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Q2 2020 Earnings Call
Aug 10, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day. And welcome to the Lindblad Expeditions Inc. reports second-quarter 2020 financial results conference call. [Operator instructions].I would now like to turn the conference over to Craig Felenstein, chief financial officer.

Please, go ahead. 

Craig Felenstein -- Chief Financial Officer

Thank you, Brent. Good afternoon, everyone. And thank you for joining us for Lindblad's 2020 second-quarter earnings call. With me on the call, today is Sven-Olof Lindblad our founder and chief executive officer.

Sven will begin with some opening comments. And then, I will follow with some details on our financial results and liquidity. Before we open the call for Q&A, you can find our latest earnings release in the Investor Relations section of our website. Before we get started, let me remind everyone that the Company's comments today may include forward-looking statements.

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Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The Company cannot guarantee the accuracy of any forecasts or estimates, and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, our comments may reference non-GAAP financial measures.

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

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Thank you, Craig, and good afternoon everybody, and thanks for joining us today. Usually, we conduct our earnings call in the morning, but we made an exception today as I'm speaking to you from French Polynesia, a remarkable destination that is only two to two and a half hours further than Hawaii from the West Coast. It is an exotic locale with a playground of hundreds of islands and apples to explore. The reefs are alive with coral and fish.

The hiking is world-class. Their rivers to be explored by kayak. The people are delightful, and there is still a distinct South Sea culture to appreciate. Let me take a moment to tell you why I'm here, and what being here represents, above all it represents hope and an acknowledgment that our world, three months, six months, or nine months from now will be a very different place.

French Polynesia is an example of what people will seek out when they are ready, and able to travel again. Beauty, beauty, peace, and travel. Our guests, in particular, will not want crowd, unnecessary proximity, small while already beautiful become even more so. What we do immerse is our guests and exploration of the world's most amazing geographies were very much on the rise, pre-pandemic, and I believe it will explode post.

And Lindblad Expeditions is in a very good place to harvest a new future. I've had an exhilarating week here, I met countless people in the tourism sector, ministers, the CEO of the National Air Carrier, and people from the hotel sector, French Polynesia has opened as of July 15th to American visitors without the need for quarantine. They really have sorted through a PCR test within 72 hours of departure, another four days after arrival. They found one case to-date on August 3rd but, it has seemingly been totally contained.

Other than that, they haven't -- there hasn't been -- there hadn't been a COVID case in over two months. This could really be the first safe place on Earth that opens safely to tourism. It started, and we are exploring ways to make French Polynesia part of our reactivation plan. Incidentally, just as a caveat here there have been a few more cases in the last couple of days from French nationals coming in, and that's still only one case of a tourist.

Speaking of reactivation, we have a Diversified team that includes, executives, operational leadership, and dedicated employees, along with our consultants, physicians with expertise in infectious disease that is meeting every day to improve and refine protocols for reactivation. We have always taken pride in the robust health and safety protocols across our fleet, and are continually exploring ways to augment existing standards. For example, last year ahead of the pandemic, we introduced the new revolutionary cleaning system called ACT Premium Purity. It's a light-activated self disinfecting system that significantly reduces any viral, and bacterial transmission.

Our Restart team is working closely with leading health experts, and local efficient officials to ensure that we are taking every step necessary. They're monitoring all countries in which we have future travel plans for possible itinerary. The changes in their requirements, and in certain instances offer suggestions as to how we might operate while maintaining safely -- maintaining safety. In order to reactivate, we are focusing on three key ingredients.

First, a credible practical medical solution that involves double PCR test, PCR testing, rigorous sanitation protocols, and creative social distancing that does not intrude on the guest experience. Also, strict clear protocols should any guest or crew members show any signs of infection, both abroad, and in relationship to the country's visitors and specific requirements. Second, you need to welcome back geographies, and we wish to travel to every country we visit as we activated the protocols. And what will allow them to stay out of the open, and strides are being made like the steps taken by French Polynesia.

More will be learned each day and I would anticipate in the weeks and months ahead more, and more countries will find practical, and acceptable ways to open their borders. And third, acceptance by travelers if they can be reasonably assured of their safety while maintaining the integrity of the expedition. So here we are, nearly five months into total shutdown. Nobody is sure how much longer this will last.

It's exasperating to be sure, but it will at some point be resolved. And as I mentioned earlier, I do believe the pent up demand, a new demand for expedition cruising will skyrocket. We heard this from so many people, travel professionals, and travelers alike. What is needed during this period of a shutdown is clear.

