Norwegian Cruise Line Reports Results for Third Quarter 2009
Third quarter EBITDA improves to $151.6 million from $141.5 million in 2008
Record setting Occupancy Percentage of 114.8%
Operating Income Margin increase of approximately 700 basis points
MIAMI--(BUSINESS WIRE)-- Norwegian Cruise Line (NCL Corporation Ltd. or "the Company") today reported results for its third quarter ended September 30, 2009. EBITDA in the period improved by 7.1% to $151.6 million versus $141.5 million for the same period in 2008. The improvement in EBITDA was achieved despite a decline in Net Revenue in the third quarter of 15.3%. This decline resulted from a 10.1% decrease in Net Yield and a 5.7% decrease in Capacity Days. The decrease in Net Yield was primarily due to weakness experienced in passenger ticket pricing versus 2008 and was partially offset by an increase in Net Yield from onboard and other revenue. The decrease in Capacity Days resulted from the departure of Norwegian Dream from the Company's fleet in November 2008. Occupancy Percentage for the third quarter of 2009 increased to 114.8% compared to 111.3% in the prior year. Net income in 2009 was $85.6 million on revenue of $550.7 million compared to net income of $171.2 million on revenue of $639.0 million in 2008. The decline in net income reflects foreign currency exchange translation gains in 2008 of $117.6 million.
Net Cruise Cost per Capacity Day decreased 20.1% in the third quarter of 2009 compared to the same period in 2008. The decrease in our Capacity Day cost was primarily attributable to lower fuel costs together with a decrease in crew payroll and other ship operating expenses. Additionally, the Company's results benefited from rigorous shoreside cost saving initiatives.
Operating income in the third quarter of 2009 increased to $113.4 million from $100.6 million in 2008 with Operating Income Margin increasing 690 basis points to 27.9% from 21.0%.
Interest expense, net of capitalized interest, decreased to $25.8 million in the third quarter of 2009 from $35.1 million in 2008, primarily due to lower average interest rates in the 2009 period. Other income (expense) decreased to an expense of $(2.1) million in 2009 from income of $104.6 million in 2008, mainly due to a loss on foreign exchange translation of $(3.8) million in 2009 versus a gain of $117.6 million in 2008.
"I am pleased to see that the strategies and initiatives we have been putting in place, both on the revenue and operating sides of the business, continue to result in improved year-over-year EBITDA, even in this soft economic climate," said Kevin Sheehan, chief executive officer of Norwegian Cruise Line. "With the departure of Norwegian Majesty on November 2, our entire fleet is now comprised exclusively of modern vessels purpose-built for our signature Freestyle Cruising. With these great assets, and the addition of the highly anticipated Norwegian Epic in 2010, I am extremely confident about Norwegian's prospects for the future."
Fourth quarter of 2009 is substantially booked and bookings for the first quarter of 2010 are pacing ahead of last year. Recent booking activity indicates that the pricing environment continues to stabilize and that the consumer recognizes the value of cruising as a vacation option.
Construction on Norwegian Epic continues on track for her debut in the summer of 2010. "We recently announced the addition of celebrity tribute artists Legends in Concert as well as Howl at the Moon, the dueling pianos, which join Blue Man Group, Cirque Dreams and Dinner, and The Second City comedy troupe bringing our guests the best entertainment lineup at sea," said Sheehan. "Also, our media campaign 'That's EPIC' is gaining strength with advertisements in national consumer magazines and events at the New York Wine and Food Festival. We recently introduced her first captains, hotel directors, and our first-ever entertainment director - all seasoned veterans who are more than capable of leading the most innovative ship at sea."
On November 12 the Company closed on a financing package comprised of a $750 million secured revolving credit facility along with $450 million in senior secured notes. Proceeds were used to retire certain indebtedness and for transaction fees and expenses.
Terminology and Non-GAAP Financial Measures
Berths, in accordance with cruise industry practice, are determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers.
Capacity Days represents double occupancy per cabin multiplied by the number of cruise days for the period.
Passenger Cruise Days represents the number of passengers carried for the period, multiplied by the number of days in their respective cruises.
Occupancy Percentage, in accordance with cruise industry practice, represents the ratio of Passenger Cruise Days to Capacity Days. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.
Gross Yield represents total revenue per Capacity Day.
Net Revenue represents total revenue less commissions, transportation and other expense and onboard and other expense.
Net Yield represents Net Revenue per Capacity Day.
Gross Cruise Cost represents the sum of total cruise operating expense and marketing, general and administrative expense.
Net Cruise Cost represents Gross Cruise Cost less commissions, transportation and other expense and onboard and other expense.
To supplement the Company's condensed consolidated financial statements presented on a U.S. Generally Accepted Accounting Principles (GAAP) basis, the Company also provides certain non-GAAP financial measures, including Operating Income Margin, EBITDA, Net Revenue, Net Yield, and Net Cruise Cost.
We define Operating Income Margin as Operating income divided by Net Revenue.
We define EBITDA as earnings before interest, other income (expense) including taxes, and depreciation and amortization and is used by management to measure operating performance of the business. Management believes EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the Company's business, such as sales growth, operating costs, selling, general and administrative expenses and other operating income and expense. EBITDA is also one of the measures used by the Company to calculate incentive compensation for management-level employees. While EBITDA is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast the Company's business performance. This non-GAAP financial measure has certain material limitations, including:
* it does not include net interest expense. As the Company has borrowed money for general corporate purposes, interest expense is a necessary element of its costs and ability to generate profits and cash flows; and
* it does not include depreciation and amortization expense. As the Company uses capital assets, depreciation and amortization are necessary elements of its costs and ability to generate profits and cash flows.
