Cruise and exploration company Lindblad Expeditions (NASDAQ:LIND) announced better-than-expected revenue in Q3 CY2024, with sales up 17.1% year on year to $206 million. The company expects the full year’s revenue to be around $620 million, close to analysts’ estimates. Its GAAP profit of $0.36 per share was also 96.4% above analysts’ consensus estimates.

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Sven Lindblad, Chief Executive Officer, said "Lindblad delivered a record third quarter as we continue to generate strong operating results across both our fleet and expanded land experiences portfolio. Looking ahead, this strong growth is poised to continue as current year bookings for future travel have reached record levels. Our focus continues to be on providing high quality travel experiences and strategically expanding our travel platform to capture this demand. We believe we are well positioned to deliver meaningful shareholder value in the years to come. "

Company Overview

Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ:LIND) offers cruising experiences to remote destinations in partnership with National Geographic.

Travel and Vacation Providers

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Lindblad Expeditions’s 13% annualized revenue growth over the last five years was mediocre. This shows it couldn’t expand in any major way, a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or emerging trend. Lindblad Expeditions’s annualized revenue growth of 29.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note that COVID hurt Lindblad Expeditions’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

This quarter, Lindblad Expeditions reported year-on-year revenue growth of 17.1%, and its $206 million of revenue exceeded Wall Street’s estimates by 6.3%.

Looking ahead, sell-side analysts expect revenue to grow 7.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and shows the market thinks its products and services will see some demand headwinds.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lindblad Expeditions has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.3%, lousy for a consumer discretionary business.

Lindblad Expeditions’s free cash flow clocked in at $18.36 million in Q3, equivalent to a 8.9% margin. This result was good as its margin was 4.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

Over the next year, analysts predict Lindblad Expeditions’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8% for the last 12 months will decrease to 4.9%.

Key Takeaways from Lindblad Expeditions’s Q3 Results

We were impressed by how significantly Lindblad Expeditions blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance was underwhelming, although this was offset by strong EBITDA guidance ahead of expectations. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 8% to $10.09 immediately after reporting.

Lindblad Expeditions may have had a good quarter, but does that mean you should invest right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.