Good Day, and welcome to the Lindblad Expeditions Inc. reports First Quarter 2020 Financial Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Mr. Craig Felenstein, CFO. Please go ahead..

Thank you, Sean. Good morning, everyone, and thank you for joining us for Lindblad's 2020 First Quarter Earnings Call. With me on the call today is Sven Lindblad, our Founder and Chief Executive Officer.

Sven will begin with some opening comments, and then I will follow with some details on our financial results and liquidity before we open the call for Q&A. You can find our latest earnings release in the Investor Relations section of our website.

Before we get started, let me remind everyone that the Company's comments today may include forward-looking statements.Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations.

The Company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the Company's SEC filings. In addition, our comments may reference non-GAAP financial measures.

A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the Company's earnings release.And with that out of the way, let me turn it over to Sven..

a verifiable, safe environment for guests and crew; and the ability to help our guests understand our plan and believe and believe in their safety.Clearly, this pandemic is not going to last forever and clearly, people are going to, once again, want to travel.

I have so many messages from our guests telling me how enthusiastic they are about getting back out there to explore. Remember, these are people our age group is somewhat older, which some suggest is problematic because they're vulnerable.

But at the same time, they're very smart, and they recognize the fact that they want to live their lives and they want to get out there and travel. They want to do it safely. But they won't be held back, and I can feel it. I can feel it in every phone call, and I can feel it in every email.

It is also clear that the size of our ships and the geographies, which are our bread and butter, will work to our advantage, places that are wild and remote.We basically need very little shoreside support, so we can keep, in essence, self isolated extremely well once people get aboard our ships.

There is clearly much sadness at this time that touches our entire community, our guests, our staff, our crew in different ways on a daily basis. We have never ever experienced something like this, affecting the entire globe. We like, everyone else, are getting hard hit at the moment.

But as I look in months into the future, I see a bright one with all manner of opportunity to build and grow our business again. Over the last 40 years, we have had to overcome significant adversity from time to time. And in every instance, we have endured and then flourished due in large part to the resiliency of our employees and of our guests.

We fully expect to do this again and look forward to returning to the world's most remarkable locations.Now thank you very much, and let me turn the call back over to Craig..

Thanks, Sven. It certainly has been an extraordinary start to 2020. Most importantly, I hope everyone is staying healthy and safe during this very difficult time.

Before I begin, I would also like to thank all of our crew and office personnel for the diligence they have shown in ensuring our guests are well taken care of and also for working hard to identify ways to preserve capital. I'll focus the majority of my remarks this morning on the Company's liquidity position and expected cash usage moving forward.

But before I do, let me take a few minutes to discuss our first quarter operating results, including how we were trending prior to the impact of the COVID-19 pandemic and where we ultimately ended up.Lindblad was off to a great start to the year prior to the outbreak of COVID-19, with the strong momentum that we generated over the last few years, continuing into the first quarter.

Our strategic investments to expand capacity in order to capitalize on the growing demand for authentic expedition travel was continuing to drive bookings strong bookings, with reservations as of the end of February, up 25% for the full year 2020 as compared to the same point a year ago for 2019.

And we had sold 86% of our original projected guest ticket revenues for the year.

Additionally, revenue and adjusted EBITDA over the first two months of the year were tracking ahead of internal expectations.At the Lindblad segment, we began to see some minor cancellations related to the COVID-19 virus starting in late February, with cancellations ratcheting up in early March as concerns around the virus ramped.

Despite having no cases of the virus onboard any of our ships on March 13, we decided to cut short all existing voyages to ensure we can get our guests home safely and as quickly as possible.

We then canceled and started rescheduling the remaining voyages slated to depart during the month.As a result of the 18 voyage disruptions and cancellations during the first quarter, our available guest nights decreased 12% versus the same period a year ago as compared with our original expectations of available guest night expansion of 5%.The decline in available guest nights and a slight decline in occupancy to 89% due largely to guest cancellations associated with COVID-19 drove a 9% decrease in revenue at the Lindblad segment despite a 3% increase in net yields to $1,030 per night from price increases and changes in certain itineraries.

Turning to the cost side of the Lindblad segment. Operating expenses for the first quarter increased 8% versus the first quarter of 2019 due primarily to costs related to the launch of the National Geographic Endurance as well as from higher dry docking and personnel costs.

We did have some cost savings associated with the canceled voyages and lower commission expense due to the impact of COVID-19 on revenues, which were partially offset by additional cost to get guests home safely from disrupted voyages, as Sven mentioned a moment ago.Fuel costs in the first quarter decreased 11% versus the prior year due primarily to the canceled voyages, and fuel was 3.4% of revenue, slightly below the first quarter of 2019.

As a result of the revenue decline and the additional costs during the quarter, EBITDA of $10.6 million was $11.5 million below the same period in 2019. It was a very similar story at Natural Habitat this past quarter, with revenue and EBITDA tracking ahead of initial expectations through the first two months of the year.

However, as a result of trip cancellations, revenues of $11.7 million in the first quarter declined 14% versus the prior year.The revenue decrease was partially offset by a 6% decline in operating expenses from commission and cost of tour savings associated with the canceled departures, which resulted in EBITDA of $0.5 million, 55% below the first quarter a year ago.

On a total company basis, revenue declined 9% to $81.2 million, and adjusted EBITDA declined 52% to $10.6 million.

Net loss available to common stockholders in the first quarter was $1.9 million or $0.04 per diluted share versus net income available to common stockholders in the first quarter of $14.7 million or $0.31 per diluted share in 2019.The decline was primarily driven by the impact of the COVID-19 virus on operations as well as a $3.4 million loss on foreign currency in the current year versus a $0.7 million foreign currency gain in the first quarter of 2019 and a $1.2 million decrease in income tax benefit versus the same period a year ago.

Now let's turn to our balance sheet and liquidity.

As Sven mentioned, once it became readily apparent that the virus was going to impact our operations, we swiftly put in place a comprehensive plan to reduce costs and enhance our liquidity position.During March, we raised an additional $45 million in capital by drawing down on our revolving credit facility, and we ended the quarter with $137 million in unrestricted cash and $23 million in restricted cash related primarily to deposits on voyages that originate in the United States.

To preserve our cash reserves and further extend the liquidity profile of the Company, we have also put in place a variety of cost-cutting measures that will significantly reduce our monthly cash burn.We have eliminated a considerable portion of our ship and land-based expedition costs and have reduced our expected annual maintenance capital expenditures by over $10 million, savings of more than 50% from originally planned levels.

We have suspended the majority of planned advertising and marketing spend and are significantly lowering general and administrative spending, including payroll reductions and elimination of all nonessential travel, office expenses and discretionary spending.Additionally, we have deferred payment of the majority of bonuses earned for 2019 performance, including all C-suite bonuses, and we are deferring cash compensation for the Board of Directors.

We have also suspended all repurchases of common stock under the stock repurchase plan.

As a result of these measures, we anticipate lowering our monthly cash burn from over $30 million on average when fully operational, to $10 million to $15 million while our ships are laid up.This includes all ship and office operating expenses, necessary capital expenditures and expected interest and principal payments, but does exclude any new guest payments for future travel as well as refunds of previously made guest payments.On the voyages we have canceled and rescheduled thus far, which includes most of the voyages originally scheduled through the end of June, the majority of our guests are opting for future travel credits as opposed to full refunds.

Additionally, we still have substantial reservations for expeditions scheduled for the back half of 2020, including 8% more bookings as compared with the second half of 2019 as of the same date a year ago.

We also continue to see new bookings for future travel, including over $15 million since March 1, and we are still receiving cash deposits and final payments for future travel.As you can imagine, we have run a variety of scenarios. And even in the most of the downside cases, we would certainly expect to finish this year with ample liquidity.

The Company is also currently evaluating several additional strategies to further enhance our liquidity position. These strategies may include, but are certainly not limited to, pursuing additional financing from both the public and private markets through the issuance of equity or debt.

The timing and structure of any transaction will certainly depend on market conditions. Turning to our debt position today.We ended the quarter with $382 million in principal outstanding, and we were in compliance with all of our debt covenants.

The $152 million increase in debt since year-end included the incremental $45 million drawn on the revolver, and included $108 million drawn on our first export credit agreement in conjunction with our final payment upon delivery of the Endurance in March.

As a reminder, per our credit agreements, we include the forward EBITDA on the Endurance when calculating our leverage ratio.Following the quarter, we borrowed an additional $30.5 million under our second export credit agreement and used the proceeds for the third installment payment for the National Geographic Resolution, which is still scheduled for delivery as of now in the end of September 2021.

The remaining installment payments of approximately $62 million are fully covered by the second export credit agreement and are not scheduled until 2021, with the majority due upon delivery of the ship.

It is also worth noting that we do not have any debt maturities until our revolver comes due in 2023.Lastly, with regards to full year revenue and EBITDA expectations, in March, we withdrew our previously issued guidance provided in conjunction with our fourth quarter 2019 earnings.

The COVID-19 outbreak has had, and will certainly continue to have, a significant impact on the Company's financial position and results of operation for 2020.

Given the uncertain given the continued uncertainty around the pandemic, the Company is not providing a full year outlook regarding results of operations at this time, and we'll update our expectations when we have more clarity around the timing and extent of future operations.

Thank you all very much for your time this morning.And now Sven and I will be happy to answer any questions you may have..

[Operator Instructions] Our first question will come from Steve Wieczynski with Stifel. Please go ahead. Mr Wieczynski. Your line is now live..

Okay. Good morning, guys. First, I wanted to ask about getting the ships operational again. I understand the ships are small in size and they go to unique locations, both of which should be a huge benefit to you guys.

But how are you thinking about air capacity and the ability of your guests to actually get to your ships?.

Okay. So Sven here. So what we've done is we've created a plan to activate certain voyages, not all of them, but a reasonable number of them, ideally in the third quarter. And those people would be moved by a charter aircraft. And we've got all those logistics sorted out.

We've got a carrier, we've got routes, we've got prices, we've got all of that fully understood. So that's just waiting to be triggered when the other elements are put in place..

Okay. Got you, Sven. And then, Craig, you talked about the $10 million to $15 million cash burn per month and that excludes the customer deposits.

Is there any way to help us think about that number on a net basis? You talked about how the majority of your guests are taking the future cruise credit, but the word majority means different things to different people. So just trying to figure out what that net outflow could look like there..

Yes, sure. So there's only so much detail I can provide right now. When you look at our the customer refunds, we're not talking about 51%, but we're not talking about 80%. So I'll frame it that way, and you can kind of figure it out somewhere between those two numbers.

But when you more importantly, when you think about the variables with refunds and customer deposits, there's a couple of things to think about. The first thing is that the majority of our guest payments really applied when this whole thing started, really from March through July. That's where most of the final payments had occurred.

So, at this point, we are significantly through a lot of the deposits that we already had from guests. Obviously, depending on how far or how long this lasts, there could be some more deposits that are exposed to refunds, but the vast majority of that actually is now in our rear view mirror at this point.

The second thing is you have to remember that most of our guest deposits are due within 90 to 120 days of travel. Now obviously, there's a little bit of flexibility in that right now.

But once we start to get up and running, the amount of cash that will come in the door will be significant as guests make payments to effectively start to travel from there on out. So to know what the net impact of that to be, it's kind of hard to say because we don't know exactly when we start.

But we certainly believe that when you take them in totality over a certain period of time, we should be OK on that front..

Okay. And then last question kind of adds on to that. But the delta of that cash burn. I assume it's higher in the near term, but should drip down closer to the low end of that range as the ships are laid up for an extended period of time.

Is that the right way to look at? And I guess then based on kind of our math, even including a 60%, 70% kind of customer deposit retention, you're still going to fall inside that range..

Yes. So, I think it's I don't want to use this expression, but it's kind of like a hammock, right? So, right now, we have got most of our ships fully laid up. There's still some crew we're looking to get home and off those ships. But to your point, yes, the longer you go with those ships, the less cost you have to incur.

That said, we are, at some point, going to start operating again. And when we do start operating again, ahead of that, we are going to have to get the crew back. We are going to have to do some things to our ships to get them ready to sail again and we are going to have to start spending some marketing dollars, which today were mostly suspended.

So I would say, over the next several months, you will see cost continue to decline to the lower part of that range, certainly. And then once we start to operate again or seem to get ready to operate again, we'll ratchet that back up again..

And now our next question will come from Chris Woronka with Deutsche Bank. Please go ahead..

Hey, good morning guys. Glad to hear that all your staff and customers were safe.

Question was just on as you think about starting to sail again, what are the things how many different entities are you going to have to work with in terms of ports and governments? In the U.S., for the bigger companies, we think about the CDC, but I got to imagine there's probably other entities in other countries.

Can you kind of give us a little color on what needs to happen?.

Yes, sure. Well, if you take let's just start with Alaska, for example. You've got to deal with getting people to Alaska. And in our case, we deal with relatively few ports. We our current programs, they start in Juneau and end in Sitka and they go to basically the one other place where there's a human community.

So what we'll do is we'll reduce that so there's less exposure to communities. And already starting to talk with community leaders and really trying to understand what their protocols are and then the state of Alaska, in which I think they're going to by July, I think they'll have a very different view.Now you have to be quarantined for two weeks.

I don't believe that will be the case, certainly, probably starting in June at some point. And then you need the aircraft to be able to get people to and from. And the other advantage that we have absolutely clearly aside from size is that we need very, very little external logistical support.

If you think about a cruise ship, for example, that goes from port to port, they have to book the ports. They have to coordinate with other ships, so there aren't too many in any particular time.You have all kind of buses and god knows what they have to be organized for land excursions. And it's a massive logistical exercise.

For us, we get to a place, we drop the anchor, we drop the zodiacs, we take people ashore with our naturalists. They take a hike. They jump into a kayak or whatever. So we control the logistics.

And so starting up again and reactivating requires a small, tiny fraction of what the cruise industry needs in order to reactivate.And we've got a team, a fully integrated team of people from the office and expedition leaders and such that have fully laid out the implications of reactivating.

We also need borders to open, right? So for example, if we want to go to the Norwegian Arctic, we need Norway to say, please come. And I believe that will likely come. And places like Iceland and Greenland, those are important to us. And of course, the Galapagos Islands are important to us.

And again, the logistics there are incredibly manageable in terms of the size and the scope..

Okay. That's very helpful. And then second question is kind of it sounds like, hopefully, you will be able to get back in business in the third quarter.

How do you plan for, say, next winter, which seems like a long time away, and if there is any kind of resurgence? Do you think you can maybe because we're all learning a lot about this thing, do you think there's a possibility that your kind of business could continue sailing if there are isolated pockets of outbreaks in the future?.

Yes. So there's two well, there's three things that relate to this whole situation. One is test the ability to test. So we believe we'll be able to do that in the not-too-distant future.

That can that means you can test your crew and make sure that you have a safe ship in terms of no incidences among your crew, and you can test guests, and you can reject those who are infected, you know they can't travel. But ideally, you also then will have a cure, and that will give people greater sense of comfort.

That will be a ways off.And then obviously, a vaccine, and that also is a ways off.

But at some point in 2021, I would imagine that you will have all of those things available, which completely changes the landscape of this whole equation because you can test people, people can get a vaccine and if somebody happens to get COVID, there are medicines that deal with that, right?So it's just completely different.

Right now, we have no vaccine, we have no cure, and we have very, very limited testing. So we're in a the world is kind of in its worst position currently. And presumably, it will just improve over time in regard to those three salient components.

Does that make sense?.

Yes, yes. No, that's very helpful. Thanks, guys, and best of luck..

Thanks..

Our next question will come from Alex Furman with Craig-Hallum. Please go ahead..

Great, thanks very much for taking my question. I hope everyone at Lindblad is doing well. It seems to be one of the most important things here to investors and to your liquidity is the fact that the majority of your guests have been opting to take travel credits as opposed to refund. So I would love to unpack that a little bit more.

Is there any noticeable difference in terms of who is taking travel credits as opposed to refunds in terms of the age of customers or the destinations that they had been traveling? And then as for customers who are rebooking for the future, anything notable to call out in terms of when they are rebooking for?.

Sure. Let me start and you can chime in if you have anything else on top of that. So the first thing I'll say from a demographic perspective, we have not seen a dramatic difference in the rebooking patterns among our guests. What has been interesting for me is what I wasn't sure was, would the ultimate refund rate change over time.

So in other words, we started canceling voyages in March, then we canceled in April and then we canceled in May, and now we're canceling June. Would that refund rate change dramatically over that span? And we have not seen that.

Actually, it's slightly ticked up to be more of a future travel credit, not much, but has ticked up a little bit as time has gone by, which I find to be very interesting. So we don't see any real significant difference from that perspective.

Sven, is there anything else you want to add?.

No. The it's interesting because I think what people are doing is they're assimilating and understanding this a bit more, and they're beginning to see potential light at the end of the tunnel, and they're itching to get out there again.

And so the value of the certificate is greater than the cash if they intend to go and travel again in the future, right? So there's an incentive, there's a benefit and people are taking advantage of them..

The one other thing I'll add to answer your question is, in terms of when we're seeing the folks use the credit. Most of the folks are using the credit for the same voyage in the following year. So right now, we do have a significant amount of future travel credits being redeemed for the second quarter of 2021, which is not surprising.

Obviously, people have chosen a destination that they want to travel to and they want to go back to it when they can..

Okay. That's really helpful. It seems like you guys are taking a really thoughtful approach to reopening, and I wish you the best of luck and hope that, that's able to happen soon. Thanks guys..

Our next question will come from Greg Pendy with Sidoti. Please go ahead..

Craig, I think you mentioned that you had $30.5 million for the Resolution due in 2Q.

Can you just give us an update, as I assume that goes on a work percentage of completion? And has there been any disruption? Is that something you still, I guess, expect in late 2021 to be completed?.

Sure. So the way the contract works for the Resolution was we had 20% that we paid upon signing the contract. Then we have installment payments. The first installment payment was tied to a milestone, the remainder between now and delivery or not, and then obviously, the payment on delivery is predicated on the vessel being delivered.

So the payment this year was always scheduled for April, and we made it as such.

The remainder, as I said earlier, is all due in 2021 with the vast majority of that $60-plus million due upon delivery, which today is still anticipated to be in September, October of 2021.And obviously, given everything that's going on in the world, it's hard to know for sure exactly if that will be able to be maintained.

Right now, all discussions have led to that point. But certainly, we're staying in close contact with the yard, who did a fantastic job in delivering the National Geographic Endurance. We can't wait for everybody to see her. She's a magnificent ship. And we think her sister ship will be equally as magnificent.

And we do anticipate taking delivery at this point in the fourth quarter of 2021. If that does change, we will certainly let everybody know. And that would be, obviously, just because of supply chain issues because of the current virus. But we have not heard anything on that front yet, and we'll continue to monitor the situation..

And then just one other one.

What was the big swing in foreign exchange? Was that the Canadian dollar?.

Yes. So Natural Habitat does most of a lot of its operations up in Canada and intend to do a fair amount of forward contracts to lock in a profit margin on those trips. And given the change in currency that has happened, that was the primary driver of the currency swing..

[Operator Instructions] Our next question will come from Stephen Deckoff with Black Diamond. Please go ahead..

I guess my first question would be in relation to maintenance capex.

How should we be thinking about that? And I guess, going forward, on a quarterly basis, where do you project that number to be?.

Sure. So in a normal year, when we're operating, our ships average each ship averages somewhere between $1 million and $2 million a year in maintenance CapEx. And then when you factor in some of the office CapEx and originally this year, we were certainly expecting to spend a little bit more money on some of our IT projects.

So, the forecast heading into this year was somewhere north of $20 million for maintenance CapEx.Obviously, with what's going on in the world, we've identified a significant amount of that, which we don't necessarily need to do this year, and we are able to take that maintenance CapEx number below $10 million for the current year.

That's our expectations. Now obviously, the longer this lasts, if this lasted a significant period of time, we would cut that even further. But for now, the expectation is somewhere south of $10 million for 2020..

Got you. And then in regards to the partnership with National Geographic, it looks like that is ending in 2025.

How should we be thinking about kind of that renewal process in regards to the contract with them?.

So we'll start having those discussions probably at some point in 2021. Probably not to start anticipating how we extend the agreement. The agreement is beneficial for National Geographic and beneficial for us and has been for 15-plus years. And so we see no reason why that shouldn't continue..

Okay, great.

And then just to confirm, what was your monthly cash burn?.

When you say monthly cash burn, you're talking moving forward or are you talking historically?.

No, no, I mean, going forward..

Yes. So going forward, we expect the monthly cash burn to be somewhere in that $10 million to $15 million range, which would include all of our operating expenses, all of our debt and interest payments and all of our capex..

Okay, got it. Appreciate it. Thanks guys and good luck out there..

Thank you..

Thanks..

This will conclude today's question-and-answer session. I would like to turn the conference back over to Craig Felenstein for any closing remarks..

Thank you, everybody, for joining us this morning. We know it's, like I said, a little bit of a strange time, and we're happy to help you walk through our current business and the expectations we have. So give us a call, and we look forward to staying in touch. Thank you..

Thanks, everybody..

The conference is now concluded. Thank you for attending today's presentation. And you may now disconnect..