||||
Other tour revenue | 6,514 | 5,724 | 15,442 | 13,497 | ||||||||||||
Tour Revenues | 64,930 | 59,556 | 140,968 | 130,009 | ||||||||||||
Less: Commissions | (4,908 | ) | (4,369 | ) | (10,759 | ) | (9,923 | ) | ||||||||
Less: Other tour expenses | (4,418 | ) | (4,161 | ) | (10,104 | ) | (8,279 | ) | ||||||||
Net Revenue | $ | 55,604 | $ | 51,026 | $ | 120,105 | $ | 111,807 | ||||||||
Available Guest Nights | 53,983 | 50,917 | 112,652 | 104,834 | ||||||||||||
Gross Yield | $ | 1,203 | $ | 1,170 | $ | 1,251 | $ | 1,240 | ||||||||
Net Yield | 1,030 | 1,002 | 1,066 | 1,067 | ||||||||||||
The following table shows the calculations of Gross Cruise Cost per Available Guest Night and Net Cruise Costs per Available Guest Night for the three and nine months ended September 30, 2018 and 2017 at the Lindblad segment:Night:
Calculation of Gross Cruise Cost and Net Cruise Cost | For the three months ended | For the six months ended | ||||||||||||||
(In thousands, except for Available Guest Nights, Gross and Net Cruise Cost per Avail. Guest Night) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Cost of tours | $ | 30,118 | $ | 27,510 | $ | 61,439 | $ | 56,190 | ||||||||
Plus: Selling and marketing | 11,321 | 9,683 | 23,962 | 20,945 | ||||||||||||
Plus: General and administrative | 12,415 | 12,630 | 25,054 | 25,018 | ||||||||||||
Gross Cruise Cost | 53,854 | 49,823 | 110,455 | 102,153 | ||||||||||||
Less: Commissions | (4,908 | ) | (4,369 | ) | (10,759 | ) | (9,923 | ) | ||||||||
Less: Other tour expenses | (4,418 | ) | (4,161 | ) | (10,104 | ) | (8,279 | ) | ||||||||
Net Cruise Cost | 44,528 | 41,293 | 89,592 | 83,951 | ||||||||||||
Less: Fuel Expense | (2,459 | ) | (2,599 | ) | (5,146 | ) | (4,709 | ) | ||||||||
Net Cruise Cost Excluding Fuel | 42,069 | 38,694 | 84,446 | 79,242 | ||||||||||||
Non-GAAP Adjustments: | ||||||||||||||||
Stock-based compensation | (1,001 | ) | (1,119 | ) | (1,754 | ) | (1,985 | ) | ||||||||
National Geographic fee amortization | (727 | ) | (727 | ) | (1,454 | ) | (1,454 | ) | ||||||||
Warrant exchange fees | (466 | ) | - | (466 | ) | - | ||||||||||
Executive severance costs | - | (287 | ) | - | (287 | ) | ||||||||||
Reorganization costs | - | (113 | ) | (15 | ) | (293 | ) | |||||||||
Debt refinancing costs | - | (3 | ) | - | (997 | ) | ||||||||||
Adjusted Net Cruise Cost Excluding Fuel | $ | 39,875 | $ | 36,445 | $ | 80,757 | $ | 74,226 | ||||||||
Adjusted Net Cruise Cost | $ | 42,334 | $ | 39,044 | $ | 85,903 | $ | 78,935 | ||||||||
Available Guest Nights | 53,983 | 50,917 | 112,652 | 104,834 | ||||||||||||
Gross Cruise Cost per Available Guest Night | $ | 998 | $ | 979 | $ | 980 | $ | 974 | ||||||||
Net Cruise Cost per Available Guest Night | 825 | 811 | 795 | 801 | ||||||||||||
Net Cruise Cost Excluding Fuel per Available Guest Night | 779 | 760 | 750 | 756 | ||||||||||||
Adjusted Net Cruise Cost Excluding Fuel per Available Guest Night | 739 | 716 | 717 | 708 | ||||||||||||
Adjusted Net Cruise Cost per Available Guest Night | 784 | 767 | 763 | 753 | ||||||||||||
| (In thousands, except for Available Guest Nights, Gross and Net | For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
| Cruise Cost per Avail. Guest Night) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Cost of tours | $ | 29,647 | $ | 27,374 | $ | 85,837 | $ | 76,915 | ||||||||
| Plus: Selling and marketing | 10,754 | 10,358 | 31,699 | 28,629 | ||||||||||||
| Plus: General and administrative | 11,252 | 13,656 | 36,271 | 38,972 | ||||||||||||
| Gross Cruise Cost | 51,653 | 51,388 | 153,807 | 144,516 | ||||||||||||
| Less: Commission expense | (5,055 | ) | (4,559 | ) | (14,977 | ) | (12,321 | ) | ||||||||
| Less: Other tour expenses | (4,673 | ) | (3,532 | ) | (12,952 | ) | (10,622 | ) | ||||||||
| Net Cruise Cost | 41,925 | 43,297 | 125,878 | 121,573 | ||||||||||||
| Less: Fuel expense | (2,168 | ) | (1,894 | ) | (6,876 | ) | (4,858 | ) | ||||||||
