NOTE 1 — BUSINESS AND BASIS OF PRESENTATION

Business

Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries’ (the “Company” or “Lindblad”) mission is offering life-changing adventures around the world and pioneering innovative ways to allow its guests to connect with exotic and remote places. The Company currently operates a fleet of nine owned expedition ships and five seasonal charter vessels under the Lindblad brand, operates land-based eco-conscious expeditions and active nature focused tours under the Natural Habitat, Inc. (“Natural Habitat”) and Off the Beaten Path, LLC (“Off the Beaten Path”) brands and operates luxury cycling and adventure tours under the DuVine Cycling + Adventure Company (“DuVine”) brand.

The Company operates the following two reportable business segments:

Lindblad Segment.  The Lindblad segment consists primarily of ship-based expeditions aboard customized, nimble and intimately-scaled vessels that are able to venture where larger cruise ships cannot, thereby allowing Lindblad to offer up-close experiences in the planet’s wild and remote places and capitals of culture. Many of these expeditions involve travel to remote places with limited infrastructure and ports, such as Antarctica and the Arctic, or places that are best accessed by a ship, such as the Galápagos, Alaska, Baja’s Sea of Cortez, Costa Rica and Panama, and foster active engagement by guests. Each expedition ship is designed to be comfortable and inviting, while being fully equipped with state-of-the-art tools for in-depth exploration. The Company has an alliance with National Geographic Partners (“National Geographic”), which provides for lecturers and National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, to join many of the Company’s expeditions.

Land Experiences Segment.  The Land Experiences segment includes our three primarily land-based brands, Natural Habitat, DuVine and Off the Beaten Path.

The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “LIND”.

NOTE 2 — EARNINGS PER SHARE

Earnings per Common Share

Earnings (loss) per common share is computed using the two-class method related to its Preferred Stock. Under the two-class method, undistributed earnings available to stockholders for the period are allocated on a pro rata basis to the common stockholders and to the holders of convertible preferred shares based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion of the Preferred Stock. Diluted earnings per share is computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the dilutive incremental common shares associated with restricted stock awards, shares issuable upon the exercise of stock options and previously outstanding warrants, using the treasury stock method, and the potential common shares that could be issued from conversion of the Preferred Stock, using the if-converted method. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted earnings per share calculation.

For the three months ended March 31, 2021 and 2020, the Company incurred a net loss from operations, therefore basic and diluted net loss per share are the same for the periods. As of March 31, 2021,  i 0.9 million restricted shares,  i 0.5 million options and  i 9.3 million common shares issuable upon the conversion of the Preferred Stock were excluded from dilutive potential common shares for the period as they were anti-dilutive and basic and diluted net loss per share are the same for the period. As of March 31, 2020,  i 0.5 million restricted shares and  i 0.2 million options were excluded from dilutive potential common shares for the period as they were anti-dilutive.

For the three months ended March 31, 2021 and 2020, the Company calculated earnings (loss) per share as follows:

NOTE 3 — REVENUES

Customer Deposits and Contract Liabilities

The Company’s guests remit deposits in advance of tour embarkation. Guest deposits consist of guest ticket revenues as well as revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the condensed consolidated balance sheets when received and are subsequently recognized as tour revenue over the duration of the trip. Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. The Company does not consider guest deposits to be a contract liability until the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. The change in contract liabilities within unearned passenger revenues presented in our condensed consolidated balance sheets are as follows:

The following table disaggregates our tour revenues by the sales channel it was derived from:

NOTE 4 — FINANCIAL STATEMENT DETAILS

The following is a reconciliation of cash, cash equivalents and restricted cash to the statement of cash flows:

Restricted cash consist of the following:

The Company’s prepaid expenses and other current assets consist of the following:

The Company’s accounts payable and accrued expenses consist of the following:

Loan Receivable

The Company’s loan receivable is recorded at amortized cost within other long-term assets. The following is a rollforward of the receivable balance:

NOTE 5 — LONG-TERM DEBT

For the three months ended March 31, 2021 and 2020, deferred financing costs charged to interest expense were $ i 0.7 million and $ i 0.5 million, respectively.

