LINDBLAD EXPEDITIONS HOLDINGS, INC. - Quarter Report: 2021 March (Form 10-Q)

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

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

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)

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

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)

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

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(unaudited)

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

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

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

Lindblad Expeditions Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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 nine owned expedition ships and five seasonal charter vessels under the Lindblad brand, operates land-based eco-conscious expeditions and active nature focused tours under the Natural Habitat, Inc. (“Natural Habitat”) and Off the Beaten Path, LLC (“Off the Beaten Path”) brands and operates luxury cycling and adventure tours under the DuVine Cycling + Adventure Company (“DuVine”) brand.

The Company operates the following two reportable business segments:

Lindblad Segment.  The Lindblad segment consists primarily of ship-based expeditions aboard customized, nimble and intimately-scaled vessels that are able to venture where larger cruise ships cannot, thereby 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.

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

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information and include the accounts and transactions of the Company. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial statements for the periods presented. Operating results for the periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonality and other factors. Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with 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, 2020 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2021 (the “2020 Annual Report”).

There have been no significant changes to the Company’s accounting policies from those disclosed in the 2020 Annual Report.

COVID-19 Business Update

Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, the Company has suspended or rescheduled the majority of its expeditions and trips departing March 16, 2020 through May 31, 2021 and has been working with guests to reschedule travel plans and refund payments, as applicable. The Company has announced plans to resume ship operations beginning June 2021 with expeditions to Alaska and the Galapagos and is working with local health authorities on plans to operate in additional geographies during the second half of the year. As the Company’s ships are currently not in operations, the majority of the fleet is being maintained with minimally required crew on-board to ensure they comply with all necessary regulations and can be fully put back into service quickly as needed. For those ships that are preparing to resume sailing, we have begun to increase crew levels as needed. In accordance with local regulations, the Company offices are closed, and most employees are working remotely to maintain general business operations, to provide assistance to existing and potential guests and to maintain information technology systems.

The Company continues to adhere to the comprehensive plan it implemented in March 2020 to mitigate the impact of COVID-19 and preserve and enhance its liquidity position. This plan employs a variety of cost reduction and cash preservation measures including significantly reducing ship and land-based expedition costs such as capital expenditures, crew payroll, land costs, fuel and food, and meaningfully reducing general and administrative expenses through reduced payroll and the elimination of all non-essential travel, office expenses and discretionary spending. The Company has also accessed available capital under existing debt facilities and through the issuance of preferred stock, while continuing to explore additional sources of capital and liquidity.

Return to Fleet Operations

The Company has announced plans to resume operations with vaccinated guests in Alaska and the Galapagos in  June 2021 and is working with local health authorities on plans to operate in additional geographies during the second half of the year. The Company believes there are a variety of strategic advantages that enable it to deploy its ships safely and quickly as travel restrictions are lifted. The most notable is the size of its owned and operated vessels which range from 48 to 148 passengers, allowing for a highly controlled environment that includes stringent cleaning protocols. The small nature of the Company’s ships should also allow it to efficiently and effectively test its guests and crew prior to boarding. Additionally, the majority of expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence.

Balance Sheet and Liquidity

As of March 31, 2021, the Company had $163.9 million in unrestricted cash and $22.4 million in restricted cash primarily related to deposits on future travel originating from U.S. ports. As of March 31, 2021, the Company had a total debt position of $498.4 million and was in compliance with all of its debt covenants. Following the quarter, in April 2021, the Company drew down an additional $15.5 million under its second senior secured credit agreement in conjunction with its fourth installment payment on the National Geographic Resolution, scheduled for delivery in the fourth quarter of 2021. 

During the last twelve months, the Company has taken a variety of steps to strengthen its balance sheet and increase liquidity including:

During April 2020, the Company drew down $30.6 million under its second export credit agreement in conjunction with its third installment payment on the National Geographic Resolution. 

During May 2020, the Company amended its $2.5 million promissory note, changing the maturity date of the principal payments to be due in three equal installments, with the first payment due on December 22, 2020, the second due on December 22, 2021 and the final payment due on December 22, 2022.

During June 2020, the Company amended its export credit agreements to defer approximately $9.0 million in aggregate scheduled amortization payments from June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021.

During August 2020, the Company amended its term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the term loan was increased by 125bps, to be paid-in-kind at maturity, a LIBOR floor of 75bps has been added to the term loan and certain covenants have been amended to be more restrictive.

During  August 2020, the Company raised $85.0 million in gross proceeds through the private placement issuance of Redeemable Convertible Series A Preferred Stock that carries a 6% annual dividend, which is payable in kind for two years and, thereafter, in cash or in-kind at the Company’s option. The preferred stock is convertible into shares of Lindblad common stock at a conversion price of $9.50 per share, representing a premium of 23% to Lindblad’s 30-day trading volume weighted average price on the date of issuance.

During December 2020, the Company amended its term loan and revolving credit facilities and borrowed an incremental $85.0 million under the amended term loan facility through the Main Street Expanded Loan Facility program established by the Board of Governors of the Federal Reserve System. The incremental borrowing carries an interest rate of LIBOR plus 3.0%, without any LIBOR floor, and matures December 2025 with no early payment restrictions. 

The Company estimates its current monthly cash usage to be approximately $10-15 million, including ship and office operating expenses, necessary capital expenditures and interest and principal payments. This excludes guest payments for future travel and cash refunds requested on previously made guest payments. As the Company implements plans to resume operations, the monthly cash usage will increase as it incurs costs in preparation for returning ships to service, spends to market and advertise upcoming expeditions and reinstates furloughed and part-time office staff as needed. The Company also anticipates a significant increase in guest payments as it receives final payments for upcoming expeditions as well as deposits for new reservations for future travel. 

The Company has not previously experienced a complete cessation of its operations and, as a consequence, its ability to predict the impact of such cessation on its costs and future prospects is limited. Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of the COVID-19 pandemic on its financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be lifted and what the demand for expedition travel will be once these restrictions are no longer in place. The estimates for monthly cash usage reflect the Company’s current forecast for operating costs, capital expenditures and expected debt and interest payments. Based on the actions taken to date by the Company, its planned and anticipated actions and its current forecast, the Company believes that it can meet its obligations for the next 12 months from April 30, 2021, the date of this Quarterly Report on Form 10-Q. 

Valuation of Goodwill and Trademarks

The effects of the COVID-19 pandemic on the Company’s expected future operating cash flows was an indicator of potential impairment. As a result, the Company performed an analysis of its reporting units’ goodwill for potential impairment as of March 31, 2021. Based on this analysis, there was no impairment of goodwill.

