Norwegian Cruise Line Holdings Ltd. — Q1 2013 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2013, compared with the same period in 2012. Results are seasonal, and the company cautions that interim results are not necessarily indicative of full-year performance. The January 2013 IPO and related corporate reorganization made NCLH the parent of NCL Corporation; the IPO issued 27.1 million shares at $19 per share.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $527.6 million | $515.4 million; up 2.4% |
| Net Revenue (company-defined non-GAAP) | $390.7 million | $385.6 million; up 1.3% |
| Operating income / margin | $31.0 million / 5.9% | $46.4 million / 9.0% |
| Net income (loss) attributable to NCLH | $(96.4) million; $(0.49) per diluted share | $3.3 million; $0.02 per diluted share |
| Adjusted Net Income / Adjusted EPS (non-GAAP) | $12.9 million / $0.06 | $3.3 million / $0.02 |
| Adjusted EBITDA (non-GAAP) | $99.8 million | $93.5 million; up 6.6% |
| Net cash from operating activities | $82.1 million | $158.4 million |
| Cash and cash equivalents at period end | $81.2 million | $64.0 million at March 31, 2012 |
| Liquidity, including revolver availability | $550.8 million | At March 31, 2013 |
| Long-term debt, including current portion | $2.638 billion carrying value | At March 31, 2013 |
Margins and operating data. Cruise operating expenses were $362.7 million, while marketing, general and administrative expense was $85.2 million. Occupancy was 107.5%, versus 107.6% a year earlier. Net Yield increased 3.3% to $166.16 per Capacity Day, partly offset by fewer Capacity Days, primarily due to a planned dry-dock. Net Cruise Cost per Capacity Day increased 8.1%; adjusted Net Cruise Cost Excluding Fuel per Capacity Day declined 1.5%.
Balance sheet and cash flow. Total assets were $5.992 billion and total liabilities were $3.590 billion at March 31, 2013. The company reported an $839.4 million working capital deficit, including $464.1 million in advance ticket sales, which management describes as deferred revenue collected before sailing. Investing cash outflow was $85.2 million, primarily for ship construction and improvements. Financing cash inflow was $38.8 million, including IPO proceeds and new debt, partly offset by debt repayments.
Changes versus the prior comparable period
- Revenue rose modestly, with stronger Net Yield offset by lower capacity. Passenger count fell to 368,010 from 384,877.
- Operating income declined to $31.0 million from $46.4 million. Management cited $18.5 million of IPO-related share-based compensation and higher operating costs.
- Fuel expense increased to $72.5 million from $65.5 million; average fuel price rose 12.5%, to $673 per metric ton from $598.
- Net loss reflected $90.5 million of debt-prepayment expenses recognized in interest expense, alongside IPO-related share-based compensation and tax expense. Adjusted Net Income excludes specified unusual items; it is a company-defined non-GAAP measure.
- Cash from operations decreased by $76.3 million year over year. Management attributed this to the reported loss and timing differences in operating asset and liability cash flows.
Outlook, financing, risks, and contingencies
- Financing and leverage: NCLC issued $300 million of 5% senior notes due 2018. IPO and note proceeds were used in part to repay debt, including redeeming $450 million of 11.75% secured notes and partially redeeming $122.5 million of 9.50% notes. Debt-prepayment expenses were approximately $90.5 million. At quarter-end, 34% of debt was fixed-rate and 66% variable-rate; a one-percentage-point LIBOR increase was estimated to add about $17.5 million to annual interest expense.
- Liquidity outlook: Management said cash, expected operating cash flows, revolver availability, and potential access to capital should fund operations, debt service, and capital expenditures and support covenant compliance over the next 12 months. It cautioned there is no assurance that future operating cash flows or financing will be available. The company reported covenant compliance at March 31, 2013 and expected working capital deficits to continue.
- Capital commitments and fleet: The company reported substantial contracted ship-construction obligations and anticipated capital expenditures. Norwegian Getaway was scheduled for delivery in Q1 2014; a Breakaway Plus ship was contracted for Q4 2015, with an option for a second ship. Norwegian Breakaway was delivered in April 2013, after quarter-end; the company drew $528.0 million under its related loan and additional term-loan amounts to finance the delivery.
- Market exposures: Fuel purchases and euro-denominated ship payments are hedged in part, not fully. The company estimated that a 10% euro move would change the U.S.-dollar value of remaining unhedged ship payments by $121.8 million. A 10% rise in weighted-average fuel price was estimated to increase anticipated 2013 fuel expense by $21.9 million, partly offset by an estimated $11.1 million increase in fuel-derivative fair value.
- Other risks and legal matters: Disclosed risks include consumer demand and competition, substantial leverage and refinancing, fuel and foreign-exchange volatility, shipbuilding delays or cost overruns, safety and health incidents, regulation, and litigation. Crew wage-related class actions remain pending; the company said it could not estimate their impact. It reported no material change to the risk factors in its latest Form 10-K.
- Guidance: The filing provides no formal full-year revenue or earnings guidance. Management notes results are seasonal, with cruise demand historically strongest in summer.
- Controls: Management concluded disclosure controls were effective as of March 31, 2013 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the $96.4 million GAAP net loss with the $12.9 million Adjusted Net Income, including the treatment of debt-prepayment charges, share-based compensation, and tax effects.
- Track cash generation, revolver availability, debt maturities, variable-rate exposure, and compliance with debt covenants.
- Monitor ship construction spending and financing, delivery schedules, and the company’s ability to fund remaining capital commitments.
- Assess whether improved Net Yield and Adjusted EBITDA persist after accounting for lower capacity, higher fuel prices, and rising costs.
- Follow fuel and euro hedges, unhedged exposures, and the outcome or potential financial impact of pending litigation.