Norwegian Cruise Line Holdings Reports Financial Results for the Second Quarter 2016 Second Quarter Revenue increased 9.3% to $1.2 Billion Seven Seas Explorer Joins the Regent Fleet
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 second quarter ended June 30, 2016, provided guidance for the third quarter and full year 2016 and updated expectations for previously stated financial targets.
- The Company generated GAAP net income of $145.2 million or EPS of $0.64 compared to GAAP net income of $158.5 million or EPS of $0.69 in the second quarter of 2015. Adjusted Net Income was $192.6 million or Adjusted EPS of $0.85 compared to Adjusted Net Income of $171.6 million or Adjusted EPS of $0.75 in the second quarter of 2015.
- Total revenue was $1.2 billion, up 9.3% from prior year. Adjusted Net Yield increased 1.2% on a Constant Currency basis or 0.8% on an as reported basis on Adjusted Net Revenue of $917.8 million.
- Full Year 2016 Adjusted EPS expected to be in the range of $3.35 to $3.45.
- Regent Seven Seas Cruises welcomed Seven Seas Explorer to its fleet, the first newbuild for the brand in 13 years.
“While successive geopolitical events dampened North American consumer demand primarily for our Mediterranean itineraries, our management team worked diligently to identify cost saving opportunities to partially mitigate these impacts and generate solid Adjusted EPS growth of 13%,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings. “It was a challenging booking environment where we remained mindful of our go to market strategy to minimize discounting and maintain our hard-fought pricing gains, resulting in lower occupancy, which in turn lowered onboard revenue and overall Net Yield growth compared to our expectations earlier in the year.”
Second Quarter 2016 Results
Net income was $145.2 million or $0.64 per share compared to $158.5 million or $0.69 per share in the prior year which included a benefit of $34.3 million as a result of a fair value adjustment of the contingent consideration related to the Acquisition of Prestige, which was included in marketing, general and administrative expense in 2015 but not in 2016. The Company generated Adjusted Net Income of $192.6 million or $0.85 per share compared to $171.6 million or $0.75 per share in the prior year.
Revenue increased 9.3% to $1.2 billion compared to $1.1 billion in 2015. Adjusted Net Revenue in the period increased 10.3% to $917.8 million compared to $832.4 million in 2015. These increases were primarily attributed to the addition of Norwegian Escape and Oceania Cruises’ Sirena to the fleet as well as improved pricing, slightly offset by four scheduled Dry-docks in the period. Adjusted Net Yield improved 1.2% on a Constant Currency basis or 0.8% on an as reported basis, mainly due to efficiencies in cost of sale.
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 4.1% on a Constant Currency basis or 4.0% on an as reported basis. The increase was primarily due to four scheduled Dry-docks in the quarter compared to one in the prior year.
Fuel price per metric ton, net of hedges decreased 15.9% to $469 from $558 in 2015. The Company reported fuel expense of $80.6 million. In addition, a loss of $3.2 million was recorded in other expense related to the ineffective portion of the Company’s fuel hedge portfolio due to market volatility.
Interest expense, net increased to $68.4 million from $52.4 million primarily due to an increase in average debt balances outstanding primarily associated with the delivery of Norwegian Escape in October 2015 and slightly higher interest rates due to an increase in LIBOR rates. The increase in interest expense, net also includes a write-off of $11.4 million of deferred financing fees related to the refinancing of certain of our credit facilities.
Other expense was $10.8 million in 2016 compared to $3.7 million in 2015. In 2016, the expense primarily related to a loss from the fair value decrease related to a foreign exchange collar for the Seven Seas Explorer newbuild and the aforementioned loss on fuel hedges, partially offset by gains on foreign currency exchange. In 2015, the expense was primarily related to the dedesignation of certain fuel swap derivative hedge contracts and the ineffectiveness of settled fuel swaps in 2015, partially offset by income related to the fair value adjustment for a foreign exchange collar which did not receive hedge accounting treatment.
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 second 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 would have been 1.3% on a Constant Currency basis or 0.9% on an as reported basis (excluding the results of the aforementioned operation).
- Adjusted Net Cruise Costs Excluding Fuel per Capacity Day growth would have been 4.2% on a Constant Currency basis or 4.1% on an as reported basis (excluding the results of the aforementioned operation).
“Although we experienced significant booking headwinds we delivered earnings consistent with expectations, generating Adjusted EPS growth of 20% for the first half of the year. As we enter the second half of the year, we are revising our earnings expectations primarily as a result of four factors: continued weak demand from our core North American consumer for European sailings at a time when half of our fleet is deployed in the region, including eight of our highest yielding ships; the effect of a weaker British pound post the Brexit vote; an adjustment to earlier pricing expectations for Miami-based Caribbean itineraries, which continue to outperform prior year despite a doubling of capacity in the low season months; and the impact from maintaining pricing discipline to minimize discounting,” said Del Rio. “With this revision to expectations, we are confident we will deliver strong earnings growth for full year 2016 and grow 2017 Adjusted EPS in the range of 15% to 25%.”