Credit Facility

In March 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) providing for a $ i 200.0 million senior secured term facility (the “Term Facility”), maturing March 2025, and a $ i 45.0 million senior secured revolving credit facility (the “Revolving Facility”) maturing March 2023, which includes a $ i 5.0 million letter of credit sub-facility. In March 2020, the Company drew $ i 45.0 million against the Revolving Facility as a reserve for general corporate purposes and other expense needs due to the uncertainty related to the COVID-19 pandemic.

In August 2020, the Company amended the Amended Credit Agreement to waive the application of the total net leverage ratio covenant through June 2021. In connection with the amendment, the interest rate of the Term Facility was increased  i 125 basis points, to be paid-in-kind at maturity, a LIBOR minimum of  i 0.75% was added to the Term Facility and certain covenants were amended to be more restrictive. 

In December 2020, the Company amended the Amended Credit Agreement to provide for the borrowing of a new tranche of incremental term loans under the Amended Credit Agreement in an amount of $ i 85.0 million, maturing December 2025, made under the Main Street Expanded Loan Facility (the “Main Street Loan”). Interest on the Main Street Loan shall be paid-in-kind for the first year and the principal shall amortize at a rate of  i 15% in each of the third and fourth years, with the remaining amounts to be paid at maturity. The Company may voluntarily prepay the Main Street Loan at any time and from time to time, without premium or penalty, other than customary “breakage costs” and fees for LIBOR-based loans.

The Term Facility, as amended, bears interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR with a minimum of  i 0.75%, plus a spread of  i 4.75%, for an aggregated rate of  i 5.50% as of December 31, 2020.  i 125 basis points of the spread are to be paid-in-kind at maturity. Borrowings under the Revolving Facility as amended, bears interest at an adjusted ICE Benchmark administration LIBOR, plus a spread of  i 3.00%, for an aggregated rate of  i 3.12% as of March 31, 2020. The Main Street Loan bears interest at a rate per annum adjusted ICE Benchmark administration LIBOR for an interest period of 3-months plus  i 3.00%, for an aggregated rate of  i 3.20% as of March 31, 2021. 

Senior Secured Credit Agreement

In January 2018, the Company entered into a senior secured credit agreement (the “Export Credit Agreement”) with Citibank, N.A., London Branch and Eksportkreditt Norge AS, to make available to the Company a loan in an aggregate principal amount not to exceed $ i 107.7 million for the purpose of providing financing for up to  i 80% of the purchase price of the Company’s new ice class vessel, the National Geographic Endurance. During March 2020, the Company took possession of the National Geographic Endurance and borrowed $ i 107.7 million under the Export Credit Agreement for final payment. The Export Credit Agreement bears interest at a floating interest rate equal to three-month LIBOR plus a margin of  i 3.00% per annum, for an aggregated rate of  i 3.18% as of March 31, 2021. 

In April 2019, the Company entered into a senior secured credit agreement (the “Second Export Credit Agreement”) with Citibank, N.A., London Branch and Eksportkreditt Norge AS, to make available to the Company, at the Company's option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $ i 122.8 million for the purpose of providing pre- and post-delivery financing for up to  i 80% of the purchase price of the Company’s new expedition ice-class cruise vessel, the National Geographic Resolution, scheduled to be delivered in the fourth quarter of 2021. In September 2019,  April 2020 and April 2021, the Company drew approximately $ i 30.5 million, $ i 30.6 million and $ i 15.5 million, respectively, against the Second Export Credit Agreement for contracted installment payments on the National Geographic Resolution. The Second Export Credit Agreement bears a variable interest rate equal to three-month LIBOR plus a margin of  i 3.00% per annum, or  i 3.19% as of March 31, 2021. After completion of the vessel, the Second Export Credit Agreement, at the Company’s option, will bear an interest rate of either a fixed rate of  i 6.36% or a variable rate equal to three-month LIBOR plus a margin of  i 3.00% per annum.

