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Norwegian Cruise Line Holdings Reports Financial Results for the Fourth Quarter and Full Year 2016

February 24, 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 fourth quarter and full year ended December 31, 2016, as well as provided guidance for the first quarter and full year 2017.http://join.travelmanagers.com.au/

Full Year 2016 Highlights

  • The Company generated GAAP net income of $633.1 million or EPS of $2.78 compared to $427.1 million or $1.86 in the prior year.  Adjusted Net Income was $776.3 million or Adjusted EPS of $3.41 compared to $662.7 million or $2.88 in the prior year.
  • Total revenue increased 12.2% to $4.9 billion. Gross Yield increased 0.7%.  Adjusted Net Yield increased 1.8% on a Constant Currency basis.
  • Fivefold growth in EPS since 2013, the year of the Company’s initial public offering.
  • Successful launch of Seven Seas Explorer and Oceania Cruises’ Sirena.
  • Norwegian Cruise Line announced 2018 newbuild, Norwegian Bliss, will be custom designed for Alaska cruising.
  • Regent Seven Seas Cruises placed order for second Explorer Class Ship for delivery in 2020.
  • Debuted Western Caribbean destination, Harvest Caye.
  • Received approval for all three of its award-winning brands to sail to Cuba in 2017.

Full Year 2017 Highlights

  • Company continues strong earnings growth track record and anticipates fourth consecutive year of double-digit EPS growth.
  • Excluding the benefit of Norwegian Joy, Company’s 2017 booked position at historic high with pricing slightly higher than prior year.
  • Renewed demand from North American guests for European voyages, with Caribbean, Alaska and Hawaii itineraries showing continued strength.
  • Norwegian Joy, the first purpose-built ship customized for the Chinese cruise market, will join the fleet, marking the Company’s entry into the Chinese cruise market.
  • Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises will sail a total of 41 voyages to Cuba in 2017.
  • The Company announced the next generation of newbuilds for Norwegian Cruise Line with a contract to build four 3,300 passenger ships to be delivered in 2022, 2023, 2024 and 2025 with an option for two additional ships to be delivered in 2026 and 2027.

“2016 marks another record year of earnings, continuing our track record of solid EPS growth, which has grown fivefold since 2013, the year of our initial public offering,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd.  “This solid revenue and earnings trend is expected to continue in 2017 as we are now in the best booked position in our company’s history with pricing slightly above the prior year,” continued Del Rio.

Fourth Quarter 2016 Results

GAAP net income was $72.2 million or EPS of $0.32 compared to $38.3 million or $0.17 in the prior year.  The Company generated Adjusted Net Income of $127.7 million or Adjusted EPS of $0.56 compared to $117.3 million or $0.51 in the prior year.

Revenue increased 8.5% to $1.1 billion compared to $1.0 billion in 2015.  Adjusted Net Revenue increased 7.7% to $861.6 million compared to $799.9 million in 2015.  These increases were primarily attributed to the addition of Norwegian Escape, Oceania Cruises’ Sirena, and Regent’s Seven Seas Explorer to the fleet.  Gross Yield decreased 1.5% and Adjusted Net Yield decreased 1.7% on a Constant Currency basis and 2.2% on an as reported basis.

Gross Cruise Cost increased 7.0% in 2016 compared to 2015 due to increases in Capacity Days, total cruise operating expense and marketing, general and administrative expenses.  Gross Cruise Costs per Capacity Day decreased 2.9%.  Adjusted Net Cruise Cost Excluding Fuel per Capacity Day decreased 0.7% on a Constant Currency and as reported basis.

Fuel price per metric ton, net of hedges decreased 9.8% to $459 from $509 in 2015.  The Company reported fuel expense of $86.6 million in the period.  In addition, a loss of $1.5 million was recorded in other income (expense), net in 2016 related to the ineffective portion of the Company’s fuel hedge portfolio due to market volatility.

Interest expense, net increased to $88.0 million in 2016 from $68.7 million in 2015 primarily due to higher interest rates associated with an increase in LIBOR as well as an increase in average debt balances outstanding primarily associated with the delivery of new ships and newbuild installments. Additionally, in connection with refinancings of our senior notes, interest expense, net included losses on extinguishment of debt of $28.0 million in 2016 and $12.6 million in 2015.

