2023-07-11 11:20:24 ET
Summary
- Lindblad Expeditions Holdings, Inc., a leading player in the adventure travel sector, has shown promising growth and financial resilience, making it a potential investment prospect.
- The company's Q1 2023 performance showed a significant increase in total revenue to $143.4 million.
- Despite a heavy debt burden, Lindblad has increased its financial flexibility and continues on its march to profitability.
Welcome to our comprehensive review of Lindblad Expeditions Holdings, Inc., ( LIND ) a leading player in the niche adventure travel sector. As an investment prospect, Lindblad has shown promising growth and financial resilience, making it a potentially worthy addition to your portfolio. We'll first delve into the company's operations and financials, followed by a detailed analysis of its balance sheet, debt structure, and capital structure.
About Lindblad Expeditions
Lindblad Expeditions operates as an expedition travel and adventure tourism company. It provides its customers with marine-focused expeditions aboard small-ship cruises through a fleet that includes National Geographic cruise ships and through land-based adventures such as Safaris, Luxury Cycling adventures and remote lodges all over the world.
LIND Fleet (LIND)
These cruises are far from typical with each of these ships having room for under 150 guests. These ships are meant to take customers on adventures all over the world, including but not limited to Antarctica, the Arctic, the Galapagos Islands, and Greece. These trips run from 4 to 31 days, with an average of 8 days and cost the pretty penny of $2,940 to $105,990 with the average being $14,000. The typical customer for Lindblad is a high-end customer with an average age of 59 and a high net worth. Lindblad offers extraordinary travel, often to unique or remote locations, with a significant experience advantage compared to the traditional cruise industry.
Sales Growth
Looking at their recent Q1 2023 performance, Lindblad recorded a significant increase in total revenue to $143.4 million, up by $75.5 million compared to 2022 and $53.7 million compared to 2019. Driving this growth is an impressive surge in occupancy up from 75k available nights to 237k available guest night. In addition, occupancy continues to rise to 81% in Q1 2023. While this increase is mainly due to a low-level post-covid travel datapoint, it is significant to highlight that this increase signifies a robust demand for Lindblad's offerings, demonstrating its ability to fill more seats on its ships, leading to greater revenue generation. This occupancy level also comes amidst an increasing capacity from a larger fleet.
While Lindblad has not yet reached their pre-covid guest levels they are generating a significantly higher Net Yield per Guest Night. This Yield is calculated in the following way and is often used by Cruise Lines to show efficiency of operations on ships:
(Revenues-Commissions-Onboard Expenses) / Available Passenger Days. = Net Yield per guest night
Please note this doesn't include all costs and is not equal to Gross Profit.
While occupancy is on the rise it has not reached the pre-covid levels of ~90%. Below I have highlighted the increase in revenue that comes from incremental 2.5% occupancy changes. The model assumptions assumes that $1500 in revenue is generated per customer night. This was calculated by dividing Q1 23 Revenues by Guest Nights.
If occupancy can go from the current 80.6% occupancy back to their pre-covid average of 90%, I believe that can generate an estimated extra $12 Million per quarter. These extra nights will also allow higher operational leverage and will be a boon for earnings. Continued growth in the premium travel sector will also be a great tailwind for Lindblad.
Operational Leverage
Lindblad's financial performance showcases high operational leverage, as reflected in their Selling, General, and Administrative Expenses (SG&A) falling as a percentage of revenue. This trend underscores Lindblad's ability to efficiently manage its overheads and streamline operations, translating increased revenue into more significant profit margins. For instance, their revenue more than doubled from Q1 2022 to Q1 2023, rising from $67.8 Million to $144.8M, with OPEX only increasing by roughly 50%. This level of operational leverage signifies that as occupancy rises that much of that increased revenue will flow down to the profit line and will impact earnings.