Valuation of Long-lived Assets

The effects of COVID-19 on the Company’s expected future operating cash flows was a potential indicator that the carrying value of the Company's long-lived assets may not be recoverable. As a result, the Company performed an undiscounted cash flow analyses of its long-lived assets for potential impairment as of March 31, 2021. Based on this analysis, there was no impairment to the Company's long-lived assets.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. The amendments of this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company adopted this ASU as required, and it has not had, nor is it expected to have, a material impact to the Company’s financial statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance of this ASU is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company is currently reviewing its agreements impacted by the reference rate reform and does not expect this ASU to have a material impact to the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt–Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this ASU address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock, and address convertible instruments with conversion features, as well as other items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, early adoption is permitted for fiscal years beginning after December 15, 2020, and must be adopted at the beginning of an entities’ fiscal year. The Company will adopt this ASU as required and does not expect it to have a material impact to the Company’s financial statements.

NOTE 2 — EARNINGS PER SHARE

Earnings per Common Share

Earnings (loss) per common share is computed using the two-class method related to its Preferred Stock. Under the two-class method, undistributed earnings available to stockholders for the period are allocated on a pro rata basis to the common stockholders and to the holders of convertible preferred shares based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion of the Preferred Stock. Diluted earnings per share is computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the dilutive incremental common shares associated with restricted stock awards, shares issuable upon the exercise of stock options and previously outstanding warrants, using the treasury stock method, and the potential common shares that could be issued from conversion of the Preferred Stock, using the if-converted method. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted earnings per share calculation.

For the three months ended March 31, 2021 and 2020, the Company incurred a net loss from operations, therefore basic and diluted net loss per share are the same for the periods. As of March 31, 2021, 0.9 million restricted shares, 0.5 million options and 9.3 million common shares issuable upon the conversion of the Preferred Stock were excluded from dilutive potential common shares for the period as they were anti-dilutive and basic and diluted net loss per share are the same for the period. As of March 31, 2020, 0.5 million restricted shares and 0.2 million options were excluded from dilutive potential common shares for the period as they were anti-dilutive.

For the three months ended March 31, 2021 and 2020, the Company calculated earnings (loss) per share as follows:

NOTE 3 — REVENUES

Customer Deposits and Contract Liabilities

The Company’s guests remit deposits in advance of tour embarkation. Guest deposits consist of guest ticket revenues as well as revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the condensed consolidated balance sheets when received and are subsequently recognized as tour revenue over the duration of the trip. Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. The Company does not consider guest deposits to be a contract liability until the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. The change in contract liabilities within unearned passenger revenues presented in our condensed consolidated balance sheets are as follows:

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

NOTE 4 — FINANCIAL STATEMENT DETAILS

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

Restricted cash consist of the following:

The Company’s prepaid expenses and other current assets consist of the following:

The Company’s accounts payable and accrued expenses consist of the following:

Loan Receivable

The Company’s loan receivable is recorded at amortized cost within other long-term assets. The following is a rollforward of the receivable balance:

NOTE 5 — LONG-TERM DEBT

For the three months ended March 31, 2021 and 2020, deferred financing costs charged to interest expense were $0.7 million and $0.5 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 term facility (the “Term Facility”), maturing March 2025, and a $45.0 million senior secured revolving credit facility (the “Revolving Facility”) maturing March 2023, which includes a $5.0 million letter of credit sub-facility. In March 2020, the Company drew $45.0 million against the Revolving Facility as a reserve for general corporate purposes and other expense needs due to the uncertainty related to the COVID-19 pandemic.

In August 2020, the Company amended the Amended Credit Agreement to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the Term Facility was increased 125 basis points, to be paid-in-kind at maturity, a LIBOR minimum of 0.75% was added to the Term Facility and certain covenants were amended to be more restrictive. 

In December 2020, the Company amended the Amended Credit Agreement to provide for the borrowing of a new tranche of incremental term loans under the Amended Credit Agreement in an amount of $85.0 million, maturing December 2025, made under the Main Street Expanded Loan Facility (the “Main Street Loan”). Interest on the Main Street Loan shall be paid-in-kind for the first year and the principal shall amortize at a rate of 15% in each of the third and fourth years, with the remaining amounts to be paid at maturity. The Company may voluntarily prepay the Main Street Loan at any time and from time to time, without premium or penalty, other than customary “breakage costs” and fees for LIBOR-based loans.

The Term Facility, as amended, bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR with a minimum of 0.75%, plus a spread of 4.75%, for an aggregated rate of 5.50% as of December 31, 2020. 125 basis points of the spread are to be paid-in-kind at maturity. Borrowings under the Revolving Facility as amended, bears interest at an adjusted ICE Benchmark administration LIBOR, plus a spread of 3.00%, for an aggregated rate of 3.12% as of March 31, 2020. The Main Street Loan bears interest at a rate per annum adjusted ICE Benchmark administration LIBOR for an interest period of 3-months plus 3.00%, for an aggregated rate of 3.20% as of March 31, 2021. 

Senior Secured Credit Agreement

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. During March 2020, the Company took possession of the National Geographic Endurance and borrowed $107.7 million under the Export Credit Agreement for final payment. The Export Credit Agreement bears interest at a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, for an aggregated rate of 3.18% as of March 31, 2021. 

In April 2019, the Company entered into a senior secured credit agreement (the “Second Export Credit Agreement”) with Citibank, N.A., London Branch and Eksportkreditt Norge AS, 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, the National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021. In September 2019,  April 2020 and April 2021, the Company drew approximately $30.5 million, $30.6 million and $15.5 million, respectively, against the Second Export Credit Agreement for contracted installment payments on the National Geographic Resolution. The Second Export Credit Agreement bears a variable interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, or 3.19% as of March 31, 2021. After completion of the vessel, the Second Export Credit Agreement, at the Company’s option, will bear an interest rate 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.

In  June 2020, the Company amended its export credit agreements to defer approximately $9.0 million in aggregate scheduled amortization payments originally due June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021.

Notes Payable

In connection with the Natural Habitat acquisition in May 2016, Natural Habitat issued a $2.5 million unsecured promissory note, amended in May 2020, to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $1.7 million as of March 31, 2021. The promissory note accrues interest at a rate of 1.44% annually, with interest payable every six months and the remaining principal payments to be due in equal installments on December 22, 2021 and 2022. 

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 March 31, 2021, the net leverage ratio covenant of the Company’s Amended Credit Agreement has been waived through June 2021. The Company was in compliance with its covenants in effect as of March 31, 2021.

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, the South African Rand, the Euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge.

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 12 — 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 period ended March 31, 2021. The Company estimates that approximately $1.8 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 March 31, 2021:

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

Changes in the fair value of the Company’s hedging instruments are recorded in accumulated other comprehensive income, 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:

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 agreements were comparable to the market as of March 31, 2021. As of March 31, 2021 and December 31, 2020, 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 previously outstanding warrants. Any shares 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. In March 2020, the Repurchase Plan was suspended due to the uncertain impact of the COVID-19 pandemic and our borrowings through the Main Street Expanded Loan Facility program places restrictions on stock repurchases. The Company has cumulatively repurchased 875,218 shares of common stock for $8.3 million and 6,011,926 warrants for $14.7 million, since plan inception. The remaining balance for the Repurchase Plan was $12.0 million as of March 31, 2021.

