Norwegian Reports Q4 2021 and Business Update
Norwegian Cruise Line Holding today reported financial results for the fourth quarter and full-year ended December 31, 2021, and provided a business update.
“We launched our Great Cruise Comeback in late July 2021 and in five short months, the teams at Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises have restarted operations on 75% of our capacity, safely carrying over 230,000 guests and delivering the unique vacation experiences that our award-winning cruise brands are famous for,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings.
“These last few months have also had their share of challenges caused by the impacts from the Delta and Omicron COVID surges, but despite these challenges which were mostly out of our control, our booked position and pricing remain strong, particularly for the second half of 2022 and into 2023, demonstrating the strong fundamental demand for our cruise offerings.”
The company continues to execute the phased relaunch plans for its 28-ship fleet. By year-end 2021, the company had approximately 70% of its capacity operating, or 75% when including a vessel that had returned to service and subsequently paused due to the inoperability of its scheduled voyages in South Africa during the height of its Omicron surge. Norwegian said strong ticket pricing and onboard revenue spend drove positive contribution from the fleet that operated in the quarter. Occupancy in the fourth quarter of 2021 was 51.4% reflecting the company’s self-imposed occupancy limits, the effect of COVID-related booking cancellations and a significant capacity increase from the prior quarter.
As a result of Omicron-related disruptions, the Company now expects to have 85% of its capacity operating by the end of the first quarter of 2022 with the full fleet expected to be back in operation during the early part of the second quarter of 2022. In addition, the company expects to reach a critical inflexion point during the second quarter of 2022 with net cash provided by operating activities turning positive. Based on the current booked position and trajectory, the company expects to have a positive Adjusted Net Income1 for the second half of 2022.
Norwegian said that net booking volumes at the beginning of the fourth quarter of 2021 continued to demonstrate substantial week-over-week sequential growth after the slowdown in booking activity caused by the Delta variant of COVID-19.
Net booking volumes in the latter part of the fourth quarter of 2021 began to be negatively impacted by the Omicron variant of COVID-19, primarily for close-in voyages in the first and second quarters of 2022. In recent weeks, as the Omicron wave subsided, net booking trends have improved sequentially.
As a result, the company’s current cumulative booked position for the first half of 2022 is below the extraordinarily strong levels of 2019 at substantially higher prices even when including the dilutive impact of future cruise credits (FCCs), while the booked position for the second half, when the full fleet is expected to be back in operation, is in line with the comparable 2019 period and at higher prices, also including the impact of FCCs. Booked position for each quarter compared to the comparable quarter in 2019 improves sequentially through the year. Booking trends for 2023 demonstrate continued strong demand for sailings in the medium and long term with booked position and pricing meaningfully higher and at record levels when compared to bookings for 2020 in 2019.
Of note, the company's monthly average cash burn for the fourth quarter of 2021 was approximately $345 million, slightly below the prior estimate of approximately $350 million. Looking ahead, the company expects the first-quarter 2022 monthly average cash burn to increase to approximately $390 million driven by the continued phased relaunch of additional vessels. This cash burn rate does not include expected cash inflows from new and existing bookings or contributions from ships that have re-entered service.
“Momentum continues building as we approach 85% of our capacity expected to be in operation at the end of the first quarter. We are keenly focused on executing our financial plan on the path to our next significant milestone as we expect to achieve positive Operating Cash Flow in the second quarter,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “We continue to be opportunistic in accessing the capital markets to optimize our capital structure by eliminating high-cost debt incurred during the crisis.”
The full Year 2021 Results
GAAP net loss was $(4.5) billion or EPS of $(12.33) compared to a net loss of $(4.0) billion or EPS of $(15.75) in the prior year. The Company reported Adjusted Net Loss of $(2.9) billion or Adjusted EPS of $(8.07) in 2021. This compares to Adjusted Net Loss and Adjusted EPS of $(2.2) billion and $(8.64), respectively, in 2020.
Total revenue decreased 49.4% to $0.6 billion in 2021 compared to $1.3 billion in 2020. The adverse impact on revenue was due to the suspension of all cruise voyages in March 2020 through the first half of 2021 and the phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels in the second half of 2021 as a result of the COVID-19 pandemic, which resulted in a decrease in Capacity Days of 18.1%.
Total cruise operating expense decreased 5.0% in 2021 to $1.6 billion compared to $1.7 billion in 2020. In 2021, our cruise operating expenses prior to the resumption of cruise voyages were primarily related to crew costs, including salaries, food and other travel costs; fuel; and other ongoing costs such as insurance and ship maintenance, including Dry-dock expenses. The reduction in cruise operating expense in 2021 reflects lower direct costs, such as commissions, in the second half of 2021 due to fewer Capacity Days partially offset by increases in expenses related to our return to services, such as costs related to crew and passenger testing for COVID-19.
Fuel price per metric ton, net of hedges increased to $690 from $599 in 2020. The Company reported a fuel expense of $301.9 million in 2021.
Interest expense, net was $2.1 billion in 2021 compared to $482.3 million in 2020. The increase in 2021 primarily reflects losses on extinguishment of debt and debt modification costs of $1.4 billion related to the repurchase of certain exchangeable notes as well as additional debt outstanding at higher interest rates, partially offset by lower LIBOR. 2020 included losses on extinguishment of debt and debt modification costs of $27.8 million.
Other income (expense), net was income of $124.0 million in 2021 compared to the expense of $(33.6) million in 2020. In 2021, the income is primarily related to gains from derivatives not designated as hedges and foreign currency exchange.
Income tax expense was $5.3 million in 2021 compared to $12.5 million in 2020. In 2020, the tax expense is primarily due to a valuation allowance of $39.6 million recognized in the fourth quarter on certain net operating loss carryforwards partially offset by tax benefits generated by operating losses.
Fourth Quarter 2021 Results
GAAP net loss was $(1.6) billion or EPS of $(4.01) compared to a net loss of $(0.7) billion or EPS of $(2.51) in the prior year. The Company reported Adjusted Net Loss of $(765.0) million or Adjusted EPS of $(1.95) in 2021. This compares to Adjusted Net Loss and Adjusted EPS of $(683.8) million and $(2.33), respectively, in 2020.
Revenue increased to $487.4 million compared to $9.6 million in 2020 as cruise voyages resumed in the quarter.
Total cruise operating expense increased 246.7% in 2021 compared to 2020 as cruise voyages continued to resume in the quarter. In 2021, cruise operating expenses were primarily related to crew costs, including salaries, food and other travel costs as ships were prepared to return to service, fuel, costs related to health and safety protocols and other ongoing costs such as insurance and ship maintenance.
Fuel price per metric ton, net of hedges, increased to $737 from $574 in 2020. The Company reported a fuel expense of $125.9 million in the period.
Interest expense, net was $950.0 million in 2021 compared to $159.2 million in 2020. The increase in interest expense primarily reflects losses on extinguishment of debt and debt modification costs of $771.6 million related to the repurchase of certain exchangeable notes as well as additional debt outstanding at higher interest rates, partially offset by lower LIBOR.
Other income (expense), net was income of $66.5 million in 2021 compared to the expense of $(1.3) million in 2020. In 2021, the income is primarily related to gains from derivatives not designated as hedges and foreign currency exchange.
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