Norwegian Cruise Line Holdings today reported financial results for the first quarter ended March 31, 2020, and provided a business update in response to the novel coronavirus (“COVID-19”) global pandemic.
“In recent weeks, we have taken decisive action to significantly strengthen our financial position in response to the COVID-19 global pandemic, including our highly successful and oversubscribed $2.4 billion gross simultaneous quad-tranche capital raise announced last week. We believe this capital raise, coupled with other ongoing liquidity-enhancing initiatives, makes us well-positioned to weather an unlikely scenario of over 18 months of suspended voyages,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd. “Our guests continue to demonstrate their desire for cruise vacations, and we continue to experience demand for voyages further in the future across our three brands. As we prepare to resume sailings, we are working around the clock alongside U.S. and global public health agencies and governments to develop and implement the next level of enhanced cruise health and safety standards.”
Norwegian said that 2020 started off strong and was expected to be another record year. All three of the company’s brands entered the year in a record booked position and at higher prices on a comparable basis. For the first two months of the year, ships sailed full at prices that were higher than prior year despite meaningful capacity growth of approximately 7%. As with the broader travel and leisure industry, the company said has experienced rapid and significant impacts related to the COVID-19 global pandemic including significant softness in near-term demand and an elevated rate of cancellations for existing bookings.
“There continues to be demand for cruise vacations particularly beginning in the fourth quarter 2020 accelerating through 2021 with the Company’s overall booked position and pricing for 2021 within historical ranges,” the company said.
All three brands have instituted programs for guests on cancelled sailings as a result of the Company’s voyage suspension which include offering value-add future cruise credits typically for 125% of the cruise fare paid in lieu of providing cash refunds. These future cruise credits are valid for any sailing through December 31, 2022. As of May 11, 2020, slightly over half of the guests who have had their voyages cancelled have requested cash refunds. As of March 31, 2020, the Company had $1.8 billion of advanced ticket sales, including the long-term portion.
First Quarter 2020 Results
GAAP net income (loss) was $(1.9) billion or EPS of $(8.80) compared to $118.2 million or $0.54 in the prior year. These results include a non-cash impairment loss of $1.6 billion primarily related to goodwill and tradenames. The company reported Adjusted Net Income (Loss) of $(211.3) million or Adjusted EPS of $(0.99) compared to $181.8 million or $0.83 in the prior year. These results include adjustments of $1.7 billion primarily consisting of expenses related to impairment losses, non-cash stock-based compensation and amortization of intangible assets.
Revenue decreased 11.2% to $1.2 billion compared to $1.4 billion in 2019. Gross Yield increased 1.6% primarily due to increased onboard spending. Net Yield decreased 12.3% on both an as reported basis and Constant Currency basis on a decrease in Capacity Days of 12.6%. The decrease in Net Yield was primarily due to an increase in protected commissions and credit card fees recognized in the quarter as a result of cancelled sailings announced through quarter end. The decrease in Capacity Days was primarily due to the cancellation of sailings in 2020 to stem the spread of COVID-19, partially offset by the addition of Norwegian Encore and Seven Seas Splendor to the fleet.
Total cruise operating expense increased 20.3% in 2020 compared to 2019, primarily due to costs associated with the suspension of cruise voyages, including the cost of the related protected commissions, a 27.2% increase in fuel expense associated with the IMO 2020 regulations and the addition of Norwegian Encore and Seven Seas Splendor to the fleet. Gross Cruise Costs per Capacity Day increased 34.5%. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 26.1% on a Constant Currency basis and 25.7% on an as reported basis.
Total other operating expense increased 396.0% in 2020 compared to 2019 primarily due to a $1.6 billion impairment loss in the quarter comprised of $1.3 billion related to goodwill and $0.3 billion related to aggregated impairments for tradenames.
Fuel price per metric ton, net of hedges increased to $614 from $461 in 2019. The Company reported fuel expense of $125.0 million in the period. In addition, a loss of $14.3 million was recorded in other income (expense), net related to a reduction in forecasted fuel consumption resulting from voyage cancellations due to COVID-19.
Interest expense, net was $68.9 million in 2020 compared to $73.5 million in 2019. The change in interest expense reflects additional debt in connection with the delivery of Norwegian Encore and Seven Seas Splendor, partially offset by lower margins associated with recent refinancings prior to the draw on our revolving credit facilities and lower LIBOR. Included in 2019 were losses on extinguishment of debt and debt modification costs of $6.1 million.
Other income (expense), net was income of $5.8 million compared to expense of $0.4 million in 2019, primarily related to gains on foreign currency exchange partially offset by losses on fuel hedges released into earnings. A $14.3 million loss was recorded in the quarter related to a reduction in forecasted fuel consumption due to voyage cancellations, resulting in a de-designation of the associated fuel hedges.
As previously stated in the company’s Current Report on Form 8-K filed on April 24, 2020, given the meaningful and rapidly evolving impacts from the pandemic, the temporary suspension of sailings globally and the uncertainty and fluidity of the ongoing situation, the company withdrew its first quarter and full year 2020 guidance provided earlier this year on its earnings call on February 20, 2020, which excluded known and unknown impacts from COVID-19.
In response to COVID-19, the company secured a new $675 million revolving credit facility on March 5, 2020 and fully drew down on this new facility as well as its existing $875 million revolving credit facility beginning on March 12, 2020 for a total of $1.55 billion. As of March 31, 2020, the company’s total debt position was $8.6 billion. In connection with the actions outlined in the Improved Debt Maturity Profile section above, the company has reclassified $1.4 billion of debt which was originally classified as a current liability based on the contractual maturities outstanding at March 31, 2020 to long-term debt.
As of March 31, 2020, the company’s cash and cash equivalents were $1.4 billion and the company believes it was in compliance with all debt covenants.
On May 5, 2020 the company launched a series of capital markets transactions, led by Goldman Sachs, to raise approximately $2 billion. As a result of significant demand, oversubscription and the full exercise of options to purchase additional ordinary shares and exchangeable notes, the total amount of gross proceeds increased to approximately $2.4 billion. The transactions consisted of (i) $460 million public offering of common equity, (ii) $862.5 million 6% exchangeable senior notes offering, both of which closed on May 8, 2020, (iii) $675 million 12.25% senior secured notes offering which is expected to close on May 14, 2020 and (iv) $400 million private investment from global consumer-focused private equity firm L Catterton which is expected to close no later than May 29, 2020, subject to customary closing conditions.
Following the recent capital markets transactions, total pro-forma liquidity is approximately $3.7 billion as of March 31, 2020. Total shares issued and outstanding as of May 8, 2020 are 256.3 million.
“Our swift actions to preserve cash and secure additional liquidity in this uncertain environment provide a strong foundation to withstand the operational and financial impact of COVID-19,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “Our focus on strengthening the balance sheet and strong financial track record were instrumental in our successful capital raise. We are confident the Company can navigate through an unlikely extended zero revenue scenario and emerge in a strong position.”