Norwegian Cruise Line Holdings Ltd. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Its fleet had 30 ships and approximately 62,000 berths at quarter-end.
Financial performance and liquidity
- Q2 revenue: $2.205 billion, up from $1.187 billion in Q2 2022. Passenger ticket revenue was $1.478 billion and onboard and other revenue was $727 million.
- Q2 earnings: Operating income was $272.5 million versus an operating loss of $396.8 million; net income was $86.1 million versus a net loss of $509.3 million. Diluted EPS was $0.20 versus a loss of $1.22. Adjusted EBITDA was $514.8 million versus negative $184.5 million; adjusted net income was $137.0 million.
- Six-month results: Revenue was $4.027 billion versus $1.709 billion. Operating loss narrowed to $82.7 million from $1.086 billion, and net loss narrowed to $73.2 million from $1.492 billion. Adjusted EBITDA was $749.0 million versus negative $660.7 million; adjusted net income was $4.7 million versus an adjusted loss of $1.239 billion.
- Occupancy and yields: Q2 occupancy was 104.9%, compared with 64.6% a year earlier; six-month occupancy was 103.2%, compared with 58.1%. Q2 Net Yield was $278.74 per Capacity Day. These comparisons reflect the prior-year phased return to service.
- Cash flow: Six-month operating cash flow was $1.537 billion, versus cash used of $108.8 million. It included a $500 million return of credit-card-processor collateral and an $826.2 million increase in advance ticket sales. Investing cash use was $992.2 million, primarily for newbuilds; financing cash use was $592.3 million. Cash declined $47.9 million from year-end to $899.1 million.
- Balance sheet and debt: Total assets were $18.648 billion. Current and long-term debt totaled approximately $13.120 billion on the balance sheet; shareholders’ equity was only $15.2 million. Current assets were $1.849 billion and current liabilities $5.818 billion, including $3.346 billion of advance ticket sales. Reported liquidity was approximately $2.4 billion, including cash and available facilities and commitments.
- Margins and costs: Q2 GAAP gross margin was $638.4 million, compared with negative $56.9 million. Adjusted Gross Margin was $1.537 billion versus $834.8 million. Q2 interest expense rose to $177.7 million from $144.4 million, primarily due to higher rates.
Material changes and financing
- Revenue and occupancy rebounded as the fleet returned to full operation; passenger cruise days rose to 5.8 million from 3.0 million in Q2 2022. Cruise operating expenses also increased with the return to service.
- In February, the company issued $600 million of 8.375% secured notes due 2028, partly refinancing Term Loan A amounts otherwise due in January 2024, and $250 million of 9.75% secured notes due 2028 for general corporate purposes. A further $650 million secured-note commitment was available subject to its terms.
- At June 30, 88% of debt was fixed-rate, versus 75% at year-end 2022. The company reported compliance with debt covenants. Principal repayments scheduled for the remainder of 2023 and 2024 totaled approximately $2.188 billion, excluding estimated interest.
Outlook, risks and contingencies
- Management expects normalized annual occupancy of approximately 105%–106% and said operating costs per Capacity Day were expected to continue improving in 2023. The second-half 2023 booked position was ahead of 2019 levels at higher pricing; the 12-month-forward booked position was approximately 60%–65%. These are expectations, not guarantees.
- Management concluded available liquidity was sufficient for at least the next 12 months, based on assumptions including bookings, cash collections, fuel prices, inflation, capital spending and expected exchange of the 2024 Exchangeable Notes. It plans to pursue refinancing to reduce interest expense and/or extend maturities; financing availability is not assured.
- Risks include substantial debt and debt-service needs, interest rates, inflation and fuel prices, consumer demand, possible additional collateral demands by card processors, shipyard and delivery delays, unhedged euro-denominated construction costs, and evolving climate regulation. Approximately $6.1 billion of remaining ship-construction payments were unhedged against euro movements at quarter-end; a 10% euro change was estimated to change their U.S.-dollar value by $0.6 billion.
- Ship orders had combined contract prices of approximately $8.1 billion, with export-credit financing expected to cover about 80%, subject to conditions. Norwegian Viva was delivered in August 2023; its associated $1.1 billion term loan bears fixed interest at 2.77% and matures in 2035.
- In the Havana Docks litigation, a $112.9 million judgment was under appeal; management considered loss reasonably possible but not probable and recorded no liability. A separate approximately $159 million vendor judgment in the company’s favor was appealed; no receivable was recorded. Credit-card processors could require additional collateral against future-voyage receipts.
Most important facts for investors to verify
- Whether occupancy, pricing and advance bookings convert into sustainable operating cash flow, rather than cash flow primarily supported by advance sales or collateral returns.
- Debt maturities, refinancing progress, covenant compliance and the terms and availability of committed financing.
- Newbuild spending, delivery schedules, financing coverage and exposure to euro, interest-rate and fuel-price movements.
- Potential collateral requirements from credit-card processors and developments in the Havana Docks appeal and vendor litigation.
- Performance alongside non-GAAP measures: adjusted results exclude specified items and are not substitutes for GAAP earnings or cash flow.