Preferred Stock

On August 31, 2020, the Company issued and sold 85,000 shares of Series A Redeemable Convertible Preferred Stock, par value of $0.0001, (“Preferred Stock”) for $1,000 per share for gross proceeds of $85.0 million. The Preferred Stock has senior and preferential ranking to the Company’s common stock. The Preferred Stock is entitled to cumulative dividends of 6.00% per annum, and for the first two years, the dividends will be paid-in-kind. After the second anniversary of the issuance date, the dividends may be paid-in-kind or be paid in cash at the Company’s option. The Preferred Stock is convertible at any time, at the holder’s election, into a number of shares of common stock of the Company equal to the quotient obtained by dividing the then-current accrued value by the conversion price of $9.50. At any time after the third anniversary of the issuance, the Company may, at its option, convert all, but not less than all, of the Preferred Stock into common stock if the closing price of shares of common stock is at least 150% of the conversion price for 20 out of 30 consecutive trading days. The number of shares of common stock received in such conversion shall be equal to the quotient obtained by dividing the then-current accrued value by the conversion price. At the six-year anniversary of the closing date, each investor has the right to require the Company to repurchase their Preferred Stock and any Preferred Stock not requested to be repurchased shall be converted into common shares of the Company equal to the quotient obtained by dividing the then-current accrued value by the conversion price. The Preferred Stock deferred issuance costs was approximately $2.9 million as of March 31, 2021.

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 March 31, 2021, approximately 0.1 million shares were available to be granted. The Company has proposed a new long-term incentive plan for approval at the 2021 annual meeting. 

As of March 31, 2021 and December 31, 2020, options to purchase an aggregate of 510,000 shares of the Company’s common stock, with a weighted average exercise price of $10.30, were outstanding. As of March 31, 2021, 200,000 options were exercisable.

The Company recorded stock-based compensation expense of $1.6 million and $0.9 million during the three months ended  March 31, 2021 and 2020, respectively.

2021 Long-Term Incentive Compensation

During the three months ended March 31, 2021, the Company granted 109,921 restricted stock units ("RSUs") with a weighted average grant price of $18.74. The RSUs will primarily vest equally over three years on the anniversary of the grant date, subject to the recipient’s continued employment or service with the Company on the applicable vesting date. The number of shares were determined based upon the closing price of our common stock on the date of the award.

During the three months ended March 31, 2021, the Company awarded 50,072 market performance share units (“MSUs”) with a weighted average grant price of $18.90. The MSUs are market-based equity incentive awards based on a performance-multiplier of change in the stock price of the Company’s common stock between the grant date and March 31, 2024. The number of shares that will eventually be earned and vest may be more or less then the number of MSUs that are awarded, depending on the Company's common stock price, at a level ranging from 0% to 150%. The number of MSUs earned shall be determined and shall vest on March 31, 2024.

Natural Habitat Contingent Arrangement

In connection with the acquisition of Natural Habitat, Mr. Bressler, the founder of Natural Habitat, has an equity incentive opportunity to earn an award of options based on the future financial performance of Natural Habitat, where if the Final Year Equity Value of Natural Habitat, as defined in Mr. Bressler's amended employment agreement, exceeds $25 million, effective as of December 31, 2023, Mr. Bressler will be granted options with a fair value equal to 10.1% of such excess, subject to certain conditions.

Other

Mr. Lawrence, President of Off the Beaten Path, was issued 1,007 profit interest units in the equity of Off the Beaten Path as part of the overall acquisition structure. The profit interest units had a $132.86 per share grant date fair value and are considered vested upon issuance. The Company recorded $0.1 million in stock-based compensation expense related to the value of these profit units for the three months ended March 31, 2021.

NOTE 9 — RELATED PARTY TRANSACTIONS

In May 2016, in connection with the Company's acquisition of Natural Habitat, Natural Habitat issued an unsecured promissory note, amended May 2020, to Mr. Bressler, the founder of Natural Habitat. See Note 5 — Long-term Debt for more information.

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 our foreign and U.S. companies to determine the appropriate level of valuation allowances.

The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of FASB’s authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a 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 March 31, 2021, and December 31, 2020, the Company had a liability for unrecognized tax benefits of $0.0 million. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. During the three months ended March 31, 2021 and 2020, interest and penalties related to uncertain tax positions included in income tax expense are not significant. The Company's effective tax rate for the three months ended March 31, 2021 was a benefit of 7.6% versus a benefit of 42.5% for the three months ended March 31, 2020, primarily due to the timing of losses in the first quarter and the expected amount of income for the full year 2021 as compared to 2020 due to the impact of the COVID-19 pandemic on the Company's operations.

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.

NOTE 11 — ACQUISITIONS

To further expand the Company’s land-based experiential travel offerings and increase its addressable market, on February 1, 2021, the Company acquired, through its Natural Habitat subsidiary, 90.1% of the outstanding common stock of Off the Beaten Path, LLC, a land-based travel operator specializing in authentic national park experiences, and on March 3, 2021, acquired 70% of the outstanding common stock of DuVine Cycling + Adventure LLC, an international luxury cycling and adventure company focused on exceptional food and wine experiences. 

The acquisitions had an aggregate purchase price of $10.6 million, including $1.8 million in Company stock at closing. The acquisitions were accounted for under purchase accounting and are included in our consolidated results from the acquisition dates. Acquisition related cost were approximately $0.4 million and are included in general and administrative expenses in the condensed consolidated statements of operations for the three months ended March 31, 2021. The financial results of the acquired businesses are immaterial to the Company's financial statements individually or in aggregate. The purchase accounting valuations for the acquisitions are ongoing and have not been completed as of this report date and is subject to change as third-party valuations are finalized. The Company recorded approximately $6.5 million in intangible assets related to tradenames and customer lists and approximately $11.5 million in goodwill related to these acquisitions. The revenue and operating income contributed by the acquisitions during the three months ended March 31, 2021 were immaterial. Following are the pro forma revenue and net loss available to stockholders for the three months ended March 31, 2021 and 2020, had the Company had completed the acquisitions on January 1, 2020. 

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Fleet Expansion

In February 2019, the Company entered into an agreement, which was amended in December 2019, with Ulstein Verft, to construct a second polar ice class vessel, the National Geographic Resolution, 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. In 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. The purchase price is due in installments, with 20% paid shortly after execution of the agreement, 20% paid in September 2019, 20% paid in April 2020 and 10% paid in April 2021. The final 30% is due upon delivery and acceptance of the vessel. In December 2019, the Company and Ulstein Verft amended the National Geographic Resolution construction agreement, providing for an expedited delivery schedule for the vessel and a loan agreement for which all or a portion may be considered as a delivery bonus and forgiven, as determined by the expedited delivery schedule per the agreement. The vessel is scheduled to be delivered in the fourth quarter of 2021. 

