Lindblad Expeditions Holdings, Inc. (LIND) Earnings Call Transcript & Summary

Ladies and gentleman, welcome to today's Lindblad Expeditions Holdings, Inc. Update Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Craig Felenstein to begin, Chief Financial Officer. Craig, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us this morning. With me on the call today is Sven Lindblad, Lindblad's Founder and Chief Executive Officer; as well as Noah Brodsky, Lindblad's Chief Commercial Officer. Sven will begin with some opening comments before we open the call for Q&A. You can find the news release and an investor presentation regarding the expansion and extension of our relationship with National Geographic 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. 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 forecast 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. And with that out of the way, let me turn the call over to Sven.

Thank you, Craig, and good morning, everyone. Today marks a very, very exciting and important day for our company and for travelers around the globe. For the past 20 years, Lindblad Expeditions and National Geographic have collaborated through a shared ethos to foster a spirit of discovery and community by blending science, nature and purpose-driven travel. When our first approached National Geographic in 2004, their mission to share the world's nature, culture and history, aligned naturally with our voyages that took citizen explorers to experience these various things. Over the past 2 decades, our intuitive connection has positively impacted hundreds of thousands of guests. This morning, I'm delighted to share the news that we have extended and expanded our strategic relationship with National Geographic for 17 years through 2040. This new long-term agreement will enable us to grow our brand on an international scale and reach more citizen explorers than ever before. Beyond enhancing our shared expertise and the onboard experience for the guests, it will increase the earnings potential of the company by opening larger addressable markets through new worldwide audiences and potential expansion into additional market segments. In short, we will further solidify our position as the leader in expedition cruise and experiential adventure travel, a segment we have been leading for more than 50 years. Our expanded relationship will open up new audiences and markets in 3 key areas: one, geographically, as we now have a global license in addition to our exclusivity in the U.S. and Canada to use the National Geographic brand to market, sell and operate co-branded expeditions on expedition ships. Two, vessel capacity with exclusivity on trips marketed in the U.S. and Canada for ships up to 295 passengers and the ability to expand that exclusive license globally through ships with guest capacity of up to 530 passengers; and three, expanded types of expeditions with a global license to market co-branded river cruises and a path to global exclusivity for co-branded river cruises. Shifting to marketing efforts under the new agreement, in addition to the global rights to the National Geographic brand for Expedition cruises, there are several key provisions that will allow us to leverage the Walt Disney Company as an affiliate of National Geographic partners to distribute our product through Disney's powerful sales channels and to support a robust joint marketing content that will fuel our expansion to new market segments and drive growth. The combination of the educational travel expertise of National Geographic, the marketing and sales expertise of the Walt Disney Company and the expedition cruise operations history of Lindblad Expeditions, we will inspire generations of new explorers across the globe and fuel record growth. As we build our international operations, the power of worldwide branding rights uplifted by the influential marketing to National Geographic and The Walt Disney Company is incredibly excited, and it will be a key component to future growth opportunities. As we ramp up our sales and marketing efforts and target English-speaking markets, including Australia, Canada and the U.K., we will now be able to streamline our marketing from international websites to brochures, print advertising, media relationships, direct mail, onboard marketing materials and more highlighting our relationship with National Geographic globally and reducing brand confusion among consumers and travel advisers. The international use of the beloved and the incredibly well-respected National Geographic brand will help bolster our collective expedition cruise brand to new heights on a global scale. Together, we will also develop a robust global joint marketing campaign unlike anything our grant has ever done before. This will include working together with National Geographic and industry-leading Walt Disney creative team to reimagine the look, feel and content of our joint relationship and the visual representation of how we use our collective experience to reach new guests. Beyond building awareness for our shared brand through targeted marketing, this campaign will be instrumental in reaching key new to expedition and new-to-brand travelers around the world and growing our consumer base to drive additional capacity and earnings growth in the years ahead. One of the most impactful elements of this new agreement and what will significantly drive penetration into new market segments is the distribution of our products through the Walt Disney company's powerful sales channel. With National Geographic as part of the Disney Signature Experiences portfolio, which also includes premium products like Disney Vacation Club and Disney Cruise Line and has an unmatched channel reach, the ability to unlock the potential of these distribution opportunities will meaningfully drive our awareness amongst new audiences that are well matched with Disney's other experience driven products. Over the coming year, we will work together with Disney's domestic and international sales force to integrate our products into all their travel adviser and trade sales efforts as well as move deeply into Disney Cruise lines on board and digital sales. Today is a milestone for our company's global growth strategy. We are lifelong explorers. We see travel as a transformational force for good, and we are honored to stand together with National Geographic and Disney, building on our company's half century of safe and responsible exploration and a long list of industry innovations to inspire the next generation of new exploring on our growing fleet, and I look forward to our next 2 decades of industry-leading growth. Together, we will continue to craft world opening expedition for curious explorers, develop even more meaningful guest programs on land and onboard our growing fleet and expose new audiences to the beauty and wonder of our shared planet. Thank you for your time this morning, and now Craig, Noah and I would be happy to answer any questions you might have.

