The following discussion and analysis addresses material changes in the financial condition and results of operations of the Company for the periods presented. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q ("Form 10-Q"), as well as the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 12, 2021.

Cautionary Note Regarding Forward-Looking Statements

Any statements in this Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are "forward-looking statements" as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," "outlook" and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to:





    ?  suspended operations, cancelling or rescheduling of voyages and other
       potential disruptions to our business and operations related to the novel
       coronavirus COVID-19;

    ?  the impacts of the novel coronavirus COVID-19 on our financial condition,
       liquidity, results of operations, cash flows, employees, plans and growth;

    ?  the impacts of the novel coronavirus COVID-19 on future travel and the
       cruise and airline industries in general;

    ?  unscheduled disruptions in our business due to travel restrictions,
       weather events, mechanical failures, pandemics or other events;

    ?  changes adversely affecting the business in which we are engaged;

    ?  management of our growth and our ability to execute on our planned growth,
       including our ability to successfully integrate acquisitions;

    ?  our business strategy and plans;

    ?  our ability to maintain our relationship with National Geographic;

    ?  compliance with new and existing laws and regulations, including
       environmental regulations and travel advisories and restrictions;

    ?  compliance with the financial and/or operating covenants in our debt
       arrangements;

    ?  adverse publicity regarding the cruise industry in general;

    ?  loss of business due to competition;

    ?  the result of future financing efforts;

    ?  delays and costs overruns with respect to the construction and delivery of
       newly constructed vessels;

    ?  those risks discussed herein and in Item 1A. Risk Factors in our Annual
       Report on Form 10-K for the year ended December 31, 2020, as filed with
       the SEC on March 12, 2021 (the "2020 Annual Report").



We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.





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Unless the context otherwise requires, in this Form 10-Q, "Company," "Lindblad," "we," "us," "our," and "ours" refer to Lindblad Expeditions Holdings, Inc., and its subsidiaries.





Business Overview



We provide expedition cruising, land-based adventure travel and cycling touring experiences, using itineraries that feature up-close encounters with wildlife, nature, history and culture, and promote guest empowerment, human connections and interactivity. Our mission is offering life-changing adventures around the world and pioneering innovative ways to allow our guests to connect with exotic and remote places.

We currently operate a fleet of ten owned expedition ships, having taken possession of our new polar ice class vessel, the National Geographic Resolution, in September 2021, and operate five seasonal charter vessels under the Lindblad Expeditions Holdings, Inc. ("Lindblad") brand. Additionally, during September 2021, we purchased the Crystal Esprit yacht and expect to begin operating it in 2022. Our voyages include destinations such as the Arctic, Antarctic, the Galápagos, Alaska and Baja's Sea of Cortez. We have a longstanding relationship with the National Geographic Society dating back to 2004, which is based on a shared interest in exploration, research, technology and conservation. This relationship includes a co-selling, co-marketing and branding arrangement with National Geographic Partners, LLC ("National Geographic"), whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions through its internal travel division. We collaborate with National Geographic on voyage planning to enhance the guest experience by having National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews, join our expeditions. Guests have the ability to interface with these experts through lectures, excursions, dining and other experiences throughout their voyage. We deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximized yields. We use our charter inventory as a mechanism to both increase travel options of our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs.

We operate land-based nature adventure travel expeditions around the globe, with unique itineraries designed to offer intimate encounters with nature and the planet's wild destinations and the animals and people who live there.

Natural Habitat, Inc. ("Natural Habitat") creates opportunities for adventure and discovery that transform lives with eco-conscious expeditions and nature-focused, small-group tours that include polar bear tours in Churchill, Canada, Alaskan grizzly bear adventures, small-group Galápagos tours and African safaris. Natural Habitat has partnered with World Wildlife Fund ("WWF") to offer conservation travel, which is sustainable travel that contributes to the protection of nature and wildlife.

