Good day, and welcome to the Lindblad Expeditions First Quarter 2019 Financial Results Conference Call and Webcast. All participants will be in listen only mode. Please note this event is being recorded. I would like to turn the conference over to Greg Felenstein, Chief Financial Officer. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad's Q1 2019 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 Q1 results before we open the call for Q and 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 the call over to Sven.
Thanks, Craig, and thanks to all of you who have made time to join us today. 2019 is off to a strong start for Lindblad, building off the sustained momentum we have generated over the last year and a half. Our strategic investments throughout the past several years, along with a proven track record for delivering authentic, high quality expeditions and growing demand for expedition travel are bearing fruit. And we are extremely well positioned to deliver continued growth in both the short and long term. I'd like to take a few minutes this morning to discuss some of the key components to our Q1 results, while also highlighting some of the initiatives that will help build on this momentum moving forward.
The biggest driver this past quarter was the addition of our second new build, the National Geographic Venture. The interest from our guests was certainly high and it was important for us to see how she would adapt in Baja California as a 100 guest ship in a geography that we have served with 60 guest ships for decades. Certainly, there was a bit of fine tuning needed in the 3 different itineraries we conducted, but both we and our guests were delighted with the amazing experience she provided in this remarkable geography. At the same time, her sister ship, the National Geographic Quest had a second successful season in Costa Rica, Panama and Belize as we diversified the offerings on our new vessels ahead of the Alaska season. With the addition of this new capacity, we have been diligent in looking to develop diversified itineraries for our existing inventory.
This past quarter, we experimented with a short focused 5 night program on the National Geographic Seabird in Magdalena Bay, a wildlife rich region in Baja California. This new idea turned out to be incredibly popular despite being offered with very little lead time. This program along with 10 others, which we refer to as Wild Escapes, is building out our concept of short itineraries, primarily for our smaller ships, most notably the National Geographic Sea Lion and Sea Bird, with the goal of bringing in new somewhat younger guests who may not have so much time at this stage in their lives. This also allows us to provide some clear differentiation between this class of vessel and our new coastal U. S.
Vessels. We are extremely delighted by the reception of these short programs and believe they are a key component to our success and growth in the future. As we diversify our offerings in terms of itinerary lengths and configurations, we also have teams engaged in deep research as to new geographies, which we wish to add to the mix. Unfortunately, I will wait as to specifics, probably best to alert competitors any earlier than necessary. It's clear though that as we grow, finding new geography is a key component to any successful plan.
Overall, we are off to a great start with our expanding fleet. Occupancies this past quarter, once again, were over 90 percent despite the additional inventory, and we are excited about the opportunities our increased capacity provides. Revenues in Q1 were up 9%, led by the increased inventory and occupancy strength, while EBITDA came in as planned similar to Q1 a year ago as several building blocks of growth were expanded in the period. Craig will, of course, go into further detail on our financial performance in a few minutes, but we are already seeing positive signs in terms of lead generation and bookings for future travels from our increased marketing investments as we execute our media plan and begin a rollout of our new brand campaign. Additionally, in Q1, we began work in earnest on a series of 4 technology projects that we believe will provide us with the platform to both sustain and accelerate our growth plans, as well as continue to deliver an industry leading guest experience.
These programs, which include the launch of a new reservation system, a new CRM and marketing cloud solution and a new website, live inventory, a fully integrated dynamic pricing platform and the ability to price in multiple currencies, that can be delivered both digitally and over the phone and the ability to ensure our guests and travel partners have an even more seamless experience across their journey via our CRM implementation. As we invest for the future, we continue to see growing demand from new and returning guests for our diverse set of vessels and itineraries. Current reservation trends remain very strong with Lindblad generating record bookings during the first quarter of 2019. It was the highest generating booking quarter in our history, and we are seeing demand strength for travel in both 2019 and beyond. Bookings for expeditions in 2019 are up double digits versus bookings for 2018 at the same point a year ago and pacing for 2020 is nearly 50% ahead of 2019 at the same time last year, driven in part by the introduction of the National Geographic Endurance, while not diminishing the pacing on the other ships.
