LINDBLAD EXPEDITIONS HOLDINGS, INC. - Quarter Report: 2019 June (Form 10-Q)

 

  

 

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 June 30, 2019

 

☐ 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 Floor, New York, New York, 10014		(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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

 

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 July 31, 2019, 49,627,732 shares of common stock, par value $0.0001 per share, were issued and outstanding.

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LINDBLAD EXPEDITIONS HOLDINGS, IN

Quarterly Report On Form 10-Q

For The Quarter Ended June 30, 2019

 

Table of Contents

 

		Page(s)
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018	1
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	27
ITEM 1A.	Risk Factors	27
ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	28
ITEM 3.	Defaults Upon Senior Securities	28
ITEM 4.	Mine Safety Disclosures	28
ITEM 5.	Other Information	28
ITEM 6.	Exhibits	29
SIGNATURES		29

 

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		As of June 30, 2019				As of December 31, 2018
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 45,814,925 issued, 45,662,953 and 45,442,728 outstanding as of June 30, 2019 and December 31, 2018, respectively			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

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		For the three months ended June 30,								For the six months ended June 30,
		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

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		For the three months ended June 30,							For the six months ended June 30,
		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

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		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 compensation plans, net			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 compensation plans, net			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

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		For the six months ended June 30,
		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	)

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NOTE 1 – BUSINESS AND BASIS OF PRESENTATION

 

Business

 

Lindblad Expeditions Holdings, Inc. 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 eight owned expedition ships and 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.

 

Natural Habitat – Offers primarily land-based adventure travel expeditions around the globe, as well as select itineraries on small chartered vessels for parts of the year, with unique itineraries designed to offer intimate encounters with nature and our planet's wild destinations. Natural Habitat 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 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 (“U.S. 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 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, 2018 contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2019 (the “2018 Annual Report”).

 

The presentation of certain prior year items in the notes to the condensed consolidated financial statements of the Company have been reclassified to conform to the 2019 presentation. The reclassifications had no effect on previously reported results of operations or 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.

 

 

The Company 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 a lease, the Company 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 customers, determining that its right-to-use lease assets consisted primarily of office space operating leases. In determining the right-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 12-months or less. During the three 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 June 30, 2019, the Company’s remaining 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:

 

 

Accounting Pronouncements Recently Adopted

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) and in July 2018 issued 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 current and non-current 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. The Company adopted this guidance on January 1, 2019, as required, electing to apply retrospectively at the period of adoption with practical expedients. The adoption of this guidance had a material impact on the Company’s balance sheet by virtue of including the present value of its future operating lease payments as a liability of $6.2 million and related right-to-use lease assets as of January 1, 2019.

 

In August 2018, the FASB issued ASU 2018-13, Fair 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. The Company adopted this guidance on January 1, 2019, as required, and it did not have 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 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, 2019 and early adoption was permitted. The Company adopted this guidance on January 1, 2019, and it did not have a material impact on the 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 six months ended June 30, 2019 and 2018, the Company calculated earnings per share as follows:

 

 

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 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 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 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. 

 

 The change in contract liabilities within unearned passenger revenues presented in the Company's condensed consolidated balance sheets are as follows:

 

 

The following table disaggregates total revenues by revenue type:

 

 

 

 

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:

 

 

Prepaid expenses and other current assets consist of the following:

 

 

Accounts payable and accrued expenses consist of the following:

 

 

 

 

 

NOTE 5 – LONG-TERM DEBT

 

 

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.

 

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 Term Facility bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of 3.25%, for an aggregated rate of 5.648% as of June 30, 2019. Borrowings under the Revolving Facility may be used for general corporate and working capital purposes and related fees and expenses. As of June 30, 2019, the Company had no borrowings 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 include among others, net leverage ratios, limits on 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. 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 payables. 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.

 

In March 2019, the Company entered into foreign exchange forward contracts, designated as cash flow hedges, to hedge its exposure to Norwegian Kroner ("NOK"), related to the Company’s contract to purchase the new polar ice-class vessel (see Note 11 – Commitments and Contingencies). The cost of the foreign exchange forward contracts will be amortized to interest expense over their lives, from the effective date through settlement dates.

 

Interest Rate Risk. The Company uses interest rate caps, designated as cash flow hedges, to manage the risk related to its floating rate corporate debt.

 

The Company records the effective portion of changes in the fair value of its 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 (loss) will be recognized in earnings over the next 12 months due to maturity of the cash flow hedge and the hedged item. The Company will continue to assess the effectiveness of the hedges on an ongoing basis.

 

The Company held the following derivative instruments with absolute notional values as of June 30, 2019:

 

 

 

 

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

 

_________

(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.

 

Changes in the fair value of the 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.

 

The effects of derivatives recognized in the Company’s condensed consolidated financial statements were as follows:

 

__________

(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.

 

Fair Value Measurements

 

The carrying amounts 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 market as of June 30, 2019. As of June 30, 2019 and December 31, 2018, the Company had no other significant liabilities that were measured at fair value on a recurring basis.

 

 

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

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 three and six months ended June 30, 2019, the Company repurchased 1,895 shares of common stock for approximately $23,000. The Company has cumulatively repurchased 866,701 shares of common stock for $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 June 30, 2019.

 

Warrants

 

During the six months ended June 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 105,406 restricted stock units ("RSUs") with a weighted average grant price of $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 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 may be earned based on the 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. The number of shares were determined based upon the closing price of the Company's common stock on the date of the award.

 

NOTE 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 three and six months ended June 30, 2019 and 2018, interest 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 benefit of 18.7% and an expense of 4.5%, respectively.

 

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 (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 11 – COMMITMENTS AND CONTINGENCIES

 

Fleet Expansion

 

In 2017, the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel, the National Geographic Endurance, with a total purchase price of 1,066.0 million 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, 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 agreement with the remaining eighty percent due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in January 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 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 nights. Royalty expense was $1.8 million and $3.3 million, for the three and six months ended June 30, 2019, respectively, and $1.3 million and $2.1 million, for the three and six months ended June 30, 2018, respectively.

 

The royalty balance outstanding to National Geographic as of June 30, 2019 and December 31, 2018 was $1.4 million and $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 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 income. This royalty fee expense was $0.2 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 June 30, 2019 are as follows:

 

 

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 12 – 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 six months ended June 30, 2019 and 2018, operating results were as follows:

 

 

Depreciation and amortization are included in segment operating income as shown below:

 

 

The following table presents the total assets, intangibles, net and goodwill by segment:

 

 

For the three and six months ended June 30, 2019 there were $0.7 million and $2.5 million in intercompany tour revenues between the Lindblad and Natural Habitat segments eliminated in consolidation, respectively. For the three and six months ended June 30, 2018 there were $0.4 million and $1.4 million in intercompany tour revenues between the Lindblad and Natural Habitat segments eliminated in 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.

 

 

 

 

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