DuVine Cycling + Adventure Company ("DuVine") provides international cycling adventures and unforgettable travel experiences, connecting with local character and culture on small, intimate group cycling tours around the world with cycling experts as guides, immersion in local cuisine, accommodations and history. International cycling tours include the exotic Costa Rican rainforests, the rocky coasts of Ireland, deep in the vineyards of Spain, or high in the Swiss Alps. Cycling adventures in the United States vary from cycling beneath the California redwoods to pedaling through Vermont farmland, wine tastings in the world-class vineyards of Napa and Sonoma or farm-to-table renaissance dining.

Off the Beaten Path, LLC ("Off the Beaten Path") provides small group travel, led by local, experienced guides, with distinct focus on wildlife, hiking national parks and culture, to change people's lives through exceptional travel. Off the Beaten Path is known for providing distinctive insider national park experiences in the Rocky Mountains, Desert Southwest, and Alaska, and includes unique trips across Europe, Africa, Australia, Central and South America and the South Pacific, for connecting the heart of the traveler with the soul of the place.

We operate two segments including the Lindblad segment, which consists of the operations of our Lindblad brand, and the Land Experiences segment, consisting of our Natural Habitat, DuVine and Off the Beaten Path brands.





2021 Highlights


We resumed ship operations in June 2021 and as of November 2, 2021 had eight of our ten vessels providing expeditions to guests. During June 2021, we launched three ships in Alaska and another in the Galapagos and during the third quarter the Company resumed operations on the majority of its remaining vessels with additional ships operating in Alaska, the Galapagos, Iceland and the Pacific Northwest.

During September 2021, we drew down $46.2 million under the second export credit agreement in conjunction with our final payment upon delivery of the National Geographic Resolution. In April 2021 we drew down $15.5 million under the second export credit agreement in conjunction with our fourth installment payment for the vessel.





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During the first quarter of 2021, we completed the acquisitions of Off the Beaten Path, a land-based travel operator specializing in authentic national park experiences, and DuVine, an international luxury cycling and adventure company focused on exceptional food and wine experiences.

During September 2021, we acquired the Crystal Esprit yacht for $13.3 million. We expect to modify the vessel to a capacity of 48 guest, along with other changes, and replace the National Geographic Islander in the Galapagos.

Return to Fleet Operations and COVID-19 Business Update

We resumed ship operations in June 2021 and, as of November 2, 2021, had eight of our ten operating vessels providing expeditions to guests. During June 2021, we launched three ships in Alaska and another in the Galapagos, and during the third quarter, we resumed operations on the majority of our remaining vessels with additional ships operating in Alaska, the Galapagos, Iceland and the Pacific Northwest. We continue to work with local authorities on plans to operate in additional geographies during remainder of the year and in early 2022. As the COVID-19 virus effects travel restrictions in various locations around the world, we also continue to work with our guests to reschedule travel plans and refund payments or issue future travel certificates, as applicable, for those expeditions and trips that we are not able to operate due to local restrictions.

We believe there are a variety of strategic advantages that enable us to deploy our ships safely and quickly, while mitigating the risk of COVID-19 as travel restrictions are lifted. The most notable is the size of our owned and operated vessels which range from 48 to 148 passengers, allowing for a highly controlled environment that includes stringent cleaning protocols. The small nature of our ships also allows us to efficiently and effectively test our guests and crew prior to boarding. Additionally, all guests age 12 and older, crew and staff are required to be fully vaccinated and the majority of expeditions take place in remote locations where human interactions are limited, so there is less opportunity for external influence.

While our ships were not in operations, the majority of the fleet was being maintained with minimally required crew on-board to ensure they complied with all necessary regulations and could be fully put back into service quickly as needed. Ahead of launching each ship, crew levels were increased as necessary to prepare each vessel for operations as well as for crew training and vaccinations. Our offices primarily remain closed, and most employees are working remotely to maintain general business operations, to provide assistance to existing and potential guests and to maintain information technology systems.

We continue to adhere to the comprehensive plan we implemented in March 2020 to mitigate the impact of COVID-19 and preserve and enhance our liquidity position. Prior to resuming operations, this plan employed a variety of cost reduction and cash preservation measures including significantly reducing ship and land-based expedition costs such as capital expenditures, crew payroll, land costs, fuel and food, and meaningfully reducing general and administrative expenses through reduced payroll and the elimination of all non-essential travel, office expenses and discretionary spending. We also accessed available capital under existing debt facilities and through the issuance of preferred stock. With the majority of operations resuming, operating costs are ramping back up, but given the continued uncertainty around COVID-19 and given that guest counts have not yet returned to traditional levels, we continue to minimize expenditures as appropriate.





