NORWEGIAN CRUISE LINE HOLDINGS LTD. Cautionary Statement Concerning Forward-Looking Statements
Some of the statements, estimates or projections contained in this report are "forward-looking statements" within the meaning of theU.S. federal securities laws intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the impact ofRussia's recent invasion ofUkraine , our expectations regarding cruise voyage occupancy, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, plans or goals for our sustainability program and decarbonization efforts, our expectations for future cash flows and profitability, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements. Many, but not all, of these statements can be found by looking for words like "expect," "anticipate," "goal," "project," "plan," "believe," "seek," "will," "may," "forecast," "estimate," "intend," "future" and similar words. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to the impact of:
the spread of epidemics, pandemics and viral outbreaks and specifically, the
COVID-19 pandemic, including its effect on the ability or desire of people to
? travel (including on cruises), which is expected to continue to adversely
impact our results, operations, outlook, plans, goals, growth, reputation, cash
flows, liquidity, demand for voyages and share price;
implementing precautions in coordination with regulators and global public
? health authorities to protect the health, safety and security of guests, crew
and the communities we visit and to comply with regulatory restrictions related
to the pandemic;
? legislation prohibiting companies from verifying vaccination status;
our indebtedness and restrictions in the agreements governing our indebtedness
that require us to maintain minimum levels of liquidity and be in compliance
? with maintenance covenants and otherwise limit our flexibility in operating our
business, including the significant portion of assets that are collateral under
these agreements;
our ability to work with lenders and others or otherwise pursue options to
defer, renegotiate, refinance or restructure our existing debt profile,
? near-term debt amortization, newbuild related payments and other obligations
and to work with credit card processors to satisfy current or potential future
demands for collateral on cash advanced from customers relating to future
cruises;
our need for additional financing or financing to optimize our balance sheet,
? which may not be available on favorable terms, or at all, and our outstanding
exchangeable notes and any future financing which may be dilutive to existing
shareholders;
? the unavailability of ports of call;
? future increases in the price of, or major changes or reduction in, commercial
airline services;
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? changes involving the tax and environmental regulatory regimes in which we
operate, including new regulations aimed at reducing greenhouse gas emissions;
? the accuracy of any appraisals of our assets as a result of the impact of the
COVID-19 pandemic or otherwise;
? our success in controlling operating expenses and capital expenditures;
? trends in, or changes to, future bookings and our ability to take future
reservations and receive deposits related thereto;
adverse events impacting the security of travel, such as terrorist acts, armed
? conflict, such as
acts of piracy, and other international events;
? adverse incidents involving cruise ships;
adverse general economic and related factors, including as a result of the
impact of the COVID-19 pandemic,
otherwise, such as fluctuating or increasing levels of interest rates,
? inflation, unemployment, underemployment and the volatility of fuel prices,
declines in the securities and real estate markets, and perceptions of these
conditions that decrease the level of disposable income of consumers or consumer confidence;
breaches in data security or other disturbances to our information technology
? and other networks or our actual or perceived failure to comply with
requirements regarding data privacy and protection;
? changes in fuel prices and the type of fuel we are permitted to use and/or
other cruise operating costs;
mechanical malfunctions and repairs, delays in our shipbuilding program,
? maintenance and refurbishments and the consolidation of qualified shipyard
facilities;
? the risks and increased costs associated with operating internationally;
? our inability to recruit or retain qualified personnel or the loss of key
personnel or employee relations issues;
? our inability to obtain adequate insurance coverage;
? pending or threatened litigation, investigations and enforcement actions;
? any further impairment of our trademarks, trade names or goodwill;
volatility and disruptions in the global credit and financial markets, which
may adversely affect our ability to borrow and could increase our counterparty
? credit risks, including those under our credit facilities, derivatives,
contingent obligations, insurance contracts and new ship progress payment
guarantees;
? our reliance on third parties to provide hotel management services for certain
ships and certain other services;
? fluctuations in foreign currency exchange rates;
? our expansion into new markets and investments in new markets and land-based
destination projects;
? overcapacity in key markets or globally; and
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other factors set forth under "Risk Factors" herein and in our Annual Report on
? Form 10-K for the year ended
2022 ("Annual Report on Form 10-K").
Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic andRussia's recent invasion ofUkraine . It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown. The above examples are not exhaustive and new risks emerge from time to time. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we expect to operate in the future. These forward-looking statements speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based, except as required by law.
Terminology
This report includes certain non-GAAP financial measures, such as Adjusted Gross Margin,Net Cruise Cost , Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS. Definitions of these non- GAAP financial measures are included below. For further information about our non-GAAP financial measures including detailed adjustments made in calculation our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measure, we refer you to "Results of Operations" below.
Unless otherwise indicated in this report, the following terms have the meanings set forth below:
2024 Exchangeable Notes. On
? as issuer, NCLH, as guarantor, and
NCLC issued
notes due 2024.
2024 Senior Secured Notes. On
? NCLC, as issuer, the guarantors party thereto, and
Association, as trustee and security agent, NCLC issued
aggregate principal amount of 12.25% senior secured notes due 2024.
2025 Exchangeable Notes. On
? as issuer, NCLH, as guarantor, and
NCLC issued
notes due 2025.
2026 Senior Secured Notes. On
? NCLC, as issuer, the guarantors party thereto, and
Association, as trustee and security agent, NCLC issued
aggregate principal amount of 10.25% senior secured notes due 2026.
2027 1.125% Exchangeable Notes. On
? among NCLC, as issuer, NCLH, as guarantor, and
as trustee, NCLC issued
exchangeable senior notes due 2027.
? Adjusted EBITDA. EBITDA adjusted for other income (expense), net and other
supplemental adjustments.
? Adjusted EPS. Adjusted Net Loss divided by the number of diluted
weighted-average shares outstanding.
Adjusted Gross Margin. Gross margin adjusted for payroll and related, fuel,
? food, other and ship depreciation. Gross margin is calculated pursuant to GAAP
as total revenue less total cruise operating expense and ship depreciation.
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? Adjusted Net Cruise Cost Excluding Fuel. Net Cruise Cost Excluding Fuel
adjusted for supplemental adjustments.
? Adjusted Net Loss. Net loss adjusted for supplemental adjustments.
? Allura Class Ships.
? Berths. Double occupancy capacity per cabin (single occupancy per studio cabin)
even though many cabins can accommodate three or more passengers.
? Capacity Days. Berths available for sale multiplied by the number of cruise
days for the period for ships in service.
?
Constant Currency. A calculation whereby foreign currency-denominated revenue
? and expenses in a period are converted at the
comparable period to eliminate the effects of foreign exchange fluctuations.
Dry-dock. A process whereby a ship is positioned in a large basin where all of
? the fresh/sea water is pumped out in order to carry out cleaning and repairs of
those parts of a ship which are below the water line.
? EBITDA. Earnings before interest, taxes, and depreciation and amortization.
? EPS. Loss per share.
? Explorer Class Ships. Regent's Seven Seas Explorer, Seven Seas Splendor, and
Seven Seas Grandeur.
? GAAP. Generally accepted accounting principles in the
? Gross Cruise Cost. The sum of total cruise operating expense and marketing,
general and administrative expense.
? Gross Tons. A unit of enclosed passenger space on a cruise ship, such that one
gross ton equals 100 cubic feet or 2.831 cubic meters.
?
expense and onboard and other expense.
? Net Cruise Cost Excluding Fuel.
Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days. A
? percentage greater than 100% indicates that three or more passengers occupied
some cabins.
? Passenger Cruise Days. The number of passengers carried for the period,
multiplied by the number of days in their respective cruises.
? Prima Class Ships. Norwegian Prima, Norwegian Viva and four additional ships on
order.
Private Exchangeable Notes. On
? NCLC, as issuer, NCLH, as guarantor, and
trustee, NCLC issued$400.0 million aggregate principal amount of exchangeable senior notes due 2026. 26 Table of Contents
? Revolving Loan Facility.
facility.
?
Shipboard Retirement Plan. An unfunded defined benefit pension plan for certain
? crew members which computes benefits based on years of service, subject to
certain requirements.
Term Loan A Facility. The senior secured term loan A facility having an
? outstanding principal amount of approximately
March 31, 2022 . Non-GAAP Financial Measures
We use certain non-GAAP financial measures, such as Adjusted Gross Margin,Net Cruise Cost , Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, to enable us to analyze our performance. See "Terminology" for the definitions of these and other non-GAAP financial measures. We utilize Adjusted Gross Margin to manage our business on a day-to-day basis because it reflects revenue earned net of certain direct variable costs. We also utilizeNet Cruise Cost and AdjustedNet Cruise Cost Excluding Fuel to manage our business on a day-to-day basis. In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in Adjusted Gross Margin,Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance. As a result of our voluntary suspension of sailings fromMarch 2020 untilJuly 2021 and our gradual phased return to service beginning inJuly 2021 , per Capacity Day data is not meaningful for the three months endedMarch 31, 2022 orMarch 31, 2021 and is not presented herein. As our business includes the sourcing of passengers and deployment of vessels outside of theU.S. , a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, Euro and Australian dollar which are subject to fluctuations in currency exchange rates versus our reporting currency, theU.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis, whereby current period revenue and expenses denominated in foreign currencies are converted toU.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business. We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We also believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. Adjusted EBITDA is not a defined term under GAAP nor is it intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income (loss), as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments. In addition, Adjusted Net Loss and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net loss and EPS. We use Adjusted Net Loss and Adjusted EPS as key performance measures of our earnings performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparison to our historical performance. In addition, management uses Adjusted EPS as a performance measure for our incentive compensation during normal operations. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net Loss and Adjusted EPS may not be indicative of future adjustments or results. You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these 27
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measures in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the "Results of Operations" section.
Financial Presentation
We categorize revenue from our cruise and cruise-related activities as either "passenger ticket" revenue or "onboard and other" revenue. Passenger ticket revenue and onboard and other revenue vary according to product offering, the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere's summer months; however, our cruise voyages were completely suspended fromMarch 2020 untilJuly 2021 due to the COVID-19 pandemic and our resumption of cruise voyages was phased in gradually. Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo services. Our onboard revenue is derived from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.
Our cruise operating expense is classified as follows:
Commissions, transportation and other primarily consists of direct costs
associated with passenger ticket revenue. These costs include travel agent
? commissions, air and land transportation expenses, related credit card fees,
certain port expenses and the costs associated with shore excursions and hotel
accommodations included as part of the overall cruise purchase price.
Onboard and other primarily consists of direct costs incurred in connection
? with onboard and other revenue, including casino, beverage sales and shore
excursions.
Payroll and related consists of the cost of wages and benefits for shipboard
employees and costs of certain inventory items, including food, for a third
? party that provides crew and other hotel services for certain ships. The cost
of crew repatriation, including charters, housing, testing and other costs
related to COVID-19 are also included.
? Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery
costs.
? Food consists of food costs for passengers and crew on certain ships.
? Other consists of repairs and maintenance (including Dry-dock costs), ship
insurance and other ship expenses.
Critical Accounting Policies
For a discussion of our critical accounting policies and estimates, see "Critical Accounting Policies" included in our Annual Report on Form 10-K under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K.
The conflict from
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conflict including Norwegian Getaway to Port Canaveral, Oceania Cruises' Marina
to the British Isles and Regent's Seven Seas Splendor to Northern Europe . In
addition, the Company has also removed all calls to ports in Russia from its
itineraries in 2023. In addition to the direct impacts noted above, the conflict
has also had indirect impacts to customer demand (see "Update on Bookings") and
the cost of fuel and could continue to have an impact on travel and consumer
discretionary spending.
Update Regarding COVID-19 Pandemic
Safe Resumption of Operations
Due to the impact of COVID-19, travel restrictions and limited access to ports around the world, inMarch 2020 , the Company implemented a voluntary suspension of all cruise voyages across our three brands. In the third quarter of 2021, we began a phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels. As ofMay 7, 2022 , all of our 28 ships are operating with guests on board. The level of occupancy on our ships and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences and new more contagious and/or vaccine-resistant variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations and implement new health and safety protocols, port availability, travel restrictions, bans and advisories, our ability to staff certain ships and additionally the impact of other events impacting travel or consumer discretionary spending, such asRussia's recent invasion ofUkraine . In recent months, the Company has seen a significant improvement in the global public health and regulatory environment. In March, theCDC removed its Travel Health Notice for cruising for the first time since the start of the pandemic. TheCDC also recently announced a relaxation of certain protocols and recommendations in its voluntaryCOVID-19 Program for Cruise Ships Operating inU.S. Waters. In addition, more ports globally have re-opened to cruise and travel restrictions continue to ease around the world creating a more favorable environment for ship deployment. The Company continues to operate under its science-backed SailSAFE health and safety program which will evolve along with the public health environment. The Company also follows applicable local protocols at the ports and destinations it visits. Our COVID-19 vaccination policy requires that all guests, with the exception of guests under the age of 12 onNorwegian Cruise Line sailings beginningMarch 1, 2022 , and all crew must be vaccinated. In theU.S. , certain states have enacted legislation prohibiting companies from verifying the vaccination status of guests. We challenged such a prohibition inFlorida in court and received a preliminary injunction allowing us to operate as planned. We continue to work with other federal agencies, public health authorities and national and local governments in areas where we operate to take all necessary measures to protect our guests, crew and the communities visited.
Modified Policies
We have launched cancellation policies for certain sailings booked during certain time periods to permit our guests to cancel cruises which were not part of a temporary suspension of voyages up to 15 days prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. These programs are in place for cruises booked through specific time periods specified by brand. Certain cruises booked for certain periods, will be permitted a 60-day or 75-day cancellation window for refunds. The future cruise credits issued under these programs are generally valid for any sailing throughDecember 31, 2022 , and we may extend the length of time these future cruise credits may be redeemed. The use of such credits may prevent us from garnering certain future cash collections as staterooms booked by guests with such credits will not be available for sale, resulting in less cash collected from bookings to new guests. We may incur incremental commission expense for the use of these future cruise credits. In addition, to provide more flexibility to our guests, we modified our final payment schedules to require payment 60 days prior to embarkation versus the standard 120 days for most voyages onRegent Seven Seas Cruises throughJuly 31, 2022 , for certain voyages onOceania Cruises throughSeptember 30, 2022 and for all voyages onNorwegian Cruise Line throughApril 30, 2022 . 29 Table of Contents Financing Transactions In 2022, we have continued to take actions to bolster our financial condition while our global cruise voyages are disrupted. To enhance our liquidity profile and financial flexibility, inFebruary 2022 , we received additional financing through various debt financings, collectively totaling$2.1 billion in gross proceeds, which has been, or will be, used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses. See Note 6 - "Long-Term Debt" for more information.
Update on Bookings
The quarter began with net bookings, particularly for close-in voyages, negatively impacted by the Omicron surge, which began to improve in mid-January. This momentum was temporarily disrupted as the Company experienced elevated cancellations, primarily for itineraries in the Baltic region, in the immediate weeks following the start ofRussia's recent invasion ofUkraine . However, this impact was short-lived and net booking volumes have since shown sequential improvement, not only rebounding back to pre-Omicron levels but also now approaching the booking pace needed to consistently sail at historical load factor levels. As a result of the temporary setbacks from Omicron andRussia's recent invasion ofUkraine , the Company's current cumulative booked position for the second half of 2022 is below the comparable 2019 period but at meaningfully higher pricing even when including the dilutive impact of future cruise credits. The booked position improves throughout the year with the fourth quarter of 2022 in line with the comparable 2019 period and at meaningfully higher prices. Booking trends for 2023 continue to be positive with both booked position and pricing significantly higher and at record levels when compared to bookings for 2019 and pre-pandemic 2020 at a comparable point in the booking curve. Our full fleet may not achieve historical occupancy levels on our expected schedule and as a result, current booking data may not be informative. In addition, because of our updated cancellation policies, bookings may not be representative of actual cruise revenues.
There are remaining uncertainties about when our full fleet will be back at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty; however, we will report a net loss but expect net cash provided by operating activities to be positive during the second quarter of 2022.
Quarterly Overview
Three months ended
? Total revenue increased to
? Net loss and diluted EPS were
compared to
? Operating loss was
? Gross margin was
Margin was$401.4 million compared to$(7.2) million . Adjusted Net Loss and Adjusted EPS were$(760.5) million and$(1.82) ,
respectively, in 2022, which included
? related to losses on extinguishments of debt. Adjusted Net Loss and Adjusted
EPS were
modifications of debt.
? Adjusted EBITDA decreased 27.5% to
million.
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We refer you to our "Results of Operations" below for a calculation of Adjusted Gross Margin, Adjusted Net Loss, Adjusted EPS and Adjusted EBITDA.
Results of Operations
The following table sets forth selected statistical information:
Three Months Ended
March 31,
2022 2021
Passengers carried 191,150 -
Passenger Cruise Days 1,429,446 -
Capacity Days 2,978,353 -
Occupancy Percentage 48.0 %
Adjusted Gross Margin was calculated as follows (in thousands):
Three Months Ended
March 31,
2022
Constant
2022 Currency 2021
Total revenue $ 521,940 $ 522,774 $ 3,100
Less:
Total cruise operating expense 735,413 737,768 200,855
Ship depreciation 166,656 166,656 159,631
Gross margin (380,129) (381,650) (357,386)
Ship depreciation 166,656 166,656 159,631
Payroll and related 240,727 240,721 82,138
Fuel 135,509 135,509 42,603
Food 39,516 39,622 6,308
Other 199,153 201,179 59,514
Adjusted Gross Margin $ 401,432 $ 402,037 $ (7,192)
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Gross Cruise Cost,
Three Months Ended
March 31,
2022
Constant
2022 Currency 2021Total cruise operating expense$ 735,413 $ 737,768 $ 200,855 Marketing, general and administrative expense 296,207 297,565
203,195
Gross Cruise Cost 1,031,620 1,035,333
404,050
Less:
Commissions, transportation and other expense 87,958 88,186
9,033
Onboard and other expense 32,550 32,550 1,259
Net Cruise Cost 911,112 914,597 393,758
Less: Fuel expense 135,509 135,509 42,603Net Cruise Cost Excluding Fuel 775,603 779,088
351,155
Less Non-GAAP Adjustments: Non-cash deferred compensation (1) 699 699
905
Non-cash share-based compensation (2) 32,792 32,792
26,601
Adjusted Net Cruise Cost Excluding Fuel
(1) Non-cash deferred compensation expenses related to the crew pension plan and
other crew expenses, which are included in payroll and related expense.
Non-cash share-based compensation expenses related to equity awards, which (2) are included in marketing, general and administrative expense and payroll and
related expense.
Adjusted Net Loss and Adjusted EPS were calculated as follows (in thousands, except share and per share data):
Three Months Ended
March 31,
2022 2021
Net loss $ (982,714) $ (1,370,192)
Non-GAAP Adjustments:Non-cash deferred compensation (1) 1,012
1,003
Non-cash share-based compensation (2) 32,792
26,601
Extinguishment and modification of debt (3) 188,433
674,019
Adjusted Net Loss$ (760,477) $ (668,569) Diluted weighted-average shares outstanding - Net loss and Adjusted Net Loss 417,734,591 329,377,207 Diluted loss per share$ (2.35) $ (4.16) Adjusted EPS$ (1.82) $ (2.03)
Non-cash deferred compensation expenses related to the crew pension plan and (1) other crew expenses, which are included in payroll and related expense and
other income (expense), net.
Non-cash share-based compensation expenses related to equity awards, which (2) are included in marketing, general and administrative expense and payroll and
related expense.
(3) Losses on extinguishment of debt and modification of debt are included in
interest expense, net.
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EBITDA and Adjusted EBITDA were calculated as follows (in thousands):
Three Months Ended
March 31,
2022 2021
Net loss $ (982,714) $ (1,370,192)
Interest expense, net 327,685 824,441
Income tax expense 4,393 1,728Depreciation and amortization expense 179,076 170,316 EBITDA
(471,560) (373,707)
Other (income) expense, net (1) (38,120) (27,243)
Other Non-GAAP Adjustments:
Non-cash deferred compensation (2) 699 905
Non-cash share-based compensation (3) 32,792 26,601
Adjusted EBITDA $ (476,189) $ (373,444) (1) Primarily consists of gains and losses, net for fuel swaps not designated as
hedges and foreign currency exchanges.
(2) Non-cash deferred compensation expenses related to the crew pension plan and
other crew expenses, which are included in payroll and related expense.
Non-cash share-based compensation expenses related to equity awards, which (3) are included in marketing, general and administrative expense and payroll and
related expense.
Three months ended
Revenue
Total revenue increased to
Expense
Total cruise operating expense increased 266.1% in 2022 compared to 2021. In 2022, our cruise operating expenses were increased due to the resumption of voyages, resulting in higher payroll, fuel, and direct variable costs of fully operating ships. Costs for certain items such as food, fuel and logistics also increased related to inflation. Additionally, in 2022, there was an increase in repair and maintenance costs, including planned Dry-docks. Gross Cruise Cost increased 155.3% in 2022 compared to 2021 primarily related to the change in costs described above plus an increase in marketing, general and administrative expenses primarily related to increased marketing costs as we returned to service. Total other operating expense increased 27.2% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses. Interest expense, net was$327.7 million in 2022 compared to$824.4 million in 2021. The decrease in interest expense reflects lower losses from extinguishment of debt and debt modification costs, which were$188.4 million in 2022 compared to$674.0 million in 2021. The decrease in interest expense also reflects lower interest expense in connection with the recent refinancings, partially offset by higher debt balances and higher LIBOR rates.
Other income (expense), net was income of
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Liquidity and Capital Resources
General
As ofMarch 31, 2022 , our liquidity was$3.1 billion consisting of cash and cash equivalents and a$1 billion undrawn commitment available throughAugust 15, 2022 . Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service. InFebruary 2022 , we received additional financing through various debt financings, collectively totaling$2.1 billion in gross proceeds, which has been, or will be, used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses. Refer to Note 6 - "Long-Term Debt" for further information.
The Company's monthly average cash burn for the first quarter of 2022 was
approximately
Cash burn rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes, debt deferral fees and expected non-newbuild capital expenditures and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings, newbuild related capital expenditures and other working capital changes. The first quarter of 2022 cash burn rate reflects the previously agreed to deferral of debt amortization and newbuild related payments. The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Refer to Note 2 - "Summary of Significant Accounting Policies" for further information on liquidity and management's plan. Refer to "Item 1A. Risk Factors" for further details regarding uncertainty related toRussia's recent invasion ofUkraine . There can be no assurance that the accuracy of the assumptions used to estimate our liquidity requirements will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 global pandemic and the impact ofRussia's recent invasion ofUkraine . Based on the liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next 12 months. Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if a substantial portion of our fleet suspends cruise voyages or operates at significantly reduced occupancy levels for a prolonged period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. Beyond 12 months, we will pursue refinancings and other balance sheet optimization transactions from time to time in order to reduce interest rates and extend debt maturities. We expect to collaborate with financing institutions regarding these refinancing and optimization transactions as opportunities arise in the short-term to amend long-term arrangements. We have received certain financial and other debt covenant waivers and added new free liquidity requirements. AtMarch 31, 2022 , taking into account such waivers, we were in compliance with all of our debt covenants. If we do not continue to remain in compliance with our covenants, we would have to seek to amend the covenants. However, no assurances can be made that such amendments would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which would have a material adverse impact to our operations and liquidity. SinceMarch 2020 , Moody's has downgraded our long-term issuer rating to B2, our senior secured rating to B1 and our senior unsecured rating to Caa1. SinceApril 2020 , S&P Global has downgraded our issuer credit rating to B, lowered our issue-level rating on our$875 million Revolving Loan Facility and$1.5 billion Term Loan A Facility to BB-, our issue-level rating on our other senior secured notes to B+ and our senior unsecured rating to B-. If our credit ratings were 34 Table of Contents to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted. We also have capacity to incur additional indebtedness under our debt agreements and may issue additional ordinary shares from time to time, subject to our authorized number of ordinary shares. However, there is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. As ofMarch 31, 2022 , we had advance ticket sales of$2.2 billion , including the long-term portion, which included approximately$0.6 billion of future cruise credits. We also have agreements with our credit card processors that, as ofMarch 31, 2022 , governed approximately$1.7 billion in advance ticket sales that had been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which would be satisfied by posting collateral. Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash funds directly to the card processor. Any cash reserve or collateral requested could be increased or decreased. As ofMarch 31, 2022 , we had cash collateral reserves of approximately$1.1 billion with credit card processors, of which approximately$426.2 million is recognized in accounts receivable, net and approximately$665.3 million in other long-term assets. We may be required to pledge additional collateral and/or post additional cash reserves or take other actions that may further reduce our liquidity.