Redeemable Non-Controlling Interest  

Mr. Bressler, founder of Natural Habitat, retains a 19.9% noncontrolling interest in Natural Habitat, which is subject to a put/call arrangement, amended in May 2020. The arrangement between the Company and Mr. Bressler was established in order to provide a formal exit opportunity for Mr. Bressler and a path to 100% ownership for the Company. Mr. Bressler has a put option that under certain conditions, and subject to providing notice by January 31, 2024, that enables him, but does not obligate him, to sell his remaining interest in Natural Habitat to the Company, valued as of December 31, 2023. The Company has a call option, but not an obligation, with an expiration of March 31, 2029, under which it can buy Mr. Bressler’s remaining interest at a similar fair value measure as Mr. Bressler’s put option, subject to a call purchase price minimum.

Mr. Lawrence, in a combination of his minority interest and profit interest units, retains a 19.9% noncontrolling interest in Off the Beaten Path, which is subject to a put/call arrangement. The arrangement between the Company and Mr. Lawrence was established in order to provide a formal exit opportunity for Mr. Lawrence and a path to 100% ownership for the Company. Mr. Lawrence has a put option, that under certain conditions and subject to providing notice by October 31, 2025, that enables him, but does not obligate him, to sell his remaining interest in Off the Beaten Path to the Company on December 31, 2025. The Company has a call option, but not an obligation, with an expiration of December 31, 2030, under which it can buy Mr. Lawrence’s remaining interest at a similar fair value measure as Mr. Lawrence’s put option.

Mr. Levine, founder of DuVine, retains a 30% noncontrolling interest in DuVine, which is subject to a put/call arrangement. The arrangement between the Company and Mr. Levine was established in order to provide a formal exit opportunity for Mr. Levine and a path to 100% ownership for the Company. Mr. Levine has a put option, that under certain conditions and subject to providing notice by January 31, 2026, that enables him, but does not obligate him, to sell his remaining interest in DuVine to the Company as of December 31, 2025. The Company has call options, but not an obligation, with a first call option to on or after December 31, 2023, expiring December 31, 2025, to acquire an additional 10% of DuVine from Mr. Levine, and a second call option with an expiration of December 31, 2030, under which it can buy Mr. Levine’s remaining interest at a similar fair value measure as Mr. Levine’s put option, subject to a call purchase price minimum.

Since the redemption of the noncontrolling interests are not solely in the Company’s control, the Company is required to record the redeemable noncontrolling interest outside of stockholders’ equity but after its total liabilities. In addition, if it is probable that the instrument will become redeemable, as such solely due to the passage of time, the redeemable noncontrollable interest should be adjusted to the redemption value via one of two measurement methods. The Company elected the income classification-excess adjustment and accretion methods for recognizing changes in the redemption value of the put options. Under this methodology, a calculation of the present value of the redemption value is compared to the carrying value of the redeemable noncontrolling interest and the carrying value of the redeemable noncontrolling interest is adjusted to the redemption value’s present value. Any adjustments to the carrying value of the redeemable noncontrolling interest, up to the fair value of the noncontrolling interest, are classified to retained earnings. Adjustments in excess of the fair value of the noncontrolling interest, are treated as a decrease to net income available to common stockholders.

The fair value of the put options were determined using a discounted cash flow model. The redemption values were adjusted to their present value using the Company’s weighted average cost of capital.

The following is a rollforward of redeemable non-controlling interest:

Royalty Agreement – National Geographic

The Company is party to an alliance and license agreement with National Geographic, which allows the Company to use the National Geographic name and logo. In return for these rights, the Company is charged a royalty fee. The royalty fee is included within selling and marketing expense on the accompanying condensed consolidated statements of operations. 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. Royalty expense for the three months ended March 31, 2021 and 2020 was $0.0 million and $1.2 million, respectively.

The royalty balances payable to National Geographic as of March 31, 2021 and December 31, 2020 were each $0.0 million. If there were any royalty balances they would have been 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 operations. This royalty fee expense was $0.0 million and $0.2 million for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 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 13 — SEGMENT INFORMATION

The Company is primarily a specialty cruise and experiential travel operator with operations in two segments, Lindblad and Land Experiences. 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 months ended March 31, 2021 and 2020, operating results were as follows:

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

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

For the three months Ended March 31, 2021 and 2020 there were $0.0 million and $2.2 million in intercompany tour revenues between the Lindblad and Land Experiences segments eliminated in consolidation, respectively.

NOTE 14 — SUBSEQUENT EVENT

On April 1, 2021, the Company drew down an additional $15.5 million under its Second Export Credit Agreement in conjunction with its fourth installment payment on the National Geographic Resolution, scheduled for delivery in the fourth quarter of 2021.

 On April 26, 2021, the Company amended its Amended Credit Agreement to, among other things, extend the waiver of its total net leverage ratio covenant through March 31, 2022, adjust the annualized EBITDA used in its covenant calculation through December 31, 2022 and increase the interest rate spreads of the Term Facility, excluding the Main Street Loan, and the Revolving Facility by 50bps, such additional interest to be paid in cash. Certain other covenants under the Amended Credit Agreement continue to be more restrictive during the extended covenant waiver period.

The following discussion and analysis addresses material changes in the financial condition and results of operations of the Company for the periods presented. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 12, 2021.

Cautionary Note Regarding Forward-Looking Statements

Any statements in this Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to:

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.

Unless the context otherwise requires, in this Form 10-Q, “Company,” “Lindblad,” “we,” “us,” “our,” and “ours” refer to Lindblad Expeditions Holdings, Inc., and its subsidiaries.

Business Overview

We provide expedition cruising, land-based adventure travel and cycling touring experiences, using itineraries that feature up-close encounters with wildlife, nature, history and culture, and promote guest empowerment, human connections and interactivity. Our mission is offering life-changing adventures around the world and pioneering innovative ways to allow our guests to connect with exotic and remote places. 

We currently operate a fleet of nine owned expedition ships and have contracted for a new polar ice class vessel, the National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021, and operate five seasonal charter vessels under the Lindblad Expeditions Holdings, Inc. (“Lindblad”) brand. Our voyages include destinations such as the Arctic, Antarctic, the Galápagos, Alaska and Baja's Sea of Cortez. We have a longstanding relationship with the National Geographic Society dating back to 2004, which is based on a shared interest in exploration, research, technology and conservation. This relationship includes a co-selling, co-marketing and branding arrangement with National Geographic Partners, LLC (“National Geographic”), whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions through its internal travel division. We collaborate with National Geographic on voyage planning to enhance the guest experience by having National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, join our expeditions. Guests have the ability to interface with these experts through lectures, excursions, dining and other experiences throughout their voyage. We deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximized yields. We use our charter inventory as a mechanism to both increase travel options of our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs.

