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Norwegian Cruise Line Holdings Reports Financial Results for the First Quarter 2017

May 13, 2017 Financial No Comments Email Email

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, 2017, and provided guidance for the second quarter and full year 2017.http://join.travelmanagers.com.au/

Highlights

  • The Company generated GAAP net income of $61.9 million or EPS of $0.27 compared to $73.2 million or $0.32 in the prior year.  Adjusted Net Income was $91.2 million or Adjusted EPS of $0.40 compared to $86.7 million or $0.38 in the prior year.
  • Total revenue increased 6.8% to $1.2 billion. Gross Yield increased 5.7%.  Adjusted Net Yield increased 5.5% on a Constant Currency basis.
  • 2017 full year Adjusted Net Yield growth guidance on a Constant Currency basis increased 100 basis points to 2.75%.
  • The Company expects to generate record earnings for full year 2017 and has increased its outlook, with Adjusted EPS now expected to be in the range of $3.79 to $3.89.

“2017 is off to a solid start with strong first quarter results which include record revenue of $1.2 billion for the quarter,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd.  “The operating environment has remained favorable with strong close-in demand for Caribbean sailings and strength in onboard revenue driving topline growth above expectations,” continued Del Rio.

First Quarter 2017 Results

GAAP net income was $61.9 million or EPS of $0.27 compared to $73.2 million or $0.32 in the prior year.  The Company generated Adjusted Net Income of $91.2 million or Adjusted EPS of $0.40 compared to $86.7 million or $0.38 in the prior year.

Revenue increased 6.8% to $1.2 billion compared to $1.1 billion in 2016.  This increase was primarily attributed to the addition of Oceania Cruises’ Sirena and Regent’s Seven Seas Explorer to the fleet, partially offset by five Dry-docks during the period along with an increase in Net Yield due to strength in ticket pricing and higher onboard and other revenue.  Gross Yield increased 5.7% while Adjusted Net Yield improved 5.5% on a Constant Currency basis and 4.9% on an as reported basis.

Gross Cruise Cost increased 7.9% compared to 2016 due to an increase in total cruise operating expense and marketing, general and administrative expenses.  Gross Cruise Costs per Capacity Day increased 6.8%.  Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 5.8% on both a Constant Currency and as reported basis primarily due to an increase in maintenance and repairs including Dry-dock and crew payroll and related costs.

Fuel price per metric ton, net of hedges increased 3.4% to $453 from $438 in 2016.  The Company reported fuel expense of $88.9 million in the period.  In addition, a loss of $0.4 million was recorded in other expense in 2017 related to the ineffective portion of the Company’s fuel hedge portfolio due to market volatility.

Interest expense, net decreased to $53.0 million in 2017 from $59.8 million in 2016 reflecting a decrease in average debt outstanding partially offset by an increase in LIBOR rates.

Other income (expense), net was an expense of $2.8 million in 2017 compared to income of $2.8 million in 2016.  In 2017, the expense was primarily related to losses on foreign currency exchange and unrealized and realized losses on derivatives.  In 2016, the income was primarily related to unrealized gains on derivatives partially offset by realized losses on derivatives and losses on foreign currency exchange.

Company Outlook

“A strong end to the most successful Wave season in recent history resulted in a meaningful improvement in our full year booked position, with both occupancy and pricing now well ahead of prior year,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “I am pleased to report that the strong performance witnessed in our core markets and reflected in first quarter results also extended to our booked business in future quarters, allowing us to increase our full year Adjusted EPS and Adjusted Net Yield growth guidance.  This positive momentum has been partially offset by recent uncertainties in Norwegian Joy’s Chinese source market caused by the South Korea travel restriction.  Taking all factors into account, we are on track to deliver another year of solid financial performance and double-digit Adjusted EPS growth.”

2017 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 2017, along with accompanying sensitivities. The Company does not provide guidance on a GAAP basis because the Company is unable to predict, with reasonable certainty, the future movement of foreign exchange rates or the future impact of certain gains and charges. These items are uncertain and will depend on several factors, including industry conditions, and could be material to the Company’s results computed in accordance with GAAP. The Company has not provided reconciliations between the Company’s 2017 guidance and the most directly comparable GAAP measures because it would be too difficult to prepare a reliable U.S. GAAP quantitative reconciliation without unreasonable effort.

