LINDBLAD EXPEDITIONS HOLDINGS, INC.

Quarterly Report On Form 10-Q

For The Quarter Ended JuneSeptember 30, 2022

Table of Contents

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Deficit

(In thousands, except share data)

(unaudited)

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity (continued)

(In thousands, except share data)

(unaudited)

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)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Lindblad Expeditions Holdings, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Business

Lindblad Expeditions Holdings, Inc.’s and its consolidated subsidiaries’ (the “Company” or “Lindblad”) mission is offering life-changing adventures around the world and pioneering innovative ways to allow its guests to connect with exotic and remote places. The Company currently operates a fleet of ten owned expedition ships and five seasonal charter vessels under the Lindblad brand, operates land-based, eco-conscious expeditions and active nature focused tours under the Natural Habitat, Inc. (“Natural Habitat”) and Off the Beaten Path, LLC (“Off the Beaten Path”) brands, designs handcrafted walking tours under the Classic Journeys, LLC (“Classic Journeys”) brand and operates luxury cycling and adventure tours under the DuVine Cycling + Adventure Company (“DuVine”) brand.

The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “LIND”.

The Company operates the following two reportable business segments:

Lindblad Segment. The Lindblad segment primarily provides 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. Each expedition ship is fully equipped with state-of-the-art tools for in-depth exploration, and the majority of 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 Islands, Alaska, Baja California’s Sea of Cortez and Panama, and foster active engagement by guests. The Company has an alliance with National Geographic Partners, LLC (“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.

Land Experiences Segment. The Land Experiences segment includes our four primarily land-based brands, Natural Habitat, DuVine, Off the Beaten Path and Classic Journeys.

The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “LIND”.

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 (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial 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 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, 2021 contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2022 (the “2021 Annual Report”).

There have been no significant changes to the Company’s accounting policies from those disclosed in the 2021 Annual Report.

Ramp of Fleet Operations and COVID-19 Business Update

The Company continued to rampresumed operation in June 2021 and, since then, has continually ramped its operations, during the second quarter of 2022,providing immersive expeditions in 2022 across all ten of its owned vessels includingvessels. During the third quarter of 2022, operations included trips to Alaska, the Arctic, the Pacific Northwest, British Columbia, Canada's Northwest Passage, the Galápagos Islands, Greenland, Iceland, Norway and the Baltic and North Seas. Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, the Company suspended or rescheduled the majority of its expeditions departing between March 16, 2020 through May 31, 2021. South America. Travel restrictions related to COVID-19 have diminished dramatically, and the Company continues to work with local authorities on plans to operate itinerarieswill resume operations in additional geographies duringin the second halfremainder of 2022 and inthroughout 2023. Where travel restrictions remain, which alsoprimarily includes a limited number of itineraries impacted by the Russia-Ukraine conflict, the Company is adjusting itineraries where possible, and working with guests to reschedule travel plans and refund payments or issue future travel certificates, as applicable. Previously, due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, the Company had suspended or rescheduled the majority of its expeditions departing between March 16, 2020 through May 31, 2021.

The Company believes there are a variety of strategic advantages that enableenabled it to deploy its ships safely and quickly while mitigating the risk of COVID-19as travel restrictions arewere lifted. The most notable isMost notably, the size of its owned and operated vessels, which range from 48 to 148 passengers, allowingallows for a highly controlled environment that includes stringent cleaning protocols. The small nature of the Company’s ships also allowsallowed it to efficiently and effectively test its guests and crew prior to boarding, or as otherwise needed. Additionally, all guests age five and older, crew and staff are required to be fully vaccinated and the majority of expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence.

Balance Sheet and Liquidity

As of June September 30,2022,the Company had $126.9$116.4 million in unrestricted cash and $48.8$29.5 million in restricted cash primarily related to deposits on future travel originating from U.S. ports and credit card reserves.

As of JuneSeptember 30, 2022, the Company had a total debt position of $578.2$572.4 million and was in compliance with all of its debt covenants in effect. The Company estimatesbelieves that it will be in compliance with all applicable covenants over the next 12 months. 

During May 2022, the Company further amended its senior secured export credit agreements to extend the waiver of its net leverage coverage ratio from March 2022 through December 31, 2022.

