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 strong consumer demand we are experiencing, which is reflected in our record prices, accelerating booking volumes, particularly for 2023 and beyond, and our highest ever onboard revenue generation. After emerging from the pandemic and returning to more normal operations, we remain steadfast in our strategy and commitment to protect our brand positioning and industry-leading pricing, which we strongly believe is the best way to maximize the long-term value for all of our stakeholders,” said Frank Del Rio, President and CEO of Norwegian Cruise Line Holdings.
“As a leading luxury cruise operator, our three award-winning brands are particularly well-positioned to capitalize on our target consumers’ continued desire for travel and experiences driven by our unique and compelling value propositions compared to land-based vacation alternatives . Our world-class fleet has been further enhanced with the recent addition of Norwegian Prima, the first of six ships in the innovative Prima Class for Norwegian Cruise Line.”
In early May, the company became the first major cruise operator to complete the phased relaunch of its entire fleet with all ships in operation. Employment in the second quarter was 65%, in line with the expectations outlined above, and an improvement of 17 points compared to the previous quarter. Numerous journeys, across several key markets, achieved occupancy levels of around 100% during the quarter.
According to a press release, consistent with its core strategy of focusing on long-term price maximization, the company continues to expect quarterly employment levels to increase sequentially and reach historic levels for the second quarter of 2023. Employment is expected to be average in the lows. The 80% range in the third quarter of 2022 with July trips averaging about 85%.
The company continues to experience strong ticket pricing and on-board revenue generation, with total revenue per cruise passenger day increasing nearly 20% in the second quarter of 2022 compared to 2019. For the third quarter of 2022, the company expects total passenger cruise revenue per day to increase. single digit highs compared to 2019, despite the significant impact of the Russia-Ukraine conflict on certain premium European itineraries during the current year.
The momentum continues on 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 achieve another milestone in the second half of 2022 with slightly positive adjusted EBITDA. The company continues to aim to exceed the historical record levels of net performance and adjusted EBITDA by the year 2023.
Booking environment and Outlook
As expected, the company’s current cumulative position booked for the second half of 2022 remains below the comparable period in 2019, but at higher prices, even if the dilutive impact of future credits is included of Cruises (“FCC”) and despite the impact in the third quarter of the conflict between Russia and Ukraine on premium itineraries in the Baltic and Eastern Mediterranean, the company said in a press release.
Booking trends for the full year 2023 remain positive with a cumulative booked position in line with a record 2019 including the company’s 20% increase in capacity. Prices remain significantly higher than in 2019 at a similar time and therefore at record levels for the whole of 2023.
Sequentially, net booking volumes continue to increase as the company’s brands expand to navigate historic load factor levels.
The company’s presale ticket balance, including the long-term portion, increased approximately $0.3 billion during the quarter to $2.5 billion at June 30, 2022, an all-time high for the company . This includes approximately $0.4 billion from FCC or 16% of the total deposit balance. Approximately 75% of the outstanding FCC balance has already been applied to future crossings. Gross cumulative advance ticket sales were approximately $1.5 billion in the quarter, an increase of approximately $0.5 billion from the prior quarter and the highest level since the start of the pandemic.
Liquidity and Financial Recovery Plan
The company continues to prioritize improving 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 $1,900 million and an unused commitment of $1 billion.
In July 2022, the Company amended its existing $1 billion commitment and extended it through March 31, 2023. The Company has not drawn, and does not currently intend to draw, under ‘this commitment, however, the company believes that the expansion of the facility was prudent. given the current volatile macroeconomic environment and tight capital markets.
“Our entire team is united around our key priorities, which include accelerating our ongoing operational and financial recovery, delivering tremendous top-line and bottom-line growth from our disciplined, cash-accreting newbuild portfolio and preserve liquidity and financial flexibility in a rapidly evolving macroeconomic context,” said Mark A. Kempa, Executive Vice President and Chief Financial Officer of Norwegian Cruise Line Holdings Ltd.
Results for the second quarter of 2022
GAAP net loss was $(509.3) million or EPS of (1.22) compared to a net loss of $(717.8) million or EPS of (1.94) in previous year The company posted an 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 rose to $1.2 billion from $4.4 billion in 2021 due to the resumption of cruise travel.
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 for ships in full operation, compared to the previous year when no trips were made in the second quarter. Costs were also impacted by inflationary pressures and ongoing costs related to COVID-19, including testing.
The fuel price per metric ton, net of hedges, rose to $836 from $673 in 2021. The company posted fuel expense of $181.2 million for 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 by the ‘extinction of debt. Excluding this gain, interest expense decreased as a result of lower interest expense related to 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, income was 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 with certainty the impact on its business, financial condition or financial or operating results short or long term, it will report a net loss for the third quarter of 2022.
The Company does not provide certain estimated future results under GAAP because the Company is unable to predict with reasonable certainty the future movement of exchange rates or the future impact of certain earnings and charges. These items are uncertain and will depend on various factors, including industry conditions, and could be material to the Company’s results calculated 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 between $1.5 billion and $1.6 billion in the third quarter of 2022. Total revenue per cruise passenger day is expected to increase in the high single digits compared to the third quarter quarter of 2019.
Adjusted net cruise cost excluding fuel per capacity day is expected to decrease approximately 10% in the second half of 2022 compared to the first half of 2022.
Interest expense, net, is expected to be approximately $160 million for the third quarter of 2022 and $615 million for the full year of 2022, excluding losses on extinguishment of debt.
Amortization is expected to be approximately $190 million for the third quarter of 2022 and $745 million for 2022.