Norwegian Cruise Line Holdings Ltd. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Voyages had been suspended since March 2020; limited operations resumed in July 2021, after the quarter ended.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $4.4 million | $16.9 million | $7.5 million | $1,263.8 million |
| Operating loss | $(605.1) million | $(595.4) million | $(1,176.4) million | $(2,419.5) million |
| Net loss | $(717.8) million | $(715.2) million | $(2,088.0) million | $(2,596.2) million |
| Diluted loss per share | $(1.94) | $(2.99) | $(5.97) | $(11.46) |
| Adjusted EBITDA (non-GAAP) | $(407.5) million | $(393.1) million | $(780.9) million | $(377.7) million |
- Revenue was negligible while sailings were suspended. Meaningful operating margins cannot be inferred from these results.
- Cash used in operations was $1.482 billion in the first half, versus $1.328 billion a year earlier. Investing cash outflow was $315.2 million; financing provided $1.247 billion.
- Cash and equivalents were $2.750 billion at June 30, down from $3.300 billion at year-end 2020. Current assets were $3.465 billion and current liabilities $2.181 billion.
- Debt on the balance sheet totaled approximately $12.286 billion, including current and long-term portions. Scheduled principal repayments, including finance leases, totaled $12.493 billion; debt and interest obligations are substantial.
- Shareholders’ equity was $3.719 billion, down from $4.354 billion at year-end. First-half financing included $1.558 billion in net share issuance proceeds.
Material changes and unusual items
- Second-quarter revenue fell 74.2% year over year; first-half revenue fell 99.4%. The company reported no passengers carried in either 2021 period.
- Q2 net loss was broadly similar to 2020, while first-half net loss improved year over year, partly because 2020 included $1.608 billion of impairment charges.
- First-half interest expense, net rose to $961.7 million from $183.4 million, primarily reflecting $653.7 million of debt extinguishment and modification costs—chiefly the $600.4 million loss on repurchasing Private Exchangeable Notes—and higher debt at higher rates.
- In March, the company raised approximately $2.7 billion in gross debt and equity proceeds and used approximately $1.5 billion to extinguish debt. It repurchased the Private Exchangeable Notes for approximately $1.0 billion after issuing 52.6 million shares in an equity offering.
- Debt amendments deferred approximately $70 million of certain secured-facility amortization and approximately $680 million under export-credit facilities. Financial covenant waivers and a minimum $200 million free-liquidity requirement apply through December 31, 2022.
Outlook, risks and contingencies
- Management expected approximately 40% of capacity to be operating by September 30, 2021, approximately 75% by year-end and the full fleet by April 1, 2022. Initial sailings were planned at reduced occupancy, generally 60%–80%, with a gradual ramp-up. These are expectations, not guarantees.
- Management reported strong 2022 booking and pricing trends, with the cumulative booked position meaningfully ahead of 2019 levels and at higher prices, including the dilutive effect of future cruise credits. It cautioned that bookings may not predict realized revenue.
- Second-quarter average monthly cash burn was approximately $200 million; management expected approximately $285 million monthly in Q3 as more ships relaunched. Estimates exclude customer refunds, new bookings, newbuild capital expenditures and certain other working-capital changes.
- The company said it had sufficient liquidity for at least the next 12 months, based on assumptions and available resources, but anticipated needing additional debt or equity financing if the restart were delayed or a substantial part of the fleet remained suspended. Management expected net losses through 2021 until regular voyages resumed.
- Credit-card processors held approximately $800 million in reserves against approximately $940 million of exposure; 100% of incoming deposits with the processor were being withheld, and additional collateral could further constrain liquidity. Advance ticket sales totaled $1.4 billion, including approximately $800 million in future cruise credits; most deposits were refundable under applicable policies.
- Key risks include pandemic resurgence and variants, travel restrictions, regulatory and health-protocol requirements, port access, crew staffing, customer refunds and demand, fuel and foreign-exchange movements, financing access, covenant compliance, and shipyard delays. Nine ships were on order, with combined contract prices of approximately $9.0 billion; COVID-related delivery delays were possible.
- A securities class action was dismissed with no right of appeal. Government investigations concerning pandemic-era marketing remained ongoing. The company could not reasonably estimate potential losses in Helms-Burton Act litigation.
- Management reported effective disclosure controls as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Actual fleet restart pace, occupancy, cancellations and realized bookings versus management’s 2021–2022 expectations.
- Monthly cash burn, customer refund requirements, processor reserve exposure and unrestricted liquidity as voyages resume.
- Availability and terms of future financing, debt maturities, interest burden, covenant requirements and compliance after waivers expire.
- Whether newbuild commitments, financing and delivery schedules change, and the resulting capital needs.
- Developments in governmental investigations, Helms-Burton litigation and other contingencies.