Norwegian Cruise Line Holdings (NCLH) has met or exceeded guidance for all key metrics in the third quarter, the company reported in its third quarter results.
NCLH generated total revenue of $2.5 bill, a record and up 33%, compared to the same period in 2019, and GAAP net income of $345.9 mill, or EPS of $0.71.
Adjusted EBITDA was $752 mill and Adjusted EPS was $0.76, exceeding the earlier guidance of $730 mill and $0.70, respectively.
The 3Q23 results were driven by solid revenue performance and continued focus on cost reduction, the company said.
Occupancy was 106% in the quarter, in line with guidance, and total revenue per passenger cruise day increased around 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 about $311 in the quarter.
Adjusted net cruise costs, excluding fuel per capacity day in constant currency, was around $152, in line with guidance and lower than the previous quarter’s $156, representing the third consecutive quarter of sequential operating cost improvement since the initiative was implemented, NCLH claimed.
The cumulative booked position for 4Q23 continued at record levels and at higher pricing. The company also remained within its optimal booked position on a 12-month forward basis and at higher pricing.
During the quarter, NCLH completed the refinancing of the operating credit facility, which extended debt maturity profile and provided incremental liquidity.
Liquidity at quarter end was $2.2 bill and would have been $2.5 bill, including the impact of the October refinancing.
Full year 2023 adjusted EBITDA is expected to be about $1.86 bill, 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 the previous 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, NCLH’s President and CEO (pictured).
“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.
“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,” he said.
On board revenue generation remained robust with broad-based strength across all revenue streams. As of 30th September, 2023, NCLH’s advance ticket sales balance, including the long-term portion, was $3.1 bill, about 59% higher than 3Q19.
During 3Q23 and into 4Q23, 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, NCLH experienced a temporary slowdown in close-in bookings for sailings in Hawaii, primarily concentrated in 4Q23. Demand has improved in recent weeks and is now approaching normal 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 around 6% for 4Q23.
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.
NCLH 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, about 7% of capacity in 4Q23 and 4% of capacity for the full year 2024 visited the Middle East.
Occupancy averaged 106.1% for 3Q23, 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 the previous guidance, due to temporary disruptions impacting the fourth quarter.
Third quarter pricing growth was also strong on 20% capacity growth, compared to 2019. Total revenue was up 33% versus 2019 with total revenue per passenger cruise day up about 16% as reported and in constant currency.
Gross margin per capacity day was about $148 in the quarter. Net Yield growth of around 3.1% versus 2019 on a constant currency basis was in line with guidance.
Looking ahead, NCLH said that it expected 4Q23 net per diem and net yield growth to be strong at around 15 -16% and 7.75% to 8.75% on a constant currency basis, compared to 2019, respectively.
This is below previous expectations, due to the 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 optimised.
While this caused a temporary disconnect versus initial expectations in 4Q23, plans have now been recalibrated resulting in a significantly better booked position for the same period in 2024, compared to same time last year for 2023.
As a result, NCLH’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% to 10.5% and 5% to 6.5%.
As of 30th September, 2023, NCLH had a total debt of $13.9 bill, total, a net debt of $13.2 bill and continues to expect improvement in its net leverage. The Company repaid around $130 mill and $1.5 bill of debt in 3Q23 and in the first nine months of 2023, respectively.
In October, the revolving loan facility was increased from $875 mill to $1.2 bill with a three-year term maturing in October, 2026. In addition, last month the company issued $790 mill aggregate principal amount of 8.125% senior secured notes, due 2029.
The net proceeds, together with cash on hand, were used to fully repay about $800 mill of term loans maturing in January, 2025 under the operating credit facility.
“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 Kempa, NCLH’s Executive Vice President and CFO.
“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.
“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,” he said.