Norwegian Cruise Line Holdings Ltd. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 26, 2021. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. COVID-19 halted global sailings beginning March 13, 2020; the suspension was extended through May 31, 2021.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.280 billion | $6.462 billion |
| Operating income (loss) | $(3.484) billion | $1.178 billion |
| Net income (loss) | $(4.013) billion | $930.2 million |
| Diluted EPS | $(15.75) | $4.30 |
| Operating cash flow | $(2.556) billion | $1.823 billion |
| Capital expenditures and other investing cash flow | $(975) million | $(1.680) billion |
| Cash and cash equivalents at year-end | $3.300 billion | $252.9 million |
| Total debt, including current portion | $11.806 billion | $6.802 billion |
| Shareholders’ equity | $4.354 billion | $6.516 billion |
- Revenue fell 80.2%, while Capacity Days declined 78.6%. The company carried 499,729 passengers, versus 2.70 million in 2019. Reported occupancy was 103.8%, compared with 107.3%.
- Operating and net margins were approximately negative 272% and negative 314%, respectively, reflecting the near-total suspension of sailings and substantial impairment charges.
- Adjusted EBITDA was a loss of $1.045 billion, versus income of $1.935 billion in 2019. Adjusted net loss was $2.200 billion, or $(8.64) per share, versus adjusted net income of $1.101 billion, or $5.09 per share. These are non-GAAP measures.
- Operating cash use included a $4.013 billion net loss and an $811.8 million decline in advance ticket sales. Financing activities provided $6.579 billion, largely from debt and equity issuance.
- At year-end, management reported $3.3 billion of liquidity and $1.6 billion of working capital. Fourth-quarter average cash burn was approximately $190 million per month; the company estimated a similar first-quarter 2021 rate, or approximately $170 million excluding one-time debt modification costs.
Material changes versus 2019
- Revenue fell from $6.462 billion to $1.280 billion and the company swung from a $930.2 million profit to a $4.013 billion loss.
- The company recorded $1.608 billion of impairment losses, including $1.291 billion of goodwill impairment and $317 million of Oceania and Regent trade-name impairment. Year-end goodwill was $98.1 million; trade names were carried at $500.5 million.
- Interest expense, net rose to $482.3 million from $272.9 million, reflecting additional borrowing at higher rates and $27.8 million of debt extinguishment and modification losses.
- Debt increased by approximately $5.0 billion. Equity offerings issued approximately 101.0 million ordinary shares, and year-end outstanding shares rose to 315.6 million from 213.1 million.
- Advance ticket sales declined to $1.2 billion, including approximately $850 million in future cruise credits. The prior-year balance was $2.0 billion.
Outlook, liquidity, risks and contingencies
- Management expected a gradual, phased return to service at reduced occupancy, dependent on public-health rules, port access, travel restrictions, crew staffing and implementation of health protocols. The filing provides no quantified earnings or restart-date guidance; management expected losses to continue until voyages resumed.
- Management stated it had sufficient liquidity for at least 12 months from issuance of the financial statements, even if sailings did not resume in that period, based on its forecasts and planned cost controls. It also disclosed approximately $560 million of debt amortization and ship milestone payments due in April 2022 and said additional liquidity would be needed beyond the assessment period; there is no assurance financing or other measures will be available on acceptable terms.
- Debt amendments and newbuild payment extensions were expected to add approximately $1 billion of liquidity over the following 12 months. Several facilities received covenant waivers or suspended tests through 2022, generally with a $200 million minimum free-liquidity requirement and tighter restrictions. The company reported covenant compliance at December 31, 2020.
- Credit-card processing arrangements are a significant liquidity exposure: a processor held a $200 million reserve at year-end, the company posted another $250 million in January 2021, and processor exposure was approximately $780 million. A stated reserve shortfall of approximately $330 million remained after the January collateral; 100% of incoming deposits with that processor were to be withheld until its exposure was collateralized.
- The nine-ship order book had an estimated contract price of $8.7 billion, with export-credit financing expected to fund approximately 80%, subject to conditions. COVID-related shipyard delays were reported. The company also faces substantial fixed debt service, collateral encumbrances, potential dilution from exchangeable notes or future equity raises, and volatile demand and operating costs.
- COVID-19-related shareholder class actions and government investigations were ongoing. The company also disclosed Helms-Burton Act litigation; it could not reasonably estimate potential losses in those matters.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Current cash burn, unrestricted liquidity and the timing and terms of any additional debt or equity financing.
- Whether credit-card processor reserves, withheld deposits and refund obligations increase or release cash demands.
- Actual sailing restart timing, permitted occupancy, port availability, cancellation/refund levels and conversion of future cruise credits into paid voyages.
- Debt maturity and amortization schedules after amendments, compliance with minimum-liquidity covenants, and the capacity to meet 2022 obligations.
- Potential further impairment charges, exchangeable-note dilution, ship-delivery delays and outcomes of COVID-related and Helms-Burton litigation or investigations.