| Net Cruise Cost Excluding Fuel | 39,757 | 41,403 | 119,002 | 116,715 | ||||||||||||
| Non-GAAP Adjustments: | ||||||||||||||||
| Stock-based compensation | (1,271 | ) | (3,057 | ) | (3,256 | ) | (9,464 | ) | ||||||||
| National Geographic fee amortization | (727 | ) | (727 | ) | (2,181 | ) | (2,180 | ) | ||||||||
| Reorganization costs | (31 | ) | (29 | ) | (324 | ) | (346 | ) | ||||||||
| Debt refinancing costs | - | - | (997 | ) | - | |||||||||||
| Executive severance costs | 215 | (1,400 | ) | (71 | ) | (1,400 | ) | |||||||||
| Adjusted Net Cruise Cost Excluding Fuel | $ | 37,943 | $ | 36,190 | $ | 112,173 | $ | 103,325 | ||||||||
| Adjusted Net Cruise Cost | $ | 40,111 | $ | 38,084 | $ | 119,049 | $ | 108,183 | ||||||||
| Available Guest Nights | 55,741 | 56,398 | 160,575 | 142,291 | ||||||||||||
| Gross Cruise Cost per Available Guest Night | $ | 927 | $ | 911 | $ | 958 | $ | 1,016 | ||||||||
| Net Cruise Cost per Available Guest Night | 752 | 768 | 784 | 854 | ||||||||||||
| Net Cruise Cost Excl. Fuel per Available Guest Night | 713 | 734 | 741 | 820 | ||||||||||||
| Adj. Net Cruise Cost Excl. Fuel per Avail. Guest Night | 681 | 642 | 699 | 726 | ||||||||||||
| Adjusted Net Cruise Cost per Available Guest Night | 720 | 675 | 741 | 760 | ||||||||||||
Comparison of Three and Nine monthsSix Months Ended SeptemberJune 30, 20182019 to Three and Nine monthsSix Months Ended SeptemberJune 30, 20172018 at the Lindblad Segment
Tour Revenues
Tour revenues for the three months ended September 30, 2018 decreased $2.9 million, or 4%, to $64.5 million compared to $67.5 million for the three months ended September 30, 2017. The decrease was driven by lower guest ticket revenue primarily from a decrease in Available Guest Nights due to thetiming of planned vessel drydocks in 2018 compared to 2017. Net Yields decreasedfor the three months ended September 30, 2018 to $983 compared to $1,048 for the three months ended September 30, 2017. Occupancy rates increased for the three months ended September 30, 2018 to 92% compared to 91% for the three months ended September 30, 2017, reflecting higher demand across the fleet.2017 results also included the impact of the cancellation of four highly booked voyages on theNational Geographic Quest due to the delayed delivery of the vessel.
Tour revenues for the nine months ended September 30, 2018 increased $26.6 million, or 16%, to $194.5 million compared to $167.9 million for the nine months ended September 30, 2017. The increase was driven by higher guest ticket revenue primarily from an increase in Available Guest Nights due to the addition of theNational Geographic Questto our fleet in the third quarter of 2017. In addition, Net Yield for the nine months ended September 30, 2018 increased to $1,037 compared to $1,004 for the nine months ended September 30, 2017, primarily driven by price increases and changes in itineraries. Occupancy rates increased for the nine months ended September 30, 2018 to 91% compared to 88% for the nine months ended September 30, 2017, reflecting higher demand across the fleet. 2017 results also included the impact of voyage cancellations on theNational Geographic Orion and theNational Geographic Sea Lion, as well as the impact of the delayed delivery of theNational Geographic Quest.
Operating Income
Operating income decreased $3.9 million to $8.2 million for the three months ended September 30, 2018 compared to $12.1 million for the three months ended September 30, 2017. The decrease was driven primarily by lower tour revenues and higher dry dock expenses due to timing of planned vessel drydocks, as well as higher fuel costs and personnel costs. This was partially offset by a decrease in stock compensation expense related to option grants that were fully expensed as of December 31, 2017.2017 results also included the impact of the cancellation of four highly booked voyages on theNational Geographic Quest due to the delayed delivery of the vessel.
