Norwegian Cruise Line Holdings Ltd. (Nasdaq: NCLH) (together with NCL Corporation Ltd., “Norwegian Cruise Line Holdings”, “Norwegian” or the “Company,”) today reported financial results for the first quarter ended March 31, 2016, as well as provided guidance for the second quarter and full year 2016.
- Adjusted EPS growth of 41% to $0.38 on Adjusted Net Income of $86.7 million. EPS increased to $0.32 on Net Income of $73.2 million.
- The Company’s current booked position for 2016 is on par with prior year’s record levels and at higher prices. Strength in the Caribbean, Alaska, Hawaii, and other North American markets is offsetting softness in European itineraries.
- Constant Currency Adjusted Net Yield increased 3.6% (2.5% as reported), driven primarily by solid demand in the Caribbean and strong onboard revenue. Gross Yield increased 2.4%.
- First half of 2017 booking trends remain strong at higher prices.
- Company remains confident in reaching previously stated targets of double-digit Adjusted ROIC in 2016, growing to 14% by 2018, and $5.00 Adjusted EPS in 2017.
- Oceania Cruises welcomed its latest ship, Sirena, to its fleet.
- Company revealed exciting features and amenities for Norwegian Joy, its purpose-built ship dedicated to the Chinese market.
“We are pleased to report another quarter of solid financial performance and significant earnings growth driven primarily by strong pricing with robust demand in the Caribbean driving net yield growth above our expectations,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings. “We are on track to reach our stated targets of $5.00 Adjusted EPS in 2017 and double-digit return on invested capital on an adjusted basis in 2016, growing to 14% by 2018. Our recent announcements regarding our China-dedicated ship, Norwegian Joy, have been extremely well-received in the Chinese market giving us strong momentum prior to the ship’s introduction in 2017,” continued Del Rio.
First Quarter 2016 Results
Net Income was $73.2 million, or $0.32 per share compared to a loss of ($21.5) million or ($0.10) per share in the prior year. The Company generated Adjusted Net Income of $86.7 million, or $0.38 per share compared to $62.6 million or $0.27 per share in the prior year. Adjusted EPS increased 41% over prior year, benefiting from solid Adjusted Net Yield performance as a result of strong pricing along with the earnings benefit from the Norwegian Escape which joined the fleet in October 2015.
Total Revenue for the Company increased 14.9% to $1.1 billion compared to $938.2 million in 2015. Adjusted Net Revenue in the period increased 15.1% to $838.7 million compared to $728.9 million in 2015, primarily as a result of the addition of Norwegian Escape. Adjusted Net Yield improved 3.6% on a Constant Currency basis (2.5% on an as reported basis), mainly due to higher pricing benefiting from strength in the Caribbean and strong onboard revenue. Gross Yield increased 2.4%.
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 1.5% on a Constant Currency basis (1.1% on an as reported basis),primarily due to an increase in marketing expense as well as two scheduled dry-docks in the quarter compared to the prior year which had one dry-dock in the period. Gross Cruise Costs per Capacity Day decreased 3.2%.
Fuel price per metric ton, net of hedges, decreased 16.7% to $438 from $526 in 2015. The Company reported fuel expense of $81.7 million, which excluded a loss of $5.2 million recorded in other income (expense), related to the ineffective portion of its fuel hedge portfolio due to market volatility.
Interest expense, net increased to $59.8 million from $51.0 million as a result of higher interest rates due to an increase in LIBOR rates as well as an increase in average debt balances outstanding primarily associated with the delivery of Norwegian Escape.
Other income (expense) of $2.8 million included a gain from the fair value increase related to a foreign exchange collar for the Seven Seas Explorer newbuild, partially offset by a $4.2 million loss on foreign currency exchange and the aforementioned loss on fuel hedges.
The Company repurchased approximately $50 million of the Company’s outstanding ordinary shares under its previously authorized three-year, $500 million share repurchase program. As of March 31, 2016, $264 million remained available for repurchases.
Sale of Hawaii Land-based Operations
In the first quarter of 2016, the Company executed an agreement to divest its interest in a certain land-based operation in Hawaii. The amount of the transaction is considered immaterial to the Company’s consolidated financial statements. The agreement is subject to customary closing conditions, including receipt of all required regulatory approvals. The sale is expected to be completed during 2016. The Company’s first quarter financial results include the results from this operation. For purposes of comparison to the guidance provided by the Company in its prior release, key operational metrics excluding the results of this operation are as follows:
- Adjusted Net Yield growth on a Constant Currency basis would have been 3.9% compared to guidance of approximately 2.5% and 2.7% on an as reported basis (excluding the results of the aforementioned operation) compared to guidance of approximately 1.75%.