[Operator Instructions] Our first question comes from Steve Wieczynski of Stifel.

Yes. Congratulations on the new deal and partnership. So I want to ask about maybe how you view capacity growth now under this new relationship. It seems like you're going to have a better opportunity to source more international guests moving forward. And just wondering what that means from your current capacity and maybe how you think about that capacity growth moving forward? And also maybe touch on why you guys want to potentially build larger ships at this point. I think it was up to 500 passengers.

Yes. So first of all, just to be clear, we are committed and always have been committed and will continue to be committed to the relationship between the positive relationship between inventory and reach. In other words, we don't want to build more than we can sell, right? So step #1 in this new relationship is really building out the marketing plan, making sure that the ideas in fact, produce the results we expect. And depending on how we evaluate those results, that will drive whatever building plans we have going forward in terms of growth. Now we have tremendous optimism that these -- there's opportunity to reach out globally the channels that will be open to us as a consequence of this relationship, et cetera, et cetera, are going to be very powerful. And Noah, our Chief Commercial Officer, already is in deep discussion with the Disney team and the National Geographic Expeditions team in terms of how we can augment our marketing and ourselves. So number one, we feel very optimistic. Two, we're going to really monitor closely our capacity and then we will build accordingly. The concept of larger ships is -- it is a possibility and others, we left ourselves open to that possibility. If there was something at some point that made sense for larger ships, we would evaluate it together ourselves, National Geographic, Disney. And if we felt that it was appropriate in relationship to both the business opportunity and as it relates to our collective brands, we look at it. But there is nothing in the pipeline right now or no specific ideas in that regard.

Okay. Got you. And then second question is probably going to be for Craig, and it's -- I'm going to try to ask this in 2 different pieces, Craig. So first of all, I saw the 8-K that was published, I haven't had a good chance to go through it yet. So maybe can you just give us the highlights of the financial agreement here in terms of the differences between the old agreement with National Geographic versus this new agreement with Disney and National Geographic. And then second piece here, Craig, I want to ask about now that this deal is completed, maybe how you guys think about share repurchases moving forward? And I'm guessing, again, just my guess is we're probably precluded from buying any of your stock until this deal got done. So maybe how you think about potentially buying back your stock at this point?

Sure. Thanks, Steve. With regards to the financial terms of the deal, there's only a little bit of specifics that we can give out regards to how things operate moving forward. Obviously, there's a significant increase in investment, both on our side as well as on National Geographic and Disney side with regards to the marketing efforts that we're going to put forward -- moving forward, which will help drive this in the future. With regards to the obligations that we have towards National Geographic and Disney, there will be a slight step-up in our royalty payments or payments that we make to National Geographic in 2024. There will be another slight step up in '25 and then a larger step-up in '26 when the full power of the marketing relationship of the 2 parties is driving the occupancies and yields that we expect across the platform. So you'll see the impact of those financials when we give our updated guidance in -- for 2024, and then we'll talk about '25 and '26 thereafter. With regards to how we allocate capital, you are correct, given the negotiations that were going on for quite some time, we were precluded from buying back shares here over the last few periods. What I will say with regards to our capital allocation is that our capital allocation focus really hasn't changed, right? When we look at the cash that we have on the balance sheet and how we want to put it to use, ideally, we would love to put it to use it in an organic growth opportunity, a way to increase the earnings power of our existing assets and our existing platform. We also would love to continue to do some more M&A. We've been very successful with our M&A that we've done here over the last several years on the land company side of that house, broadening and deepening the product platform that we have. We've had some significant return on capital investments by doing so. And then in the absence of those 2 things, as we continue to have significant cash on the balance sheet, we'll absolutely look to return capital to shareholders at the right time in the right place. So that would be our approach here moving forward.

Our next question comes from Eric Wold of B. Riley.