Operating income increased $14.4 million to $26.8 million for the nine months ended September 30, 2018 compared to $12.4 million for the nine months ended September 30, 2017. The increase was driven by increased tour revenue and a decrease in stock compensation expense due to higher costs in the prior year related to the 2016 CEO Allocation Grant and option grants that were fully expensed as of December 31, 2017. This was partially offset by higher operating costs due to the addition of theNational Geographic Questto our fleet in the third quarter of 2017, increased Available Guest Nights across the fleet, as well as the impact of cancelled voyages in the first quarter of 2017 and higher fuel costs and commissions. 2017 results were impacted by voyage cancellations of theNational Geographic Orion and theNational Geographic Sea Lion, as well as the impact of the delayed delivery of theNational Geographic Quest.
Results of Operations – Natural Habitat Segment
Comparison of Three and Nine months Ended September 30, 2018 to Three and Nine months Ended September 30, 2017
Tour Revenues
Tour revenues for the three months ended SeptemberJune 30, 20182019 increased $5.6$5.4 million, or 33%9%, to $22.7$64.9 million, compared to $17.1$59.6 million for the three months ended SeptemberJune 30, 20172018. The increase was primarily driven by higher guest ticket revenue predominantly due to a 6% increase in Available Guest Nights from the addition of the National Geographic Venture to our fleet in the fourth quarter of 2018. Net Yield increased 3% for the three months ended June 30, 2019 to $1,030 compared to $1,002 for the three months ended June 30, 2018, due primarily to higher pricing and itinerary changes. Occupancy rates decreased slightly to 89% for the three months ended June 30, 2019, compared to 90% in the same period a year ago.
Tour revenues for the six months ended June 30, 2019 increased $11.0 million, or 9%, to $141.0 million, compared to $130.0 million for the six months ended June 30, 2018. The increase was primarily driven by higher guest ticket revenue predominantly due to a 7% increase in Available Guest Nights from the addition of the National Geographic Venture to our fleet in the fourth quarter of 2018. Net Yield of $1,066 for the six months ended June 30, 2019 was in line with Net Yield of $1,067 for the six months ended June 30, 2018. Occupancy of 90% for the six months ended June 30, 2019 was consistent with the same period a year ago.
Operating Income
Operating income increased $0.2 million to $5.3 million for the three months ended June 30, 2019, compared to $5.1 million for the three months ended June 30, 2018. The increase was primarily driven by the addition of the National Geographic Venture, as well as lower drydock and VAT expense, partially offset by increased marketing spend, commission costs and personnel expenses.
Operating income increased $0.4 million to $18.9 million for the six months ended June 30, 2019, compared to $18.5 million for the six months ended June 30, 2018. The increase was primarily driven by the addition of the National Geographic Venture, as well as lower drydock and VAT expense, the absence of debt financing costs incurred in 2018, partially offset by increased marketing spend, commission costs and personnel expenses.
Results of Operations – Natural Habitat Segment
Comparison of Three and Six Months Ended June 30, 2019 to Three and Six Months Ended June 30, 2018
Tour Revenues
Tour revenues for the three months ended June 30, 2019 increased $1.8 million, or 18%, to $11.7 million compared to $9.9 million for the three months ended June 30, 2018, due to additional departures as well as price increases.
Tour revenues for the ninesix months ended SeptemberJune 30, 20182019 increased $9.2$3.5 million, or 26%16%, to $44.6$25.3 million compared to $35.4$21.9 million for the ninesix months ended SeptemberJune 30, 20172018, due to additional departures as well as price increases.
Operating (loss) income
Operating incomeloss for the three months ended SeptemberJune 30, 20182019 increased $0.6$0.3 million to $2.1$1.2 million compared to $1.5$0.9 million for the three months ended SeptemberJune 30, 2017, due to growth in2018, as tour revenue partiallygrowth was more than offset by higher operating costs related to additional departures, as well as higherincreased personnel and marketing costs to support future growth initiatives.
Operating incomeWe incurred an operating loss of $0.5 million for the ninesix months ended SeptemberJune 30, 2018 increased $1.2 million to $2.12019, a decreased of $0.5 million compared to $0.9 million for the ninesix months ended SeptemberJune 30, 2017, due to growth in2018, as tour revenue partiallygrowth was more than offset by higher operating costs related to the additional departures, as well as higherincreased personnel and marketing costs to support future growth initiatives.
Results of Operations –
Adjusted EBITDA – Consolidated
The following table outlines the reconciliation to net income and calculation of consolidated Adjusted EBITDA for the three and nine months ended September 30, 2018 and 2017.EBITDA. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Reconciliation of Net Income to Adjusted EBITDA
Consolidated
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
Consolidated | For the three months ended | For the six months ended | ||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
| Net income | $ | 5,346 | $ | 9,443 | $ | 16,105 | $ | 7,491 | ||||||||||||||||||||||||
Net income (loss) | $ | 851 | $ | (159 | ) | $ | 15,930 | $ | 10,760 | |||||||||||||||||||||||
| Interest expense, net | 2,409 | 2,802 | 8,013 | 7,192 | 3,188 | 2,870 | 6,176 | 5,604 | ||||||||||||||||||||||||
| Income tax expense (benefit) | 2,690 | 1,586 | 3,194 | (473 | ) | 553 | 227 | (2,513 | ) | 503 | ||||||||||||||||||||||
| Depreciation and amortization | 5,024 | 4,354 | 15,062 | 12,012 | 6,182 | 4,994 | 12,370 | 10,038 | ||||||||||||||||||||||||
| (Gain) loss on foreign currency | (163 | ) | (224 | ) | 1,430 | (1,047 | ) | (501 | ) | 1,141 | (1,157 | ) | 1,592 | |||||||||||||||||||
| Other (income) expense, net | (1 | ) | (59 | ) | 118 | 97 | ||||||||||||||||||||||||||
Other expense, net | 30 | 128 | 49 | 120 | ||||||||||||||||||||||||||||
| Stock-based compensation | 1,271 | 3,057 | 3,256 | 9,464 | 1,001 | 1,119 | 1,754 | 1,985 | ||||||||||||||||||||||||
| National Geographic fee amortization | 727 | 727 | 2,181 | 2,180 | 727 | 727 | 1,454 | 1,454 | ||||||||||||||||||||||||
Warrant exchange fees | 466 | - | 466 | - | ||||||||||||||||||||||||||||
Executive severance costs | - | 287 | - | 287 | ||||||||||||||||||||||||||||
| Reorganization costs | 31 | 29 | 324 | 346 | - | 113 | 15 | 293 | ||||||||||||||||||||||||
| Debt refinancing costs | - | - | 997 | - | - | 3 | - | 997 | ||||||||||||||||||||||||
| Executive severance costs | (215 | ) | 1,400 | 71 | 1,400 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 17,119 | $ | 23,115 | $ | 50,751 | $ | 38,662 | $ | 12,497 | $ | 11,450 | $ | 34,544 | $ | 33,632 | ||||||||||||||||
The following tables outline the reconciliation for each segment from operating income to Adjusted EBITDA for the three and nine months ended September 30, 2018 and 2017.
EBITDA.
Lindblad Segment | For the three months ended | For the six months ended | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating income | $ | 5,302 | $ | 5,107 | $ | 18,943 | $ | 18,547 | ||||||||
Depreciation and amortization | 5,774 | 4,626 | 11,568 | 9,309 | ||||||||||||
Stock-based compensation | 1,001 | 1,119 | 1,754 | 1,985 | ||||||||||||
National Geographic fee amortization | 727 | 727 | 1,454 | 1,454 | ||||||||||||
Warrant exchange fees | 466 | - | 466 | - | ||||||||||||
Executive severance costs | - | 287 | - | 287 | ||||||||||||
Reorganization costs | - | 113 | 15 | 293 | ||||||||||||
Debt refinancing costs | - | 3 | - | 997 | ||||||||||||
Adjusted EBITDA | $ | 13,270 | $ | 11,982 | $ | 34,200 | $ | 32,871 | ||||||||
| Reconciliation of Operating Income to Adjusted EBITDA | ||||||||||||||||
| Lindblad Segment | ||||||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Operating income | $ | 8,209 | $ | 12,070 | $ | 26,755 | $ | 12,387 | ||||||||
| Depreciation and amortization | 4,645 | 3,994 | 13,954 | 10,989 | ||||||||||||
| Stock-based compensation | 1,271 | 3,057 | 3,256 | 9,464 | ||||||||||||
| National Geographic fee amortization | 727 | 727 | 2,181 | 2,180 | ||||||||||||
| Reorganization costs | 31 | 29 | 324 | 346 | ||||||||||||
| Debt refinancing costs | - | - | 997 | - | ||||||||||||
| Executive severance costs | (215 | ) | 1,400 | 71 | 1,400 | |||||||||||
| Adjusted EBITDA | $ | 14,668 | $ | 21,277 | $ | 47,538 | $ | 36,766 | ||||||||
| Reconciliation of Operating Income to Adjusted EBITDA | ||||||||||||||||
| Natural Habitat Segment | ||||||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Operating income | $ | 2,072 | $ | 1,478 | $ | 2,105 | $ | 873 | ||||||||
| Depreciation and amortization | 379 | 360 | 1,108 | 1,023 | ||||||||||||
| Adjusted EBITDA | $ | 2,451 | $ | 1,838 | $ | 3,213 | $ | 1,896 | ||||||||
Natural Habitat Segment | For the three months ended | For the six months ended | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating (loss) income | $ | (1,181 | ) | $ | (900 | ) | $ | (458 | ) | $ | 32 | |||||
Depreciation and amortization | 408 | 368 | 802 | 729 | ||||||||||||
Adjusted EBITDA | $ | (773 | ) | $ | (532 | ) | $ | 344 | $ | 761 | ||||||
Liquidity and Capital Resources
Sources and Uses of Cash for the Nine monthsSix Months Ended SeptemberJune 30, 20182019 and 20172018
Net cash provided by operating activities was $39.3$37.2 million in 20182019 compared to $29.4$24.8 million in 2017.2018. The $9.8$12.4 million increase was primarily due to the improved operating results.results and higher bookings for future travel.
Net cash used in investing activities was $47.0$42.3 million in 20182019 compared to $43.8$31.5 million in 2017.2018. The $3.3$10.8 million decreaseincrease was primarily due to an increase in purchases of property and equipment primarily related to the construction of theNational Geographic Endurance and theNational Geographic Venture, as well as higher deposits from our Federal Maritime Commission escrow for travelspend on the Company’s U.S. flagged vessels.two new polar ice-class vessels in 2019.
Net cash used by financing activities was $5.0 million in 2019 compared to net cash provided by financing activities was $17.0 of $17.6 million in 2018 compared tonet2018. The $22.6 million decrease in cash used in financing activities of $9.0 million in 2017. The $26.0 million increaseprovided was primarily due to the $200.0 million in proceeds from2018 refinancing theof our credit facility, which was partially offset by the $171.1$170.6 million repayment of the previous senior debt, and payment of $6.5 million inlower deferred financing costs.costs and fewer stock and warrant repurchases.
Funding Sources
Debt Facilities
Credit Facility
Our Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), provides a $200.0 million senior secured first lien term loan facility (the “Term Facility”), maturing March 2025, and a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. The Term Facility bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of 3.25%, which stepped down from a spread of 3.50% after the second quarter 2019 due to an upgrade of our debt rating. In 2018, we entered into interest rate cap agreements to hedge our exposure to interest rate movements and manage our interest rate expense related to the Term Facility.
Senior Secured Credit Agreements
Our senior secured credit agreement (the “Export Credit Agreement”) makes available a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of our new polar ice class vessel, the National Geographic Endurance, targeted to be completed in January 2020. If drawn upon, the loan will be made at the time of delivery of the vessel. The Export Credit Agreement, at our election, will bear interest either at a fixed interest rate effectively equal to 5.78% or a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum.
On April 8, 2019, we entered into a senior secured credit agreement (the “Second Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (“EK” and together with Citi, the “Lenders”). Pursuant to the Second Export Credit Agreement, the Lenders have agreed to make available to us, at our option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $122.8 million for the purpose of providing pre- and post- delivery financing for up to 80% of the purchase price of our new expedition ice-class cruise vessel targeted to be completed in September 2021. The Second Export Credit Agreement will bear an interest rate, at our option, of either a fixed rate of 6.36% or a variable rate equal to three-month LIBOR plus a margin of 3.00% per annum.
The Amended Credit Agreement, the Export Credit Agreement and the Second Export Credit Agreement contain financial and restrictive covenants. As of June 30, 2019, we were in compliance with our covenants.
Funding Needs and Sources
We have historically reliedgenerally rely on a combination of cash flows provided by operations and the incurrence of additional debt and/or the refinancing of existing debt to fund obligations. Similar to others in the industry, we have historically operated with a meaningful working capital deficit. This historical deficit is mainly attributable to the fact that, under our business model, aA vast majority of guest ticket receipts are collected in advance of the applicable expedition date. These advance passenger receipts remain a current liability until the expedition date and the cash generated from these advance receipts is used interchangeably with cash on hand from other cash from operations. The cash received as advanced receipts can be used to fund operating expenses for the applicable future expeditions or otherwise, pay down credit facilities, make long-term investments or any other use of cash. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, we had a working capital deficit of $1.1$29.1 million and $12.7$9.3 million, respectively. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, we had $105.7$78.7 million and $96.4$113.4 million, respectively, in cash and cash equivalents, excluding restricted cash.