- Adjusted Net Cruise Costs Excluding Fuel per Capacity Day growth on a Constant Currency basis would have been 1.6% compared to guidance of approximately 2.0% and 1.3% on an as reported basis (excluding the results of the aforementioned operation) compared to guidance of approximately 1.75%.
“Continued strong demand in the Caribbean, Alaska, Bermuda, and Hawaii is offsetting softness in Europe which comes mainly as a result of lower demand from North American consumers,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings. “While this softness is tempering yield growth mainly in the second quarter, strong bookings and pricing in other core markets, as well as the addition of Seven Seas Explorer to our fleet, are contributing to strong yield performance in the back half of the year, keeping us on track to deliver expected earnings growth of approximately 30%,” continued Beck.
Sirena joined the Oceania Cruises’ fleet in March and her first sailing commenced in late April following an extensive, multi-million dollar upgrade and refurbishment. Seven Seas Explorer, the first newbuild for Regent Seven Seas Cruises in over thirteen years, will join the fleet in the third quarter.
2016 Guidance and Sensitivities
In addition to announcing the results for the first quarter, the Company also provided guidance for the second quarter and full year 2016, along with accompanying sensitivities, which both exclude the results of the aforementioned land-based operation in Hawaii.
|Second Quarter 2016 (1)||Full Year 2016 (1)|
|As Reported||Constant Currency||As Reported||Constant
|Adjusted Net Yield||Approx. 1.5%||Approx. 1.75%||Approx. 3.5%||Approx. 4.0%|
|Adjusted Net Cruise Cost
Excluding Fuel per Capacity Day
|Approx. 6.0%||Approx. 6.25%||Approx. 2.25%||Approx. 2.5%|
|Adjusted EPS||$0.80 to $0.85||$3.65 to $3.85|
|Adjusted Depreciation and Amortization (2)||Approx. $100 million||$408 to $418 million|
|Interest Expense, net||$55 to $60 million||$238 to $248 million|
|Effect on Adjusted EPS of a
1% change in Adjusted Net Yield (3)
(1) Excludes results from the Company’s interest in a certain land-based operation in Hawaii.
(2) Excludes $5.3 million and $21.1 million of amortization of intangible assets related to the Acquisition of Prestige in the second quarter and full year 2016, respectively.
(3) Based on midpoint of guidance.
The following reflects the Company’s expectations regarding fuel consumption and pricing, along with accompanying sensitivities.
|Second Quarter 2016||Full Year 2016|
|Fuel consumption in metric tons||175,000||715,000|
|Fuel price per metric ton, net of hedges||$480||$460|
|Effect on Adjusted EPS of a 10% change
in fuel prices, net of hedges
As of March 31, 2016, the Company had hedged approximately 92%, 82%, 55% and 50% of its total projected metric tons of fuel purchases in 2016, 2017, 2018 and 2019, respectively. The average fuel price per metric ton of the hedge portfolio for the same periods is $380, $361, $356 and $309, respectively. During the quarter the Company opportunistically layered on incremental hedges increasing its overall hedge position, including new hedges for marine gas oil (MGO).
Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of March 31, 2016, anticipated capital expenditures were $0.9 billion for the remainder of 2016, and $1.3 billion for each of the years ending December 31, 2017 and 2018, respectively, of which the Company has export credit financing in place for the expenditures related to ship construction contracts of $0.5 billion for 2016, $0.6 billion for 2017 and $0.7 billion for 2018.
Company Updates and Other Business Highlights
Regent Explorer-class Order for Delivery in 2020
During the quarter the Company announced it reached an agreement with Fincantieri of Italy to construct a sister ship to Seven Seas Explorer for its Regent Seven Seas Cruises brand scheduled for delivery in winter 2020. The new ship will further build upon the high-end features and amenities that have led to Seven Seas Explorer being hailed as the most luxurious ship ever built. The contract price for the vessel is euro 422 million and the Company has committed financing in place from a syndicate of banks for export credit financing in connection with this order.
Norwegian Joy Highlights
The Company named its first purpose-built ship customized for the Chinese market, Norwegian Joy. The name Norwegian Joy emphasizes the experience that the ship will offer, a promise that guests will ‘Experience Paradise on the Sea’. With a capacity of 3,900 guests, the new Breakaway Plus Class Ship will debut in China in summer 2017.