Speaking of the Endurance, her hull and superstructure were assembled in Poland this past quarter and she was delivered to Norway late last month where she will be completed for a launch in 2020. The Endurance has been designed as the ultimate expedition platform with a focus on the guest experience, safety and comfort, and we couldn't be more excited about the remarkable experiences she will provide to our guests for years to come. Given the sustained booking strength across our fleet and for the Endurance in particular, we announced last quarter that we will be building a sister ship to the Endurance, which will be the 4th ice class ship in the Lindblad National Geographic fleet. Steel cutting begins this month and we anticipate delivery in Q3 of 2021. As we add capacity and look for ways to further expand our fleet, we also continue to explore a variety of M and A opportunities.
We are very diligent in our evaluation given the opportunity for organic growth, but also because we have the blueprint for a successful acquisition and integration with Natural Habitat. All of the features that made this acquisition so successful, well run, limited distraction, cross marketing opportunities, a diverse and loyal audience continue to bear fruit, and we expect another year of strong growth from Natural Habitat in 2019. Before I finish up, I do want to touch upon one other topic. Since we spoke several months ago, so much has changed in the world on a multitude of fronts. One area of particular note as it relates to our world is an ever increasing acknowledgment that climate change is real and needs to be urgently confronted that the environment more broadly has been under considerable assault, which too needs to be urgently confronted The plastic in our oceans have reached alarming levels and this too needs to be urgently confronted.
We are seeing an ever increasing sense of urgency on the part of people who want to see the world's wild places. At the same time, they want to learn more about what they can do. They want to be with companies that they believe take these issues seriously and are addressing them positively. We do not use any single use plastics. We work very hard to source sustainable fish.
We pressure suppliers to mitigate waste and packaging and we together with our invest nearly $2,000,000 a year in conservation, education and science via the Lindblad National Geographic Fund. We have 2 very significant initiatives which will vastly broaden our commitment to these issues. However, we are not quite ready to announce them, but we'll do so on Oceans Day, June 8. There is such synergy between our guests, our enterprise, and the places we visit. There always has been, but now there is simply greater urgency and all parties benefit in accelerated innovation to create greater balance between humans and the natural world.
The acceleration of innovation is a powerful driver behind all we do, which I believe provides the tonic of purpose, an elixir for our guests, our personnel and for the places we explore. And it is a key and essential ingredient to propel this enterprise to ever higher long term value. And now, if I may please turn this back to Craig, and again, many thanks for joining us this morning.
Thanks, Sven. Lindblad's strong Q1 once again highlights our ability to deliver sustained financial results as we further invest in additional capacity, upgrade our infrastructure and expand our sales and marketing capabilities. With the addition of our 2 U. S. Coastal vessels, we have expanded our available guest nights by over 20% from pre expansion levels.
And despite the added inventory, we continue to generate high yields and occupancies. Our proven track record of delivering authentic and high quality experiences along with a strong booking environment will allow us to grow significantly in 2019 even as we invest to further capitalize on the long term opportunity given the growing demand for adventure travel. Turning to the Q1 of 2019, total company revenue increased 9% versus the Q1 a year ago, led by 8% growth at the Lindblad segment and 14% growth at Natural Habitat, while adjusted EBITDA was down 1% as the revenue increase was offset by the planned timing of marketing and personnel spend to drive long term growth initiatives. Looking at the individual segments, the Lindblad segment generated revenue of $76,000,000 as compared with $70,500,000 during the Q1 of 2018. The 8% year on year growth was primarily driven by a 9% increase in available guest nights, mostly from the launch of the National Geographic Venture in December 2018 and a slight increase in occupancy to 91%.
