Norwegian Cruise Line Holdings Ltd. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. The company completed its IPO and corporate reorganization in January 2013, so share counts and ownership structure changed.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $644.4 | $583.2 | $1,172.1 | $1,098.7 |
| Operating income | $95.4 | $87.0 | $126.4 | $133.5 |
| Operating margin | 14.8% | 14.9% | 10.8% | 12.2% |
| Net income (loss) attributable to NCLH | $(8.8) | $36.0 | $(105.2) | $39.3 |
| Diluted EPS | $(0.04) | $0.20 | $(0.52) | $0.22 |
| Adjusted EBITDA (non-GAAP) | $152.3 | $135.1 | $252.1 | $228.6 |
- Q2 revenue rose 10.5%; management attributed higher Net Revenue (+12.0%) to capacity days increasing 8.2%, mainly following Norwegian Breakaway’s April delivery, and Net Yield increasing 3.5% (3.7% constant currency). Adjusted Net Income was $60.2 million and Adjusted EPS was $0.29, versus GAAP net loss of $8.8 million.
- For the first half, revenue increased 6.7% and Net Revenue increased 6.9%, driven by Net Yield growth of 3.7% and capacity days growth of 3.1%. Occupancy was 107.5% in both the quarter and six-month period, slightly below the respective 2012 figures of 107.7% and 107.6%.
- Q2 cruise operating expenses were $421.1 million, up 8.6%; other operating expenses were $128.0 million, up 18.0%. For the first half, marketing, general and administrative expense increased to $159.3 million from $133.0 million, and depreciation and amortization increased to $102.6 million from $92.5 million.
- Net Cruise Cost per capacity day rose 3.6% in Q2 and 5.8% for the first half. Adjusted Net Cruise Cost Excluding Fuel per capacity day rose 4.8% in Q2 and 1.8% for the first half, as reported.
Cash flow, debt and liquidity
- First-half operating cash flow was $252.8 million, versus $255.8 million. Investing cash outflow was $759.0 million, principally for Norwegian Breakaway and Getaway construction and delivery, ship improvements and shoreside projects. Financing cash inflow was $543.6 million; cash increased $37.3 million to $82.8 million.
- At June 30, total debt, including current maturities, was approximately $3.19 billion, compared with approximately $2.99 billion at December 31, 2012. Current debt was $272.6 million and long-term debt was $2.92 billion. Management said the quarter’s refinancing transactions caused no material change in debt levels.
- Reported liquidity was $499.8 million: $82.8 million cash and $417.0 million available under the revolving credit facility. Working capital was negative $970.1 million, including $542.6 million in advance ticket sales, which the company described as deferred passenger revenue collected before sailing.
- In May, NCLC entered into $1.3 billion of senior secured facilities: a $675 million term loan and a $625 million revolver, with $208 million of the revolver drawn at quarter-end. It also refinanced or amended other facilities and redeemed the remaining $227.5 million of 9.50% unsecured notes. The company issued $300 million of 5% notes due 2018 in February. Debt prepayment expenses were $70.1 million in Q2 and $160.6 million for the first half, materially increasing reported interest expense to $103.7 million and $231.3 million, respectively.
- At quarter-end, 85% of debt was variable-rate. The filing estimates a one-percentage-point rise in LIBOR would add about $27.1 million to annual interest expense, excluding capitalized interest. The company reported covenant compliance and stated it expected available liquidity and financing sources to cover operations, debt service and capital spending over the next 12 months; it cautioned that future funding is not assured.
Outlook, commitments and risks
- The filing provides no specific financial guidance. Management cited seasonal cruise demand, historically strongest in summer, and noted interim results may not indicate full-year performance.
- Norwegian Getaway was scheduled for delivery in January 2014, at an estimated cost of $814.3 million, with export credit financing for 90% of its contract price. Two Breakaway Plus ships were contracted for delivery in late 2015 and early 2017, at combined estimated cost of about $1.8 billion, with financing for 80%. The second ship’s construction was confirmed in July 2013.
- Contractual obligations totaled $5.52 billion, including $1.54 billion of ship construction contracts and $3.19 billion of long-term debt obligations as presented in the filing’s obligations table. Planned ship-construction payments were $747.9 million in 2014 and $799.3 million in 2015, partly covered by export credit financing.
- Remaining ship-construction payments not hedged against euro movements were estimated at €912.3 million ($1.19 billion); a 10% euro change was estimated to change their U.S.-dollar value by $118.7 million. Fuel hedges covered approximately 93% of projected 2013, 63% of 2014 and 51% of 2015 fuel purchases. A 10% increase in weighted-average fuel prices was estimated to raise 2013 fuel expense by $14.4 million, partly offset by hedge value changes.
- Two crew-member lawsuits remained pending; the company said it could not estimate their potential impact. It reported no material change to the risk factors in its latest annual report. Identified risks include substantial leverage, interest and fuel price volatility, foreign exchange exposure, consumer demand, competition, ship delivery and construction risks, safety and security incidents, regulation, and litigation.
- Disclosure controls were judged effective as of June 30, 2013, and the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile GAAP losses with Adjusted Net Income, Adjusted EPS and Adjusted EBITDA, including the debt-prepayment and IPO-related adjustments.
- Review debt maturities, variable-rate exposure, facility availability and covenant requirements against the company’s projected cash needs.
- Assess shipbuilding cash commitments, export-credit financing and exposure to euro exchange rates and fuel prices.
- Track whether yield growth and capacity additions offset rising operating costs, particularly per-capacity-day costs.
- Monitor the crew litigation and any developments affecting ship delivery, financing or the company’s liquidity outlook.