Norwegian Cruise Line Holdings today reported financial results for the third quarter ended September 30, 2023 and provided guidance for the fourth quarter and full year 2023.
Third Quarter 2023 Highlights:
- The company met or exceeded guidance for all key metrics in the third quarter.
- Generated total revenue of $2.5 billion, a record for the company and up 33% compared to the same period in 2019, and GAAP net income of $345.9 million, or EPS of $0.71.
- Achieved Adjusted EBITDA of $752 million and Adjusted EPS of $0.76, exceeding guidance of $730 million and $0.70 respectively. Third quarter performance was driven by solid revenue performance and continued focus on cost reduction.
- Occupancy was 106% in the quarter, in line with guidance, and total revenue per Passenger Cruise Day increased approximately 16% both as reported and in constant currency, compared to the same period in 2019.
- Ongoing margin enhancement initiative continued to drive sequential improvement in operating costs. Gross Cruise Costs per Capacity Day was approximately $311 in the quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $152, in line with guidance and lower than the prior quarter of $156, representing the third consecutive quarter of sequential operating cost improvement since the initiative was implemented.
- Cumulative booked position for the fourth quarter of 2023 continues to be at record levels and at higher pricing. The company also remains within its optimal booked position on a 12-month forward basis and at higher pricing.
- Successfully completed refinancing of Operating Credit Facility which extended debt maturity profile and provided incremental liquidity. Liquidity at quarter end was $2.2 billion and would have been $2.5 billion including the impact of the October refinancing.
- Full year 2023 Adjusted EBITDA is expected to be approximately $1.86 billion, within the previously provided range despite the impact of global events including the wildfires in Maui and the escalating conflict in Israel. Full year 2023 Adjusted EPS is expected to be $0.73, below prior guidance of $0.80.
“We achieved strong third quarter results, meeting or beating guidance on all key metrics, driven not only by healthy demand from our target upmarket consumer, but also as our ongoing margin enhancement initiative, including relentless efforts to rightsize our cost base, continues to bear fruit,” said Harry Sommer, president and chief executive officer of Norwegian Cruise Line Holdings Ltd.
“Looking ahead, while we are prudently moderating short term expectations and keeping a close eye on rapidly evolving global macroeconomic and geopolitical events, we remain encouraged by our strong forward booked position and robust pricing and are focused on sustaining this momentum as we close out 2023.”
Sommer continued: “I am confident that we are taking the right steps today to best position us to deliver on our goals of rebuilding margins, generating outsized returns on our disciplined capacity growth, reducing leverage, and maintaining best-in-class product and service offerings which we believe will drive value for all of our stakeholders.”
Business, Operations and Booking Environment Update
According to a press release, the company continues to experience healthy consumer demand with the cumulative booked position for the fourth quarter of 2023 ahead of 2019 levels at continued higher pricing. On a 12-month forward basis the company also continues to be within its optimal booked position and at higher pricing. Onboard revenue generation remains robust with broad-based strength across all revenue streams. As of September 30, 2023, the company’s advance ticket sales balance, including the long-term portion, was $3.1 billion, approximately 59% higher than the third quarter of 2019.
During the third quarter and into the fourth quarter, the company experienced operational impacts from global events including the wildfires in Maui and the escalating conflict in Israel.
Pride of America, which offers year-round inter-island Hawaii itineraries, modified certain itineraries in August to avoid stressing local resources in Maui. Beginning in early September, with the guidance and encouragement of the Hawaii Governor and Hawaii Tourism Authority, the company resumed scheduled weekly calls to Kahului, Maui. However, following the wildfires the company experienced a temporary slowdown in close-in bookings for sailings in Hawaii, primarily concentrated in the fourth quarter of 2023. Demand has improved in recent weeks and is now approaching normalized levels. In addition to Pride of America, the company also had one additional ship operating in the region, Norwegian Spirit, bringing total capacity with calls to Hawaii to approximately 6% for the fourth quarter of 2023.
In addition, as a result of the escalation of the conflict in Israel, the company has cancelled and redirected all calls to Israel and certain calls to the surrounding region for the remainder of 2023. The company is also in the process of cancelling all calls to Israel in 2024 as well, and will continue to closely monitor and evaluate future sailings and adjust as needed. Prior to the conflict, approximately 7% of capacity in the fourth quarter of 2023 and 4% of capacity for the full year 2024 visited the Middle East1.
Occupancy averaged 106.1% for the third quarter of 2023, in line with guidance and reflective of the company’s strategic shift to longer, more immersive itineraries. Full year 2023 Occupancy is expected to average 102.6%, which is slightly lower than prior guidance due to temporary disruptions impacting the fourth quarter.
Pricing growth in the third quarter was also strong on 20% capacity growth compared to 2019. Total revenue was up 33% in the third quarter versus 2019 with total revenue per Passenger Cruise Day up approximately 16% as reported and in constant currency. Gross margin per Capacity Day was approximately $148 in the quarter. Net Yield growth of approximately 3.1% versus 2019 on a constant currency basis was in line with guidance.