revenue | Delta.R | GAAP GM | COGS | SG&A | OPEX | SG&A% Rev | |
Q1 20 | 81,238 | 5,441 | 48.06% | 42,192 | 30,105 | 30,105 | 37.06% |
Q2 20 | -268 | -81,506 | 4846.64% | 12,721 | 13,204 | 13,204 | -4926.87% |
Q3 20 | 1,019 | 1,287 | -692.44% | 8,075 | 11,273 | 11,273 | 1106.28% |
Q4 20 | 365 | -654 | -2624.11% | 9,943 | 11,156 | 11,156 | 3056.44% |
Q1 21 | 1,780 | 1,415 | -365.11% | 8,279 | 16,318 | 16,318 | 916.74% |
Q2 21 | 15,266 | 13,486 | -27.02% | 19,391 | 20,250 | 20,250 | 132.65% |
Q3 21 | 64,507 | 49,241 | 29.31% | 45,600 | 27,236 | 27,236 | 42.22% |
Q4 21 | 65,552 | 1,045 | 21.87% | 51,214 | 30,126 | 30,126 | 45.96% |
Q1 22 | 67,846 | 2,294 | 14.59% | 57,947 | 32,966 | 32,966 | 48.59% |
Q2 22 | 90,910 | 23,064 | 31.25% | 62,499 | 36,549 | 36,549 | 40.20% |
Q3 22 | 144,783 | 53,873 | 39.51% | 87,576 | 40,560 | 40,560 | 28.01% |
Q4 22 | 117,961 | -26,822 | 36.26% | 75,194 | 47,212 | 47,212 | 40.02% |
Q1 23 | 143,395 | 25,434 | 49.75% | 72,050 | 47,071 | 47,071 | 32.83% |
Balance Sheet
As comes with asset-heavy businesses such as cruise lines there is often a heavy debt burden. Currently, the long-term debt of Lindblad stands at ~$525 million. Following Q1 2023, the company has opted to increase its financial flexibility by issuing new senior secured notes. This move is likely to contribute positively to the balance sheet, despite the debt incurred.
The new senior notes will be used to pay off both of the Export Credit Agreements. These credit agreements were used to purchase two ships: The Endurance and the Resolution. According to their 10Q, there was $105 Million and $90 Million in principle left on that credit facility. Based on the terms of the previous debt it is estimated Lindblad was spending about $28.81 Million on debt repayment. The strategic financial move of $275 Million 9% 2028 notes will add roughly $80 million to their balance sheet after paying off two loans, solidifying their liquidity status.
Fiscal Date Ending | Cash and Short-Term Investments (Millions) | QoQ Change (Millions) |
Q4 20 | 187.531 | n/a |
Q4 21 | 163.939 | -23.592 |
Q4 21 | 160.081 | -3.858 |
Q4 21 | 155.562 | -4.519 |
Q4 21 | 150.753 | -4.809 |
Q4 22 | 154.816 | 4.063 |
Q4 22 | 126.904 | -27.912 |
Q4 22 | 116.446 | -10.458 |
Q4 22 | 100.768 | -15.678 |
Q1 23 | 83.984 | -16.784 |
Q2 23* | 144-154 | +60M-70M* |
*Estimates and assumes an operational decline in cash of between $10-$20 Million
This action is beneficial for reinforcing their financial stability, but it doesn't necessarily make them robust. With operating expenses around $47 million per quarter, this will provide coverage for two quarters of operational costs, which isn't a significant cushion. Analyzing their cash reserves as a buffer based on quarter-over-quarter cash flow changes, they have approximately 9-10 quarters before funds run dry, a fact that is also concerning. I am confident that they will transition to positive cash flow before a major crisis emerges, yet it is crucial not to downplay the vulnerability present in this situation.
Capital Structure
-
-
Common shares today: ~53 million shares
-
Preferred shares: As per the information given, 62,000 shares of Preferred Stock could be converted into 7.6 million shares of common stock if stock stays 150% above the conversion price of $9.50 for 20 out of 30 days. The conversion price is: $14.25
-
Shares under the Long-Term Incentive Plan: As of March 31, 2023, 2.9 million shares were available to be granted under the Plan.
-
Stock options: As of March 31, 2023, options to purchase an aggregate of 1.9 million shares of the Company's common stock were outstanding.
-
Options | Exercise Price | Shares Possible |
---|---|---|
Options granted March 2023 | $9.56 | 500,000 |
Options outstanding March 2023 | $13.64 | 1,900,000 |
Options outstanding December 2022 | $15.10 | 1,400,000 |
Options exercisable March 2023 | Not specified | 388,000 |
53,000,000 (common shares) + 7,600,000 (from Preferred Stock conversion) + 2,900,000 (from the Incentive Plan) + 4,188,000 (from stock options) = 67,688,000 shares.
