Profit decline on higher revenues
So said CEO Sven Lindblad during Friday morning's third quarter earnings call, when the company posted net income of $5.1m, or 11 cents per dilluted share, compared to $9.3m, or 20 cents per diluted share, in Q3 2017.
The $4.2m decrease primarily reflects lower operating results and a $700,000 increase in depreciation and amortization, mainly due to the addition of National Geographic Quest in July 2017, partially offset by $1.8m of lower stock-based compensation expense in the current year.
Adjusted earnings before interest, tax, depreciation and amortization declined 26%, to $17.1m from $23.1m.
Total tour revenue increased 3%, to $87.2m from $84.6m. This was driven by growth of $5.6m at Natural Habitat, partially offset by a $2.9m decrease at the Lindblad segment.
Lindblad segment tour revenues of $64.5m were down 4%. An increase in occupancy, to 91.5% from 90.6%, was more than offset by a decrease in available guest nights and net yield. Available guest nights were 1% lower than a year ago primarily due to the timing of planned drydocks, mostly offset by the launch of National Geographic Quest in late July 2017.
South Pacific inventory has been 'rebalanced'
Net yield declined 6%, to $983, mainly due to itinerary changes for National Geographic Orion. In Q3 last year the ship operated in Europe, where pricing was higher, while this year it was in the South Pacific where, Sven Lindblad said, 'We had too much inventory.' That, he added, has been 'rebalanced' for 2019, with South Pacific capacity reduced by more than half, in favor of more Russian Arctic and Alaska sailings. Already for 2019, Orion is at 90% of the revenues it achieved for 2018.
Another setback for Orion this year was the cancellation of its Aug. 30 voyage due to three storms; the company chartered a plane, flew passengers back to Tahiti and offered a full refund or rebooking on another sailing. Most rebooked, Lindblad said.
Q3 a year ago also included the cancellation of four highly booked voyages on National Geographic Quest due to a delay in the vessel's delivery.
Natural Habitat revenues of $22.7m increased 33%, due primarily to higher ticket revenue from additional departures and increased pricing.
'While our financial results in the current quarter reflect the impact of the timing of drydocks versus a year ago, our revenues are up 18% year to date and we are generating real operating leverage with adjusted EBITDA up 31%,' Sven Lindblad said.
He reported 'broad-based demand across geographies' and noted the company's resilience to economic slowdowns. In October, when the stock market fell, Lindblad bookings more than doubled, driven by opening of sales for the 126-passenger National Geographic Endurance.
That first polar-class newbuild for the company, due for delivery in Q1 2020 from Norway's Ulstein, will operate Lindblad's first Northeast Passage voyages. Those two 24-day journeys sold out in a month, at fares averaging $50,000.
A sister ship has been approved by the board for planned 2021 delivery, but a newbuild contract hasn't been signed.
Meanwhile, on Thursday Seattle-area Nichols Brothers Boat Builders handed over US-flag coastal ship National Geographic Venture, the sister of National Geographic Quest, and the company expects it to be a 'significant driver of growth' in 2019.
20% ROIC expectation for newbuilds
In weighing the decision to build, Lindblad Expeditions Holdings traditionally looks for close to a 20% return on invested capital, according to CFO Craig Felenstein. The amount would typically be a little lower for polar-class ships, mainly because of the cost for extra steel, and a bit higher for coastal ships.
Payback is expected in a six- to seven-year timeframe, Felenstein said, adding that a typical ship's lifespan is 25 to 30 years.
National Geographic expansion and how sales break down
As previously reported, the company expanded its longstanding partnership with National Geographic to Include sales in Latin America and Canada, adding to the existing license covering the US, Australia and New Zealand.
Felenstein attributed 25% to 26% of sales to National Geographic, and said close to 40% of sales are direct to consumers, 25% to 27% are via travel agents and the balance from affinity groups.
Competition from Silversea?
'The expedition cruising category as a whole is going to get a lift because a lot more attention will be paid to it,' Sven Lindblad said in response to a question about competition from Silversea in light of it joining the Royal Caribbean Cruises Ltd. family. 'It's the fastest growing segment of the travel industry,' he said.
Lindblad noted his company is drawing both repeat travelers and new customers. Newcomers book what they perceive to be the trip of a lifetime then get 'addicted.'
He expressed confidence that when consumers research expedition travel, Lindblad stands out for offering an authentic, high-quality experience, the company's 50-year reputation and its National Geographic relationship.
'In the past, competition has grown markets,' he said.