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NCLH loss wider than expected, return to profitability still seen in second half 2022

Norwegian Cruise Line Holdings posted a wider-than-expected third quarter loss but booking volumes have improved after the Delta variant slowdown and operating cash flow is expected to turn positive in late Q1 with a return to profitability in second half 2022.

Adjusted net loss was $801.4m, or $2.17 per share, greater than Wall Street's $2.09 consensus expectation and compared to the $638.7m loss, or $2.35 per share, a year ago. The recent quarter included $44.5m of adjustments primarily related to non-cash compensation. US GAAP loss was $845.9m, or $2.29 per share, compared to $677.4m, or $2.50 in Q3 2020.

Revenue increased to $153.1m from $6.5m in 2020 but was under the $198.4m consensus forecast.

Total cruise operating expense increased 131.3% compared to 2020 as voyages resumed in the quarter.

40% of capacity operated, cash-flow positive, in Q3

Approximately 40% of capacity was operating by end Q3 with the fleet in service cash-flow positive and occupancy at 57.4%, 'reflecting the company’s self-imposed occupancy limits.'

Seventeen ships — approximately 75% of capacity — are expected to be operating by year end with the full fleet to be carrying passengers by April 1.

11 of 28 ships sailing now

Currently, 11 of 28 ships are operating across the company's three brands.

'Initial trends are extremely positive with strong on-board revenue, high guest satisfaction scores and our comprehensive science-backed SailSAFE health and safety protocols working as designed to minimize the impact of COVID-19,' said Frank Del Rio, president and CEO, NCLH.

Delta impact abating

'While consumer concerns surrounding the Delta variant resulted in a slowdown in bookings during the third quarter net booking volumes have improved over the past six weeks,' he said, 'and we continue to see robust future demand for cruising particularly for the second half of 2022 and beyond when our full fleet is expected to be back in operation at normalized occupancy levels.'

Second half 2022 outpaces 2019

Despite the Delta impact, the overall cumulative booked position for full year 2022 is in line with 2019’s record levels at higher pricing even when including the dilutive impact of future cruise credits. The overall cumulative booked position for the second half of 2022 is 'meaningfully higher than 2019 and at higher prices.'

Advance ticket sales were $1.7bn, including the long-term portion, which includes approximately $750m of FCCs as of Sept. 30. Advance ticket sales increased $0.3bn on a net basis from the end of Q2 even with approximately $100m of revenue recognized in the quarter.

Approximately 60% of the total value of FCCs issued have been rebooked. (The company stopped issuing FCCs by mid-2020.)

Liquidity and cash burn

At Sept. 30, NCLH's total debt position was $12.4bn and cash and cash equivalents were $1.9bn. The company just secured a $1bn loan facility commitment that it doesn't currently plan to draw on

Q3 monthly average cash burn was approximately $275m, below prior guidance of approximately $285m. Q4 monthly average cash burn is projected to increase to approximately $350m as additional vessels resume service.

Pivoting from defense to offense

'We are incredibly pleased with our team’s flawless execution of our phased voyage resumption plan and are encouraged to see strong consumer demand, on-board spend and high guest satisfaction across all of our brands,' EVP/CFO Mark Kempa said. 'We took several actions in the quarter to further enhance our liquidity profile and financial flexibility and better position us on our road to recovery as we pivot from defense to offense.'