On February 4, 2022, the Company issued $360.0 million of 6.75% senior secured notes, maturing 2027, and entered into a new $45.0 million revolving credit facility, including a letter of credit sub-facility in an aggregate principal amount of up to $5.0 million.facility. Proceeds from the senior secured note issuance were used primarily to pay the outstanding borrowings under the Company's prior credit agreement, including the term facility, Main Street Loan and the revolving credit facility. The senior secured notes are guaranteed on a senior secured basis by the Company and certain of the Company’s subsidiaries and are collateralized by certain of the Company’s assets.

NOTE 2—EARNINGS PER SHARE

Earnings per Common Share

Earnings (loss) per common share is computed using the two-class method related to its Series A Redeemable Convertible Preferred Stock, par value of $0.0001 (“Preferred Stock”). Under the two-class method, undistributed earnings available to stockholders for the period are allocated on a pro rata basis to the common stockholders and to the holders of the Preferred Stock based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion of the Preferred Stock.

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 and shares issuable upon the exercise of stock options, using the treasury stock method, and the potential common shares that could be issued from conversion of the Preferred Stock, using the if-converted method. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted earnings per share calculation.

For the three and sixnine months ended JuneSeptember 30, 2022 and 2021, the Company incurred net losses from operations, therefore basic and diluted net loss per share are the same for each period. For the three and sixnine months ended JuneSeptember 30, 2022, approximately 0.8 million restricted shares, 1.4 million shares issuable upon exercise of options and 7.37.4 million common shares issuable upon the conversion of the Preferred Stock were excluded from dilutive potential common shares for the periods as they were anti-dilutive. For the three and sixnine months ended JuneSeptember 30, 2021, 0.8 million restricted shares, 1.5 million shares issuable upon exercise of options and 9.49.5 million common shares issuable upon conversion of the Preferred Stock were excluded from dilutive potential common shares for the periods as they were anti-dilutive. 

For the three and six months ended June 30, 2022 and 2021, the Company calculated earnings (loss)Loss per share was calculated as follows:

NOTE 3—REVENUES

Customer Deposits and Contract Liabilities

The Company’s guests remit deposits in advance of tour embarkation. Guest deposits consist of guest ticket revenues 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 sheets when received and are subsequently recognized as tour revenue over the duration of the trip. 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 the entity has received consideration from the customer. The Company does not consider guest deposits to be a contract liability until the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. In conjunction with the suspension or rescheduling of expeditions, the Company provided guests an option of either a refund or future travel certificates, which in some instances exceeded the original cash deposit. The Company has recorded liabilities up to the amount of cash deposits. The additional value of any future travel certificates areis being recognized as a discount when applied to future expeditions. The change in contract liabilities within unearned passenger revenues presented in our condensed consolidated balance sheets are as follows:

The following table disaggregates our tour revenues by the sales channel it was derived from:

NOTE 4—FINANCIAL STATEMENT DETAILS

The following is a reconciliation of cash, cash equivalents and restricted cash to the statement of cash flows:

Restricted cash consists of the following:

As of June 30, 2022 and December 31, 2021, prepaid tour expenses of $25.8 million and $10.3 million, respectively, is the only item ofAmounts within prepaid expenses and other current assets in excess of 5% of current assets.assets as of September 30, 2022 were prepaid tour expenses of $20.7 million and prepaid marketing, commission and other expenses of $12.9 million, and as of December 31, 2021, were prepaid tour expenses of $10.3 million. 

As of JuneSeptember 30, 2022 and December 31, 2021, accounts payable of $17.8 million and $9.7 million, respectively, is the only item ofno individual amounts within accounts payable and accrued expenses were in excess of 5% of current liabilities.

In 2021, the Company received a $27.0 million grant under the CERTSCoronavirus Economic Relief for Transportation Services (“CERTS”) Act, which provided grants to eligible motorcoach, school bus, passenger vessel, and pilotage companies that have experienced annual revenue losses of 25 percent or more as result of COVID-19. The priority use of grant funds was required to be for payroll costs, though grants could be used for operating expenses and the repayment of debt accrued to maintain payroll. The Company had accounted for the grant as a current liability on its balance sheet, as any amounts not appropriately used within one year of the grant date would have to be returned to the U.S. Treasury and, as permittedTreasury. As expenses for the grant were incurred, the corresponding amounts were recognized in other income on the income statement. During the three months ended March 31, 2022, the Company recognized the remaining $11.6 million of the CERTS grant in other income for permitted payroll costs and ship operating expenses and, as of JuneSeptember 30, 2022, has no further liability recorded for the grant.

