Norwegian Cruise Line Holdings Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Its full fleet had returned to service by May 2022. Comparisons below are with Q1 2022 unless stated otherwise.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $1.822 billion | $521.9 million |
| Operating income (loss) | $10.7 million | $(688.8) million |
| Net loss | $(159.3) million | $(982.7) million |
| Diluted loss per share | $(0.38) | $(2.35) |
| Adjusted EBITDA (non-GAAP) | $234.2 million | $(476.2) million |
| Adjusted Net Loss (non-GAAP) | $(127.7) million | $(760.5) million |
| Operating cash flow | $503.3 million | $(371.0) million |
Passenger ticket revenue was $1.209 billion and onboard and other revenue was $613.1 million. GAAP gross margin was $360.0 million, versus a loss of $380.1 million; Adjusted Gross Margin, a non-GAAP measure, was $1.293 billion versus $401.4 million. Occupancy was 101.5%, up from 48.0%, on 5.50 million Passenger Cruise Days versus 1.43 million. Management attributed the revenue recovery mainly to increased voyages and capacity as operations resumed.
Cash, debt and liquidity: Cash and cash equivalents were $700.6 million at quarter-end, down from $947.0 million at December 31, 2022. Long-term debt, including current maturities, totaled approximately $13.13 billion on the balance sheet; shareholders’ equity was a deficit of $99.5 million. Cash used in investing was $236.4 million, primarily for newbuild payments; cash used in financing was $513.4 million. Operating cash generation included a $668.3 million increase in advance ticket sales.
Management reported $591 million available under the undrawn revolving facility and a further $650 million undrawn commitment, less related fees. It concluded liquidity was sufficient for at least 12 months, while noting the conclusion depends on assumptions and is not assured. Advance ticket sales, including the long-term portion, were $3.4 billion. Credit-card processors held approximately $577.6 million in cash reserves/collateral, and may require additional collateral under specified conditions.
Material changes and financing
- Revenue, operating performance and cash flow improved substantially year over year as more ships operated and occupancy recovered. The comparison is affected by the phased fleet restart in 2022.
- Interest expense, net fell to $171.3 million from $327.7 million, largely because Q1 2022 included $188.4 million of debt extinguishment and modification losses. Excluding those losses, interest expense increased, primarily due to higher rates.
- In February, NCLC issued $600 million of 8.375% senior secured notes due 2028, using proceeds to repay Term Loan A borrowings otherwise due in January 2024. It also issued $250 million of 9.75% senior secured notes due 2028 for general corporate purposes.
- The company’s $650 million commitment may be drawn in up to two tranches; a separate backstop agreement provides for up to $300 million of financing during October 2023–January 2024, subject to conditions. In April, $82.5 million of revolving-facility principal was assigned to a new lender with its maturity extended to January 2025.
- Debt maturities and shipbuilding obligations remain substantial. Disclosed material cash requirements totaled $22.8 billion, including estimated debt service and ship construction payments. Approximately $5.6 billion of committed, undrawn export-credit facilities was available to fund about 80% of ship construction contracts, subject to conditions.
Outlook, risks and unusual items
- Management said cumulative bookings for the rest of 2023 were ahead of 2019 levels, including increased capacity, at higher pricing. It expected the occupancy ramp-up to be complete in Q2 2023 and said onboard revenue generation remained robust. The filing does not provide specific full-year financial guidance.
- The company expected operating costs per capacity day to improve in 2023 from margin-enhancement initiatives, but said inflation, fuel prices, interest rates and other macroeconomic conditions continued to pressure costs. Its liquidity estimates depend on assumptions about occupancy, revenue, cash collections, fuel and inflation.
- Eight ships were on order, with combined contract prices of about $7.6 billion at quarter-end; delivery timing may be affected by shipyard, geopolitical, sustainability-related and macroeconomic delays. Oceania Cruises’ Vista was delivered in April 2023, financed in part with a $632.6 million term loan at a fixed 3.64% rate, maturing in 2035.
- The company was in compliance with debt covenants at March 31, 2023. It warned that covenant breaches could trigger cross-defaults and materially harm liquidity. It also reported that 16% of debt was variable-rate; a one-percentage-point increase in annual LIBOR rates was estimated to add about $21.2 million to annual interest expense.
- Unhedged euro-denominated ship payments totaled approximately €4.6 billion; a 10% euro movement was estimated to change their U.S. dollar value by about $0.5 billion. Fuel hedges covered approximately 53% of remaining 2023 and 13% of 2024 projected fuel purchases.
- In the Havana Docks litigation, a $112.9 million judgment was on appeal; the company assessed loss as reasonably possible but not probable and recorded no liability. A separate Helms-Burton case was dismissed with prejudice in April 2023. Florida and other governmental investigations into pandemic-era marketing remained ongoing. The company also disclosed a $159 million vendor verdict in its favor under appeal, for which it recognized no receivable.
Key facts for investors to verify
- Whether booking momentum, pricing and occupancy continued to support operating cash generation after quarter-end, and whether occupancy normalized as management expected.
- Whether cash reserves required by credit-card processors change, and the amount and timing of any collateral releases or new requirements.
- Progress refinancing near-term maturities, drawing or extending committed financing, and maintaining covenant compliance.
- Actual ship-delivery timing, construction spending and availability of export-credit financing, alongside the significant scheduled debt and shipbuilding payments.
- Updates to the Havana Docks appeal, governmental investigations and other contingencies, including any effect on reported liabilities or liquidity.