The Company’sOur Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $35.0 million in November 2016. The Repurchase Plan authorizes the Companyus to purchase from time to time the Company’sour outstanding common stock and warrants. Any shares and warrants purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’sour Board of Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. All repurchases were made using cash resources. During the ninesix months ended SeptemberJune 30, 2018 the Company2019, we repurchased 9,0301,895 shares of common stock for $0.1 million and 568,446 warrants for $0.8 million. The Company hasapproximately $23,000. We have cumulatively repurchased 864,806866,701 shares of common stock for $8.1$8.2 million and 6,011,926 warrants for $14.7 million, since plan inception. The balance for the Repurchase Plan was $12.1 million as of SeptemberJune 30, 2018.2019.
In December 2015,2017, we executed definitive agreements for the construction of two new coastal vessels. The first vessel, theNational Geographic Quest, was delivered in the third quarter of 2017. The second vessel, theNational Geographic Venture, has a contract price of $57.7 million and is scheduled for delivery in the fourth quarter of 2018. As of September 30, 2018, the Company had paid the builder $53.0 million related to vessel.
In November 2017, the Company executed a contractwith Ulstein Verft to build a polar ice class vessel, theNational Geographic Endurance, targeted to be competed in January 2020, with potential accelerated delivery to November 2019, with a total purchase price of 1,066.0 million Norwegian Kroner. Subsequently, the Companywe exercised itsour right to make payments in United States Dollars, which resulted in a purchase price of $134.6 million, including hedging costs. The first twenty percent of the purchase price was paid shortly after execution of the Agreementcontract with the remaining eighty percent due upon delivery and acceptance of the vessel. The remaining purchase price of the ship will be funded through a combination of cash available on our balance sheet, our Export Credit Agreement, our revolving credit facility and excess cash flows generated by our existing operations.
In February 2019, we entered into an agreement with Ulstein Verft to construct a second polar ice-class vessel, a sister ship of the National Geographic Endurance, with a total purchase price of 1,291.0 million Norwegian Kroner (NOK). During March 2019, we entered into foreign exchange forward contract hedges to lock in a purchase price of $153.5 million, including hedging costs. The purchase price is subject to potential adjustments from contract specifications for variations in speed, deadweight, fuel consumption and delivery date. The purchase price is due in installments, with the first 20% paid shortly after execution of the agreement, 50% to be paid over the duration of the build and the final 30% due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in September 2021. On April 8, 2019, we entered into a senior secured credit agreement (the “Second Export Credit Agreement”) to make available to us, at our option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $122.8 million for the purpose of providing pre- and post- delivery financing for up to 80% of the purchase price of our second new polar ice-class vessel.
The 2019 agreement to construct the polar ice class vessel created a material change in our future obligations from those reported in our 2018 Annual Report. The additional related obligations as of June 30, 2019 are as follows:
(In thousands) | Total | Current | 1-2 years | |||||||||
New polar ice class vessel | $ | 123,303 | $ | 61,097 | $ | 62,206 | ||||||
As of SeptemberJune 30, 2018,2019, we had approximately $202.0$200.5 million in long-term debt obligations, including the current portion of long-term debt. We believe that our cash on hand, our new revolving credit facility, our Export Credit Agreementsenior secured credit agreements and expected future operating cash inflows will be sufficient to fund operations, debt service requirements, capital expenditures for our newbuilds and other assets, acquisitions, and our Repurchase Plan. However, there can be no assurance that cash flows from operations will be available in the future to fund future obligations.
Off-Balance Sheet Arrangements
Debt Facilities
Revolving Credit Facility
On March 27, 2018, the CompanyWe entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), providing for a refinancing and amendment of the terms of the Company’s existing secured credit facility, dated as of March 7, 2016 (the “Superseded Agreement”).
The Amended Credit Agreement provided for a $200.0 million senior secured first lien term loan facility (the “Term Facility”), which represented an increase of $25.0 million from the senior secured first lien term loan facility under the Superseded Agreement. The Term Facility matures March 27, 2025. Consistent with the Superseded Agreement, the Amended Credit Agreement also provides for a $45.0 million senior secured incremental revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. The Company’s obligations under the Amended Credit Agreement remain secured by substantially all of the assets of the Company.