Loan Receivable

The Company’s loan receivable is recorded at amortized cost within other current assets. The Company reviewed its loan receivable for credit losses in connection with the preparation of its condensed consolidated financial statements for the period ended JuneSeptember 30, 2022. In evaluating the allowance for loan losses, the Company considered factors such as historical loss experience, the type and amount of loan, adverse situations that may affect the borrower’s ability to repay and prevailing economic conditions. Based on these credit loss estimation and experience factors, the Company realized 0no allowance for loan loss for the sixnine months ended JuneSeptember 30, 2022. The following is a rollforward of the loan receivable balance:

NOTE 5—LONG-TERM DEBT

For the three and sixnine months ended JuneSeptember 30, 2022, deferred financing costs charged to interest expense was $0.7 million and $1.4$2.1 million, respectively. For the three and sixnine months ended JuneSeptember 30, 2021, deferred financing costs charged to interest expense was $0.8 million and $1.5$2.3 million, respectively. During the three months ended March 31, 2022, $9.0 million of deferred financing costs related to the repayment of the Company’s prior credit agreement, including the term facility, Main Street Loan and revolving credit facility were written-off to other expense.

6.75% Notes

On February 4, 2022, the Company issued $360.0 million aggregate principal amount of 6.75% senior secured notes due 2027 (the “Notes”) in a private offering. The Notes bear interest at a rate of 6.75% per year, accruing from February 4, 2022, and interest on the Notes is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2022. year. The Notes will mature on February 15, 2027, subject to earlier repurchase or redemption. The Company used the net proceeds from the offering to prepay in full all outstanding borrowings under its prior credit agreement, including the term facility, Main Street Loan, and revolving credit facility, to pay any related premiums and to terminate in full its prior credit agreement and the commitments thereunder. The Notes are senior secured obligations of the Company and are guaranteed on a senior secured basis by the Company and certain of the Company’s subsidiaries (collectively, the “Guarantors”) and secured by first-priority pari passu liens, subject to permitted liens and certain exceptions, on substantially all the assets of the Company and the Guarantors. The Notes may be redeemed by the Company, at set redemption prices and premiums, plus accrued and unpaid interest, if any. 

The Notes contain covenants that, among other things, restrict the Company’s ability, and the ability of the Company’s restricted subsidiaries, to incur certain additional indebtedness and make certain dividend payments, distributions, investments and other restricted payments. These covenants are subject to a number of important exceptions and qualifications set forth in the Notes. 

New Revolving Credit Facility 

On February 4, 2022, the Company entered into a new senior secured revolving credit facility (the “New Revolving Credit Facility”), which provides for an aggregate principal amount of commitments of $45.0 million, maturing February 2027, including a letter of credit sub-facility in an aggregate principal amount of up to $5.0 million. The obligations under the New Revolving Credit Facility are guaranteed by the Company and the Guarantors and are secured by first-priority pari passu liens, subject to permitted liens and certain exceptions, on substantially all the assets of the Company and the Guarantors. Borrowings under the New Revolving Credit Facility, if any, will bear interest at a rate per annum equal to, at the Company’s option, an adjusted Secured Overnight Financing Rate (“SOFR”) rate plus a spread or a base rate plus a spread.

The New Revolving Credit Facility contains customary affirmative and negative covenants, as well as financial covenants and event of default provisions.

Senior Secured Credit Agreements

In January 2018, the Company entered into a senior secured credit agreement (the “First Export Credit Agreement”) making 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, delivered in March 2020. In JuneSeptember 2021, the Company amended its First Export Credit Agreement to, among other things, waive the net leverage coverage ratio through March 2022 and annualize EBITDA used in its covenant calculation through December 31, 2022. During May 2022, the Company further amended its First Export Credit Agreement to extend the waiver of its net leverage coverage ratio from March 2022 through December 31, 2022. Certain other covenants continue to be more restrictive during the extended covenant waiver period. The First Export Credit Agreement, as amended, bears interest at a variable interest rate equal to three-month LIBOR plus a margin of 3.50% per annum, for an aggregated rate of 5.22%6.75% over the borrowing period covering JuneSeptember 30, 2022. 