In  June 2020, the Company amended its export credit agreements to defer approximately $ i 9.0 million in aggregate scheduled amortization payments originally due June 2020 through March 2021 and to suspend the total net leverage ratio covenant from June 2020 through June 2021.

Notes Payable

In connection with the Natural Habitat acquisition in May 2016, Natural Habitat issued a $ i 2.5 million unsecured promissory note, amended in May 2020, to Benjamin L. Bressler, the founder of Natural Habitat, with an outstanding principal amount of $ i 1.7 million as of March 31, 2021. The promissory note accrues interest at a rate of  i 1.44% annually, with interest payable every six months and the remaining principal payments to be due in equal installments on December 22, 2021 and 2022. 

Covenants

The Company’s Amended Credit Agreement, Export Credit Agreement and Second Export Credit Agreement contain financial and restrictive covenants that include among others, net leverage ratios, limits on additional indebtedness and limits on certain investments. As of March 31, 2021, the net leverage ratio covenant of the Company’s Amended Credit Agreement has been waived through June 2021. The Company was in compliance with its covenants in effect as of March 31, 2021.

NOTE 6 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

The Company’s derivative assets and liabilities consist principally of foreign exchange forward contracts and interest rate caps and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as quoted market prices are not readily available. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves and counterparty credit risks.

Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S.-dollar denominated receivables and payables. The Company primarily hedges a portion of its current-year currency exposure to the Canadian and New Zealand dollars, the Brazilian Real, the South African Rand, the Euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge.

In March 2019, the Company entered into foreign exchange forward contracts, designated as cash flow hedges, to hedge its exposure to Norwegian Kroner ("NOK"), related to the Company’s contract to purchase the new polar ice-class vessel (see Note 12 — Commitments and Contingencies). The cost of the foreign exchange forward contracts will be amortized to interest expense over their lives, from the effective date through settlement dates.

Interest Rate Risk. The Company uses interest rate caps, designated as cash flow hedges, to manage the risk related to its floating rate corporate debt.

The Company records the effective portion of changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized. Any changes in fair values of hedges that are determined to be ineffective are immediately reclassified from accumulated other comprehensive income (loss) into earnings. No gains or losses of the Company’s cash flow hedges were considered to be ineffective and reclassified from other comprehensive income (loss) to earnings for the period ended March 31, 2021. The Company estimates that approximately $ i 1.8 million of losses currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months due to maturity of the cash flow hedge and the hedged item. The Company will continue to assess the effectiveness of the hedges on an ongoing basis.

The Company held the following derivative instruments with absolute notional values as of March 31, 2021:

Estimated fair values (Level 2) of derivative instruments were as follows:

Changes in the fair value of the Company’s hedging instruments are recorded in accumulated other comprehensive income, pursuant to the guidelines of cash flow hedge accounting as outlined in ASC 815.

The effects of derivatives recognized in the Company’s condensed consolidated financial statements were as follows:

Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value given that the terms of the agreements were comparable to the market as of March 31, 2021. As of March 31, 2021 and December 31, 2020, the Company had no other significant liabilities that were measured at fair value on a recurring basis.

NOTE 7 — STOCKHOLDERS’ EQUITY

Stock and Warrant Repurchase Plan

The Company’s Board of Directors approved a stock and warrant repurchase plan (“Repurchase Plan”) in November 2015 and increased the repurchase plan to $ i 35.0 million in November 2016. The Repurchase Plan authorizes the Company to purchase, from time to time, the Company’s outstanding common stock and previously outstanding warrants. Any shares purchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. All repurchases were made using cash resources. In March 2020, the Repurchase Plan was suspended due to the uncertain impact of the COVID-19 pandemic and our borrowings through the Main Street Expanded Loan Facility program places restrictions on stock repurchases. The Company has cumulatively repurchased  i 875,218 shares of common stock for $ i 8.3 million and  i 6,011,926 warrants for $ i 14.7 million, since plan inception. The remaining balance for the Repurchase Plan was $ i 12.0 million as of March 31, 2021.