Looking ahead, the company expects fourth quarter Net Per Diem and Net Yield growth to be strong at approximately 15.00% to 16.00% and 7.75% to 8.75% on a constant currency basis and compared to 2019, respectively. This is below previous expectations due to the aforementioned external headwinds, as well as lower than expected close-in demand for certain longer, exotic itineraries on Norwegian Cruise Line (“NCL”) in late season Eastern Mediterranean and certain parts of Asia. As NCL has strategically shifted to its new longer, more immersive deployment mix, the booking curves, sourcing and marketing plans for certain itineraries continue to be optimized. While this caused a temporary disconnect versus initial expectations in the fourth quarter of 2023, plans have now been recalibrated resulting in a significantly better booked position for the same fourth quarter period in 2024, compared to same time last year for 2023. As a result, the company’s full year 2023 Net Per Diem and Net Yield growth are expected to be 9.25% to 9.75% and 4.25% to 4.75% on a constant currency basis compared to 2019, versus previous guidance of 9.0% to 10.5% and 5.0% to 6.5%.
The company once again demonstrated continued progress on its ongoing margin enhancement initiative and efforts to maximize revenue opportunities and rightsize its cost base. Gross Cruise Costs per Capacity Day in constant currency was approximately $311 in the quarter, compared to $315 last quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency in the third quarter of 2023 was approximately $152, an improvement versus the second quarter of $156 and in line with guidance, representing the third consecutive quarter since this initiative began of sequential improvement in this key metric. As expected, in addition to core cost savings realized in the quarter, the third quarter also included certain one-time cost benefits that are not expected to reoccur.
Full year 2023 Adjusted Net Cruise Costs excluding Fuel per Capacity Day is now expected to be approximately $155 on a constant currency basis, an improvement versus previous guidance of $156. The company continues to prioritize identifying and evaluating a variety of initiatives to improve its cost structure and margin profile, while preserving its brand equity and optimal guest satisfaction levels.
Liquidity and Financial Position
The company is committed to prioritizing efforts to optimize its balance sheet and reduce leverage. As of September 30, 2023, the company had total debt of $13.9 billion, total Net Debt of $13.2 billion and continues to expect improvement in its Net Leverage. The company repaid approximately $130 million and $1.5 billion of debt in the third quarter and first nine months of 2023, respectively.
In October, the Operating Credit Facility refinancing was successfully completed, extending the company’s debt maturity profile and providing incremental liquidity. The Revolving Loan Facility was upsized from $875 million to $1.2 billion with a 3-year term maturing in October 2026. In addition, in October the company issued $790 million aggregate principal amount of 8.125% senior secured notes due 2029. The net proceeds, together with cash on hand, were used to fully repay approximately $800 million of term loans maturing in January 2025 under the Operating Credit Facility.
At quarter-end, liquidity was $2.2 billion, or approximately $2.5 billion adjusting for the October refinancing. This consists of approximately $680 million of cash and cash equivalents, $1.2 billion of availability under its Revolving Loan Facility and a $650 million undrawn backstop commitment.
“Last month we successfully completed the refinancing of our Operating Credit Facility, extending our debt maturity profile and further improving our liquidity position,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “We were also pleased that the transaction was not only oversubscribed by multiples, but also generated significant interest from new investors, reflecting confidence in our company and trajectory.”
Kempa continued: “We continue to believe that our strong liquidity position, coupled with our ongoing cash generation and attractive growth profile, provide a path to meet our near-term liquidity needs, including scheduled debt amortization payments and capital expenditures, and significantly reduce leverage and de-risk our balance sheet over time.”
Third Quarter 2023 Results
GAAP net income was $345.9 million or EPS of $0.71 compared to net loss of $(295.4) million or EPS of $(0.70) in the prior year. The Company reported Adjusted Net Income of $388 million or Adjusted EPS of $0.76 in the third quarter of 2023. This compares to Adjusted Net Loss and Adjusted EPS of $(268.3) million and $(0.64), respectively, in the third quarter of 2022. Adjusted EBITDA in the third quarter was approximately $752 million, better than guidance driven primarily by solid revenue performance and lower Adjusted Net Cruise Costs.
Gross Cruise Costs per Capacity Day was approximately $311 in the quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $152, reflecting a decrease compared to the second quarter of 2023 as benefits from the Company’s ongoing margin enhancement initiative continue to be realized.
The Company reported fuel expense of $171 million in the quarter. Fuel price per metric ton, net of hedges, decreased to $727 from $830 in 2022. Fuel consumption of 235,000 metric tons was approximately 2% lower than projected reflecting an increased focus on fuel efficiency.
Interest expense, net was $181.2 million in 2023 compared to $152.3 million in 2022. The increase in interest expense is primarily the result of higher interest rates.
Other income (expense), net was income of $12.1 million in 2023 compared to income of $31.5 million in 2022. In 2023, the income primarily related to net gains and losses on foreign currency remeasurements.