In April 2019, the Company entered into a senior secured credit agreement (the “Second Export Credit Agreement”), to make available to the Company 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, the National Geographic Resolution, delivered in September 2021, and borrowed $122.8 million under the Second Export Credit Agreement. In JuneSeptember 2021, the Company amended its Second Export Credit Agreement to, among other things, waive the net leverage coverage ratio through March 2022 and annualize EBITDA used in its covenant calculation through December 31, 2022. During May 2022, the Company further amended its Second Export Credit Agreement to extend the waiver of its net leverage coverage ratio from March 2022 through December 31, 2022. Certain other covenants continue to be more restrictive during the extended covenant waiver period. The Second Export Credit Agreement, as amended, bears a variable interest rate equal to three-month LIBOR plus a margin of 3.50% per annum, for an aggregated rate of 5.56%7.07% over the borrowing period covering JuneSeptember 30, 2022.

Notes Payable

In connection with the Natural Habitat acquisition in May 2016, Natural Habitat issued a $2.5 million unsecured promissory note, amended in May 2020, to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $0.8 million as of JuneSeptember 30, 2022. The promissory note accrues interest at a rate of 1.44% annually, with interest payable every six months and the remaining principal payment due on December 22, 2022. 

Other

The Company’s Off the Beaten Path subsidiary has a loan maturing JuneSeptember 2023 for the purchase of guest transportation vehicles. The loan’s original principal was $0.3 million, is collateralized by the vehicles and bears an interest rate of 4.77% annually.

The Company’s Off the Beaten Path subsidiary has a $0.8 million loan under the Main Street Expanded Loan Facility, originated on December 11, 2020. For the first 12 months, interest was not payable and accrued to the principal balance, thereafter, monthly interest payments are required. The outstanding balance will amortize at a rate of 15% on both December 2023 and December 2024, with the remaining balance due December 2025. The loan bears a variable interest rate equal to one-month LIBOR plus a spread of 3.00%, or 4.79%6.14% as of JuneSeptember 30, 2022. This loan may be voluntarily prepaid at any time and from time to time, without premium or penalty, other than customary “breakage costs” and fees for LIBOR-based loans.

The Company’s DuVine subsidiary has a EUR 0.1 million State Assistance Loan related to the financial consequences of the COVID-19 pandemic, for the purpose of employment preservation. This loan matures August 2025, with monthly payments, and bears an interest rate of 0.53% annually. 

Covenants

The Company’s Notes, New Revolving Credit Facility, First Export Credit Agreement and Second Export Credit Agreement contain financial and restrictive covenants that include among others, net leverage ratios, limits on additional indebtedness and limits on certain investments. The net leverage ratio covenant of the Company’s First Export Credit Agreement and Second Export Credit Agreement have been waived through December 31, 2022. On October 11, 2022, the Company amended the covenants of its Senior Secured Credit Agreements to use an annualized EBITDA calculation in its net leverage ratio covenant for the periods from March 31, 2023 through September 30, 2023. The Company was in compliance with its covenants in effect as of JuneSeptember 30, 2022 and estimatesbelieves that it will be in compliance for the next 12 months.

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. The Company uses currency exchange forward contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S. dollar denominated receivables and payables. The Company primarily economically hedges a portion of its current-year currency exposure to the Canadian and New Zealand dollars, the Brazilian Real, the South African Rand, 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.

Interest Rate Risk. The Company previously used interest rate caps to manage the risk related to its previously existing variable rate corporate debt.

The Company recorded the effective portion of changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassified these amounts into earnings in the period during which the hedged transaction was 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. The Company reclassified $0.6 million from other comprehensive income (loss) to earnings for the period ended March 31, 2022 due to the termination of a cash flow hedge relationship between the Company’s interest rate caps and the Company’s underlying corporate variable rate debt, which was repaid during February 2022. 

The Company held the following derivative instruments with absolute notional values as of JuneSeptember 30, 2022:

Estimated fair values (Level 2) of derivative instruments were as follows:

Changes in the fair value of the Company’s hedging instruments are recorded in accumulated other comprehensive income. The effects of derivatives recognized in the Company’s condensed consolidated financial statements were as follows: