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 third quarter ended September 30, 2016, and provided guidance for the fourth quarter and full year 2016.
- The Company generated GAAP net income of $342.4 million or EPS of $1.50 compared to $251.8 million or $1.09 in the prior year. Adjusted Net Income was $369.3 million or Adjusted EPS of $1.62 compared to $311.1 million or $1.35 in the prior year.
- Total revenue increased 15.6% to $1.5 billion. Gross Yield increased 1.5%. Adjusted Net Yield increased 3.4% on a Constant Currency basis.
- The Company expects to generate record earnings with full year 2016 Adjusted EPS to be in the range of $3.38 to $3.42.
“In 1966, the M/S Sunward departed on her first voyage from Miami to the Caribbean, marking not just the launch of Norwegian Cruise Line, but the modern cruise industry as we know it today,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd. “Fast forward fifty years, where we have reached yet another milestone, reporting the highest single quarter revenue and earnings in our history, bolstered by the addition of Norwegian Escape, Oceania Cruises’ Sirena and Seven Seas Explorer to our fleet,” continued Del Rio.
Third Quarter 2016 Results
GAAP net income was $342.4 million or EPS of $1.50 compared to $251.8 million or $1.09 in the prior year. The Company generated Adjusted Net Income of $369.3 million or Adjusted EPS of $1.62 compared to $311.1 million or $1.35 in the prior year.
Revenue increased 15.6% to $1.5 billion compared to $1.3 billion in 2015. Adjusted Net Revenue in the period increased 17.0% to $1.1 billion compared to $978.2 million in 2015. These increases were primarily attributed to the addition of Norwegian Escape, Oceania Sirena, and Regent Seven Seas Explorer to the fleet. Gross Yield increased 1.5% while Adjusted Net Yield improved 3.4% on a Constant Currency basis and 2.8% on an as reported basis primarily due to improved pricing.
Gross Cruise Cost increased 10.5% 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 expense. Gross Cruise Costs per Capacity Day decreased 3.0%. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 1.7% on both a Constant Currency and as reported basis primarily due an increase in marketing expenses.
Fuel price per metric ton, net of hedges decreased 11.5% to $500 from $565 in 2015. The Company reported fuel expense of $86.3 million in the period. In addition, a loss of $2.5 million was recorded in other expense in 2016 related to the ineffective portion of the Company’s fuel hedge portfolio due to market volatility.
Interest expense, net increased to $60.7 million in 2016 from $49.8 million in 2015 primarily due to an increase in average debt balances outstanding primarily associated with the delivery of Norwegian Escape in October 2015 and Seven Seas Explorer in June 2016 as well as slightly higher interest rates due to an increase in LIBOR rates.
Other expense was $5.3 million in 2016 compared to $1.7 million in 2015. In 2016, the expense was primarily related to unrealized and realized losses on fuel swap derivative hedge contracts and foreign exchange derivative hedge contracts and foreign currency transaction losses.
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 which are still pending; therefore, the Company no longer anticipates the transaction will close in 2016. The Company’s third 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:
- Gross Yield growth would have been 1.5%. Adjusted Net Yield growth would have been 3.5% on a Constant Currency basis or 2.9% on an as reported basis (excluding the results of the aforementioned operation).
- Gross Cruise Costs per Capacity Day would have decreased 2.9%. Adjusted Net Cruise Costs Excluding Fuel per Capacity Day growth would have been 1.9% on both a Constant Currency and as reported basis (excluding the results of the aforementioned operation).
“We are on track to deliver robust double-digit growth in Adjusted EPS in 2016, despite headwinds from geopolitical events earlier in the year which dampened demand for Mediterranean sailings,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “Looking to the first half of 2017, where deployment is weighted to Caribbean sailings, advanced bookings are ahead of prior year‘s record levels at higher prices, while an early look at the full year shows occupancy commensurate with prior year at this same time at slightly lower prices. Recent significant weakening of certain foreign currencies, primarily the British Pound, against the U.S. dollar, combined with an increase in fuel prices have placed pressure on expectations for the coming year. Despite these headwinds, we still anticipate delivering double-digit growth in Adjusted EPS in 2017.”
2016 Guidance and Sensitivities
In addition to announcing the results for the third quarter, the Company also provided guidance for the fourth quarter and full year 2016, 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 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.
|Fourth Quarter 2016||Full Year 2016|
|As Reported||Constant Currency||As Reported||Constant
|Adjusted Net Yield||Approx. (2.75%)||Approx. (2.25%)||Approx. 1.0%||Approx. 1.75%|
|Adjusted Net Cruise Cost
Excluding Fuel per Capacity Day
|Approx. (2.0%)||Approx. (2.0%)||Approx. 1.25%||Approx. 1.25%|
|Adjusted EPS||$0.53 to $0.57||$3.38 to $3.42|
|Adjusted Depreciation and Amortization (1)||$109 to $113 million||$410 to $414 million|
|Adjusted Interest Expense, net (2)||Approx. $60 million||Approx. $238 million|
|Effect on Adjusted EPS of a
1% change in Adjusted Net Yield (3)
(1) Excludes $5.3 million and $21.1 million of amortization of intangible assets related to the Acquisition of Prestige in the fourth quarter and full year 2016, respectively.
(2) Excludes $11.4 million for the write-off of deferred financing fees in the full year 2016.
(3) Based on midpoint of guidance.