We operate land-based nature adventure travel expeditions around the globe, with unique itineraries designed to offer intimate encounters with nature and the planet's wild destinations and the animals and people who live there.

Natural Habitat, Inc. (“Natural Habitat”) creates opportunities for adventure and discovery that transform lives with eco-conscious expeditions and nature-focused, small-group tours 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. 

DuVine Cycling + Adventure Company (“DuVine”) provides international cycling adventures and unforgettable travel experiences, connecting with local character and culture on small, intimate group cycling tours around the world with cycling experts as guides, immersion in local cuisine, accommodations and history. Cycling tours include in the United States, from cycling beneath the shadow of majestic California redwoods to pedaling through farmland on a Vermont bike tour, wine tastings in the world-class vineyards of Napa and Sonoma or farm-to-table renaissance dining, cycling through exotic Costa Rican rainforests, the rocky coasts of Ireland, deep in the vineyards of Spain, or high in the Swiss Alps, exploring the roads of ancient cities and trek the Atlas desert by camel, to bamboo forests and Buddhist temples or pedaling past tea plantations in Kyoto.

Off the Beaten Path, LLC (“Off the Beaten Path”) provides small group travel, led by local, experienced guides, with distinct focus on wildlife, hiking national parks and culture, to change people's lives through exceptional travel. Off the Beaten Path is known for providing distinctive insider national park experiences in the Rocky Mountains, Desert Southwest, and Alaska, and includes unique trips across Europe, Africa, Australia, Central and South America and the South Pacific, for connecting the heart of the traveler with the soul of the place.

The Company operates two segments including the Lindblad segment, which consists of the operations of our Lindblad brand, and the Land Experiences segment, consisting of our Natural Habitat, DuVine and Off the Beaten Path brands.

First Quarter Highlights

During the first quarter of 2021, we completed the acquisitions of Off the Beaten Path, a land-based travel operator specializing in authentic national park experiences, and DuVine, an international luxury cycling and adventure company focused on exceptional food and wine experiences.

COVID-19 Business Update

Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, we have suspended or rescheduled the majority of Lindblad’s expeditions and trips departing March 16, 2020 through May 31, 2021 and have been working with guests to reschedule travel plans and refund payments, as applicable. We have announced plans to resume ship operations beginning June 2021 with expeditions to Alaska and the Galapagos and are working with local health authorities on plans to operate in additional geographies during the second half of the year. As our ships are currently not in operations, the majority of our fleet is being maintained with minimally required crew on-board to ensure they comply with all necessary regulations and can be fully put back into service quickly as needed. For those ships that are preparing to resume sailing, we have begun to increase crew levels as needed. In accordance with local regulations, our offices are closed, and most employees are working remotely to maintain general business operations, to provide assistance to existing and potential guests and to maintain information technology systems.

We continue to adhere to the comprehensive plan we implemented in March 2020 to mitigate the impact of COVID-19 and preserve and enhance our liquidity position.  This plan employs a variety of cost reduction and cash preservation measures including significantly reducing ship and land-based expedition costs such as capital expenditures, crew payroll, land costs, fuel and food, and meaningfully reducing general and administrative expenses through reduced payroll and the elimination of all non-essential travel, office expenses and discretionary spending. We have also accessed available capital under existing debt facilities and through the issuance of preferred stock, while continuing to explore additional sources of capital and liquidity.

Return to Fleet Operations

We have announced plans to resume operations with vaccinated guests in Alaska and the Galapagos in June 2021 and are working with local health authorities on plans to operate in additional geographies during the second half of the year. We believe there are a variety of strategic advantages that enable us to deploy our ships safely and quickly as travel restrictions are lifted. The most notable is the size of our owned and operated vessels which range from 48 to 148 passengers, allowing for a highly controlled environment that includes stringent cleaning protocols. The small nature of our ships should also allow us to efficiently and effectively test our guests and crew prior to boarding. Additionally, the majority of our expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence. Lastly, our guests are explorers by nature, eager to travel and have historically been very resilient following periods of uncertainty. 

Bookings Trends

We have experienced a substantial impact from the COVID-19 virus including elevated cancellations and softness in near-term demand. Despite the COVID-19 impact, we still have substantial advanced reservations for future travel. Bookings for the full year 2022 are 39% ahead of the bookings for 2021 as of the same date a year ago and 32% ahead of the bookings for 2020 as of the same date two years ago. We continue to see new bookings for future travel including over $92.0 million since the beginning of 2021 and are receiving significant deposits and final payments for future travel.

For 2021 voyages that have been cancelled or rescheduled, we are offering future travel credits with incremental value or full refunds to our fully paid guests. As of April 24, 2021, the majority of guests have opted for future travel credits.   

Balance Sheet and Liquidity

As of March 31, 2021, we had $163.9 million in unrestricted cash and $22.4 million in restricted cash primarily related to deposits on future travel originating from U.S. ports. As of March 31, 2021, we had a total debt position of $498.4 million and were in compliance with all of our debt covenants. Following the quarter, in April 2021, we drew down an additional $15.5 million under our second senior secured credit agreement in conjunction with the fourth installment payment on the National Geographic Resolution, scheduled for delivery in the fourth quarter of 2021.  

During the last twelve months, we have taken a variety of steps to strengthen our balance sheet and increase liquidity including:

During April 2020, we drew down $30.6 million under our second export credit agreement in conjunction with our third installment payment on the National Geographic Resolution. 

During May 2020, we amended our $2.5 million promissory note, changing the maturity date of the principal payments to be due in three equal installments, with the first payment due on December 22, 2020, the second due on December 22, 2021 and the final payment due on December 22, 2022.

During June 2020, we amended our export credit agreements to defer approximately $9.0 million in aggregate scheduled amortization payments from June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021.

During August 2020, we amended our term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the term loan has been increased by 125bps, to be paid-in-kind at maturity, a LIBOR floor of 75bps has been added to the term loan facility and certain covenants were amended to be more restrictive.

During August 2020, we raised $85.0 million in gross proceeds through the private placement issuance of Redeemable Convertible Series A Preferred Stock that carries a 6% annual dividend, which is payable in kind for two years and, thereafter, in cash or in-kind at our option. The preferred stock is convertible into shares of Lindblad common stock at a conversion price of $9.50 per share, representing a premium of 23% to Lindblad’s 30-day trading volume weighted average price on the date of issuance.

During December 2020, we amended our term loan and revolving credit facilities and borrowed an incremental $85.0 million under the amended term loan facility through the Main Street Expanded Loan Facility program established by the Board of Governors of the Federal Reserve System. The incremental borrowing carries an interest rate of LIBOR plus 3.0%, without any LIBOR floor, and matures December 2025 with no early payment restrictions. 

We estimate our current monthly cash usage to be approximately $10-15 million, including ship and office operating expenses, necessary capital expenditures and interest and principal payments. This excludes guest payments for future travel and cash refunds requested on previously made guest payments. As we implement plans to resume operations, the monthly cash usage will increase as we incur costs in preparation for returning ships to service, spends to market and advertise upcoming expeditions and reinstates furloughed and part-time office staff as needed. We also anticipate a significant increase in guest payments as we receive final payments for upcoming expeditions as well as deposits for new reservations for future travel. 

We have not previously experienced a complete cessation of our operations and, as a consequence, our ability to predict the impact of such cessation on our costs and future prospects is limited. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be lifted and what the demand for expedition travel will be once these restrictions are no longer in place. Our estimates for monthly cash usage reflect our current forecast for operating costs, capital expenditures and expected debt and interest payments. Based on the actions we have taken to date, our planned and anticipated actions and our current forecast, we believe that we can meet our obligations for the next 12 months from April 30, 2021, the date of this Quarterly Report on Form 10-Q.

The discussion and analysis of our results of operations and financial condition are organized as follows:

Financial Presentation

Description of Certain Line Items

Tour revenues

Tour revenues consist of the following:

Cost of tours

Cost of tours includes the following:

Selling and marketing

Selling and marketing expenses include commissions, royalties and a broad range of advertising and promotional expenses.

General and administrative

General and administrative expenses include the cost of shoreside vessel support, reservations and other administrative functions, including salaries and related benefits, credit card commissions, professional fees and rent.

Operational and Financial Metrics

We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, Net Yields, Occupancy and Net Cruise Costs, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in the cruise and tourism industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess revenue and cost performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry.

The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and the related notes thereto also included within.

Adjusted EBITDA is net income (loss) excluding depreciation and amortization, net interest expense, other income (expense), income tax (expense) benefit, (gain) loss on foreign currency, (gain) loss on transfer of assets, reorganization costs, and other supplemental adjustments. Other supplemental adjustments include certain non-operating items such as stock-based compensation, executive severance costs, the National Geographic fee amortization, debt refinancing costs, acquisition-related expenses and other non-recurring charges. We believe Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. We believe Adjusted EBITDA helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements, such as unearned passenger revenues, capital expenditures and related depreciation, principal and interest payments, and tax payments. Our use of Adjusted EBITDA may not be comparable to other companies within the industry.

The following metrics apply to our Lindblad segment:

Adjusted Net Cruise Cost represents Net Cruise Cost adjusted for Non-GAAP other supplemental adjustments which include certain non-operating items such as stock-based compensation, the National Geographic fee amortization, and acquisition-related expenses.

Available Guest Nights is a measurement of capacity and represents double occupancy per cabin (except single occupancy for a single capacity cabin) multiplied by the number of cruise days for the period. We also record the number of guest nights available on our limited land programs in this definition.

Gross Cruise Cost represents the sum of cost of tours plus, selling and marketing expenses, and general and administrative expenses.

Gross Yield per Available Guest Night represents tour revenues less insurance proceeds divided by Available Guest Nights.

Guest Nights Sold represents the number of guests carried for the period multiplied by the number of nights sailed within the period.

Maximum Guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin (except single occupancy for a single capacity cabin).

Net Cruise Cost represents Gross Cruise Cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues.

Net Cruise Cost Excluding Fuel represents Net Cruise Cost excluding fuel costs.

Net Yield represents tour revenues less insurance proceeds, commissions and direct costs of other tour revenues.

Net Yield per Available Guest Night represents Net Yield divided by Available Guest Nights.

Number of Guests represents the number of guests that travel with us in a period.

Occupancy is calculated by dividing Guest Nights Sold by Available Guest Nights.

Voyages represent the number of ship expeditions completed during the period.

Foreign Currency Translation

The U.S. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the condensed consolidated statements of operations.

Seasonality

Traditionally, our Lindblad brand tour revenues from the sale of guest tickets are mildly seasonal, historically larger in the first and third quarters. The seasonality of our operating results fluctuates due to our vessels being taken out of service for scheduled maintenance or drydocking, which is typically during nonpeak demand periods, in the second and fourth quarters. Our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work, drydock locations based on ship itineraries, operating conditions experienced especially in the polar regions and the applicable regulations of class societies in the maritime industry, which require more extensive reviews periodically. Drydocking impacts operating results by reducing tour revenues and increasing cost of tours. Natural Habitat, DuVine and Off the Beaten Path are seasonal businesses, with the majority of Natural Habitat’s tour revenue recorded in the third and fourth quarters from its summer season departures and polar bear tours, while the majority of Off the Beaten Path and DuVine’s revenues are recorded during the second and third quarters from their summer season tours and cycling adventures.

Results of Operations - Consolidated

Comparison of the Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020 - Consolidated

Tour Revenues

Tour revenues for the three months ended March 31, 2021 decreased $79.5 million, or 98%, to $1.8 million compared to $81.2 million for the three months ended March 31, 2020. The Lindblad segment tour revenues decreased by $69.1 million and the Land Experiences segment decreased $10.4 million, primarily as a result of rescheduling nearly all expeditions and trips due to COVID-19 during the first quarter 2021. 

Cost of Tours

Total cost of tours for the three months ended March 31, 2021 decreased $33.9 million, or 80%, to $8.3 million compared to $42.2 million for the three months ended March 31, 2020. At the Lindblad segment, cost of tours decreased $27.9 million, due to rescheduled expeditions due to COVID-19, partially offset by costs incurred while ships are laid up. At the Land Experiences segment, cost of tours decreased $6.0 million, due to rescheduled trips directly related to COVID-19 during the first quarter 2021.

General and Administrative

General and administrative expenses for the three months ended March 31, 2021 decreased $3.4 million, or 20%, to $13.8 million compared to $17.2 million for the three months ended March 31, 2020. At the Lindblad segment, general and administrative expenses decreased $3.0 million from the prior year period due to decreased personnel costs and credit card commissions, partially offset by higher stock-based compensation expense. At the Land Experiences segment, general and administrative expenses decreased $0.4 million, primarily due to a decrease in personnel costs.

Selling and Marketing

Selling and marketing expenses for the three months ended March 31, 2021 decreased $10.4 million, or 81%, to $2.5 million compared to $12.9 million for the three months ended March 31, 2020. At the Lindblad segment, selling and marketing expenses decreased $10.3 million, primarily due to lower commission expenses related to the impact of the COVID-19 on revenue. At the Land Experiences segment, selling and marketing expenses decreased $0.1 million.

Depreciation and Amortization

Depreciation and amortization expenses for the three months ended March 31, 2021 increased $1.6 million, or 23%, to $8.2 million, compared to $6.7 million for the three months ended March 31, 2020, primarily due to the addition of the National Geographic Endurance to the fleet in March 2020.