A couple of questions on this. I guess one, Craig, it sounds like from your comments about the timing of the step-ups, '24-'25 and the largest step up in '26 and the full marketing in place. I guess when do you expect, I guess, Disney to start marketing cruise? I guess another way I guess -- cruises starting on which date would maybe start being marketed by Disney? So we infer that, that means that '26 is kind of the earliest we could start seeing their marketing power go into effect? Or could it be before that? And then I have a follow-up as well.

Yes. Why don't I let Noah handle that in terms of the time line, but they are obviously already engaged in marketing the products across the National Geographic platform today. But Noah, why don't you give some specifics on timing?

Sure. Thanks for the question, Eric. We will begin marketing in a more collaborative and joint way starting immediately in 2024. As you know, our booking window stretches out about 10 months. So we expect to begin to see impact from our new joint campaigns starting in 2025. Distributing through Disney channels will take just a little bit longer to get set up as we work with all of our partners at Disney to ensure that our products can be distributed technologically, get all of the training out to the respective sales agents and trade partners. So we expect that to take just a little bit longer. But again, to start to see impact in '25 and the full impact of those efforts in 2026.

Perfect. And then the comments on U.K. about acquiring fleet modernization, how different is this from what you would have done normally? Is there any change in kind of what your existing kind of plans on the modernization? How many ships are involved? What time frame is the cost entirely borne by Lindblad or some sharing with relationship?

Yes, sure. When we talk about fleet modernization, we really look at our fleet today as being -- as what I would say is appropriate for the operations that we have in place and operating at a very high level. We do more than our fair share of uptake of our ships. We do drydocks more than the required. We do the maintenance that's required on every single year, and the ships are obviously beloved by our guests and deliver amazing experiences for our guests. We will continue to look at that. The fleet in its totality and look to, I would say, modernize our fleet as appropriate. That doesn't necessarily mean replacing any hardware. It doesn't necessarily mean spending a lot of money with regards to our existing fleet, but we'll continue to evaluate the needs of the fleet in relation to the guest experience here moving forward and make the investments that are required.

[Operator Instructions] Our next question comes from Alex Fuhrman of Craig-Hallum Capital Group.

Congratulations on the expansion of your partnership here. I wanted to ask about some of the new areas that it sounds like you plan to get into over time like river cruises. When might we expect to see some of those new offerings? And would you be leaning towards kind of doing something like that organically or looking at perhaps M&A to get into some of those areas like river cruises?

Yes. So we have river cruises now, right? We have river cruises on the Nile, and we have river cruises on the Columbian Snake River. And so we recognize the fact that those are popular ideas. Now in many instances, what we'll do is we'll develop those also in Cambodia. We'll develop those ideas by a charter and then if we ultimately would feel that, okay, this has possibilities way beyond the limited periods that we charter, we might then elect to either build a ship for the rivers or acquire a ship or perhaps even acquire a company, we're not sure. But it's all -- right now, rivers play a role primarily for us from a charter ship basis, right? Because a lot of those are seasonal as well. They're not -- there are no rivers that are sort of open and available 12 months a year. So we feel it's been to date, in any case, better not to own river ships, but to charter river ships for the periods that we're most interested in. But you never know going forward because we know that we have an audience that really, really likes traveling on rivers. There's a lot about that, that's very appealing in different parts of the world. We don't want to go necessarily to the ones that are overused or overcrowded. But I think rivers are going to play a role in our future -- or a greater role in our future without question.

Okay. That's really helpful, Sven. And then just thinking about the Disney partnerships and what that can do for you in terms of booking, if I remember correctly, I think a pretty solid majority of your guests something close to 90% are American. Are there any particular international regions in terms of where guests are from that you are hoping to unlock with the Disney booking channels?

Yes, because they have an international effect all over the world. Like, for example, I was having a discussion with somebody from Disney the other day about Singapore, for example. There's a tremendous amount of potential interest coming out of Singapore, out of Korea, out of all kinds of countries in Asia. But we're going to focus in the beginning, I think, primarily on English-speaking parts of the world so that we integrate that because that's the most easy to integrate into our current operations. But then we are going to absolutely investigate what the possibilities are beyond that.

We have no further questions on the line. So I'll hand back to Craig.

Thank you, operator, and thank you, everybody, for joining us this morning. Very exciting time for our company, obviously, and we look forward to further bring the dialogue with regards to this relationship. If you have additional questions, feel free to give us a call, and we'll be happy to discuss the opportunities to go right ahead. So thank you, and thanks for joining us.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.