Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) operates a fleet of expedition ships with a current ten owned ships and six seasonal charter vessels after Q1. The company has recently posted some continued revenue growth, countered by increasing operating costs. An announced acquisition and two new vessels look to create a foundation for continued growth.
I previously published an article on the company on the 10th of January, titled “Lindblad Expeditions: Poised To Expand With National Geographic”. In the article, I initiated the stock at Hold, outlining Lindblad’s relatively fairly valued growth story that’s still worryingly buried in high debt. Since the article was published, Lindblad’s stock has lost -8% of its value compared to S&P 500’s return of 16% in the same period.
The Growth Story Has Continued
Since my previous article, Lindblad has announced its Q4/2023 and Q1/2024 results. The Q4 results showed a 6.3% revenue growth as Lindblad continued to ramp up operations in the recovering post-Covid industry. For 2023, revenues ended up increasing by a total of 35.1% into $569.5 million, of which Lindblad tour revenues represented $397.4 million and Land Experience segment revenues $172.1 million.
The revenues are have shown great growth compared to pre-pandemic revenues – in 2019, the Lindblad segment generated $272.4 million in revenues with its eight owned ships and five seasonal charter vessels. Land Experience revenues have also grown well with the related segment showing only $70.7 million in revenues in 2019, with the recent growth slightly aided by the 2021 acquisition. Combined, the revenues are 66% higher in 2023 than in 2019.
After 2023, 2024 has started with a 7.1% revenue growth in Q1. Available guest nights increased by 3% and yield per available night increased 1%, making the Lindblad segment’s growth quite weak as occupancy decreased. Land Experiences compensated with a very high 27% growth from increased trips and pricing. For 2024, total revenues of $610-630 million are expected, representing a mid-point growth of 8.9% as post-Covid momentum continues.
Tour Occupancy Needs to Improve
The current thin trailing operating margin of 1.0% doesn’t provide healthy earnings for Lindblad, especially considering the high remaining debt of $623 million that currently pushes net income deeply negative due to interest expenses. While constant revenue increases from 2020 forward have mostly pushed margins up constantly, the current trailing margin is still way below the healthy 2019 operating margin of 9.7%.
Lindblad has related the recently weaker profitability into higher fuel prices, higher royalties to National Geographic with the new expanded agreement, and many other increased costs including more personnel costs.
I believe that occupancy is the main driver of profitability, though – Lindblad ultimately needs to fill up its ships for trips to generate healthy earnings, as operating the fleet comes with a very high share of fixed costs including fuel and personnel. In 2023, total occupancy was still just at 77% compared to 91% in 2019 – if elevated back, Lindblad would increase revenues by approximately 18% with likely quite moderate incremental costs associated.
Occupancy continued to fall in Q1 by five percentage points year-over-year into 76%, and as the metric is critical for profitability, I believe that the current level is highly worrying. Sven-Olof Lindblad, the company’s CEO, communicated in the Q1 earnings call that the loss of new customers during Covid has dried up the customer pipeline, but that occupancies are gradually moving higher as the effect very slowly subsides. Lindblad hasn’t been flexible in its pricing as a strategic choice, and geopolitical events with the Israeli-Hamas War and events in Ecuador continue to further pressure occupancy for the time being.
With the geopolitical issues, pressures could persist for some time. An eventual recovery should still happen, but the high debt simultaneously continues to weigh on the company’s future. Lindblad’s adjusted EBITDA outlook stands at $88-98 million for 2024, up notably from $71.2 million in 2023 despite the challenges.
Announced Transactions Drive Future Growth
Lindblad announced the acquisition of Wineland-Thompson Adventures with the Q1 report for a consideration of approximately $30 million, made primarily in cash but also with equity of up to $6 million. Wineland-Thompson expands Lindblad’s Land Experience segment with Tanzania safari specialist Thomson Safaris, and Gibb’s Farm lodge in East Africa.
Lindblad is clearly expanding its offering beyond the marine fleet, diversifying revenues from the seemingly fluctuating source of earnings. Wineland-Thompson’s financials weren’t disclosed, though, making the acquisition challenging to evaluate in terms of its financial rationale. The 2024 financial outlook was reaffirmed at the same range after the announced acquisition, though, potentially meaning quite a non-significant add-on to revenues and the bottom line.
Recently in June, Lindblad also announced an addition of two vessels into the company’s fleet, expected to start operating in the Galápagos Islands in early 2025 after the transaction is expected to close in January of the same year. The new vessels show a beginning execution of the previously agreed expansion with National Geographic.
The transactions look to considerably fuel Lindblad’s growth for the mid-term growth, although the Wineland-Thompson acquisition’s financials aren't likely very notable.
Updated Valuation
I updated my discounted cash flow [DCF] model to estimate a fair value for the stock. I now estimate a revenue CAGR of 8.6% from 2023 to 2033 and a 2.5% perpetual growth afterwards, with revenues now scaling moderately higher than previously at $1267 million in 2032 compared to $1140 million previously. The growth is weighed into the mid-term as the recently announced transactions look to fuel upcoming growth along with an increased occupancy.
I now estimate the EBIT margin to scale into 10.0% compared to 11.0% previously, as the company has continued posting weak margins so far due to cost inflation and lower occupancy that raises long-term risks as well.
I estimate good cash flows in 2024 due to slower investments, but weak cash flows in 2025 due to the vessel investments. Afterwards, I estimate quite a good conversion, estimating some further investments in coming years.
The estimates put Lindblad’s fair value estimate at $8.92, 5% below the stock price at the time of writing – the stock still doesn’t seem very attractive, especially considering the very high debt that leverages risks very high for investors. More aggressive growth could easily turn the investment attractive too, though - the very high debt leverages the fair value to both directions as the estimates fluctuate.
A weighted average cost of capital of 9.89% is used in the DCF model, nearly the same as the previously used 9.71% cost of capital. The used WACC is derived from a capital asset pricing model:
I reiterate the interest rate estimate of 6.75% and the long-term debt-to-equity ratio of 80%. To estimate the cost of equity, I use the 10-year bond yield of 4.36% as the risk-free rate. The equity risk premium of 4.60% is Professor Aswath Damodaran’s estimate for the US, updated on the 5th of January. I have kept the beta at 1.98. With a liquidity premium of 0.3%, the cost of equity stands at 13.75% and the WACC at 9.89%.
Takeaway
Lindblad has continued to grow well, but occupancy remains low and combined with cost inflation, total profitability is still at an alarmingly low level. Gradual improvements are expected and should be likely, but for the time being, high debt continues to leverage risks. The company has recently announced an acquisition in Africa and two new vessels in the Galápagos Islands, looking to fuel mid-term growth well.
The company’s great growth catalysts, weak current margins, and high debt combined make for a balanced risk-to-reward investment in my opinion, and as such, I remain with a Hold rating for Lindblad.