 

  Second Quarter 2017   Full Year 2017  
  As Reported   Constant Currency   As Reported   Constant
Currency
 
Adjusted Net Yield Approx. 4.75%   Approx. 5.5%   Approx. 2.25%   Approx. 2.75%  
Adjusted Net Cruise Cost
Excluding Fuel per Capacity Day
Approx. 2.75% Approx. 2.75%   Approx. 1.5%   Approx. 1.5%  
Adjusted EPS Approx. $0.95   $3.79 to $3.89  
Adjusted Depreciation and Amortization (1)   $114 to $118 million   Approx. $475 million  
Adjusted Interest Expense, net Approx. $65 million   Approx. $247 million  
Effect on Adjusted EPS of a
1% change in Adjusted Net Yield (2)
$0.05   $0.14 (3)  
Effect on Adjusted EPS of a 1% change in Adjusted Net Cruise Cost Excluding Fuel per Capacity Day (2) $0.02   $0.07 (3)  

(1)     Excludes $7.6 million and $30.3 million of amortization of intangible assets related to the Acquisition of Prestige in the second quarter and full year 2017, respectively.

(2)     Based on midpoint of guidance.

(3)     For the remaining quarters of 2017.

The following reflects the Company’s expectations regarding fuel consumption and pricing, along with accompanying sensitivities.

 

 

Second Quarter 2017   Full Year 2017
Fuel consumption in metric tons 185,000   780,000
Fuel price per metric ton, net of hedges $450   $440
Effect on Adjusted EPS of a 10% change
in fuel prices, net of hedges
$0.01   $0.04 (1)

(1)   For the remaining quarters of 2017.

As of March 31, 2017, the Company had hedged approximately 78%, 66%, 49% and 18% of its total projected metric tons of fuel consumption for the remainder of 2017, 2018, 2019 and 2020, respectively.  The following table provides amounts hedged and price per barrel of heavy fuel oil (“HFO”) and marine gas oil (“MGO”) which are hedged utilizing U.S. Gulf Coast 3% (“USGC”) and Brent, respectively.

  Remainder of 2017   2018   2019 2020
% of HFO Consumption Hedged 83%   78%   56% 50%
Average USGC Price / Barrel $60.15   $53.02   $47.82 $39.50
% of MGO Consumption Hedged 67%   23%   23%
Average Brent Price / Barrel $41.11   $46.50   $49.25

The following reflects the foreign currency exchange rates the Company used in its Second Quarter and Full Year 2017 guidance.

 

  Current Guidance – May Prior Guidance – February
Euro $1.09 $1.07
British pound $1.29 $1.26
Australian Dollar $0.77 $0.76
Canadian Dollar $0.75 $0.77
         

Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations as well as our ship refurbishment projects. As of March 31, 2017, excluding Project Leonardo, our anticipated capital expenditures were $1.1 billion for the remainder of 2017, $1.3 billion for the year ending December 31, 2018 and $1.2 billion for the year ending December 31, 2019, of which the Company has export credit financing in place for the expenditures related to ship construction contracts of $0.8 billion for the remainder of 2017, $0.7 billion for 2018 and $0.6 billion for 2019.

Project Leonardo will introduce an additional four ships with expected delivery dates through 2025 with an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. The contract price for each of the additional four ships is approximately €800.0 million or $852.2 million based on the exchange rate as of March 31, 2017. For ships expected to be delivered after 2023, the contract price is subject to adjustment under certain circumstances. The additional anticipated capital expenditures for these ships were $70.8 million for the remainder of 2017, $5.2 million for the year ending December 31, 2018 and $6.4 million for the year ending December 31, 2019, of which we have export credit financing in place for the expenditures related to ship construction contracts of $54.5 million for 2018.

