Norwegian Cruise Line Holdings Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Voyages had been suspended since March 2020 and remained suspended through June 2021.
Financial results and liquidity
- Revenue: $3.1 million, down 99.8% from $1.247 billion in Q1 2020. Revenue was insignificant because sailings were suspended.
- Operating loss: $571.3 million, versus $1.824 billion in Q1 2020. The prior-year quarter included $1.608 billion of impairment losses; Q1 2021 had none.
- Net loss and EPS: $1.370 billion and $(4.16) per diluted share, compared with $1.881 billion and $(8.80) per share. Q1 2021 interest expense was $824.4 million, including $674.0 million of debt extinguishment and modification costs, primarily associated with repurchasing the Private Exchangeable Notes and debt amendments. Adjusted net loss was $668.6 million; adjusted EBITDA was negative $373.4 million. These are non-GAAP measures.
- Margins and operating metrics: No Capacity Days were reported for Q1 2021, so per-capacity-day metrics were not presented; margins are not meaningful for a period with virtually no revenue and no voyages.
- Cash flow: Cash used in operating activities was $852.0 million, versus $52.7 million in Q1 2020. Investing activities used $138.3 million, versus $637.9 million. Financing provided $1.198 billion, including proceeds from debt and share offerings, partly offset by debt repayments and a redemption premium.
- Cash and liquidity: Cash and cash equivalents were $3.508 billion at March 31, 2021, up from $3.300 billion at year-end 2020. Management estimated average monthly cash burn at about $190 million in Q1 and expected about $190 million in Q2 2021; the Q1 rate was about $170 million excluding previously disclosed non-recurring debt modification costs.
- Debt and equity: Balance-sheet debt was approximately $12.219 billion, including current and long-term debt; scheduled principal repayments including finance leases totaled $12.439 billion. March financing included a $1.6 billion gross equity offering that issued 52.6 million shares and additional debt offerings. The company said the transactions generated about $2.7 billion in gross proceeds collectively, with approximately $1.5 billion used to extinguish debt. Ordinary shares outstanding rose to about 369.9 million from 315.6 million at December 31, 2020.
- Advance ticket sales: Approximately $1.3 billion, including about $850 million of future cruise credits. The vast majority of deposits were refundable under applicable cancellation policies.
Changes, outlook and material risks
- Compared with Q1 2020, revenue collapsed as operations remained suspended, while operating costs fell with cost-saving actions. The lower reported net loss partly reflects the prior-year impairment charge; Q1 2021 results were burdened by debt-related charges and higher debt balances.
- Debt amendments deferred approximately $70 million of certain secured-facility amortization before June 30, 2022 and approximately $680 million of export-credit facility amortization through March 31, 2022. Certain financial covenants were suspended through December 31, 2022, with a $200 million minimum liquidity requirement. The company reported covenant compliance at quarter-end.
- Management expected a limited, phased relaunch beginning in July 2021, initially outside the U.S. and at reduced occupancy. Timing and scale depended on the pandemic, public-health rules, port access, travel restrictions, vaccines and therapeutics, and the ability to restaff ships and implement safety protocols. Management expected a net loss through Q2 and until regular voyages resumed, including for full-year 2021.
- Management concluded available liquidity and conservation actions were sufficient for at least 12 months, even if voyages did not resume during that period. It also warned that about $670 million of debt amortization and ship milestone payments, net of export-credit financing, would be due in July 2022 and that additional liquidity could be needed thereafter. Future financing or successful renegotiations were not assured.
- A credit-card processor held a reserve of about $580 million against exposure of about $840 million; 100% of incoming deposits through that processor were being withheld, and the company might need to provide more collateral. This could further constrain liquidity.
- Nine new ships were on order, with combined contract prices of about $8.4 billion; export-credit financing was expected to fund about 80%, subject to conditions. COVID-19 had already caused some delivery delays and could cause further delays. April 2021 agreements deferred about $315.7 million of certain newbuild payments and related debt amortization to July 2022.
- Other risks included uncertainty over U.S. cruise restart requirements, weak or delayed demand recovery, refunds and cancellations, credit-rating downgrades and financing access, covenant defaults and cross-acceleration provisions, fuel, foreign-exchange and interest-rate exposure, and litigation or regulatory investigations. A COVID-related shareholder class action was dismissed in April 2021, subject to appeal; government investigations continued. The company said it could not reasonably estimate potential losses in the Helms-Burton cases.
Important facts for investors to verify
- Whether the limited July 2021 relaunch occurred as planned, at what occupancy and pace, and whether U.S. regulatory and port requirements permitted broader service.
- Actual monthly cash burn, refund and cancellation levels, future-cruise-credit use, and any changes to processor reserves or collateral demands.
- Liquidity available after restrictions and minimum-cash requirements, and the company’s ability to meet the approximately $670 million of July 2022 obligations and other debt and newbuild commitments.
- Debt balances, interest costs, covenant compliance and access to additional financing, including any further equity dilution or debt amendments.
- Newbuild delivery timing, financing coverage and any additional deferrals, as well as developments in the ongoing investigations and Helms-Burton litigation.