Sources and Uses of Cash
In this section, references to "2022" refer to the three months ended
Net cash used in operating activities was$371.0 million in 2022 as compared to net cash used in operating activities of$852.0 million in 2021. The net cash used in operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities. Advance ticket sales increased by$417.9 million in 2022. Advance ticket sales increased by$75.6 million in 2021 while the change in prepaid expenses and other assets, which contains our long-term reserves with credit card processors, decreased cash by$406.8 million in 2021. Net cash provided by investing activities was$79.7 million in 2022 and net cash used in investing activities was$343.3 million in 2021. The net cash provided by investing activities was primarily related to maturities of short-term investments partially offset by newbuild payments and ship improvement projects in 2022. The net cash used in investing activities was primarily related to purchases of short-term investments in 2021. Net cash provided by financing activities was$0.9 billion in 2022 primarily due to the proceeds of$2.1 billion from our various note offerings partially offset by debt repayments and related redemption premiums associated with extinguishment of certain senior secured notes. Net cash provided by financing activities was$1.2 billion in 2021 primarily due to the proceeds of$2.7 billion from our various note and equity offerings partially offset by debt repayments and a related redemption premium associated with extinguishment of the Private Exchangeable Notes.
Future Capital Commitments
Future capital commitments consist of contracted commitments, including ship construction contracts. Anticipated expenditures related to ship construction contracts were$1.6 billion for the remainder of 2022 and$2.5 billion and$1.4 billion for the years endingDecember 31, 2023 and 2024, respectively. The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of$0.9 billion for the remainder of 2022 and$2.0 billion and$0.7 billion for the years endingDecember 31, 2023 and 2024, respectively. Anticipated non-newbuild capital expenditures for the remainder of 2022 are approximately$0.3 billion , which includes health and safety investments. Future expected capital expenditures will significantly increase our depreciation and amortization expense. For the Norwegian brand, we have six Prima Class Ships on order, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately 3,215 to 3,550 Berths, with expected delivery dates from 2022 through 2027. For the 35
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Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths. For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 and/orRussia's recent invasion ofUkraine could result in additional delays in ship deliveries in the future, which may be prolonged. The combined contract prices of the nine ships on order for delivery was approximately €7.7 billion, or$8.5 billion based on the euro/U.S. dollar exchange rate as ofMarch 31, 2022 . We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.
Capitalized interest for the three months ended
Material Cash Requirements
As of
Remainder of
2022 2023 2024 2025 2026 2027 Thereafter Total
Long-term debt (1) $ 1,232,361 $ 1,433,919 $ 4,086,120 $ 1,421,883 $ 2,239,561 $ 3,190,360 $ 2,375,220 $ 15,979,424
Ship construction
contracts (2) 1,468,358 2,265,939 1,078,360 1,560,485 984,051 860,311 - 8,217,504
Total $ 2,700,719 $ 3,699,858 $ 5,164,480 $ 2,982,368 $ 3,223,612 $ 4,050,671 $ 2,375,220 $ 24,196,928 Includes principal as well as estimated interest payments with LIBOR held
(1) constant as of
refinancings and undrawn export-credit backed facilities.
Ship construction contracts are for our newbuild ships based on the euro/
committed undrawn export-credit backed facilities of approximately
billion which funds approximately 80% of our ship construction contracts.
Funding Sources Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio and maintain certain other ratios. Substantially all of our ships are pledged as collateral for certain of our debt. We have received certain financial and other debt covenant waivers throughDecember 31, 2022 and added new free liquidity requirements. We believe we were in compliance with these covenants as ofMarch 31, 2022 . In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and NCLH's ability to pay cash dividends to its shareholders. NCLH is a holding company and depends upon its subsidiaries for their ability to pay distributions to it to finance any dividend or pay any other obligations of NCLH. However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations. We believe our cash on hand, the undrawn$1 billion commitment, the expected return of a portion of the cash collateral from our credit card processors, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period. Certain debt covenant waivers and modifications were received in 2021 to enable the Company to maintain this compliance. Refer to "-Liquidity and Capital Resources-General" for further information regarding the debt covenant waivers and liquidity requirements. 36 Table of Contents Other
Certain service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions.
As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships. We may also consider the sale of ships, potential acquisitions and strategic alliances. If any of these transactions were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.
We refer you to "-Liquidity and Capital Resources-General" for information regarding collateral provided to our credit card processors.
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