Norwegian Cruise Line Holdings Ltd. — Q3 2022 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2022, compared with the same 2021 periods. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Its full 29-ship fleet was operating with guests by early May 2022; Norwegian Prima was delivered in July.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,615.5 million | $153.1 million | $3,324.6 million | $160.5 million |
| Operating loss | $(185.2) million | $(689.1) million | $(1,270.8) million | $(1,865.5) million |
| Net loss | $(295.4) million | $(845.9) million | $(1,787.4) million | $(2,933.9) million |
| Diluted loss per share | $(0.70) | $(2.29) | $(4.26) | $(8.23) |
| Adjusted EBITDA (non-GAAP) | $28.1 million | $(475.0) million | $(632.6) million | $(1,255.9) million |
- Q3 gross margin was $202.2 million, versus a loss of $445.8 million a year earlier; Adjusted Gross Margin, a non-GAAP measure, was $1,136.0 million versus $101.4 million.
- Q3 occupancy was 81.5%, versus 57.4%; nine-month occupancy was 67.3%, versus 57.4%. Passenger Cruise Days increased to 4.0 million in Q3 from 0.4 million.
- For the nine months, operating cash flow was negative $26.6 million, compared with negative $2.15 billion. Investing cash outflow was $1.59 billion, primarily reflecting the Norwegian Prima delivery; financing cash inflow was $1.30 billion. Cash and cash equivalents ended at $1.19 billion, down from $1.51 billion at year-end 2021.
- At September 30, total debt was approximately $13.91 billion, including $1.01 billion current and $12.89 billion long-term. Shareholders’ equity was $399.8 million, down from $2.43 billion at year-end 2021.
- Current liabilities were $4.66 billion against current assets of $2.16 billion. Advance ticket sales were $2.29 billion current and $2.5 billion including the long-term portion. These customer advances are not equivalent to unrestricted cash and may be refundable.
Material changes and financing
- Revenue and passenger volumes rebounded sharply as the fleet returned to service. Operating costs also rose with resumed operations, including payroll, fuel and other direct costs; management cited inflation in fuel, food and logistics, as well as COVID-related costs and higher marketing expense.
- Q3 interest expense fell to $152.3 million from $161.2 million, primarily due to refinancing and higher interest income, partly offset by higher debt balances and rates. Nine-month interest expense was $624.4 million versus $1.12 billion, including $188.4 million of debt extinguishment losses in 2022 versus $657.2 million in 2021.
- February financing transactions generated $2.1 billion gross proceeds and funded redemptions of the 2024 and 2026 senior secured notes and scheduled debt payments. The company reported an undrawn $1 billion financing commitment, extended through March 31, 2023; it had not drawn on it as of November 8, 2022.
Outlook, risks and contingencies
- Management stated it had sufficient liquidity for at least the next 12 months, based on cash, the undrawn commitment (net of fees), and its assumptions. It also said approximately $2.2 billion of debt matures in January 2024 and that it is taking steps to address the maturity. The company anticipates needing additional financing if operations remain disrupted or occupancy is reduced for a prolonged period.
- Management reported Q4 2022 cumulative bookings below the comparable 2019 period, but at higher prices, including the dilutive impact of future cruise credits. For 2023, bookings were at record 2019 levels inclusive of increased capacity, with higher pricing. Management cautioned that booking trends may not predict actual revenue or the timing of a return to historical occupancy, and stated the company would report a Q4 2022 net loss. No specific full-year earnings guidance was provided in the filing.
- Risk factors include renewed public-health disruption, travel restrictions and port availability, staffing, Russia’s invasion of Ukraine, inflation, fuel and interest-rate volatility, ship-delivery delays, debt and covenant requirements, and possible additional collateral demands from credit-card processors. The company said it was in compliance with debt covenants at quarter-end.
- Credit-card processors held approximately $742.5 million in cash reserves/collateral; the company warned additional collateral or reserves could further reduce liquidity. About $2.1 billion of advance ticket sales were governed by processor agreements that may permit reserve requirements under specified circumstances.
- In the Havana Docks Helms-Burton case, the court granted summary judgment on liability; the company estimated baseline statutory damages could be approximately $110 million before attorneys’ fees and costs. Management considered loss reasonably possible but not probable and recorded no liability; it planned to appeal. A separate related case remained stayed, with potential loss not reasonably estimable.
- A vendor claim resulted in an approximately $159 million verdict for the company in October 2022; the verdict may be appealed, and no receivable was recorded.
- The eight ships on order had combined contract prices of approximately $6.6 billion. Management noted delivery delays and that future delays may occur. About 80% of ship contract prices are expected to be financed through export-credit arrangements, subject to conditions.
Important facts for investors to verify
- Liquidity availability and terms, including any draw on the $1 billion commitment, processor collateral requirements, and plans for the January 2024 debt maturity.
- Progress toward historical occupancy and whether 2023 bookings convert into realized revenue, particularly given future cruise credits and cancellation terms.
- Fuel, labor and inflation effects on operating costs, and the extent to which hedges offset fuel and foreign-exchange exposure.
- Shipbuilding schedules, required capital spending and export-credit financing availability.
- Developments in the Havana Docks litigation, the vendor verdict appeal, and any material changes in contingencies or covenant compliance.
- Non-GAAP measures are supplemental and should be assessed alongside GAAP losses and cash flows; the filing reports no clear numerical estimate of when the company will return to profitability.