Norwegian Cruise Line: Strong Q2 2023 Results, Improves Guidance

Norwegian Bliss

Norwegian Cruise Line Holdings today reported financial results for the second quarter ended June 30, 2023 and provided guidance for the third quarter and full year 2023.

Second Quarter 2023 Highlights:

  • Company met or exceeded guidance for all key metrics in the second quarter.
  • Generated total revenue of $2.2 billion, a record for the Company and up 33% compared to the same period in 2019, and GAAP net income of $86.1 million, or EPS of $0.20.
  • Achieved Adjusted EBITDA of approximately $515 million and Adjusted EPS of $0.30, above guidance of $485 million and $0.25 respectively. Second quarter outperformance was driven by solid revenue performance, lower costs and favorable fuel pricing.
  • Occupancy improved sequentially to approximately 105% in the quarter, in line with guidance and reflecting the completion of our phased ramp-up.
  • Total revenue per Passenger Cruise Day increased approximately 15% both as reported and in constant currency, compared to the same period in 2019.
  • Continued to demonstrate results of ongoing margin enhancement initiative including sequential improvement in operating costs. Gross Cruise Costs per Capacity Day was approximately $315 in the quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $156, lower than the prior quarter and guidance of $159.
  • Cumulative booked position for the remainder of 2023 continues to be at record levels and at higher pricing. The Company remains within its optimal booked position of approximately 60-65% on a 12-month forward basis.
  • Advance ticket sales balance increased versus the prior quarter reaching a record $3.5 billion, approximately $167 million higher than prior quarter and 56% above the second quarter of 2019.
  • $2.4 billion of liquidity at quarter-end, including boost from a $500 million return of cash collateral from a credit card processor.
  • Full year 2023 Adjusted EPS guidance improved $0.05 to approximately $0.80 reflecting second quarter outperformance and continued strong results expected for the remainder of 2023. Adjusted EBITDA guidance improved to the range of $1.85 to $1.95 billion. Updated guidance reflects approximately $30 million of headwinds from higher interest and fuel expense for the back half of the year.

“We are pleased to report strong second quarter results, in which we met or exceeded guidance on all key metrics, allowing us to improve our full year outlook for Adjusted EBITDA and Adjusted EPS,” said Harry Sommer, president and chief executive officer of Norwegian Cruise Line Holdings Ltd. “The continued strength in the demand environment is evident not only in this quarter’s results, in which we generated a meaningful increase in pricing on 19% capacity growth compared to 2019, but also in our forward booked position which is within our optimal range and at higher pricing. As we look to the near future, we are focused on sustaining this momentum by capitalizing on the robust demand environment, strategically enhancing our guest experience, rightsizing our cost base through our ongoing margin enhancement initiative, building excitement for the upcoming launches of Norwegian Viva and Regent’s Seven Seas Grandeur and ultimately charting a path to reduce leverage and de-risk our balance sheet.”

Business, Operations and Booking Environment Update

The company said in a press release that occupancy reached approximately 105% for the second quarter of 2023, in line with guidance and marking a significant milestone with the phased ramp-up now complete.

Full year 2023 Occupancy is expected to average 103.5%, consistent with prior guidance. As expected, Occupancy in the quarter is slightly lower than the second quarter of 2019, reflecting the Company’s strategic shift to longer, more immersive itineraries. This shift naturally results in lower Occupancy levels and is expected to attract higher quality guests, generate higher Net Yields, improve guest satisfaction and cultivate stronger loyalty over time. As a result, full year Occupancy in 2024 and beyond is expected to be approximately 200 basis points lower relative to 2019.

The Company continues to experience strong and resilient consumer demand. The cumulative booked position for the second half of 2023 is ahead of 2019 levels at continued higher pricing. On a 12-month forward basis, the Company continues to be in its optimal booked position of approximately 60-65%. As of June 30, 2023, the Company’s advance ticket sales balance, including the long-term portion, was a record $3.5 billion, approximately $167 million higher than the prior quarter and approximately 56% higher than the second quarter of 2019. Onboard revenue generation remains robust with broad-based strength across all revenue streams. The Company continues to focus on increasing its pre-sold revenue from guests prior to sailing, as this typically results in higher overall spend throughout the cruise journey as well as earlier and more predictable cash inflow.