Issuing an additional 14.7 million shares could lead to a stock dilution of 33%. The primary cause of this dilution could be the conversion of preferred shares, which only takes place if the stock price remains above $14.25 for 20 out of 30 trading days. Although this risk of dilution is not immediate, it is important to keep in mind. If all potential conversions and options are carried out, there could be roughly 67.7 million outstanding shares. However, bear in mind that this calculation assumes all preferred stock will be converted, all shares under the incentive plan will be granted, and all stock options will be exercised, scenarios which may not necessarily unfold and only occurs at higher price points.
Risks
Investing in Lindblad involves considering several potential risks. High financial leverage is another critical risk. Currently, Lindblad is carrying a substantial long-term debt of approximately $525 million while not being profitable. While recent issuance of new senior secured notes adds some financial flexibility, it still poses challenges for the company in the face of economic downturns or industry-specific disturbances.
The company's performance is also highly dependent on its occupancy rates. Lindblad has yet to reach its pre-pandemic occupancy levels. Any inability to maintain or further increase occupancy rates could adversely affect its revenues.
Lastly, potential dilution of shares is a significant risk. The potential conversion of preferred shares into common shares, along with the execution of the Long-Term Incentive Plan and stock options, could significantly increase the number of outstanding shares, thereby diluting the value of existing shares. The conversion of the preferred stock would occur if the stock price stays 150% above the conversion price of $9.50 for 20 out of 30 days, while the granting of shares under the Incentive Plan and exercising of stock options would depend on the conditions set by the company. In total, these actions could result in around 67.7 million outstanding shares, which would represent a potential dilution of about 33%.
While this calculated risk of dilution assumes all options and conversions are realized - a scenario which may not necessarily unfold - it is important for potential investors to consider these risks while making their investment decisions.
Valuation
Although Lindblad carries a significant amount of debt, I am convinced that its growing revenue, high return on invested capital ('ROIC'), and asset-rich fleet effectively counterbalance this burden. Considering the sector's robust growth and Lindblad's ascending revenue trend, I hold the view that the company is currently undervalued and presents an excellent long-term investment opportunity.
Lindblad's operational efficiency enables it to take advantage of higher occupancy rates, thereby increasing net income. While the market for Lindblad's offerings is naturally limited due to its premium pricing, the company appears poised to thrive in its particular niche. Furthermore, as the market continues to favor experience-based entertainment, Lindblad, being at the forefront of this trend, is well-positioned to ride this wave of positivity.
Lindblad's fleet is modern and competitive, providing a unique proposition for customers. A key advantage is the company's strong strategic partnership with National Geographic, which reinforces its competitive moat. Coupled with a capital-light land-based operation, Lindblad can effectively drive margin improvement.
At the present valuation, Lindblad is available for purchase at a Price/Sales ratio of 1.08. Typically, such a valuation is characteristic of companies nearing insolvency, which I do not believe accurately reflects Lindblad's status. Should Lindblad ascend to the Price/Sales ratio level of Carnival, it would signify a 29% upward shift. I contend that Lindblad's robust portfolio is significantly undervalued and should be trading comparably to its peers. I estimate that its fair value should be around 1.4X Price/Sales, which indicates a potential 30% appreciation from its current position and puts a price target of $14.
Conclusion
While Lindblad Expeditions carries a fair amount of risk with its high debt and potential share dilution, the company's current operational performance and future potential make it a viable investment opportunity. The robust demand for their offerings, strong operational leverage, and strategic management of overheads point towards a financially resilient and growth-oriented company.
Additionally, Lindblad's unique market position as a provider of luxury and experiential travel, backed by strong partnerships such as that with National Geographic, provides it with a significant competitive edge. Despite the current undervaluation, Lindblad's assets, brand, and growth prospects in the premium travel sector should ultimately drive its market value upwards.
As with all investment decisions, potential investors should carefully consider their own risk tolerance and investment goals before deciding to add Lindblad to their portfolios. And remember, this analysis should be a part of your due diligence process and not be taken as a single-source investment recommendation.
For those with a long-term investment horizon, a belief in the growth of the experiential travel market, and tolerance for some level of risk, Lindblad Expeditions could be a worthy addition to diversify and enrich your investment portfolio.
For further details see:
Lindblad Expeditions Holdings, Inc.: An Adventure In Value