Continue to conserve cash as much as possible, while avoiding any sudden. Anything that could damage the brand or the trust that exists among travelers and the business entities with which we engage. But I say it every day to our employees is simple, although we don't know exactly when we will come out of this, when we do, we want our reputation to have stayed intact. We must never squander the trust which we have built over decades.

Since our last earnings call, we had several meaningful conversations with guests through webinars, phone calls, and emails. We wanted to assess how they viewed our protocols and our vision of how expeditions would be conducted. It was gratifying to see that over 50% are indicated. They were ready to get on a plane and proceed.

They are eager to get back out there and exhibited clear trust that we have always, and will always take their welfare, and the welfare of our crew very, very seriously. One of the aspects of our business is that guests consistently sight is a key differentiator for them is the size of our ships and the authentic and immersive experience. An average vessel size of 93 passengers provides. Well, this is an enormous competitive advantage of normal times, there's even more so in the current environment.

Everyone I speak to, says the same thing, "you are fortunate to have small ships". And that's true for so, so many reasons. The sheer logistics of starting up will again be far easier because of our size. Clearly, we can manage medical solutions more effectively, and we can alter our tenures at any point if necessary.

We do not require ports, except when we begin. And then and even if there was a problem of space, we could function from the anchor. We are also finding that countries are way happier with the idea of smaller ships, and our brand stands for small and remote. So we don't have to reinvent ourselves in this COVID environment.

Most of the time, we are in the wild. It's also gratifying to see that our reputation is really meaningful when it comes to discussing with countries and communities, the subject of restarting. There is respect which is critical in times like this. The conversations with authorities and countries we visit are heartwarming.

They clearly exhibit the sentiment of wanting us back, and often have said, "one way or another your kind of tourism is what we want". These past five months have been really tough on so many fronts. We have taken a financial hit, and we have had to furlough employees and reduced salaries of loyal team members who have work to build this company over the last 40 years. We did have one event that was particularly exciting for all of us in dramatic fashion, getting the last of our crew home on June 26th.

We call it operation Argosy and used our newest ship the National Geographic Endurance to deliver our last 103 crew from both the National Geographic Explorer in Denmark and those onboard the endurance to Kiel, Germany where they boarded buses to Hamburg and their flight home and a privately chartered by the Manila. There are so many crew members from so many ships. Those stuck with most certainly when they were able to get home. Our staff was so energized by this achievement that it gave us a whole all the hugely needed boost.

We remain optimistic that we will resume standing soon, but there is no question that our broader industry and then Lindblad specifically will continue to face uncertainty moving forward. Fortunately, we have the resources to weather this and to next year if necessary. Travel and tourism are not going away. Millions of people each year will want to get out and explore the world.

The question is how, and when and what they will value. We believe firmly that we have a proposition that is incredibly differentiated and valuable to a wide array of travels. It was before the pandemic, and I believe it will be so, even more so after. This is not the first time we have faced adversity, and every time our resiliency has helped us overcome any challenges and prosper over the long term.

We can't wait to return to work to do what we do so well. Exploring our world in meaningful ways. Thank you for your time today. And now, let me turn the call over to, Craig. 

Craig Felenstein -- Chief Financial Officer

Thanks, Sven. Good afternoon, and I hope everyone is staying healthy and safe during these extraordinary times. Before I begin, I would like to once again thank all of our crew and office personnel for the diligence, and resiliency they have shown in preparing us to return to operations, and for their continued efforts to identify ways to preserve capital. As Sven mentioned, it has been nearly five months since we paused our operations despite not having had any cases of the COVID-19 virus across our fleet.

Once it became readily apparent that the virus was going to impact our operations, we swiftly put in place a comprehensive plan to reduce costs and enhance our liquidity position. All of our ships have been safely laid up with the minimally required crew, and we have eliminated a conservative portion of our ship and land-based expedition operating costs. We have also reduced our expected annual maintenance capex by over $10 million, savings of more than 50% from the originally planned levels. On the advertising and marketing front, we have suspended the majority of our spend focusing primarily on search opportunities that are generating appropriate returns with regards to future bookings.