Other Expense

Other expenses for the three months ended March 31, 2021, decreased $1.0 million to $5.6 million from $6.6 million for the three months ended March 31, 2020, primarily due to the following:

Results of Operations – Segments

Selected information for our segments is below. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Results of Operations – Lindblad Segment

The following table sets forth our Available Guest Nights, Guest Nights Sold, Occupancy, Maximum Guests, Number of Guests and Voyages for the three months ended March 31, 2021 and 2020:

The following table shows the calculations of Gross Yield and Net Yield for the three months ended March 31, 2021 and 2020. Gross Yield is calculated by dividing Tour Revenues by Available Guest Nights and Net Yield is calculated by dividing Net Revenue by Available Guest Nights:

The following table reconciles operating income to our Net Yield Guest Metric for the Lindblad Segment:

The following table shows the calculations of Gross Cruise Cost per Available Guest Night and Net Cruise Costs per Available Guest Night for the three months ended March 31, 2021 and 2020:

Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020 at the Lindblad Segment

Tour Revenues

Tour revenues for the three months ended March 31, 2021 decreased $69.1 million, or 99%, to $0.5 million compared to $69.5 million for the three months ended March 31, 2020. The decrease was a result of rescheduling all expeditions in the first quarter of 2021 due to COVID-19.

Operating Income

Operating income decreased $29.5 million to loss of $27.3 million for the three months ended March 31, 2021 compared to operating income of $2.2 million for the three months ended March 31, 2020. The decrease was a result of rescheduling all expeditions in the first quarter of 2021 due to COVID-19.

Results of Operations – Land Experiences Segment

Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020

Tour Revenues

Tour revenues for the three months ended March 31, 2021 decreased $10.4 million, or 89%, to $1.3 million compared to $11.7 million for the three months ended March 31, 2020, as a result of cancelled and rescheduled trips in the first quarter 2021 due to COVID-19. 

Operating Income

An operating loss of $3.8 million was incurred for the three months ended March 31, 2021, compared to operating income of $0.1 million for the three months ended March 31, 2020. The decrease was primarily a result of cancelled and rescheduled expeditions in the first quarter 2021 due to COVID-19.

Adjusted EBITDA – Consolidated

The following table outlines the reconciliation to net income (loss) and calculation of consolidated Adjusted EBITDA for the three months ended March 31, 2021 and 2020. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

The following tables outline the reconciliation for each segment from operating income to Adjusted EBITDA for the three months ended March 31, 2021 and 2020.

Liquidity and Capital Resources

Due to the spread of the COVID-19 virus and the effects of travel restrictions around the world, we suspended or rescheduled the majority of expeditions and fleet operations departing March 16, 2020 through May 31, 2021 and have been working with guests to reschedule travel plans and refund payments, as applicable. Although our Land Experiences segment has operated limited tours during the first quarter 2021 and we are planning to resume ship operations beginning June 2021 with expeditions to Alaska and the Galapagos, the COVID-19 pandemic has already had a material negative impact on our operations and financial results and we expect the evolving pandemic to have ongoing material negative effects on operations, financial results and liquidity. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our financial condition, results of operations, cash flows, plans and growth for the foreseeable future. It is unknown when travel restrictions and various border closures will be completely lifted and what the demand for expedition travel will be once these restrictions are no longer in place.

As of March 31, 2021, we had approximately $498.4 million in long-term debt obligations, including the current portion of long-term debt. We believe that our cash on hand, our Second Export Credit Agreement and expected future operating cash inflows will be sufficient to fund operations, debt service requirements, and necessary capital expenditures assuming that our operations resume on the timeline we currently expect. However, there can be no assurance that cash flows from operations will be available to fund future obligations or that we will not experience delays with respect to the resumption of our operations.

We estimate our current monthly cash usage to be approximately $10-15 million, including ship and office operating expenses, necessary capital expenditures and interest and principal payments. This excludes guest payments for future travel and cash refunds requested on previously made guest payments. As we implement plans to resume operations, the monthly cash usage will increase as it incurs costs in preparation for returning ships to service, spends to market and advertise upcoming expeditions and reinstates furloughed and part-time office staff as needed. We also anticipate a significant increase in guest payments as we receive final payments for upcoming expeditions as well as deposits for new reservations for future travel. 

Sources and Uses of Cash for the Three Months Ended March 31, 2021 and 2020

Net cash used in operating activities was $6.9 million in 2021 compared to net cash provided by operating activities of $15.4 million in 2020, due to the rescheduling of operations due to the COVID-19 pandemic.

Net cash used in investing activities was $10.7 million in 2021 compared to $116.7 million in 2020. The $106.1 million decrease was primarily due to payments for the completion of the National Geographic Endurance during the first quarter 2020, partially offset by the net cash used for the acquisitions of Off the Beaten Path and DuVine during 2021.  

Net cash used in financing activities was $0.5 million in 2021 compared to net cash provided by financing activities of $151.9 million in 2020. The $152.4 million decrease in cash provided by financing activities was primarily due to borrowing $107.7 million under the senior secured credit agreement for the final contracted payment of the National Geographic Endurance and a $45.0 million drawdown of our revolving credit facility during the first quarter 2020.

Funding Sources

Debt Facilities 

Credit Facility

Our Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), provides a $200.0 million senior secured first lien term loan facility (the “Term Facility”), maturing March 2025, and a $45.0 million senior secured revolving credit facility (the “Revolving Facility”), which includes a $5.0 million letter of credit sub-facility. In March 2020, we drew $45.0 million on our Revolving Facility, which matures in March 2023. The Amended Credit Agreement was amended in August 2020 to waive the application of the total net leverage ratio covenant through June 2021 and in December 2020 to provide for the borrowing of a new tranche of incremental term loans under the Amended Credit Agreement in an amount of $85.0 million, maturing December 2025, made under the Main Street Expanded Loan Facility (the “Main Street Loan”). In connection with the amendments, the interest rate of the Term Facility was increased 125 basis points, to be paid-in-kind at maturity, a LIBOR minimum of 0.75% was added to the Term Facility and certain covenants were amended to be more restrictive.

The Term Facility (excluding the Main Street Loan), as amended as of March 31, 2021, bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR, with a minimum of 0.75%, plus a spread of 4.75%, for an aggregated rate of 5.50% as of March 31, 2021, and the Revolving Facility bears interest at an adjusted ICE Benchmark administration LIBOR plus a spread of 3.00%, for an aggregated rate of 3.12% as of March 31, 2021. The Main Street Loan bears interest at a rate per annum of an adjusted ICE Benchmark administration LIBOR for an interest period of 3-months plus 3.00%, for an aggregated rate of 3.20% as of March 31, 2021.

In 2018, we entered into interest rate cap agreements to hedge our exposure to interest rate movements and manage our interest rate expense related to the Term Facility.

Senior Secured Credit Agreements

Our senior secured credit agreement (the “Export Credit Agreement”) makes available a loan in an aggregate principal amount not to exceed $107.7 million for the purpose of providing financing for up to 80% of the purchase price of our new polar ice class vessel, the National Geographic Endurance. During March 2020, we borrowed the $107.7 million under the Export Credit Agreement for the final contracted payment of the National Geographic Endurance. The Export Credit Agreement bears interest at a floating interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, or 3.18% as of March 31, 2021, with interest and principal payments due every 90 days from borrowing date, with final principal due January 2032.