Net yield remained very strong in the quarter at $10.99 per night and while it was down 2% versus the Q1 a year ago, that was predominantly a result of price increases being more than offset by itinerary changes in the current quarter. We still expect to increase net yields for the full year 2019. Turning to the cost side of the business. Lindblad segment operating expenses increased 9% on a reported basis, primarily driven by a 9% increase in cost of tours, led by the addition of the National Geographic Venture to the fleet. Fuel costs in the quarter were 27% above prior year due in large part to the fleet expansion and higher prices.
Fuel was 3.5 percent of revenue as compared to 3% of revenue in the Q1 of 2018. Sales and marketing costs increased 12% versus a year ago due to higher commission expense associated with the revenue growth as well as from the investments we discussed in our year end call, including costs associated with the rollout of our new CRM and reservation systems and increased marketing spend as we look to further capitalize on our increasing capacity and the growing demand for expedition travel. The Q1 of 2019 also included $1,100,000 of increased depreciation and amortization, mostly related to the addition of the National Geographic Venture to the fleet, while the Q1 of 2018 included $1,000,000 of expense related to refinancing our credit facility a year ago. Excluding stock based compensation, depreciation and amortization and refinancing and reorganization costs, Lindblad segment operating expenses increased 11% versus the Q1 a year ago, including 15% growth in G and A expense due to higher personnel and credit card costs. Overall, adjusted net cruise costs on a per night basis of $7.43 was in line with the Q1 a year ago.
Adjusted EBITDA at the Lindblad segment of $20,900,000 was in line with the year ago as well as the revenue growth was offset by the timing of investments for future growth initiatives. At the Natural Habitat segment, revenues grew 14% to $13,600,000 due to additional departures and higher pricing. Adjusted EBITDA of $1,100,000 decreased $200,000 versus the Q1 a year ago as the revenue growth was offset by a severances due to costs associated with the additional departures as well as the timing of marketing and personnel spend to drive future growth. Total company net income available to common stockholders in the quarter was $14,700,000 or $0.31 per diluted share versus $10,800,000 or $0.24 per diluted share reported in the Q1 a year ago, primarily due to a $3,100,000 tax benefit in the current year and a $1,100,000 swing in foreign currency gains in the current quarter. Turning to our balance sheet, we remain extremely well positioned to invest in future growth We ended the quarter with $70,000,000 in unrestricted cash.
Free cash flow for the quarter was a use of $20,000,000 dollars primarily reflecting $32,000,000 spent on the new builds. Including only maintenance CapEx, free cash flow was $12,000,000 in the 1st quarter, an increase of 3,000,000
dollars from the same period a
year ago. Following the quarter, we further expanded our financial flexibility by securing an additional export credit agreement with regard to our 2nd Norwegian Blue Water build. This loan is available at our option when installment payments are due and will bear either a fixed interest rate of 6 0.36 percent or a floating rate equal to LIBOR plus a margin of 3%. The next installment payment of approximately $30,000,000 is anticipated to be paid on this new vessel in September of this year. Turning to our full year expectations for 2019, we continue to anticipate significant growth driven by capacity expansion as well as increased net yields.
The Lindblad segment is currently pacing 11% ahead of the same point a year ago with regards to bookings and we are already at 94% of our full year projected ticket revenues for 2019 despite the additional inventory, as compared with 95% of the 2018 full year ticket revenue at the same time a year ago. Given the current operating environment and the sustained booking trends, we continue to expect total company tour revenue in 2019 between $350,000,000 $358,000,000 13% to 16% growth versus 2018 and adjusted EBITDA between $67,000,000 $70,000,000 or 22% to 28% growth versus 2018. Thank you for your time this morning. And now Sven and I would be happy to answer any questions you
The first question comes from Greg Badish Kenyon with Citi. Please go ahead.
Hey, guys. Good morning. It's actually Fred Whiteman on for Greg. I apologize, Craig, if I missed this, but did you call out the specific EBITDA impact either from marketing initiatives or the headcount investments in the quarter?
We have not given specific guidance for the additional marketing spend in the quarter. We have talked about the full year. When you look at the IT projects that we have in the current year as well as some of the additional costs related to the Endurance this year, which won't launch until 20 20. The impact of those two things combined will be somewhere in that $3,000,000 to $4,000,000 range. The increased marketing spend, we have not specifically highlighted.
That said, when you look at the marketing spend in the current year, this is not something that's going to recur itself every single year in terms of the magnitude of the increase. We do expect this year to be a step function, partially due to what we're seeing in the marketplace in terms of the noise out there around expedition travel and partially because we're adding new capacity. And when you do those things, you want to take advantage of the opportunity and we think this is the right time to spend that investment. The return on that investment will really start to take fruit kind of the tail end of 2019, but certainly significantly in 2020.
Okay, that makes sense. And then could you just give a little bit of color on the Alaska market specifically? I know your capacity is up pretty significantly there this year, but just any other color you could add would be helpful.
Sven here. Well, the one thing is clear is that the Alaska market is still incredibly strong for us at least. I'm not very, very cognizant of how it's going for the big cruise lines specifically, but our occupancies are as high as they've ever been, probably a bit higher, and we're taking way more people as a consequence of now having 4 ships. It's the 1st summer we're going to have 4 ships in Alaska, so basically 3 20 beds, which is obviously a significant increase. And the bookings for 2020 are looking very, very strong.
So I see no dilution of that market at all.
Okay, great. And then just finally, could you talk about any expected changes from the National Geographic relationship after the Disney deal?
Well, the only thing I can tell you at this juncture is that I would anticipate that good things will happen as a consequence of it because Disney's reach and Disney's abilities as it relates to business to consumer are massive and way, way greater than they were with Fox, obviously. And so as far as I'm concerned, I see nothing but benefit. Of course, it will take a while for Disney, I would imagine, to assimilate this part of the whole transaction and decide how they want to move forward and engage with it. But I see nothing but positive opportunities.
Thank you so much.
The next question comes from Steve Biedzinski of Stifel. Please go ahead.
Hey, guys. Good morning. So, Craig or Sven, I guess, we look at your EBITDA guidance for the year remains unchanged. If we back out the $22,000,000 you did in the Q1, that's essentially saying you guys are expecting some pretty significant growth. I mean, I think it's kind of low 40s growth over the last three quarters.
So I guess the question is, at this point, what gives you so much confidence in that growth? And look, I understand the increase in the capacity days. But I guess what I'm getting at here is with the increased spend on the marketing side and some other initiatives you're doing, that EBITDA growth still seems does that still seem pretty realistic, if that makes sense?
Sure. So we look at the course of the year for us, the real power or the full power, I should say, of adding this additional inventory really is yet to come. When you look at the Q1, yes, we launched the Venture, but we did pull back a little bit with some of our older inventory. Sven did mention that we did do some experimenting on the Sea Bird, but we did pull back a little bit on the Sea Bird and Sea Lion in the Q1. But we always expected the full power of that additional inventory to be there really in the 2nd and third quarters and a little bit into the 4th quarter.
So that's the first thing. The second thing that we're really seeing is when you look out to the remainder of the year, we booked so much of our inventory already for this year that we feel really comfortable about where the year is going to play itself out because of that inventory and frankly because of the pricing that we expect to see moving forward because the yields are going to grow throughout the year as well. The last thing I would say is the timing of the marketing spend is going to vary throughout the course of the year. Each quarter, the increase is going to be different. But when you look at the plan that we have for the year, the plan in the Q1 was always anticipated.
The growth that we see in the second and third quarter is going to come in as anticipated, it looks like. And now it's really just about finalizing some of the additional inventory that we have out there in Q4, which we feel very comfortable with given historical operating trends.
Okay. Got you. Thanks, Craig. And then I don't know this question is going to make sense, but if you look at your yields in the Q1, they were down slightly. Is there any way to help us think about what those yields would have looked like without the itinerary shifts?
I don't know if that makes sense.
Yes. They certainly would have been up. We haven't guided to individual quarters from a yield perspective because so many things can affect that in any given moment. But when you look at the Q1, the primary driver of the yields being lower than they were a year ago is some of the experimentation which we did on the Sea Bird in the Q1. When you're doing some experimenting, A, stuff tends to go on sale a little bit later, B, you tend to price it a little bit more advantageous to see what kind of traction you can get.
And that certainly had an impact in the quarter. If you took that out of the equation, just that one item, you would have been up year on year. So we feel pretty good about where the yields are. The demand for existing inventory has been really, really strong. The demand for the new inventory, which certainly has a higher price point in some instances, has been really strong.
And that's not just true for the Q1, but we look out to the full year 2019 and frankly into 2020. So we feel really good about where the yields are headed right now.
Okay, got you. And the last question, just a quick housekeeping question. Craig, any changes with the available guest nights in terms of the way we should be thinking about those over the last three quarters of the year?
Sure. So when you look at the next few quarters, I can give you some direction with regards available guest nights. We haven't seen any change in our expectations. We do expect the 2nd quarter to be very similar from an increase perspective to the Q1. We will see a probably a step up a little bit on that growth in Q3.
And then in Q4, it will come down as we start to lap a little bit of the Venture launch from a year ago. And then certainly when you look out to 2020, you get the launch of the Endurance in April of 2020. So that will certainly increase the overall capacity in 2020. So that's really how it should play out for the remainder of this year and looking into next.
So still full year kind of that upper single digit range?
Correct.
Okay. Thanks guys. Appreciate it.
Thanks Steve.
The next question comes from Craig Penney of Sidoti. Please go ahead.
Hey, guys. Thanks for taking my questions. Just I guess you mentioned you don't give the quarterly guidance on the yields and I understand that. But is most of the catch up is it fair to say that the itinerary is going to be more favorable in 3Q of this year? I think last year you had some itineraries, I think they were in Europe that you're not going to be doing this year?
Yes, we do expect there to be yield expansion for the remainder of the year. The quarter that you mentioned will probably have the largest increase, which would be the Q3, but it's less a byproduct of Europe than it is of the South Pacific a year ago. And Sven and I talked about that a year ago that the South Pacific yields were lower than some of the other yields that we had traditionally. And as a result, we have less inventory this year and the yields that we're getting on the Orion this year for some of her other voyages are certainly significantly higher than what was in the South Pacific in 2018. So I would expect the largest increase to be in Q3, but we do expect for the full year to have net yield expansion overall.
Okay, great. And then just one more, I guess, on the step up in the marketing. Can you just kind of give us you mentioned a brand campaign. Right now, I guess, you're kind of operating under 3 different names. Are you looking to really kind of maintain, I guess, Natural Habitat as its own name?
Are you looking to kind of brand everything into the Lindblad name? Can you just kind of give us a big picture strategy?
Yes. So we are not going to take Natural Habitat and offer it under the Lindblad brand because Natural Habitat does have a strong brand. It has strong loyalty. It has a very, very strong community of repeat travelers. And so we see no value in subsuming that brand, if you will.
Our own brand development is really around really understanding the key ingredients that matter to guests. We do this periodically. It just helps hone our voice, if you will. And that then translates through everything our advertising, how we approach messaging and direct mail, how we approach the web development, etcetera, etcetera. And as we were migrating into a total new, should we say, reconfiguring of the web or redevelopment of the web, we wanted to make sure we had our ducks in order and did some research in the context of current times because what people care about and what matters to them changes.
So it's really more honing of our messaging that's at play. And we do that every few years because you just want to keep that up to date and keep that modern.
The next question comes from George Kelly with Imperial Capital. Please go ahead.
So few questions for you. 1st, on the technology side, you talked about the updates coming out this year. Can you remind us the timing of the biggest features and just when they're going start to roll through? And then when should we benefit from those technology enhancements? Are you baking anything into your 19 guidance or is it more of a kind of 3 year type story there?
Sure. So we are rolling out certain functions with regards to the new systems really over the next few months, but that's going to be predominantly behind the scenes. I know they're going to help us with our marketing and some of our customer journey tracking will certainly happen behind the scenes. The bulk of the forward facing elements of the IT transformation will take place in Q3 and Q4 of this year. Some such as certain features of the website will take place even in the Q1 of next year.
When you look at the benefits of, I would say, this rollout, the vast majority of it will not be in 2019. Actually, in 2019, to be frank, these investments will be negative just because the outflow of both cash on a capital perspective as well as an operating expense perspective will outweigh the positive benefits, but that will certainly reverse itself in force in 2020. And you'll see the majority of the benefit start really in the first half of twenty twenty, but really kick in, in the second half of twenty twenty and into 2021.
Okay. Got you. And then next on the bookings strength that you commented on record quarter, I think you said for the just level of bookings. Is there anything you can isolate that drove that? Was it any specific geography or anything?
And did you see that strength continue after the end of the quarter?
Yes. The booking curve, I would say, it's hard to pinpoint one item specifically for 2019. For 2020, certainly a significant piece of that increase is the new demand for the Endurance, while as Sven mentioned, maintaining the demand across the remainder of the fleet. So that's been a really, really good sign. The thesis always being as you add new inventory, being able to maintain what you have on the existing front and then just layering that on top is certainly the big growth engine of this company.
But when you look for travel in 2019, again, very broad based, whether it be Galapagos, whether it be Alaska, whether it be the Arctic, it's been very strong across the board. Interestingly enough, when you look at the bookings that we already have for 2019, we've already exceeded significantly the bookings we had for all of 2018. So this notion of adding
And so it sounds like that's continuing after the quarter too. I mean, you're
still Yes. Obviously, we're just talking about the month of April, but the month of April bookings were very, very strong year on year. We saw some nice growth overall, and we don't see any reason why it should slow down.
Great. And then last question from me. And I'm not exactly sure how to phrase this, but over the last year, year and a half, you're adding all these new customers. And what do you I guess all this new capacity that you've added and you're talking about booking strength, is it mostly a function of adding new people into the mix? Or is it that your repeat customers are coming back more frequently?
And I guess the big question for me is just as you add as more people are becoming interested in this type of travel, what kind of repeat dynamic? Do they look like your legacy customers? Do they come back as frequently? And can you talk at all just to that?
Yes. So sort of a broad answer, and then one can drill down a little bit. But the reality is, is we have a multitude of channels that we work. We have travel agent channel, we have charters, we have affinity organizations, we have National Geographic, we have past guests, and we have different mechanisms for attracting new guests. And they all sort of have a life of their own, if you will, and they're all monitored very carefully, obviously, knowing that we were going to expand our inventory, obviously, knowing that we were going to expand our inventory, we increased our activity in the channels that we felt were most productive.
And by and large, that has been very, very successful, some more than others. Obviously, they don't all behave exactly the same, but all of them actually have behaved pretty well, but some extraordinarily well in terms of their improvement as a consequence of relating the identifying the need and then activating the channels. And so it's kind of a complex matrix of activity because you just want to make sure, and I think I've stressed this before in some previous calls, you want to make absolutely sure that your machine, if you will, or your system for generating new guests is proportionate to your growth in inventory. The only thing that can really, really badly hurt companies in this business if those two things are out of balance. And so we're very cognizant of that in my entire life since I started this business, I was that was like an obsession.
Make sure that your marketing reach is ahead of your inventory, which is again why we've made some significant investments in that area this year because we want to take advantage of growing interest. We want to make sure we're very, very much out there so that we're top of mind and that we capture as much of market share as we possibly can as a consequence. So that's kind of an overview on marketing, if that's helpful. And if I haven't answered anything that you really need more than that, just let us know and I'll dig deeper.
That was great. Thanks.
There is no question at the moment. This concludes our question and answer session. I would like turn the conference back over to Craig Salenstein for any closing remarks.
Thank you very much for joining us today, everybody. We appreciate your time this morning. And if you have any additional follow-up questions, feel free to reach out to us here in New York at any time. Thanks.
Thank you.
The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.