The following reflects the Company’s expectations regarding fuel consumption and pricing, along with accompanying sensitivities.
|Fourth Quarter 2016||Full Year 2016|
|Fuel consumption in metric tons||182,000||713,000|
|Fuel price per metric ton, net of hedges||$453||$480|
|Effect on Adjusted EPS of a 10% change
in fuel prices, net of hedges
As of September 30, 2016, the Company had hedged approximately 90%, 79%, 57%, 48% and 5% of its total projected metric tons of fuel consumption for the remainder of 2016 and 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.
|% of HFO Consumption Hedged||91%||81%||68%||56%||6%||[ ]%|
|Average USGC Price / Barrel||$63.47||$59.69||$54.90||$47.82||$44.35||$[ ]|
|% of MGO Consumption Hedged||87%||75%||22%||21%||0%||[ ]%|
|Average Brent Price / Barrel||$35.01||$41.11||$46.50||$49.25||–||$[ ]|
The following reflects the foreign currency exchange rates the Company used in its guidance.
|Current Guidance||Prior Guidance|
Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of September 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, of which the Company has export credit financing in place for the expenditures related to ship construction contracts of $0.8 billion for 2017 and $0.7 billion for 2018.
Company Updates and Other Business Highlights
Designed for Alaska Cruising, Norwegian Bliss to Debut in 2018
The Company recently announced that the third ship in the line’s Breakaway Plus Class Ships, Norwegian Bliss, will be the first cruise ship custom-built with features and amenities for the ultimate Alaska cruise experience. Norwegian Bliss will pioneer a new era of Alaska cruising beginning June 2018 and will cruise to America’s Last Frontier from Seattle. She will also be the first Norwegian Cruise Line ship to make its debut in the Emerald City. Norwegian Bliss will be approximately 167,800 gross tons and accommodate 4,000 guests. The ship is scheduled for delivery in spring 2018.
Continuing Norwegian’s tradition of decorating each ship’s hull with signature art, the Company has also announced that the world’s premier marine life artist, Wyland, has been commissioned to design the hull artwork for Norwegian Bliss. Known for his iconic whale murals, marine life paintings and sculptures, Wyland has inspired generations to be passionate about the importance of marine life conservation. In addition to the reveal of her spectacular hull artwork, the first piece of steel was cut at MEYER WERFT in Papenburg, Germany on October 28th, symbolizing the start of the ship’s construction.
Norwegian Joy Culinary Offerings and Upscale Shopping Venue Unveiled
The Company recently announced the culinary offerings planned for the Company’s first cruise ship custom built for the Chinese market, Norwegian Joy. The ship will feature the most extensive range of restaurants ever offered on a cruise ship, which have been tailor-made for local palates. Additionally, the Company recently unveiled that the upscale shopping venue on board Norwegian Joy will be the largest in Norwegian’s fleet, complete with everything from exceptional duty-free shops to high-end international brands. Prestigious retail brands already confirmed to be on board include Cartier, Omega, Bvlgari, Salvatore Ferragamo, and Versace, among many.
Norwegian Jewel, Pearl and Gem Retrofitted with Exhaust Gas Scrubber Technology
As part of the Company’s continued commitment to the environment, Norwegian Jewel, Norwegian Pearl and Norwegian Gem were each successfully retrofitted with a new exhaust gas scrubber system this quarter. These scrubbers aim to significantly reduce air emissions, thus reducing the fleet’s environmental footprint. The ships’ new lightweight in-line scrubbers are a hybrid technology developed by Yara Marine Technologies that are able to operate in dry mode, open loop and closed loop. Five scrubbers were installed, one per engine, covering the whole propulsion system. Collectively, they are capable of reducing the emission of sulfur into the air by up to 99 percent and also reducing 85 percent of particulate emission into the air.
The Company currently has five ships outfitted with exhaust gas scrubber technology with Norwegian Pearl and Gem joining Norwegian Jewel, Escape and Pride of America. Norwegian Jade and Norwegian Sun are scheduled for retrofitting in the first and second quarter of 2017, respectively. In addition, all remaining ships on order for the Norwegian Cruise Line brand will also be outfitted with similar technology.
Norwegian Cruise Line Honored at World Travel Awards
Norwegian Cruise Line has been named “North America’s Leading Cruise Line” for the first time, along with being honored as the “Caribbean’s Leading Cruise Line” for the fourth consecutive year at the 2016 World Travel Awards. Norwegian also received awards for “Europe’s Leading Cruise Line” for the ninth consecutive year, “Europe’s Responsible Tourism Award” for the second consecutive year and the award for “World’s Best Cruise Spa” for the Mandara Spa® on board Norwegian Cruise Line.
Norwegian Cruise Line Expands Partnership with Margaritaville®
Building on its success and popularity on board Norwegian’s newest ship, Norwegian Escape, the Company recently announced the expansion of its exclusive partnership with Margaritaville®. Norwegian will introduce new Margaritaville® at Sea restaurants on board Norwegian Getaway and Norwegian Breakaway this fall. Margaritaville® at Sea will bring to life nostalgic island moments with a tropical menu that features signature items like the Cheeseburger in Paradise and Who’s to Blame Margarita, available à la carte, in an open air-eatery offering stunning ocean views.
The Company has scheduled a conference call for Wednesday, November 9, 2016 at 10:00 a.m. Eastern Time to discuss third 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.