And we have significantly lowered general administrative spending through employee furloughs, salary reductions, and elimination of all non-essential travel office expenses and discretionary spending. Additionally, we have deferred payment of the majority of bonuses earned for 2019 performance including all C suite bonuses. We are deferring cash compensation for the Board of Directors, and we have suspended all repurchases of common stock under the stock repurchase plan. On the P&L front, the measures we have taken have enabled us to reduce operating expenses before depreciation and amortization, interest and taxes by over 60% this quarter versus the same quarter a year ago.

And on the cash front, we have lowered our estimate in monthly cash usage to $10 million to $15 million. This includes all ship and office operating expenses, necessary capital expenditures, and expected interest and principal payments, but excludes any new guest payments for future travel and refunds of previously made guest payments. Let me take a minute to provide some color on the second quarter cash usage before turning to our current liquidity position and cash runway. Net cash spends during the quarter was $57 million, which included approximately $31 million in operating costs, excluding refunds.

Important to note that our ships were not in full layoff status throughout the entire second quarter as it took some time to reposition the ships, and as Sven mentioned, repatriating crew. So we would expect a further reduction in operating spends moving forward. The second quarter also included approximately $9 million in gross capex not covered by our export credit borrowings, primarily related to the launch of the National Geographic Endurance at approximately $5 million in principal and interest payments. The remaining cash usage was primarily refunds paid to guests, partially offset by payments for future travel.

It has been very encouraging that the voyage is canceled and rescheduled thus far, which includes expeditions through the end of September. The majority of our guests are opting for future travel credits as opposed to full refunds, and this trend has been very consistent since March. One other important facet with regards to refund is that our exposure is significantly lower moving forward as the bulk of guest deposits were related to the voyage is canceled, or rescheduled through September. These guests have already decided on their future travel plans.

Turning to current booking trends. As we highlighted previously, we were off to a great start in 2020 prior to COVID, and while voyages cancellations have resulted in current bookings for 2020, down 62% versus 2019, the demand for a future expedition in travel remains very strong, and we are well-positioned for 2021 and beyond. Bookings for 2021 are currently 6% ahead of 2020 at the same point a year ago, and 35% ahead of 2019 at the same point in 2018. A portion of that growth is certainly from guests on canceled voyages that have opted to reschedule, but we have also generated over $30 million in bookings since March 1st, from guests not utilizing future travel credits.

As a reminder, we have also not yet resumed marketing in earnest, and we believe based on the feedback we are getting from guests that there is significant pent up demand to get out and explore the world's amazing geography. At the end of the second quarter, the company had $81 million in unrestricted cash and $21 million in restricted cash related primarily to deposits on voyages that originate in the United States. Aside from continuing to explore ways to further reduce operating costs, this past quarter, we also further enhanced our liquidity position through deferral of approximately $9 million in principal payments from June 2020 through March 2021 under our export credit agreements. On the debt front, we ended the quarter with $412 million in principal outstanding.

During the quarter, we drew down an additional $30.6 million under our second export credit agreement, and we use the proceeds for the third installment payment for the National Geographic Resolution. The remaining installment payments of approximately $62 million for the resolution are fully covered by the second export credit agreement and are not scheduled until next year, with the majority due upon delivery of the ship, which is still anticipated to be toward the end of 2021. With regards to our leverage covenants, the company has worked with its lenders to amend its existing credit agreements including, suspension of leverage ratio covenants through June 30, 2021. The company has no material debt maturities until 2023, and we continue to evaluate several additional strategies to enhance our liquidity position, including but not limited to, financing for both the public and private markets through the issuance of both equity and or debt.

The timing and structure of any transaction will certainly depend on market conditions. Thank you, for your time this morning. And now, Sven and I would be happy to answer any questions you may have.


We will now begin the Q&A. [Operator instructions]. Our first question today comes from Steve Wieczynski with Stifel. Please, go ahead.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Hey. Good morning, guys. Good afternoon, guys. These two guys doing a morning call.

So, good afternoon, guys. So the first question would be around your 21 booking commentary. And Craig did I hear you say that the $30 million of future travel that you booked since March. That's all the new bookings to date.

Did I hear that right.

Craig Felenstein -- Chief Financial Officer

Yes. So the $30 million represents new bookings. Obviously, when you factor in the bookings that have been transferred from folks who are using future travel credits from 2020 into 2021. The actual booking number is much larger if you factor all those in, but we booked over $30 million dollars in people who are not using future travel credits for 2021.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

And I don't know if you can say this, but where approximately would that normally be. I mean that seems like a pretty impressive number.