Bookings Trends


We have experienced a substantial negative impact from the COVID-19 virus including elevated cancellations and softness in near-term demand. Despite the COVID-19 impact, we continue to see significant new bookings across the fleet and have substantial advanced reservations for future travel. Bookings for the full year 2022 are 51% ahead of the bookings for 2021 as of the same date a year ago and 25% ahead of the bookings for 2020 as of the same date two years ago.

For voyages that were cancelled or rescheduled, we offered guests future travel credits or full refunds and the majority of guests opted for future travel credits.





Balance Sheet and Liquidity



As of September 30, 2021, we had $155.6 million in unrestricted cash and $29.5 million in restricted cash primarily related to deposits on future travel originating from U.S. ports and credit card reserves. During August 2021, we received a $21.0 million grant under the Coronavirus Economic Relief for Transportation Services ("CERTS") Act, which provided grants to eligible motorcoach, school bus, passenger vessel and pilotage companies that have experienced annual revenue losses of 25 percent or more as result of COVID-19. The priority use of grant funds must be for payroll costs, though grants may also be used for permitted operating expenses and the repayment of debt accrued to maintain payroll.

As of September 30, 2021, we had a total debt position of $561.8 million and were in compliance with all of our debt covenants currently in effect.





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In conjunction with the continuing economic risk of the COVID-19 pandemic, during 2021 we have taken a variety of steps to strengthen our balance sheet and increase liquidity including:

During June 2021, we further amended our export credit facilities to, among other things, extend the deferral of scheduled amortization payments of the first export credit facility through December 2021 in the aggregate amount of $15.7 million, extend the effective suspension of the total net leverage ratio covenant through March 2022, increase the interest rate for the export credit facilities by 50 basis points and annualize EBITDA used in the covenant calculation through December 31, 2022. The deferred principal payments will amortize quarterly over three years starting in March 2022. Certain other covenants continue to be more restrictive during the extended covenant waiver period.

During April 2021, we further amended our term loan and revolving credit agreement to, among other things, extend the waiver of its total net leverage ratio covenant through March 31, 2022, annualized EBITDA used in our covenant calculation through December 31, 2022 and increase the interest rate spreads of the Term Facility, excluding the Main Street Loan, and the Revolving Facility by 50 basis points, such additional interest to be paid in cash. Certain other covenants continue to be more restrictive during the extended covenant waiver period.

As we continue to ramp up operations, our monthly cash usage will increase as we incur costs in operating expeditions, preparing additional ships for return to service, spending to market and advertise upcoming expeditions and trips. We also anticipate a significant increase in guest payments as we receive final payments for upcoming expeditions as well as deposits for new reservations for future travel. However, there can be no assurance that cash flows from operations will be available to fund future obligations or that we will not experience delays or cancellations with respect to the resumption of our operations.

The discussion and analysis of our results of operations and financial condition are organized as follows:





    ?  a description of certain line items and operational and financial metrics
       we utilize to assist us in managing our business;

    ?  results and a comparable discussion of our consolidated and segment
       results of operations for the three and nine months ended September 30,
       2021 and 2020;

    ?  a discussion of our liquidity and capital resources, including future
       capital and contractual commitments and potential funding sources; and

    ?  a review of our critical accounting policies.




Financial Presentation



Description of Certain Line Items





Tour revenues


Tour revenues consist of the following:





    ?  Guest ticket revenues recognized from the sale of guest tickets; and

    ?  Other tour revenues from the sale of pre- or post-expedition excursions,
       hotel accommodations, air transportation to and from the ships and
       excursions, goods and services rendered onboard that are not included in
       guest ticket prices, trip insurance, and cancellation fees.




