Norwegian Cruise Line Holdings Ltd. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also provides fourth-quarter results. Amounts are U.S. dollars unless stated otherwise.
Business context and reporting period
NCLH operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. At year-end it had 28 ships with approximately 59,150 berths and nine ships on order. Voyages were suspended from March 2020 until a limited, phased restart began in July 2021; vessels initially sailed at reduced occupancy. Omicron-related restrictions and port disruptions led to cancellations and delayed restarts late in 2021.
Financial performance and liquidity
| Metric | 2021 | 2020 | 2019 |
|---|---|---|---|
| Total revenue | $648.0 million | $1.280 billion | $6.462 billion |
| Operating income (loss) | $(2.552) billion | $(3.484) billion | $1.178 billion |
| Net income (loss) | $(4.507) billion | $(4.013) billion | $930.2 million |
| Diluted EPS | $(12.33) | $(15.75) | $4.30 |
| Net cash from (used in) operating activities | $(2.468) billion | $(2.556) billion | $1.823 billion |
- Revenue fell 49.4% from 2020; capacity days fell 18.1%. Occupancy was 52.7%, versus 103.8% in 2020 and 107.3% in 2019.
- 2021 Adjusted EBITDA was a loss of $1.724 billion, compared with a loss of $1.045 billion in 2020. Adjusted net loss was $2.950 billion, or $(8.07) per share, versus $2.200 billion, or $(8.64) per share, in 2020. These are non-GAAP measures.
- Interest expense, net was $2.073 billion, up from $482.3 million in 2020, largely reflecting about $1.4 billion of debt extinguishment and modification losses and higher debt balances and rates.
- Operating cash outflow was $2.468 billion. Investing activities used $1.004 billion, principally for newbuilds and ship improvements; financing activities provided $1.678 billion.
- At December 31, 2021, cash and cash equivalents were $1.507 billion, short-term investments $240 million and total debt $12.447 billion. Reported liquidity was $2.7 billion, including a $1 billion undrawn commitment available through August 15, 2022. Working capital was negative $0.4 billion.
- Advance ticket sales were $1.8 billion, including approximately $0.7 billion of future cruise credits. Credit-card processor collateral reserves were approximately $1.2 billion, a potential liquidity constraint.
Material changes versus prior periods
- Revenue and passenger volumes remained far below 2019 levels because most sailings were suspended or resumed gradually. 2021 revenue was lower than 2020, while operating loss narrowed partly because 2020 included $1.608 billion of impairment losses.
- Net loss worsened from 2020, despite a smaller operating loss, principally because 2021 interest expense included major debt-repurchase and modification costs.
- Cash and cash equivalents declined from $3.300 billion at year-end 2020 to $1.507 billion at year-end 2021. Total debt increased from $11.806 billion to $12.447 billion.
- Equity offerings in 2021 issued approximately 99.4 million ordinary shares, increasing the share count and diluting existing holders. NCLH reported 416.9 million shares outstanding at year-end.
Outlook, management commentary and risks
- Management expected approximately 85% of capacity to be operating by the end of the first quarter of 2022 and the full fleet to return in early second-quarter 2022; it planned for all ships to sail at full capacity by year-end 2022. These were expectations, not guarantees.
- Management expected net cash provided by operating activities to turn positive in the second quarter of 2022, following Omicron-related disruption. Average monthly cash burn was approximately $345 million in fourth-quarter 2021; the first-quarter 2022 estimate was approximately $390 million. These estimates excluded booking cash inflows and certain other items.
- Management expected continued net losses until regular voyages resumed. It stated that available liquidity was sufficient for obligations for at least 12 months, based on assumptions about fleet restart, occupancy, revenue, customer collections and restart costs. The auditor identified liquidity estimates and COVID-19 assumptions as a critical audit matter.
- Debt covenants were modified or waived, and the company reported compliance at December 31, 2021. Minimum free liquidity requirements and later financial tests remain important; covenant failure could trigger defaults, cross-acceleration and enforcement against collateral, including ships.
- Debt and shipbuilding commitments were substantial: scheduled debt and estimated interest payments totaled $14.6 billion, while ship construction commitments totaled $8.36 billion as of year-end. Export-credit facilities were expected to fund about 80% of ship contract prices, subject to conditions. February 2022 financing and related debt repayments occurred after year-end and should be considered separately.
- Key risks include further COVID-19 disruption, weak demand or lower occupancy, refunds and future-cruise-credit redemption, credit-card processor collateral demands, refinancing and dilution risk, high leverage and interest costs, fuel and inflation pressures, port access, shipyard delays, and environmental regulation. The filing also discloses ongoing Helms-Burton litigation and COVID-19-related governmental investigations; potential losses in the Cuba matters could not be reasonably estimated.
- No cash dividend was being paid, and the company said it did not expect to pay dividends for the foreseeable future.
Most important facts for investors to verify
- Whether fleet restart, occupancy, booking prices and operating cash-flow expectations were achieved after the filing date.
- Current unrestricted liquidity, treatment and release timing of processor collateral, and the availability and terms of financing commitments.
- Debt balances, maturities, interest costs, covenant thresholds and the effects of subsequent financings and redemptions.
- Newbuild payment schedules, delivery timing, financing availability and resulting capital requirements.
- Customer deposits and future cruise credits, including potential refund obligations and the cash impact of redemptions.
- Developments in the Helms-Burton cases, governmental investigations and other contingencies, as well as the company’s exposure to fuel, foreign exchange and regulatory changes.