Norwegian Cruise Line Holdings has reported financial results for the second quarter ended June 30, 2022 and provided a business update.
“We are encouraged by the continued strong consumer demand we are experiencing which is reflected in our record pricing, accelerating booking volumes, especially for 2023 and beyond, and highest ever onboard revenue generation. Having emerged from the pandemic and returning to more normal operations, we remain steadfast in our strategy and commitment to protect our brands’ positioning and industry-leading pricing, which we firmly believe is the best way to maximize long-term value for all our stakeholders,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings.
“As the leading operator in upscale cruising, our three award-winning brands are particularly well-positioned to capitalize on our target consumers’ continued desire for travel and experiences led by our unique and compelling value propositions versus land-based vacation alternatives. Our world-class fleet has been further enhanced by the recent addition of Norwegian Prima, the first of six ships in the ground-breaking Prima Class for Norwegian Cruise Line.”
In early May, the company was the first major cruise operator to complete the phased relaunch of its entire fleet with all ships in operation. Occupancy in the second quarter was 65%, in line with previously outlined expectations, and a 17-point improvement over the prior quarter. Numerous voyages, across several key markets, achieved occupancy levels north of 100% during the quarter.
According to a press release, consistent with its core strategy to focus on maximizing long-term pricing, the company continues to expect quarterly occupancy levels to sequentially increase and reach historical levels for the second quarter of 2023. Occupancy is expected to average in the low 80% range in the third quarter of 2022 with July voyages averaging approximately 85%.
The company continues to experience strong ticket pricing and onboard revenue generation with total revenue per Passenger Cruise Day up nearly 20% in the second quarter of 2022 versus 2019. For the third quarter of 2022, the company expects total revenue per Passenger Cruise Day to increase high-single digits versus 2019, despite the significant impact of the Russia-Ukraine conflict on certain premium-priced European itineraries in the current year.
Momentum continues in terms of financial performance, with the company generating positive Operating Cash Flow of approximately $260 million for the second quarter of 2022 after turning positive in March. The company expects to reach another milestone in the second half of 2022 with slightly positive Adjusted EBITDA. The company continues to target exceeding historical record Net Yield and Adjusted EBITDA levels for full year 2023
Booking Environment and Outlook
As expected, the company’s current cumulative booked position for the second half of 2022 remains below the comparable 2019 period but at higher prices even when including the dilutive impact of future cruise credits (“FCCs”) and despite the impact in the third quarter of the Russia-Ukraine conflict on premium-priced Baltic and Eastern Mediterranean itineraries, the company said in a press release.
Booking trends for full year 2023 remain positive with cumulative booked position in line with a record 2019 inclusive of the company’s 20% increase in capacity. Pricing continues to be significantly higher than that of 2019 at a similar point in time and thus at record levels for full year 2023.
Sequentially, net booking volumes continue to increase as the company’s brands ramp up to sail at historical load factor levels.
The company’s advance ticket sales balance, including the long-term portion, increased approximately $0.3 billion in the quarter to $2.5 billion as of June 30, 2022, an all-time record high for the company. This includes approximately $0.4 billion of FCCs or 16% of the total deposit balance. Approximately 75% of the FCC balance outstanding has already been applied to future sailings. Gross advance ticket sales build was approximately $1.5 billion during the quarter, an approximately $0.5 billion increase versus the prior quarter and the highest level since the start of the pandemic.
Liquidity and Financial Recovery Plan
The company continues to prioritize enhancing liquidity and financial flexibility in the current environment while seeking opportunities to optimize its balance sheet and reduce leverage. As of June 30, 2022, the company’s total debt position was $13.2 billion and the company’s liquidity was approximately $2.9 billion, consisting of cash and cash equivalents of $1.9 billion and a $1 billion undrawn commitment.
In July 2022, the company amended its existing undrawn $1 billion commitment and extended it through March 31, 2023. The company has not drawn, and currently does not intend to draw, under this commitment, however, the company believes extending the facility was prudent given the current volatile macroeconomic and strained capital markets environment.
“Our entire team is united around our key priorities which include accelerating our ongoing operational and financial recovery, delivering outsized top and bottom-line growth from our disciplined and cash-accretive newbuild pipeline, and preserving liquidity and financial flexibility against a rapidly evolving macroeconomic backdrop,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd.
Second Quarter 2022 Results
GAAP net loss was $(509.3) million or EPS of $(1.22) compared to net loss of $(717.8) million or EPS of $(1.94) in the prior year. The company reported Adjusted Net Loss of $(478.3) million or Adjusted EPS of $(1.14) in 2022. This compares to Adjusted Net Loss and Adjusted EPS of $(714.7) million and $(1.93), respectively, in 2021.
Revenue increased to $1.2 billion compared to $4.4 million in 2021 due to the resumption of cruise voyages.
Total cruise operating expense increased in 2022 compared to 2021, due to the resumption of voyages, which resulted in higher payroll, fuel, and direct variable costs of fully operating ships, compared to the prior year when no voyages operated during the second quarter. Costs were also impacted by inflationary pressures and continued COVID-19 related costs including testing.
Fuel price per metric ton, net of hedges, increased to $836 from $673 in 2021. The company reported fuel expense of $181.2 million in the period.
Interest expense, net was $144.4 million in 2022 compared to $137.3 million in 2021. Interest expense in 2021 reflects a $20.4 million gain recognized from extinguishment of debt. Excluding this gain, interest expense decreased as a result of lower interest expense in connection with recent refinancings, partially offset by higher debt balances and higher LIBOR rates.
Other income (expense), net was income of $31.0 million in 2022 compared to $25.5 million in 2021. In 2022, the income primarily related to gains on foreign currency remeasurements.
As a result of the COVID-19 pandemic, the effects of the Russia-Ukraine conflict and current macroeconomic conditions, while the company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with certainty, it will report a net loss for the third quarter of 2022.
The company does not provide certain estimated future results on a GAAP basis because the company is unable to predict, with reasonable certainty, the future movement of foreign exchange rates or the future impact of certain gains and charges. These items are uncertain and will depend on several factors, including industry conditions, and could be material to the company’s results computed in accordance with GAAP.
Occupancy is expected to be in the low 80% range in the third quarter of 2022. Capacity Days are expected to be 5 million in the third quarter of 2022 and 5.1 million in the fourth quarter of 2022.
Total revenue is expected to be $1.5-$1.6 billion in the third quarter of 2022. Total revenue per Passenger Cruise Day is forecast to increase high single digits versus the third quarter of 2019.
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day is expected to decrease by approximately 10% in second half of 2022 versus first half of 2022.
Interest Expense, net is expected to be approximately $160 million for third quarter of 2022 and $615 million for full year 2022, excluding losses on extinguishment of debt.
Depreciation and Amortization is expected to be approximately $190 million for third quarter of 2022 and $745 million for full year 2022.