Full Year 2016 Results

GAAP net income was $633.1 million or EPS of $2.78 compared to $427.1 million or $1.86 in the prior year.  The Company generated Adjusted Net Income of $776.3 million or Adjusted EPS of $3.41 compared to $662.7 million or $2.88 in the prior year. These increases were primarily attributed to the addition of Norwegian Escape, Oceania Cruises’ Sirena, and Regent’s Seven Seas Explorer to the fleet and improved pricing.  This strong growth follows a 14.8% increase in GAAP EPS and a 26.9% increase in Adjusted EPS in 2015, further demonstrating the Company’s continued underlying earnings power, despite headwinds faced in 2016.

Revenue increased 12.2% to $4.9 billion compared to $4.3 billion in 2015 primarily due to an increase in Capacity Days and improved pricing.  Adjusted Net Revenue increased 12.7% to $3.8 billion compared to $3.3 billion in 2015.  Gross Yield increased 0.7% and Adjusted Net Yield increased 1.8% on a Constant Currency basis and 1.2% on an as reported basis primarily due to improved pricing.

Gross Cruise Cost increased 9.5% in 2016 compared to 2015 due to an increase in total cruise operating expense as a result of an increase in Capacity Days along with an increase in marketing, general and administrative expenses.  Gross Cruise Costs per Capacity Day decreased 1.7%.  Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 1.7% on a Constant Currency basis and 1.5% on an as reported basis.

Fuel price per metric ton, net of hedges decreased 13.5% to $466 from $539 in 2015.  The Company reported fuel expense of $335.2 million in the period.  In addition, a loss of $16.1 million was recorded in other income (expense), net in 2016 related to the ineffective portion of the Company’s fuel hedge portfolio due to market volatility.

Interest expense, net increased to $276.9 million in 2016 from $221.9 million in 2015 primarily due to an increase in average debt balances outstanding primarily associated with the delivery of new ships and newbuild installments as well as higher interest rates due to an increase in LIBOR. Additionally, in connection with the refinancings of our senior notes and certain of our credit facilities, interest expense, net included losses on extinguishment of debt and debt modification costs of $39.2 million in 2016 and losses on extinguishment of debt of $12.6 million in 2015.

Other income (expense), net was an expense of $8.3 million in 2016 compared to an expense of $46.7 million in 2015. In 2016, the expense was primarily related to $16.1 million of unrealized and realized losses on fuel swap derivative hedge contracts, partially offset by $4.5 million of gains on foreign currency exchange and $3.9 million of gains on foreign currency exchange derivative hedge contracts. In 2015, the expense was primarily related to $30.7 million of losses from the dedesignation of certain fuel swap derivative hedge contracts and the ineffectiveness of settled fuel swaps in 2015. Also included in 2015 was an expense of $26.2 million related to the fair value adjustment of a foreign exchange collar which did not receive hedge accounting treatment partially offset by $11.0 million of foreign currency transaction gains.

2017 Outlook

“With our strong booked position and continuing momentum we look forward to another year of solid financial performance, including double-digit Adjusted EPS growth in 2017,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “In addition, this year marks another key milestone with our much anticipated debut into the Chinese cruise market with the delivery of Norwegian Joy.”

2017 Guidance and Sensitivities

In addition to announcing the results for the fourth quarter and full year 2016, the Company also provided guidance for the first 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.

  First Quarter 2017   Full Year 2017  
  As Reported   Constant Currency   As Reported   Constant
Currency
 
Adjusted Net Yield Approx. 4.0%   Approx. 4.5%   Approx. 1.25%   Approx. 1.75%  
Adjusted Net Cruise Cost
Excluding Fuel per Capacity Day
Approx. 5.25% Approx. 5.25%   Approx. 1.0%   Approx. 1.0%  
Adjusted EPS Approx. $0.36   $3.75 to $3.85  
Adjusted Depreciation and Amortization (1)   $111 to $115 million   Approx. $470 million  
Adjusted Interest Expense, net Approx. $60 million   Approx. $247 million  
Effect on Adjusted EPS of a
1% change in Adjusted Net Yield (2)
$0.04   $0.18  
Effect on Adjusted EPS of a 1% change in Adjusted Net Cruise Cost Excluding Fuel per Capacity Day (2) $0.02   $0.09  

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

(2)     Based on midpoint of guidance.