Total revenue was up 33% in the second quarter versus 2019 with total revenue per Passenger Cruise Day up approximately 15% as reported and in constant currency. Gross margin per Capacity Day was approximately $116 in the quarter. Net Yield growth of approximately 2.9% versus 2019 on a constant currency basis was in line with guidance. The Company remains on track to achieve its healthy pricing guidance of Net Per Diem growth in the range of 9.0 to 10.5% and Net Yield growth in the range of 5.0 to 6.5% for the full year, both on a constant currency basis and compared to 2019.

The Company continues to focus on efforts to maximize revenue opportunities and rightsize its cost base to strengthen the foundation for sustained, profitable growth. Gross Cruise Costs per Capacity Day was approximately $315 in the quarter, compared to $298 last quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency in the second quarter of 2023 was approximately $156, an improvement versus the first quarter and guidance of $159 as certain cost savings initiatives continued to be realized. Looking forward to the third quarter, the Company expects this metric to show further modest sequential improvement to approximately $152, or approximately $155 excluding certain non-recurring benefits expected in the quarter. The Company will continue to identify and evaluate a variety of initiatives to improve its cost structure and margin profile.

Liquidity and Financial Recovery Plan

The Company continues to prioritize efforts to optimize its balance sheet and reduce leverage. As of June 30, 2023, the Company had a total debt position of $13.1 billion. The Company continues to expect to refinance its Operating Credit Facility by year-end. As of June 30, 2023, total Net Debt was $12.2 billion and the Company expects continued improvement in its Net Leverage.

The Company’s liquidity was approximately $2.4 billion, consisting of approximately $900 million of cash and cash equivalents, $875 million of availability under its Revolving Loan Facility and a $650 million undrawn backstop commitment. The increase in liquidity versus prior quarter reflects the full return of approximately $500 million of cash collateral which was previously held in reserve by a credit card processor. The Company also has an incremental $300 million unsecured and undrawn commitment through January 2, 2024, which enhances future liquidity as it becomes available to draw on October 4, 2023. The Company continues to believe that its ongoing cash generation, fueled by its attractively financed newbuild growth pipeline, provides a path to meet its near-term liquidity needs, including its scheduled debt amortization payments and capital expenditures.

“During the quarter, we achieved a second consecutive quarter of sequential operating cost improvement, demonstrating our commitment and relentless focus on improving efficiencies, reducing costs and restoring our margins in a strategic and data-driven manner while preserving the guest experience and superior service levels our brands are known for,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “We were also pleased to have received approximately $500 million of cash collateral back from a credit card processor during the quarter, which not only provided a meaningful boost to our liquidity, bringing it to $2.4 billion at quarter-end, but is also a strong signal from our external partners of their increased confidence in our financial position and future outlook.”

Second Quarter 2023 Results

GAAP net income was $86.1 million or EPS of $0.20 compared to net loss of $(509.3) million or EPS of $(1.22) in the prior year. The Company reported Adjusted Net Income of $137 million or Adjusted EPS of $0.30 in the second quarter of 2023. This compares to Adjusted Net Loss and Adjusted EPS of $(478.3) million and $(1.14), respectively, in the second quarter of 2022. Adjusted EBITDA in the second quarter was approximately $515 million, better than guidance driven primarily by lower Adjusted Net Cruise Costs and lower fuel expense. This also marks the first quarter where Adjusted EBITDA exceeded the same quarter in 2019, a key milestone in the Company’s recovery efforts.

Gross Cruise Costs per Capacity Day was approximately $315 in the quarter as reported and $316 in constant currency. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $156, reflecting a decrease compared to the first quarter of 2023 as benefits from the Company’s ongoing margin enhancement initiative continue to be realized.

Fuel price per metric ton, net of hedges, decreased to $715 from $836 in 2022. The Company reported fuel expense of $164 million in the period.

Interest expense, net was $177.7 million in 2023 compared to $144.4 million in 2022. The increase in interest expense is primarily the result of higher rates.

Other income (expense), net was expense of $(8.0) million in 2023 compared to income of $31.0 million in 2022. In 2023, the expense primarily related to losses on foreign currency remeasurements.

Outlook and Guidance

In addition to announcing the results for the second quarter of 2023, the Company also provided guidance for the third quarter and full year 2023, along with accompanying sensitivities. 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. The Company has not provided reconciliations between the Company’s 2023 guidance and the most directly comparable GAAP measures because it would be too difficult to prepare a reliable U.S. GAAP quantitative reconciliation without unreasonable effort.

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