The Company also recently revealed features and amenities for Norwegian Joy, which are designed to provide First Class at Sea experiences with onboard amenities that cater to the unique vacation desires of Chinese guests. Norwegian Joy will provide a multitude of VIP accommodations including The Haven by Norwegian®, the line’s exclusive, ship-within-a-ship suite luxury complex, which will also include an all-new Observation Deck that features 180 degree views, and a Concierge level, an all-new accommodations category which will provide a VIP experience and feature larger balcony staterooms. Accommodation offerings will also include staterooms designed specifically for families and a multitude of connecting staterooms, for extended families traveling together, as well as a wide array of mini-suite, balcony, ocean view and interior staterooms, many with virtual balconies.
Norwegian Joy will offer engaging and innovative activities including a first at sea two-level competitive racetrack, an open-air laser tag course, thrilling simulator rides and interactive video walls at the Galaxy Pavilion as well as hover craft bumper cars, a state-of-the-art racing simulator and two multi-story waterslides. In addition, Norwegian Joy will house a tranquil open space park as well as the line’s largest upscale shopping district, complete with everything from exceptional duty-free shops to world-renowned global luxury brands.
Board of Directors Transitions to be Majority Independent
During the quarter, the Company announced the resignation of two members from its Board of Directors. With the departures of Mr. Peterson and Mr. Crowe, the Board eliminated the vacant seats created by the resignations to reduce its size from eleven to nine members, the majority of whom are independent.
Harvest Caye Destination Experience Revealed
The Company revealed details for its new highly-anticipated premier Western Caribbean destination experience, Harvest Caye, Belize. This spectacular resort-style port of call is set to welcome guests in November 2016 and will feature an expansive white sand beach, a 15,000 square foot pool, multiple dining options and easy access to the Belize mainland for unforgettable adventure tours.
Fleet Enhancement Update
In March, Norwegian Cruise Line’s U.S.-flagged ship, Pride of America, emerged from a three-and-a-half week dry-dock where she received ship-wide enhancements including newly designed public spaces, brand new venues and refreshed décor in all staterooms. Pride of America’s extensive renovation is part of The Norwegian Edge™ program, a $400 million investment that sets a new standard of excellence for the Norwegian brand encompassing the entire guest experience. Beyond hardware upgrades, guests can now enjoy new menus in all dining outlets offering more freedom and flexibility to guests with additional choices and à la carte priced items in complimentary dining rooms and specialty restaurants.
In April, Seven Seas Navigator emerged from dry-dock essentially a brand new ship now featuring the same elegant style and undisputable attention to detail famously featured on Seven Seas Explorer, providing guests with a consistent look-and-feel no matter which Regent Seven Seas Cruises ship they choose to sail. As part of Regent’s extensive $125 million fleet-wide refurbishment program, Seven Seas Navigator was the first of three ships to undergo refurbishments with a refresh to all suite categories, lounges, library, casino, boutiques, reception area, and signature restaurants Compass Rose and La Veranda.
Norwegian Cruise Line announced select 2017-2018 fall and winter itineraries that feature sought-after destinations while offering the freedom and flexibility on board that only Norwegian Cruise Line provides. Highlights include a variety of Caribbean & Bahamas cruises from New York, Port Canaveral and Miami; immersive 10-day Canary Islands cruises from Barcelona; as well as the Company’s exclusive seven-day, intra-island Hawaii sailings from Honolulu.
Oceania Cruises announced its summer 2017-2018 and winter collection with 172 sailings to more than 370 ports around the world. Nearly 70% of the sailings feature completely new itineraries not offered by the cruise line previously, setting a whole new standard for destination innovation.
Regent Seven Seas Cruises unveiled 2017-2018 itineraries featuring a wealth of new and exotic itineraries. This announcement coincided with expansion of the most inclusive luxury experience with the addition of free, intercontinental roundtrip business class air for all guests. Regent Seven Seas Cruises is the first cruise line to offer free business class air to guests, complementing other inclusive elements such as free unlimited shore excursions, fine wine and spirits, unlimited internet access, prepaid gratuities, ground transfers and luxury pre-cruise hotel stays.
The Company has scheduled a conference call for Tuesday, May 10, 2016 at 11:00 a.m. Eastern Time to discuss first quarter results. A link to the live webcast can be found on the Company’s Investor Relations website at www.nclhltdinvestor.com. A replay of the conference call will also be available on the website for 30 days after the call.