Our senior secured credit agreement (the “Second Export Credit Agreement”) makes available to us 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 National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021. The Second Export Credit Agreement bears a variable interest rate equal to three-month LIBOR plus a margin of 3.00% per annum, or 3.19% as of March 31, 2021. After completion of the vessel, the Second Export Credit Agreement, at our option, will bear an interest rate 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. In September 2019, April 2020 and April 2021, we drew approximately $30.5 million, $30.6 million and $15.5 million, respectively, against the Second Export Credit Agreement for contracted installment payments on the National Geographic Resolution. The final 30% is due upon delivery and acceptance of the vessel. 

During 2019, we entered into foreign exchange forward contracts, designated as cash flow hedges, to hedge our exposure to the Norwegian kroner (“NOK”), related to our installment payments under the contract to purchase the National Geographic Resolution.

The Amended Credit Agreement, the Export Credit Agreement and the Second Export Credit Agreement contain financial and restrictive covenants, which were amended in June 2020. As March 31, 2021, the total net leverage ratio covenants of our credit agreements have been waived through June 2021. We were in compliance with our covenants in effect as of March 31, 2021.

Equity

Preferred Stock

In August 2020, we issued and sold 85,000 shares of Series A Redeemable Convertible Preferred Stock, par value of $0.0001, (“Preferred Stock”) for $1,000 per share for gross proceeds of $85.0 million. The Preferred Stock has senior and preferential ranking to our common stock. The Preferred Stock is entitled to cumulative dividends of 6.00% per annum, and for the first two years, the dividends will be paid-in-kind. After the second anniversary of the issuance date, the dividends may be paid-in-kind or be paid in cash at our option. The Preferred Stock is convertible at any time, at the holder’s election, into a number of shares of our common stock equal to the quotient obtained by dividing the then-current accrued value by the conversion price of $9.50. At any time after the third anniversary of the issuance, we may, at our option, convert all, but not less than all, of the Preferred Stock into common stock if the closing price of shares of common stock is at least 150% of the conversion price for 20 out of 30 consecutive trading days. The number of shares of common stock received in such conversion shall be equal to the quotient obtained by dividing the then-current accrued value by the conversion price. At the six-year anniversary of the closing date, each investor has the right to request that we repurchase their Preferred Stock and any Preferred Stock not requested to be repurchased shall be converted into our common shares equal to the quotient obtained by dividing the then-current accrued value by the conversion price.

Funding Needs

We generally rely on a combination of cash flows provided by operations and the incurrence of additional debt to fund obligations. A vast majority of guest ticket receipts are collected in advance of the applicable expedition date. These advance passenger receipts remain a current liability until the expedition date and the cash generated from these advance receipts is used interchangeably with cash on hand from other cash from operations. The cash received as advanced receipts can be used to fund operating expenses for the applicable future expeditions or otherwise, pay down credit facilities, make long-term investments or any other use of cash. While traditionally we run a working capital deficit, as of March 31, 2021 and December 31, 2020, we had working capital of $30.2 million and $73.4 million, respectively. As of March 31, 2021 and December 31, 2020, we had $163.9 million and $187.5 million, respectively, in cash and cash equivalents, excluding restricted cash.

Our 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 us to purchase from time to time our outstanding common stock and our previously outstanding 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 our 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. During March 2020, the Repurchase Plan was suspended due to the uncertain impact of the COVID-19 pandemic and our borrowings through the Main Street Expanded Loan Facility program places restrictions on stock repurchases. We have cumulatively repurchased 875,218 shares of common stock for $8.3 million and 6,011,926 warrants for $14.7 million since plan inception. All repurchases were made using cash resources. The balance for the Repurchase Plan was $12.0 million as of March 31, 2021. 

In February 2019, we entered into an agreement with Ulstein Verft to construct a polar ice-class vessel, the National Geographic Resolution, a sister ship of the National Geographic Endurance, with a total purchase price of 1,291.0 million NOK, which was amended in December 2019 to (i) provide a $4 million loan to the builder, to be repaid at 112% of the principle balance on maturity in December 2023, and (ii) an expedited delivery incentive that, if the National Geographic Resolution is delivered early, as determined by the expedited delivery schedule per the agreement, that all or a portion of the of the loan will be considered as a delivery bonus and forgiven. The purchase price is due in installments, with the first 20% paid shortly after execution of the agreement, 50% being paid over the duration of the build and the final 30% due upon delivery and acceptance of the vessel. The vessel is scheduled to be delivered in the fourth quarter of 2021. The new-build process exposes us to certain risks typically associated with new ship construction which we manage through detailed planning and close monitoring by our internal marine team. In September 2019, April 2020, and April 2021, we drew approximately $30.5 million, $30.6 million and $15.5 million, respectively, against the Second Export Credit Agreement for contracted installment payments on the National Geographic Resolution. The final 30% is due upon delivery and acceptance of the vessel. The remaining purchase price will be funded through a combination of available cash, borrowing under our Second Export Credit Agreement and our Revolving Facility and excess cash flows generated by our existing operations.

Off-Balance Sheet Arrangements

In 2019, we entered into a Second Export Credit Agreement as described above.

Critical Accounting Policies

For a detailed discussion of the Critical Accounting Policies, please see our 2020 Annual Report.

There have been no material changes in our exposure to market risks from the information set forth in the “Quantitative and Qualitative Disclosures About Market Risk” sections contained in our 2020 Annual Report.

We are exposed to a market risk for interest rates related to our variable rate debt. We assess our market risks based on changes in interest rates utilizing a sensitivity analysis that measures the potential impact on earnings and cash flows based on a hypothetical 1.0% change in interest rates. For additional information regarding our long-term borrowings see Note 5 to our Condensed Consolidated Financial Statements included herein. As of March 31, 2021, we had interest rate cap agreements to hedge a portion of our exposure to interest rate movements of our variable rate debt and to manage our interest expense. The notional amount of outstanding debt associated with interest rate cap agreements as of March 31, 2021 was $100.0 million. Based on our March 31, 2021 outstanding variable rate debt balance, a hypothetical 1.0% change in the six-month LIBOR interest rates would impact our annual interest expense by approximately $1.0 million.

As of March 31, 2021, we had foreign currency forward contracts to hedge our exposure to foreign currency exchange rate risk related to our ship construction contracts denominated in NOK. For the three months ended March 31, 2021, we recorded a loss of approximately $0.4 million in other comprehensive income related to these foreign exchange derivatives. The strengthening of the NOK at March 31, 2021 by a hypothetical 10%, would result in an approximately $6.7 million gain being recorded in other comprehensive income. The weakening of the NOK at March 31, 2021 by a hypothetical 10%, would result in an approximately $5.5 million loss being recorded in other comprehensive income.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.