Borrowings under the Term Facility will bear interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of 3.50%, which steps down to 3.25% if the Company’s debt rating from Moody’s and S&P are both B1 (stable) or better and BB (negative) or better, respectively. Borrowings under the Revolving Facility will bear interest at an adjusted ICE Benchmark administration LIBOR plus a spread of 3.00%, or, at the option of the Company, an alternative base rate plus a spread of 2.00%. The Company is also required to pay a 0.5% annual commitment fee on undrawn amounts under the Revolving Credit Facility, which matures on March 27, 2023.
During the second quarter of 2018, we entered into interest rate cap agreements to hedge our exposure to interest rate movements and manage our interest rate expense related to the Term Facility.
The Amended Credit Agreement contains financial covenants that, among other things, (i) require us to maintain a total net leverage ratio (defined as on any date of determination, the ratio of total debt on such date, less up to $50.0 million of the unrestricted cash and cash equivalents to Adjusted EBITDA (as defined in the Amended Credit Agreement) for the trailing 12-month period) of 5.25 to 1.00 initially, with 0.25 equal reductions every two years thereafter until June 30, 2022 when the total net leverage ratio shall be 4.75 to 1.00 thereafter; (ii) limit the amount of indebtedness we may incur generally and specifically for intercompany debt, debt incurred to finance acquisitions and improvements, for capital and synthetic lease obligations, for standby letters of credit, and in connection with refinancing; (iii) limit the amount we may spend in connection with certain types of investments; and (iv) require the delivery of certain periodic financial statements and an operating budget. As of September 30, 2018, we were in compliance with the covenants.
The following table shows the contractual obligation of the Amended Credit agreement for the next five years and thereafter as of September 30, 2018:
| Payments due by period | ||||||||||||||||||||
| (In thousands) | Total | Current | 1-2 years | 3-5 years | Thereafter | |||||||||||||||
| Long-term debt obligations | $ | 199,500 | $ | 2,000 | $ | 4,000 | $ | 6,000 | $ | 187,500 | ||||||||||
| Interest on long-term debt | 75,698 | 11,989 | 23,649 | 34,551 | 5,509 | |||||||||||||||
| $ | 275,198 | $ | 13,989 | $ | 27,649 | $ | 40,551 | $ | 193,009 | |||||||||||
Senior Secured Credit Agreement
On January 8, 2018, the Company and its indirect, wholly-owned subsidiary (the “Borrower”) entered into a senior secured credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (together with Citi, the “Lenders”). Pursuant to the Export Credit Agreement the Lenders have agreed to make available to the Borrower, at the Borrower’s option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of the Company’s new polar ice class vessel, the National Geographic Endurance, targeted to be completed in January 2020. Seventy percent of the loan will be guaranteed by Garantiinstituttet for Eksportkreditt, the official export credit agency of Norway. If drawn upon, the loan will be made at the time of delivery of the vessel.
The Export Credit Agreement contains financial covenants that, among other things, require us to maintain a total net leverage ratio (defined as on any date of determination, the ratio of total debt on such date, less up to $25.0 million of the unrestricted cash and cash equivalents to Adjusted EBITDA (as defined in the Export Credit Agreement) for the trailing 12-month period) of 4.50 to 1.00.
Off-Balance Sheet Arrangements
On January 8, 2018, the Company entered into anSecond Export Credit Agreement as described above.
Critical Accounting Policies
For a detailed discussion of the Critical Accounting Policies, please see the Company’sour 2018 Annual Report for the year ended December 31, 2017 on Form 10-K filed on March 2, 2018 with the Securities and Exchange Commission.Report.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no material changes in our exposure to market riskrisks from the information set forth in the “Quantitative and Qualitative Disclosures About Market Risk” sections contained in the Company’sour 2018 Annual Report, with the exception of foreign currency denominated agreement for the year ended December 31, 2017 on Form 10-K.construction of our polar ice class vessel and the foreign exchange forward contracts that we entered into and designated as a cash flow hedge for the purchase of the contracted polar ice class vessel targeted to be delivered in September 2021.
We are exposed to a market risk for interest rates related to our variable rate debt. We assess our market risks based on changes in interest rates utilizing a sensitivity analysis that measures the potential impact on earnings and cash flows based on a hypothetical 1.0% change (increase and decrease) in interest rates. For additional information regarding our long-term borrowings see Notes 2 and 3Note 5 to our Condensed Consolidated Condensed Financial Statements.
