Norwegian Cruise Line Holdings Ltd. — Q1 2024 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2024; comparison is with the three months ended March 31, 2023. NCLH operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. At quarter-end it had 32 ships and approximately 66,400 berths. Results are seasonal and interim performance may not indicate full-year results.
Financial and operating performance
- Revenue: $2.191 billion, up 20.3% year over year. Passenger-ticket revenue was $1.460 billion; onboard and other revenue was $731.4 million.
- Profit and margins: Operating income was $218.4 million, versus $10.7 million; operating margin was approximately 10.0%, versus 0.6%. Net income was $17.4 million, or $0.04 per diluted share, compared with a net loss of $159.3 million, or $0.38 per share. Gross margin rose 65.5% to $595.7 million. Adjusted Gross Margin, a non-GAAP measure, increased 25.6% to $1.623 billion; Adjusted EBITDA increased 98.1% to $464.0 million. Adjusted net income was $69.5 million and adjusted EPS was $0.16.
- Operating indicators: Passengers carried increased to 736,559 from 633,910; capacity days rose 7.9%. Occupancy was 104.6%, versus 101.5%. Net Yield increased to $277.86 from $238.68.
- Costs and interest: Total cruise operating expense rose 8.4% to $1.387 billion; marketing, general and administrative expense rose to $362.5 million. Net interest expense increased to $218.2 million from $171.3 million, reflecting higher debt and rates as well as debt-extinguishment costs.
- Cash flow: Operating cash flow was $807.2 million, versus $503.3 million, including a $592.2 million increase in advance ticket sales. Investing cash outflow was $255.2 million, primarily for newbuilds and ship improvements; financing cash outflow was $394.5 million. Cash increased to $559.8 million from $402.4 million.
- Debt and liquidity: Current and long-term debt totaled approximately $13.75 billion on the balance sheet. Total scheduled principal repayments, including exchangeable notes and finance leases, were $14.09 billion. Reported liquidity was approximately $2.4 billion, including cash, an undrawn $1.2 billion revolving facility and an undrawn $650 million note commitment, net of related fees. NCLH was in compliance with debt covenants at quarter-end.
- Balance sheet: Total assets were $19.83 billion, total liabilities $19.46 billion and shareholders’ equity $362.1 million. Advance ticket sales, including the long-term portion, were $3.8 billion.
Material changes versus the prior comparable period
- Higher capacity, pricing and onboard spending drove revenue growth and the shift from a substantial net loss to net income. Three ships delivered in 2023 contributed to increased capacity.
- Fuel expense was broadly stable at $197.7 million, while food expense declined to $84.7 million from $96.0 million. Payroll, other cruise costs, and depreciation and amortization increased.
- Interest expense included a $29.0 million loss on extinguishment of debt, compared with $2.4 million in Q1 2023. The charge related to repurchasing and cancelling $250 million of 9.75% secured notes due 2028.
- Operating cash flow improved, but the increase in advance ticket sales was a significant contributor. Cash from financing reflects debt repayments and the note repurchase.
Outlook, risks and unusual items
- Management reported record bookings in Q1 and a record booked position for the next 12 months, with healthy demand across revenue streams. It expects demand to almost fully offset the impact of 2024 voyage redeployments related to the Middle East and Red Sea. No specific earnings or revenue guidance is provided in the filing.
- Management stated it expects sufficient liquidity to meet obligations for at least 12 months and intends to refinance $565 million of 3.625% unsecured notes due December 2024 before September 2024. These are expectations, not assurances; refinancing availability and terms are uncertain.
- Ship construction commitments were approximately $11.4 billion including orders effective after quarter-end; scheduled payments are concentrated in 2025–2028. Management cited delivery delays related to sustainability initiatives, ship modifications and macroeconomic conditions. Export-credit financing is expected to fund about 80% of certain ship contract prices, subject to conditions. Anticipated non-newbuild capital expenditures for the remainder of 2024 were approximately $460 million.
- Material sensitivities include unhedged euro-denominated ship payments of €5.3 billion; the filing estimates a 10% euro move would change their U.S.-dollar value by $0.6 billion. A 10% fuel-price increase was estimated to raise 2024 fuel expense by $48.6 million, partly offset by an estimated $28.5 million increase in fuel-swap fair value. A 1 percentage-point increase in Term SOFR was estimated to add approximately $6.5 million to annual interest expense.
- Credit-card processors govern approximately $3.4 billion of advance ticket sales and may require additional reserves or collateral under specified conditions. Existing reserves were approximately $51.3 million; additional requirements could pressure liquidity.
- The Havana Docks Helms-Burton case had a $112.9 million judgment against the Company; the Company appealed and posted a supersedeas bond. Management assessed loss as reasonably possible but not probable and recorded no liability. Oral argument was scheduled for May 17, 2024. Ongoing governmental investigations concerning COVID-era marketing were also disclosed; outcomes are uncertain.
- Other risks include high leverage and covenant requirements, interest and fuel-price volatility, shipbuilding delays and costs, environmental regulation and climate-related expenditures, macroeconomic conditions, and geopolitical or public-health disruptions. The filing reports no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the planned refinancing of the $565 million December 2024 maturity is completed on acceptable terms, and whether liquidity and covenant compliance remain adequate.
- How much operating cash generation depends on advance ticket sales and whether bookings, cancellations, refunds or processor collateral demands change.
- Whether ship delivery schedules, construction costs and export-credit financing remain on plan, including the status of post-quarter newbuild orders and expected Oceania cancellations.
- How the Havana Docks appeal and other investigations or litigation develop, including any potential financial exposure.
- Whether improved GAAP and adjusted results persist after considering debt costs, capital spending, and the non-GAAP adjustments used in management’s performance measures.