NCLH goes from ‘defence to offence’

2021-11-12T19:19:52+00:00 November 12th, 2021|Finance|

Norwegian Cruise Line Holdings (NCLH) reported a GAAP net loss of $845.9 mill, or EPS of $2.29, for the third quarter of this year, compared to net loss of $677.4 mill or EPS of $2.50 for 3Q20.

Adjusted net loss was $801.4 mill, or adjusted EPS of $2.17 in 2021, which included $44.5 mill of adjustments primarily related to non-cash compensation, and compares to $638.7 mill and $2.35, respectively, in 3Q20.

However, revenue increased to $153.1 mill, compared to $6.5 mill in 2020, as cruise operations resumed during the quarter.

Total cruise operating expenses increased 131.3% in 3Q21, compared to the previous year, on the back of the resumption of cruising.

These expenses were primarily related to crew costs, including salaries, food and other travel costs, as ships were prepared for a return to service. In addition to fuel, costs related to health and safety protocols and other ongoing costs, such as insurance and ship maintenance, were also taken into account.

The company’s monthly average cash burn for 3Q21 was around $275 mill, below the previous guidance of about $285 mill. Looking ahead, NCLH expected 4Q21 monthly average cash burn to increase to about $350 mill, driven by the continued phased relaunch of more vessels.

“Our great cruise comeback is on track with 11 ships to date across our three award-winning brands successfully resuming cruising.

“Initial trends are extremely positive with strong on board revenue, high guest satisfaction scores and our comprehensive science-backed SailSAFE health and safety protocols working as designed to minimise the impact of COVID-19,” explained Frank Del Rio, NCLH President and CEO.

“While consumer concerns surrounding the Delta variant resulted in a slowdown in bookings during the third quarter, net booking volumes have improved over the past six weeks and we continue to see robust future demand for cruising particularly for the second half of 2022 and beyond when our full fleet is expected to be back in operation at normalised occupancy levels,” he added.

By the end of 3Q21, NCLH had around 40% of its capacity operating with the fleet in service being cash flow positive during the quarter. Third quarter occupancy was 57.4%, which reflected the company’s self-imposed occupancy limits.

Looking ahead, about 75% of capacity is expected to be operating by the end of this year, with the full fleet back in operation by 1st April, 2022.

NCLH said it expected to reach a critical inflection point in 1Q22 with operating cash flow turning positive. In addition, based on the current trajectory, the company forecast returning to profit in the second half of next year.

As mentioned, 3Q21 net booking volumes were negatively impacted by the Delta variant. The resulting slowdown was heavily weighted towards sailings in 4Q21 and early 2022 but improved sequentially through 2022.

The impact has since abated and net bookings have materially improved over the past six weeks with particular strength seen for sailings in the second half of 2022 and into 2023.

Despite the temporary Delta impact, NCLH’s overall cumulative booked position for 2022 is in line with 2019’s record levels at higher pricing, even when including the dilutive impact of future cruise credits (FCCs).

In addition, the overall cumulative booked position for the second half of 2022, when the whole fleet is expected to be back in service and at normal occupancy, is meaningfully higher than 2019 and at higher prices.

The company said that its advanced ticket sales amounted to $1.7 bill, including the long-term portion, which included around $750 mill of FCCs as of 30th September, 2021. Advance ticket sales increased $0.3 bill on a net basis from the end of the second quarter, even with around $100 mill of revenue recognised in the quarter.

As at the end of 3Q21, the company’s total debt position was $12.4 bill and its cash and cash equivalents were $1.9 bill.

Earlier this month, 2021, NCLH entered into a $1 bill commitment through 15th August, 2022 that provides additional liquidity. If drawn, this commitment will convert into an unsecured note maturing in April, 2024. However, the company claimed that it had not drawn and currently does not intend to draw under this commitment.

In July, 2021, the company amended nine credit facilities for newbuilding agreements and increased the combined commitments under these credit facilities by around $770 mill to cover owner’s supply (generally consists of provisions for the ship), modifications and financing premiums.

“We are incredibly pleased with our team’s flawless execution of our phased voyage resumption plan and are encouraged to see strong consumer demand, on board spend and high guest satisfaction across all of our brands,” added Mark Kempa, Executive Vice President and CFO.

“We took several actions in the quarter to further enhance our liquidity profile and financial flexibility and better position us on our road to recovery as we pivot from defence to offence. As we look ahead, we remain focused on rebuilding our strong track record of financial performance, optimising our balance sheet and delivering on our attractive and disciplined growth profile beginning with the debut of the record-breaking ‘Norwegian Prima’ in summer 2022,” he said.