As of SeptemberJune 30, 2018,2019, we had interest rate cap agreements to hedge a portion of our exposure to interest rate movements of our variable rate debt and to manage our interest expense. The notional amount of outstanding debt associated with interest rate cap agreements as of SeptemberJune 30, 20182019 was $100.0 million. Based on our SeptemberJune 30, 20182019 outstanding variable rate debt balance, a hypothetical 1.0% change in the six-month LIBOR interest rates would impact our annual interest expense by approximately $1.0 million.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarter ended SeptemberJune 30, 2018,2019, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report,as of June 30, 2019, our disclosure controls and procedures were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part 2. | OTHER INFORMATION |
Item 1. | LEGAL PROCEEDINGS |
The Company is involved in various claims, legal actions and regulatory proceedings arising from time to time in the ordinary course of business. We have protection and indemnity insurance that would be expected to cover any damages.
ITEM 1A. | RISK FACTORS |
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The risks and uncertainties that we believe are most important for you to consider are discussed under the heading “Risk Factors” in the Company’s2018 Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 2, 2018.February 28, 2019.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent Sales by the Company of Unregistered Securities
There were no unregistered sales of equity securities during the quarter ended SeptemberJune 30, 2018.2019.
Repurchases of Securities
The Company’s Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $35.0 million in November 2016. The Repurchase Plan authorizes the Company to purchase from time to time the Company’s outstanding common stock and warrants. Any shares and warrants purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors. NoDuring the six months ended June 30, 2019, no shares orwere repurchased. We have cumulatively repurchased 866,701 shares of common stock for $8.2 million and 6,011,926 warrants were repurchased underfor $14.7 million, since plan inception. The balance for the Repurchase Plan during the three months ended Septemberwas $12.1 million as of June 30, 2018.2019.
The following table represents information with respect to shares of common stock withheld from vesting of stock-based compensation awards for employee income taxes, for the periods indicated:
| Period | Total number of shares purchased(a) | Average price paid per share | Dollar value of shares purchased as part of publicly announced plans or programs | Maximum dollar value of warrants and shares that may be purchased under approved plans or programs | ||||||||||||
| July 1 through July 31, 2018 | - | $ | - | $ | - | $ | 12,124,786 | |||||||||
| August 1 through August 31, 2018 | - | - | - | 12,124,786 | ||||||||||||
| September 1 through September 30, 2018 | 3,500 | 15.35 | - | 12,124,786 | ||||||||||||
| Total | 3,500 | - | ||||||||||||||
Period | Total number of shares purchased | Average price paid per share | Dollar value of shares purchased as part of publicly announced plans or programs | Maximum dollar value of warrants and shares that may be purchased under approved plans or programs | ||||||||||||
April 1 through April 30, 2019 (a) | 18,348 | $ | 15.58 | $ | - | $ | 12,102,046 | |||||||||
May 1 through May 31, 2019 (a) | 11,975 | 16.51 | - | 12,102,046 | ||||||||||||
June 1 through June 30, 2019 (b) | 15,079 | 16.84 | - | 12,102,046 | ||||||||||||
Total | 45,402 | $ | - | |||||||||||||
__________
(a) | Amount relates to shares withheld from vesting’s of stock-based compensation awards for employee income tax withholding. | |
(b) | Amount relates to shares withheld from vesting's of stock-based compensation awards for employee income tax withholding and exercise of options. |
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
Item 4. | MINE SAFETY DISCLOSURES |
Not applicable.
Item 5. | Other information |
Not applicable
Item 6. | exhibits |
Number | Description | Included | Form | Filing Date | |||||
| Amendment | By Reference | 8-K | |||||||
| Dealer Manager and Solicitation Agent Agreement between Citigroup Global Markets, Inc. and Lindblad Expeditions Holdings, Inc. | By Reference | S-4 | June 14, 2019 | ||||||
31.1 | Herewith | ||||||||
31.2 | Herewith | ||||||||
32.1 | Herewith | ||||||||
32.2 | Herewith | ||||||||
101.INS | XBRL Instance Document | Herewith | |||||||
101.SCH | XBRL Taxonomy extension schema document | Herewith | |||||||
101.CAL | XBRL Taxonomy extension calculation link base document | Herewith | |||||||
101.LAB | XBRL Taxonomy extension label link base document | Herewith | |||||||
101.PRE | XBRL Taxonomy extension presentation link base document | Herewith | |||||||
101.DEF | XBRL Taxonomy Extension Definition Link base | Herewith | |||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 2, 2018.August 1, 2019.
LINDBLAD EXPEDITIONS HOLDINGS, INC. | ||
(Registrant) | ||
By | /s/ Sven-Olof Lindblad | |
Sven-Olof Lindblad | ||
Chief Executive Officer and President | ||