Craig Felenstein -- Chief Financial Officer

Yes. We're not going to give you exactly where it would have been versus where we were in the past. It's certainly less than what we would do historically, but it does speak to the fact that we're seeing significant interest from a not only guest that was previously booked, but also guest that frankly are looking to come out of this with something to do, and someplace to go. And we expect that demand to continue because it's been pretty consistent since I would say the early part of March.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. And then, Craig, do you have more cash coming in the door today from new bookings vs. refunds going out the door.

Craig Felenstein -- Chief Financial Officer

As of today that is not the case with refunds. Now, I should say that I would say that was the case -- that was not the case through July. Certainly moving forward, we would expect that to start to shift because now the number of refunds that are going out the door will certainly be significantly less because we have not received a significant amount of final payments with regards to travel. That's further into the future.

What's important is, we are still seeing significant deposits for future travel. And final payments are coming in as scheduled, but because we canceled so many voyages through September, and because final payments are no longer right now due 90 days to 120 days in advance. Those payments have been pushed back. Those final payments to later, but we look out to the rest of the year, I would expect the future cash payments to exceed refunds barring a significant amount of future cancellation.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Got you. And then, I want to ask about the ability for you guys to return operations. And look, I fully understand you have no clue when that's going to happen.

But, any updates on thoughts to the Air Service or the Chartering service you guys were thinking about implementing. I think we talked about that the last time you guys reported, given you don't fall into the CDCs no sale policy. That's obviously a benefit to you guys, but I know that the air issue seemed to be the hang-up right now.

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Let me respond to that. It's Sven here. So it largely depends on geography. And in many instances, we are still looking at the prospect of the charter.

And that's -- so people were prepared to pay a certain amount for commercial, the charter is obviously going to be some somewhat more than that, but it mitigates or offsets part of it. And it should, we would imagine protecting the idea of more people staying committed, which also mitigates the cost of that charter. And so, we're still actively pursuing that, or have planned for that in various geographies or a couple where we were that equation doesn't necessarily work so well. But at the end of the day, what we want to do is to have a people to have a PCR test within four or five days of leaving home, positive, negative test.

And then at the gathering point from which depart to get to the ship, we want to have another test done, which is meant to be returned within 12 hours. We've worked that out with various people including the University of Washington for certain geographies. And then, we would go in a private charter, so we would essentially have a bubble at that point, and we would modify itineraries so that we have very much limited interaction with other communities unless we deemed them to be safe. So, that's generally the protocol, and it varies a little bit depending on the geography.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Got you. And the last question, actually it's for you, Sven. Since you're in Tahiti, I mean, I'll ask you a somewhat about a topical question.

But there was a small ship in the Polygon that look.  I understand it's not as small as your ships, but it is right to start-up operations, and it had some issues. I guess since you're over there, what did you hear of what happened on that ship, and then maybe what do you guys learn from that experience.

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Well, what happened. What happened there was, there was one guest who had a negative -- their protocols here are that you have to have a negative PCR test within 72 hours of leaving. Then you register into a system online here in French Polynesia. And then four days after arrival, you take another self-administered test, and this individual was proved to and that came back positive on the second test.

She had arrived with a negative test. Four days later, took a second test that turned out to be positive. She was immediately isolated and interestingly enough at least. As far as I know and for what's been reported is that there have been no other identified cases, either from the guests onboard, or the crew.

So at some point in the transition between the time she took the first test, she contracted it but did not transmit it to others. But it also -- I met the other day with the folks in the Ministry of Tourism, and they are looking at this so, so carefully. They put a lot of thought into the protocols for managing to reopen tourism, and anything new that's happened, they're looking at very closely in terms of should they modify their procedures in any way. I have to say, I've been incredibly impressed with the French Polynesian on how they've dealt with this.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Great. Thanks, guys. Appreciate it.

Craig Felenstein -- Chief Financial Officer

Thanks, Steve.

Questions & Answers:


[Operator instructions]. Our next question will come from Alex Furman with Craig-Hallum. Please, go ahead.

Alex Furman -- Craig-Hallum Capital Capital Group

Great. Thank you, very much for taking my question. And congratulations Sven, on getting your crew home. Certainly, it seems like a noteworthy accomplishment in this environment here.

A couple of things I wanted to ask about. One is about the liquidity position, and I know you've mentioned consistent with last quarter and it sounds like a $10 million to $15 million monthly cash burn. Can you walk us through the process of bringing your ship back online. Would you expect if you were to have your entire fleet back up and running.