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

 

 

First Quarter 2017   Full Year 2017
Fuel consumption in metric tons 190,000   765,000
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   $0.05

As of December 31, 2016, the Company had hedged approximately 78%, 66%, 48% and 18% of its total projected metric tons of fuel consumption for the full year 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.

  2017   2018   2019 2020
% of HFO Consumption Hedged 81%   78%   56% 50%
Average USGC Price / Barrel $59.69   $53.02   $47.82 $39.50
% of MGO Consumption Hedged 70%   23%   22% 0%
Average Brent Price / Barrel $41.11   $46.50   $49.25         ˗

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

     
  Current Guidance – February Prior Guidance – November
Euro $1.07 $1.10
British pound $1.26 $1.22
Australian Dollar $0.76 $0.76
Canadian Dollar $0.77 $0.76
         

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 December 31, 2016, anticipated capital expenditures were $1.3 billion for each of the years ending December 31, 2017 and 2018 and $1.2 billion for 2019 of which the Company has export credit financing in place for the expenditures related to ship construction contracts of $0.8 billion for 2017, $0.7 billion for 2018 and $0.6 billion for 2019.

Company Updates and Other Business Highlights

Full Portfolio of Brands Receive Approval to Sail to Cuba

The Company became the first U.S. cruise operator to have its full portfolio of brands receive approval from the government of the Republic of Cuba to operate cruises to Cuba, beginning March 2017.  These historic voyages will provide guests with a once-in-a-lifetime opportunity to discover not only the rich culture, history and natural beauty of Cuba, but more importantly experience the warmth and hospitality of its people. The Company’s first cruise to Cuba will set sail from PortMiami on Oceania Cruises’ Marina on March 7, 2017.  Oceania Cruises has nine Caribbean sailings featuring calls on Havana, including multiple-day calls to allow guests to explore Havana and its environs.  Seven Seas Mariner of the Regent Seven Seas Cruises fleet will call on Havana during two cruises in April 2017. Norwegian Sky will offer thirty four-day voyages that will include an overnight in Havana from May through December 2017.

Senior Notes Offering

In December, the Company opportunistically entered into an agreement to sell $700.0 million aggregate principal amount of 4.750% senior unsecured notes due December 2021 in a private offering at par.  The net proceeds, after deducting the initial purchasers’ discount and estimated fees and expenses, together with cash on hand, were used to purchase any and all of its $680.0 million aggregate principal amount of 5.25% senior unsecured notes due November 2019 that were validly tendered and to redeem and satisfy and discharge any 5.25% senior unsecured notes not tendered.

Next Generation of Ships for the Norwegian Cruise Line Brand

The Company announced it reached an agreement with Fincantieri S.p.A. to construct the next generation of ships for its Norwegian Cruise Line brand.  Four ships are on order for delivery in 2022, 2023, 2024 and 2025, with an option for two additional ships to be delivered in 2026 and 2027, subject to certain conditions.  The four 140,000 gross ton ships will each accommodate approximately 3,300 guests.  The new class of ships will build upon the highly successful offering of freedom and flexibility found on the brand’s most recent Breakaway-Plus Class ships and feature a host of innovative designs that will further elevate its already award-winning guest experience. A priority of the prototype design is energy efficiency, with the aim of optimizing fuel consumption and reducing its impact on the environment.  Details on the ships’ many other innovative and first at sea guest facing features will be announced at a later date.

The contract price for each of the four vessels is approximately €800 million per ship.  The Company has obtained export credit financing with favorable terms to fund 80 percent of the contract price of each ship delivered through 2025, subject to certain conditions.

Regent Seven Seas Cruises Celebrates 25th Anniversary

Commemorating its silver anniversary, Regent Seven Seas Cruises has selected 25 special voyages in 2017 that will feature a variety of exclusive activities and events developed specifically for its year long, fleet-wide celebration.  The celebratory 25 cruises will take place across all four of the brand’s ships, on a diverse array of itineraries. Guests sailing on one of the anniversary cruises will be encouraged to share their favorite moments sailing with Regent Seven Seas Cruises, both past and current, via a dedicated microsite, Regent25.com, developed specifically for the silver anniversary.

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