Norwegian Cruise Line Holdings Ltd. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 8, 2023. Amounts below are U.S. dollars. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises; it reported 31 ships and approximately 66,000 berths.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.536B | $1.616B | $6.563B | $3.325B |
| Operating income (loss) | $523.3M | $(185.2)M | $806.6M | $(1.271)B |
| Net income (loss) | $345.9M | $(295.4)M | $272.7M | $(1.787)B |
| Diluted EPS | $0.71 | $(0.70) | $0.62 | $(4.26) |
| Adjusted EBITDA (non-GAAP) | $752.1M | $28.1M | $1.501B | $(632.6)M |
- Q3 gross margin was $862.7M, versus $202.2M. Revenue rose 57% year over year, mainly reflecting more passenger cruise days and higher occupancy.
- Q3 passenger ticket revenue was $1.734B and onboard and other revenue was $802.4M. Q3 operating expenses increased with fuller operations and new ships; marketing, general and administrative expense declined.
- Net interest expense increased to $181.2M in Q3 from $152.3M, primarily due to higher rates. For the first nine months, interest expense fell to $530.2M from $624.4M, largely because 2022 included substantially higher debt extinguishment and modification losses.
- Occupancy was 106.1% in Q3 and 104.2% for the first nine months, compared with 81.5% and 67.3%, respectively, in 2022. Q3 passenger cruise days rose to 6.2M from 4.0M.
- Management’s non-GAAP measures showed Q3 Adjusted Gross Margin of $1.801B and Net Yield of $309.48, compared with $1.136B and $276.47 in 2022. Adjusted Net Income was $388.0M and Adjusted EPS $0.76; these measures include adjustments and are not GAAP results.
Cash flow, liquidity and debt
- For the first nine months, operating cash flow was $1.747B, versus cash used of $26.6M in 2022. The 2023 amount included a $500M return of cash collateral from a credit-card processor and $419.4M of increased advance ticket sales.
- Investing cash outflow was $2.207B, primarily for newbuild payments; financing cash inflow was $194.5M. Cash declined by $265.4M to $681.6M from year-end 2022.
- At September 30, cash and current assets were $681.6M and $1.611B. Current liabilities were $5.402B, including $2.965B of advance ticket sales. Total reported debt was approximately $13.875B, comprising $1.240B current and $12.635B long-term debt. Shareholders’ equity was $438.7M.
- Reported liquidity was approximately $2.2B, including cash, an undrawn $875M revolving facility and up to $650M of undrawn note commitments, net of related fees. The company said it had sufficient liquidity and expected covenant compliance for at least 12 months; it was in compliance at September 30.
- After quarter-end, NCLC issued $790M of 8.125% secured notes due 2029 and used proceeds plus cash to repay the Term Loan A Facility. The revolving facility was amended and increased from $875M to $1.2B, with stated maturity October 2026 subject to earlier-maturity conditions. No term loans remained outstanding under the amended facility.
- Debt repayments scheduled as of September 30 totaled $14.213B of principal, including exchangeable notes and finance leases. The filing also reports $22.845B of estimated debt and ship-construction cash requirements across the listed periods, including estimated interest and ship contracts.
Changes, outlook and material matters
- The business moved from a substantial loss in the 2022 comparable quarter to positive operating income and net income in Q3 2023, alongside a sharp recovery in passenger volumes and occupancy. The nine-month comparison similarly shifted from a large loss to profit.
- Management reported healthy consumer demand: Q4 2023 booked position was ahead of 2019 levels at higher pricing, and the 12-month forward booked position remained within its optimal range at higher pricing. Management cautioned that bookings may not predict realized revenue. Onboard revenue generation was described as robust.
- Full-year 2023 occupancy was expected to average 102.6%, including temporary Q4 disruptions. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
- Wildfires in Maui temporarily slowed close-in Hawaii bookings; management said demand had improved and was approaching normalized levels. Due to the Israel conflict, calls to Israel and some nearby destinations were cancelled or redirected for the rest of 2023, with Israel calls also being cancelled for 2024. Before the conflict, the Middle East accounted for about 7% of Q4 2023 capacity and 4% of full-year 2024 capacity.
- Six ships were on order, with combined contract prices of approximately $6.7B; export-credit financing was expected to fund about 80%, subject to conditions. Delivery timing had been affected by sustainability modifications and other conditions, and further delays were possible. Remaining 2023–2025 newbuild expenditures were estimated at $2.9B, with approximately $2.1B of related export-credit financing identified for those periods.
- Fuel-price, foreign-exchange and interest-rate exposure remain material. At September 30, 88% of debt was fixed-rate; a one-percentage-point rise in Term SOFR was estimated to increase annual interest expense by $16.4M. A 10% euro move was estimated to change the dollar value of unhedged remaining ship payments by $0.6B. Fuel hedges covered approximately 45% of remaining 2023 and 24% of 2024 projected consumption.
- Climate targets call for reducing greenhouse-gas intensity 10% by 2026 and 25% by 2030 versus 2019. Management expects related costs and says the full financial impact is not yet known.
- In the Havana Docks Helms-Burton case, a $112.9M judgment was on appeal; the company assessed loss as reasonably possible but not probable and recorded no liability. A separate vendor judgment of approximately $159M in the company’s favor was under appeal; no receivable was recorded. The company also disclosed ongoing government investigations related to pandemic-era marketing.
- Credit-card processor agreements covered approximately $2.8B of advance ticket sales and can require additional reserves or collateral under specified circumstances. The company warned that future collateral demands could adversely affect liquidity.
Important facts for investors to verify
- Reconcile reported liquidity with debt maturities, covenant requirements and the conditions that could accelerate the amended revolving facility’s maturity.
- Track operating cash generation excluding one-time collateral returns and changes in advance ticket sales; assess the company’s ability to fund debt service and newbuild commitments.
- Monitor actual pricing, occupancy, cancellations and onboard spending against management’s demand commentary and 102.6% full-year occupancy expectation.
- Review the outcome of the Havana Docks appeal, other litigation and any credit-card processor collateral requirements.
- Assess ship delivery schedules, financing availability and exposure to unhedged euro payments, fuel costs, interest rates and climate-related investment requirements.
- Consider potential dilution: Q3 diluted weighted-average shares were 511.6M versus 425.4M basic shares, including the effect of exchangeable notes and share awards.