Preferred Stock

On August 31, 2020, the Company issued and sold  i 85,000 shares of Series A Redeemable Convertible Preferred Stock, par value of $ i 0.0001, (“Preferred Stock”) for $ i 1,000 per share for gross proceeds of $ i 85.0 million. The Preferred Stock has senior and preferential ranking to the Company’s common stock. The Preferred Stock is entitled to cumulative dividends of  i 6.00% per annum, and for the first two years, the dividends will be paid-in-kind. After the second anniversary of the issuance date, the dividends may be paid-in-kind or be paid in cash at the Company’s option. The Preferred Stock is convertible at any time, at the holder’s election, into a number of shares of common stock of the Company equal to the quotient obtained by dividing the then-current accrued value by the conversion price of $ i 9.50. At any time after the third anniversary of the issuance, the Company may, at its option, convert all, but not less than all, of the Preferred Stock into common stock if the closing price of shares of common stock is at least 150% of the conversion price for 20 out of 30 consecutive trading days. The number of shares of common stock received in such conversion shall be equal to the quotient obtained by dividing the then-current accrued value by the conversion price. At the six-year anniversary of the closing date, each investor has the right to require the Company to repurchase their Preferred Stock and any Preferred Stock not requested to be repurchased shall be converted into common shares of the Company equal to the quotient obtained by dividing the then-current accrued value by the conversion price. The Preferred Stock deferred issuance costs was approximately $ i 2.9 million as of March 31, 2021.

NOTE 8 — STOCK BASED COMPENSATION

The Company is authorized to issue up to  i 2.5 million shares of common stock under the 2015 Long-Term Incentive Plan to key employees, and as of March 31, 2021, approximately  i 0.1 million shares were available to be granted. The Company has proposed a new long-term incentive plan for approval at the 2021 annual meeting. 

As of March 31, 2021 and December 31, 2020, options to purchase an aggregate of  i 510,000 shares of the Company’s common stock, with a weighted average exercise price of $ i 10.30, were outstanding. As of March 31, 2021,  i 200,000 options were exercisable.

The Company recorded stock-based compensation expense of $ i 1.6 million and $ i 0.9 million during the three months ended  March 31, 2021 and 2020, respectively.

2021 Long-Term Incentive Compensation

During the three months ended March 31, 2021, the Company granted  i 109,921 restricted stock units ("RSUs") with a weighted average grant price of $ i 18.74. The RSUs will primarily vest equally over three years on the anniversary of the grant date, subject to the recipient’s continued employment or service with the Company on the applicable vesting date. The number of shares were determined based upon the closing price of our common stock on the date of the award.

During the three months ended March 31, 2021, the Company awarded  i 50,072 market performance share units (“MSUs”) with a weighted average grant price of $ i 18.90. The MSUs are market-based equity incentive awards based on a performance-multiplier of change in the stock price of the Company’s common stock between the grant date and March 31, 2024. The number of shares that will eventually be earned and vest may be more or less then the number of MSUs that are awarded, depending on the Company's common stock price, at a level ranging from  i 0% to  i 150%. The number of MSUs earned shall be determined and shall vest on March 31, 2024.

Natural Habitat Contingent Arrangement

In connection with the acquisition of Natural Habitat, Mr. Bressler, the founder of Natural Habitat, has an equity incentive opportunity to earn an award of options based on the future financial performance of Natural Habitat, where if the Final Year Equity Value of Natural Habitat, as defined in Mr. Bressler's amended employment agreement, exceeds $ i 25 million, effective as of December 31, 2023, Mr. Bressler will be granted options with a fair value equal to  i 10.1% of such excess, subject to certain conditions.