Company Updates and Other Business Highlights

Company Receives Approval to Sail to Cuba in 2018

The Company made history this spring as the first major U.S. cruise operator to have its full portfolio of brands sail their maiden voyage to Cuba. In addition to existing itineraries to Cuba in 2017, the Company announced approval from the government of the Republic of Cuba to operate cruises to Cuba in 2018 with 56 voyages across all three brands.

Share Repurchase Program Extended Through April 2020

The Company’s Board of Directors extended its three-year, $500 million share repurchase program, which was originally scheduled to expire on April 29, 2017, through April 29, 2020.  The Company’s primary focus will continue to be the strengthening of its balance sheet by deleveraging, and the extension of its share repurchase program will provide continued flexibility to strategically repurchase shares at attractive levels should the opportunity materialize.  The Company may repurchase its ordinary shares from time to time, in amounts, at prices and at such times as it deems appropriate, subject to market conditions and other considerations. The Company may make repurchases in the open market, in privately negotiated transactions, in accelerated repurchase programs or in structured share repurchase programs, and any repurchases may be made pursuant to Rule 10b5-1 plans. The program will be conducted in compliance with applicable legal requirements and will be subject to market conditions and other factors. As of May 10, 2017, there was $263.5 million remaining available for repurchases under the share repurchase program.

Company Releases 2016 Environmental Report

The Company released its 2016 Environmental Report and unveiled its global environmental program, ‘Sail & Sustain’.  This encompassing program highlights the Company’s progress on its global environmental initiatives as well as the Company’s environmental objectives, which include increasing sustainable sourcing, minimizing landfill waste, investing in emerging technologies, and reducing CO2 emissions.

Update on The Norwegian Edge™

In March, Norwegian Jade sailed into her seasonal homeport of Tampa as an essentially new vessel, following a three-week Dry-dock.  She received enhancements to every part of the onboard experience, from two brand new restaurants and two new bars and lounges, updated design and décor in many public spaces, and a refurbishment of all staterooms.  Additionally, in February, Norwegian Pearl sailed into her seasonal homeport of Miami following a two week Dry-dock where every stateroom and many of the ship’s public areas were revitalized to provide a fresh, modern look.  These extensive renovations are a part of The Norwegian Edge™, an investment program that sets a high standard of excellence for the Norwegian Cruise Line brand, encompassing the entire guest experience.

Delivery of Norwegian Joy

On April 27, the Company took delivery of Norwegian Joy, the Company’s custom-designed ship for the Chinese cruise market, from MEYER WERFT during an onboard ceremony in Bremerhaven, Germany.   At 167,775 Gross Tons and accommodating 3,883 guests, Norwegian Joy is the second ship in the line’s Breakaway Plus Class and features an innovative design with amenities tailored to provide a “First Class at Sea” experience for Chinese guests with the elements of freedom and flexibility that Norwegian Cruise Line has become known for across the globe. After delivery, Norwegian Joy set sail for China, where she will be showcased through a grand inaugural port tour, which will be followed by the ship’s christening ceremony on June 27, led by her Godfather, ‘King of Chinese Pop’, Wang Leehom. The spectacular inaugural celebration in Shanghai will include an exclusive concert and overnight cruise for honored guests.

Launched Partnership with Alibaba Group

The Company recently announced the launch of a new partnership with Alibaba Group which will leverage Norwegian’s expertise in providing exceptional vacation experiences and its innovative and award-winning cruise offerings along with Alibaba’s unparalleled insights into the wants and needs of the Chinese consumer to deliver the cruise industry’s most-customized product for the local Chinese market.  Utilizing Alibaba’s expansive ecosystem for engaging consumers, the two companies will look to further increase the awareness in China of the unique offerings of a cruise vacation.  The companies plan to make cruising the preferred vacation choice among Chinese travelers in what is forecasted to become the cruise industry’s second-largest source market.  The companies will also collaborate to provide Alibaba customers with new and unique online-to-offline (O2O) experiences at sea across Norwegian’s China-based and global fleet.

Conference Call

The Company has scheduled a conference call for Wednesday, May 10, 2017 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.

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