Cost of tours



Cost of tours includes the following:





    ?  Direct costs associated with revenues, including cost of pre- or
       post-expedition excursions, hotel accommodations, and land-based
       expeditions, air and other transportation expenses, and cost of goods and
       services rendered onboard;

    ?  Payroll costs and related expenses for shipboard and expedition personnel;

    ?  Food costs for guests and crew, including complimentary food and beverage
       amenities for guests;

    ?  Fuel costs and related costs of delivery, storage and safe disposal of
       waste; and



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    ?  Other tour expenses, such as land costs, port costs, repairs and
       maintenance, equipment expense, drydock, ship insurance, and charter hire
       costs.




Selling and marketing



Selling and marketing expenses include commissions, royalties and a broad range of advertising and promotional expenses.





General and administrative


General and administrative expenses include the cost of shoreside vessel support, reservations and other administrative functions, including salaries and related benefits, credit card commissions, professional fees and rent.

Operational and Financial Metrics

We use a variety of operational and financial metrics, including non-GAAP financial measures, such as Adjusted EBITDA, Net Yields, Occupancy and Net Cruise Costs, to enable us to analyze our performance and financial condition. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance. Some of these measures are commonly used in the cruise and tourism industry to evaluate performance. We believe these non-GAAP measures provide expanded insight to assess revenue and cost performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry.

The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and the related notes thereto also included within.

Adjusted EBITDA is net income (loss) excluding depreciation and amortization, net interest expense, other income (expense), income tax (expense) benefit, (gain) loss on foreign currency, (gain) loss on transfer of assets, reorganization costs, and other supplemental adjustments. Other supplemental adjustments include certain non-operating items such as stock-based compensation, executive severance costs, the National Geographic fee amortization, debt refinancing costs, acquisition-related expenses and other non-recurring charges. We believe Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. We believe Adjusted EBITDA helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements, such as unearned passenger revenues, capital expenditures and related depreciation, principal and interest payments, and tax payments. Our use of Adjusted EBITDA may not be comparable to other companies within the industry.

The following metrics apply to our Lindblad segment:

Adjusted Net Cruise Cost represents Net Cruise Cost adjusted for Non-GAAP other supplemental adjustments which include certain non-operating items such as stock-based compensation, the National Geographic fee amortization, and acquisition-related expenses.

Available Guest Nights is a measurement of capacity and represents double occupancy per cabin (except single occupancy for a single capacity cabin) multiplied by the number of cruise days for the period. We also record the number of guest nights available on our limited land programs in this definition.

Gross Cruise Cost represents the sum of cost of tours plus, selling and marketing expenses, and general and administrative expenses.

Gross Yield per Available Guest Night represents tour revenues less insurance proceeds divided by Available Guest Nights.

Guest Nights Sold represents the number of guests carried for the period multiplied by the number of nights sailed within the period.

Maximum Guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin (except single occupancy for a single capacity cabin).





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Net Cruise Cost represents Gross Cruise Cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues.

Net Cruise Cost Excluding Fuel represents Net Cruise Cost excluding fuel costs.

Net Yield represents tour revenues less insurance proceeds, commissions and direct costs of other tour revenues.

Net Yield per Available Guest Night represents Net Yield divided by Available Guest Nights.

Number of Guests represents the number of guests that travel with us in a period.

Occupancy is calculated by dividing Guest Nights Sold by Available Guest Nights.

Voyages represent the number of ship expeditions completed during the period.





Foreign Currency Translation


The U.S. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the condensed consolidated statements of operations.





Seasonality


Traditionally, our Lindblad brand tour revenues from the sale of guest tickets are mildly seasonal, historically larger in the first and third quarters. The seasonality of our operating results fluctuates due to our vessels being taken out of service for scheduled maintenance or drydocking, which is typically during nonpeak demand periods, in the second and fourth quarters. Our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work, drydock locations based on ship itineraries, operating conditions experienced especially in the polar regions and the applicable regulations of class societies in the maritime industry, which require more extensive reviews periodically. Drydocking impacts operating results by reducing tour revenues and increasing cost of tours. Natural Habitat, DuVine and Off the Beaten Path are seasonal businesses, with the majority of Natural Habitat's tour revenue recorded in the third and fourth quarters from its summer season departures and polar bear tours, while the majority of Off the Beaten Path and DuVine's revenues are recorded during the second and third quarters from their summer season tours and cycling adventures.

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