At some point would there be incremental costs relative to that $10 million to $15 million burns that you would need to incur, to be able to get your ships back into operation.

Craig Felenstein -- Chief Financial Officer

Sure. So aside from the normal operating costs, once they're back in operations, in order to get them back to where they can operate, the costs, frankly are not that significant. The two biggest cost that you're going to have to incur. The first is, you're going to have to get all the crew back on the ship.

So there are certain costs associated with travel to the location, and certainly, salaries once you bring them back on board. And the second thing is, you're going to have to take care of any repairs that have to be done ahead of ultimately when they launch. Now that said, there is a fair amount of work that's done every year in dry dock, which for us is very much weighted to the September, October timeframe for many of our ships. So the cost that we'll be looking at to get these ships up and running would very much be in line with what a normal dry dock would be for these ships, which is no less significant.

And once we can do that, we can get these ships up and running.

Alex Furman -- Craig-Hallum Capital Capital Group

Great. That's that's really helpful. Thanks, Craig. And then Sven, can you walk us through a little bit on the next few major regions that you would normally be failing to over the next three, six, nine months.

I imagined Alaska is a really important geography to you. It seems like it's based on when you normally run your trip does that season, the Alaska season would normally be over in the next month or two anyway. Beyond Alaska, what are some of your major regions in seasons that we should be thinking about for the winter and for the spring coming up.

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Yes. So the next really major geography for us is Antarctica, starting in November. So that's November, December, January, February. And so that's the single most important geography aside from the Galapagos Islands where we have two ships permanently, so that's another key geography.

Alaska of course is done for this year, and it's I mean you could compare it if we still go there now. But we're not obviously doing that. Baja, California in Mexico is important geography, but not nearly as important as the Galapagos in Antarctica. And so, those are the -- and then Central America is another important geography.

And so those are the main ones we're looking at right now. And then coming into March and beyond. I mean, one of the reasons I'm here in French Polynesia is, I think there is a clear opportunity here to turn this into much more major geography for us in the post-COVID situation. So, we -- every year for the past years, we've been here for a couple of months, more or less plus or minus.

I think there's a distinct possibility that we could be here with one of our ships far longer than that. And so that's some of the highlights. But it's made up of all kinds of things. But that's really the bulk of the focus over the next several months.

Alex Furman -- Craig-Hallum Capital Capital Group

Terrific. Thanks for that, Sven. And then lastly, if I could just ask you in terms of the new bookings coming in the $30 million, or so of new bookings, as well as the rebooked voyages for passengers who have their voyages canceled. Anything noteworthy about what those passengers are booking, or are the passengers who are receiving an incremental credit for canceling.

Are they booking multiple voyages. Are they booking longer voyages, or maybe upgrading their cabins with that incremental credit.

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Yes. I think so. Craig, just go ahead.

Craig Felenstein -- Chief Financial Officer

Sure. So, right now what you're seeing, I wouldn't say there is one specific geography or one specific swath of type of guest that's doing a certain action. I think what we're seeing is, folks that are using their future travel credit have had a voyage canceled. In most cases are going back to that same voyage in the future.

Some are looking to upgrade to additional cabins. Some are looking to add additional cabins to bring other guests alongside. Obviously, they have to pay additional funds to do that but to use the credit in that way, and others are using the credit to book voyages in the future. There are also some folks who have gotten the future travel credit who right now have decided to not book any time in the future, and they're going to wait and see what happens.

And book when it works best for them down the road. So I think, it really runs the gamut, and there's not one specific type of rebooking that we've seen and I think it'll continue to evolve as we get back into operations.

Alex Furman -- Craig-Hallum Capital Capital Group

That's really helpful. Thank you, both. 

Craig Felenstein -- Chief Financial Officer

Thank you.


[Operator instructions]. At this point, I am showing no further questions.  so this will conclude our Q&A session. I'd like to turn the conference back over to Craig Felenstein, for any closing remarks.

Craig Felenstein -- Chief Financial Officer

Thanks, Brent. Thank you, everybody, for joining us today. We appreciate your time this afternoon. And if you have additional comments, please let us know.



[Operator signoff]

Duration: 32 minutes

Call participants:

Craig Felenstein -- Chief Financial Officer

Sven-Olof Lindblad -- Founder and Chief Executive Officer

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Alex Furman -- Craig-Hallum Capital Capital Group

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