As a result of its revised expectations, the Company no longer expects to achieve its previously stated target of $5.00 Adjusted EPS in 2017.
2016 Guidance and Sensitivities
In addition to announcing the results for the second quarter, the Company also provided guidance for the third quarter and full year 2016, along with accompanying sensitivities, which both exclude the results of the aforementioned land-based operation in Hawaii. 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 2016 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.
|Third Quarter 2016 (1)||Full Year 2016 (1)|
|As Reported||Constant Currency||As Reported||Constant
|Adjusted Net Yield||Approx. 1.75%||Approx. 2.5%||Approx. 1.0%||Approx. 1.75%|
|Adjusted Net Cruise Cost
Excluding Fuel per Capacity Day
|Approx. 1.5%||Approx. 1.75%||Approx. 1.0%||Approx. 1.25%|
|Adjusted EPS||$1.57 to $1.62||$3.35 to $3.45|
|Adjusted Depreciation and Amortization (2)||$105 to $109 million||$409 to $415 million|
|Interest Expense, net||Approx. $62 million||$236 to $242 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 third 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.
|Third Quarter 2016||Full Year 2016|
|Fuel consumption in metric tons||170,000||710,000|
|Fuel price per metric ton, net of hedges||$510||$480|
|Effect on Adjusted EPS of a 10% change
in fuel prices, net of hedges
As of June 30, 2016, the Company had hedged approximately 88%, 82%, 55% and 50% of its total projected metric tons of fuel purchases in 2016, 2017, 2018 and 2019, 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.
|% of HFO Consumption Hedged||95%||81%||63%||57%|
|Average USGC Price / Barrel||$68.73||$59.69||$56.41||$47.82|
|% of MGO Consumption Hedged||76%||85%||25%||25%|
|Average Brent Price / Barrel||$34.99||$41.11||$46.50||$49.25|
The following reflects the foreign currency rates the Company used in its guidance.
Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of June 30, 2016, anticipated capital expenditures were $0.2 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 $0.6 billion for 2017 and $0.7 billion for 2018.
Company Updates and Other Business Highlights
Introduction of Seven Seas Explorer
Seven Seas Explorer, the first newbuild for Regent Seven Seas Cruises in over thirteen years, joined the fleet in June. Godmother of Seven Seas Explorer, Her Serene Highness Princess Charlene of Monaco, officially christened the ship in Monte Carlo, one of the world’s most glamorous cities, and included a special private concert by world-renowned Italian tenor Andrea Bocelli.
The ship features extravagantly designed theaters and lounges, an unparalleled collection of opulent and spacious suites, five lavish gourmet restaurants and an unprecedented level of personalized service. At 55,254 gross tons and carrying only 750 guests, the all-suite, all-balcony ship boasts one of the highest space ratios and lowest guest to crew ratios in the cruise industry, the largest private verandas in the cruise industry and a new category of luxury suite, the nearly 4,500-square foot Regent Suite.
In June, the Company announced several itineraries for the Norwegian brand for fall 2017/winter 2018, featuring a wide array of itineraries from convenient U.S. ports of departure as well as exciting new Australia and New Zealand itineraries from Sydney and Auckland. New for 2017/18, Norwegian Jewel will be based in the Asia Pacific region with departures to and from Australia beginning November 2017. San Juan, Puerto Rico will also return as a seasonal homeport, with Norwegian Dawn sailing from the Caribbean port as well as Tampa, Florida. Additionally, there will be a new 14-day Western Caribbean sailing from New York on Norwegian Breakaway.
Refinancing of Senior Secured Credit Facility
The Company amended its existing senior secured credit facility in June by extending the maturity of its $625 million revolving credit facility (“Revolver”) and its $1.16 billion term loan facility (“Term Loan”) from May 2018 to June 2021. In addition, the amendment increased the amount of commitments under the Revolver from $625 million to $750 million (“New Revolver”) and the amount outstanding under the Term Loan from $1.16 billion to $1.51 billion (“New Term Loan”). The proceeds from the New Term Loan and New Revolver were used to prepay the entire outstanding principal amounts of the Company’s Revolver, Term Loan and $350 million senior secured term loan, which resulted in no change to the Company’s total outstanding debt. Both the New Revolver and New Term Loan bear interest at LIBOR plus an applicable margin of between 1.50% and 2.25%, depending on the Company’s leverage ratio. The $350 million senior secured term loan bore interest at LIBOR plus 3.25%.
The Company has scheduled a conference call for Tuesday, August 9, 2016 at 10:00 a.m. Eastern Time to discuss second 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.