NCLH reports strong second quarter results

2023-08-15T18:30:01+00:00 August 15th, 2023|Finance|

Norwegian Cruise Line Holdings (NCLH) reported GAAP net income of $86.1 mill or EPS of $0.20, compared to net loss of $509.3 mill or EPS of $(1.22) in the previous year’s 2Q results.

Adjusted net income was $137 mill or adjusted EPS of $0.30 in 2Q23, compared with a negative $478.3 mill and a negative $1.14, respectively, in 2Q22.

Adjusted 2Q23 EBITDA was about $515 mill, better than guidance driven primarily by lower adjusted net cruise costs and lower fuel expense.

This also marked the first quarter where adjusted EBITDA exceeded the same quarter in 2019, a key milestone in the company’s recovery efforts, NCLH said.

Gross cruise costs per capacity day was around $315 in the quarter as reported and $316 in constant currency. Adjusted net cruise costs, excluding fuel per capacity day in constant currency was around $156, reflecting a decrease compared to 1Q23, as benefits from the company’s ongoing margin enhancement initiative continue to be realised.

Fuel price per metric tonne, net of hedges, decreased to $715 from $836 in 2022. NCLH reported a total fuel expense of $164 mill for the period.

“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, NCLH’s President and CEO (pictured).

“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 capitalising on the robust demand environment, strategically enhancing our guest experience, right sizing 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,” he said.

Occupancy reached around 105% for 2Q23, 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 previous guidance.

As expected, 2Q23 occupancy was slightly lower than 2Q19, reflecting the company’s strategic shift to longer, more immersive itineraries.

This move naturally resulted in lower occupancy levels and was expected to attract higher quality guests, generate higher net yields, improve guest satisfaction and cultivate stronger loyalty over time, NCLH explained.

As a result, 2024 full year occupancy and beyond is expected to be around 200 basis points lower relative to 2019.

NCLH continued to experience strong and resilient consumer demand, the company said. The cumulative booked position for 2H23 is ahead of 2019 levels at continued higher pricing. On a 12-month forward basis, the company continued to be in its optimal booked position of about 60-65%.

As of 30th June, 2023, NCLH’s advance ticket sales balance, including the long-term portion, was a record $3.5 bill, around $167 mill higher than the previous quarter and about 56% higher than 2Q19.

On board revenue generation remained robust with broad-based strength across all revenue streams. The company continued 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 flows.

Total revenue climbed 33% in 2Q23 versus 2019 with total revenue per passenger cruise day up around 15% as reported and in constant currency. Gross margin per capacity day was about $116 in the quarter. Net yield growth of around 2.9% versus 2019 on a constant currency basis was in line with guidance.

NCLH said that it remained on track to achieve its healthy pricing guidance of net per diem growth in the range of 9 to 10.5% and net yield growth in the range of 5 to 6.5% for the full year, both on a constant currency basis and compared to 2019.

As of 30th June, 2023, NCLH had a total debt position of $13.1 bill. Total net debt was $12.2 bill and the company said that it expected continued improvement in its net leverage.

NCLH’s liquidity was about $2.4 bill, consisting of around $900 mill of cash and cash equivalents, $875 mill of availability under its revolving loan facility and a $650 mill undrawn backstop commitment.

The increase in liquidity versus the previous quarter reflected the full return of about $500 mill of cash collateral, which was previously held in reserve by a credit card processor. NCLH also has an incremental $300 mill unsecured and undrawn commitment through 2nd January, 2024, which enhances future liquidity, as it becomes available to draw on 4th October, 2023.

“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 Kempa, NCLH’s Executive Vice President and CFO.

“We were also pleased to have received approximately $500 mill 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 bill at quarter-end, but is also a strong signal from our external partners of their increased confidence in our financial position and future outlook,” he said.