Norwegian Cruise Line Holdings Ltd. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. After suspending voyages in March 2020, it began a limited, phased return to service in July 2021; 11 of 28 ships were operating with guests as of the filing date.
Key financial metrics
Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $153.1 | $6.5 | $160.5 | $1,270.3 |
| Operating loss | $(689.1) | $(517.8) | $(1,865.5) | $(2,937.3) |
| Net loss | $(845.9) | $(677.4) | $(2,933.9) | $(3,273.6) |
| Diluted loss per share | $(2.29) | $(2.50) | $(8.23) | $(13.55) |
| Adjusted EBITDA, non-GAAP | $(475.0) | $(313.8) | $(1,255.9) | $(691.5) |
- Revenue and operating performance: Q3 revenue rebounded from the near-shutdown comparison period as ships returned to service, but remained far below normal levels. Q3 occupancy was 57.4%. No meaningful positive operating margin was achieved; the Q3 operating loss was approximately 450% of revenue.
- Cash flow: Nine-month operating cash use was $2.15 billion, investing cash use was $543.0 million, and financing provided $1.33 billion. Cash fell by $1.37 billion from year-end 2020 to $1.93 billion at September 30, 2021.
- Liquidity and working capital: Current assets were $3.28 billion and current liabilities $2.94 billion. Cash was $1.93 billion. Accounts receivable included $964.7 million due from credit-card processors. The company reported approximately $1.2 billion of processor cash reserves at quarter-end; $388.3 million was released after quarter-end.
- Debt and equity: Balance-sheet current and long-term debt totaled approximately $12.41 billion. Scheduled principal repayments, including finance leases, totaled $12.60 billion, with $5.07 billion due in 2024. The company raised $1.56 billion net from share issuance during the first nine months and issued 52.6 million shares in its March offering. It recorded $601.5 million of loss on debt extinguishment in operating cash-flow adjustments, primarily related to repurchasing Private Exchangeable Notes.
- Customer advances and obligations: Advance ticket sales were $1.7 billion, including approximately $750 million of future cruise credits. Credit-card processing agreements covered about $1.5 billion of advance ticket sales and allow processors to require collateral or reserves under specified circumstances.
Material changes versus the prior comparable period
- Q3 revenue rose from $6.5 million to $153.1 million as sailing resumed, but operating costs grew faster than revenue: Q3 operating loss widened to $689.1 million from $517.8 million, and net loss widened to $845.9 million from $677.4 million.
- For the nine-month period, revenue fell 87.4% year over year because of suspended voyages and reduced occupancy. Net loss improved from $3.27 billion to $2.93 billion, largely because 2020 included $1.61 billion of impairment losses; 2021 included sharply higher interest expense and debt-related charges.
- Nine-month net interest expense rose to $1.12 billion from $323.1 million, including debt extinguishment and modification costs. The company reported $657.2 million of such costs in its non-GAAP reconciliation.
- Debt amendments deferred approximately $70 million of certain secured-facility amortization before June 2022 and approximately $680 million of export-credit facility amortization through March 2022. Financial covenant testing was waived or suspended through December 31, 2022, subject to a $200 million minimum free-liquidity requirement. The company said it was covenant-compliant at September 30.
Outlook, commentary, risks and unusual items
- Restart outlook: Management expected about 75% of capacity to be operating by December 31, 2021 and the full fleet back in operation by April 1, 2022, initially at reduced occupancy. It planned for all ships to reach full capacity by June 30, 2022. These timelines depend on pandemic conditions, regulations, port access, staffing and health protocols.
- Bookings: Management said Q3 net bookings were affected by the Delta variant, with subsequent improvement, particularly for second-half 2022 and 2023 sailings. The full-year 2022 cumulative booked position was described as in line with 2019 record levels at higher pricing; second-half 2022 was described as above 2019. Management cautioned that cancellations and future cruise credits make bookings an uncertain indicator of realized revenue.
- Cash burn and liquidity: Average Q3 monthly cash burn was approximately $275 million; management expected approximately $350 million per month in Q4 as more ships relaunched. The estimate excludes booking cash inflows and customer refunds. Management stated it had sufficient liquidity for at least 12 months, while warning that additional financing may be needed if the restart is delayed or occupancy remains low. A $1 billion commitment executed in November 2021 was undrawn as of the filing date; if drawn, it converts to an 8% unsecured note maturing in April 2024.
- Expected losses: The company expected net losses for Q4 and full-year 2021, and continued losses until regular voyages resumed.
- Capital commitments: Nine ships were on order, with combined contract prices of approximately €7.6 billion ($8.8 billion at the stated exchange rate), and deliveries expected through 2027. COVID-related shipyard delays could extend delivery schedules. Management anticipated export-credit financing for about 80% of each ship’s contract price, subject to conditions.
- Key risks: COVID-19 resurgence or variants, regulatory and public-health restrictions, reduced travel demand, crew availability, cancellations and refunds, processor collateral demands, fuel and foreign-exchange volatility, high leverage, covenant compliance and access to financing. A 1 percentage-point increase in LIBOR was estimated to add about $34.2 million to annual interest expense. A 10% euro move was estimated to change the U.S.-dollar value of unhedged ship payments by $0.6 billion.
- Legal and unusual items: COVID-era shareholder class actions were dismissed with no right to appeal; government investigations into pandemic marketing remained ongoing. A Helms-Burton case was set for trial in March 2022; the company said it could not reasonably estimate potential loss. The filing also noted the November liquidity commitment and $388.3 million of post-quarter processor reserve releases.
Important facts for investors to verify
- Actual ship-restart dates, fleet capacity in service, occupancy, and whether bookings convert into completed voyages and cash collections.
- Cash burn against the Q4 estimate, cash available after processor reserves, future refund requests, and any further reserve or collateral requirements.
- Availability and terms of the $1 billion commitment, and whether further debt or equity financing or refinancing is required.
- Debt maturities, interest expense, covenant relief and the company’s ability to maintain the $200 million minimum free-liquidity requirement.
- Shipbuilding commitments, export-credit financing availability, delivery delays and the resulting capital-spending and debt burden.
- Developments in the ongoing government investigations and Helms-Burton litigation, including any material change in estimated exposure.