Management compensates for these limitations by using EBITDA as only one of several measures for evaluating the Company's business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense and income tax expense, are reviewed separately by management. Management believes EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of the Company's financial performance and prospects for the future. EBITDA is not intended to be a measure of liquidity or cash flows from operations or measures comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments.
We use certain non-GAAP financial measures, such as Net Revenue, Net Yield and Net Cruise Cost to enable us to analyze our performance. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs and are commonly used in the cruise industry to measure revenue performance. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Net Cruise Cost excluding fuel to be the most relevant indicators of our performance and are commonly used in the cruise industry as a measurement of costs. We have not provided a quantitative reconciliation of projected Gross Yield to projected Net Yield and projected Gross Cruise Cost to projected Net Cruise Cost due to the significant uncertainty in projecting the costs deducted to arrive at these measures. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful. Our use of non-GAAP financial measures may not be comparable to other companies within our industry.
About Norwegian Cruise Line
Norwegian Cruise Line is the innovator in cruise travel with a 43-year history of breaking the boundaries of traditional cruising, most notably with the introduction of Freestyle Cruising which has revolutionized the industry by allowing guests more freedom and flexibility.
Today, Norwegian has the youngest fleet in the industry with 10 purpose-built Freestyle Cruising ships, providing guests the opportunity to enjoy a relaxed cruise vacation on the newest, most contemporary ships at sea.
Norwegian is presently building Norwegian Epic, the company's largest and most innovative Freestyle Cruising ship to date, for delivery in summer 2010. Norwegian Cruise Line is the official cruise line of Blue Man Group, debuting for the first time at sea on Norwegian Epic.
High resolution, downloadable images are available at www.ncl.com/pressroom. For further information on Norwegian Cruise Line, visit www.ncl.com, follow us on Facebook and Twitter @NCLFreestyle or contact us in the U.S. and Canada at 866-234-7350.
This release may contain statements, estimates or projections that constitute "forward-looking statements" as defined under U.S. federal securities laws including the statements made under the "Outlook" section of this release. Generally, the words "expect," "anticipate," "goal," "project," "plan," "believe," "seek," "will," "may," "forecast," "estimate," "intend," "future," and similar expressions are intended to identify forward-looking statements, which are not historical in nature. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These risks that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the impact of changes in the global credit markets on the Company's ability to borrow and counterparty credit risks, including those under the Company's credit facilities, derivative instruments, contingent obligations, insurance contracts and new ship progress payment guarantees; the ability to obtain financing and/or insurance coverage on terms that are favorable or consistent with the Company's expectations; continued availability under our credit facilities and compliance with our covenants; the Company's substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt and the incurrence of substantial indebtedness in the future; changes in cruise capacity, as well as capacity changes in the overall vacation industry; general industry trends, including the introduction of competing itineraries and other products by other companies; changes in general economic, business and geo-political conditions; adverse economic conditions that may affect consumer demand for cruises such as higher unemployment rates, fuel price increases, declines in the securities and real estate markets, and declines in disposable income and consumer confidence; adverse events impacting the security of travel that may affect consumer demand for cruises such as terrorist acts, acts of piracy, armed conflict and other international events; the lack of acceptance of new itineraries, products or services by the Company's targeted customers; the Company's ability to implement brand strategies and its shipbuilding programs, and to continue to expand its brand and business worldwide; the costs of new initiatives and the Company's ability to achieve expected cost savings from its new initiatives; changes in interest rates, fuel costs, or foreign currency rates; increases in the Company's future fuel expenses related to implementing recently approved International Maritime Organization regulations, which require the use of higher priced low sulfur fuels in certain cruising areas; the delivery schedules and estimated costs of new ships on terms that are favorable or consistent with the Company's expectations; the impact of problems encountered at shipyards, as well as, any potential claim, impairment loss, cancellation or breach of contract in connection with the Company's contracts with shipyards; the risks associated with operating internationally; the impact of the spread of contagious diseases; accidents and other incidents affecting the health, safety, security and vacation satisfaction of passengers and causing damage to ships, which could cause the modification of itineraries or cancellation of a cruise or series of cruises; the Company's ability to attract and retain qualified shipboard crew, maintain good relations with employee unions and maintain or renegotiate the Company's collective bargaining agreements on favorable terms; changes in other operating costs such as crew, insurance and security; the continued availability of attractive port destinations; the impact of pending or threatened litigation and investigations; the impact of changes in the Company's credit ratings; changes involving the corporate, tax, environmental, health, safety, security and other regulatory regimes in which the Company operates; the possibility of environmental liabilities and other damage that is not covered by insurance or that exceeds the Company's insurance coverage; the Company's ability to attain and maintain any price increases for its products; the impact of any future changes relating to how travel agents sell and market the Company's cruises; the impact of any future increases in the price of, or major changes or reduction in, commercial airline services; the impact of delays, costs and other factors resulting from emergency ship repairs as well as scheduled maintenance, repairs and refurbishment of the Company's ships; disruptions to the Company's software and other information technology systems; the implementation of regulations in the United States requiring United States citizens to obtain passports for travel to additional foreign destinations; the impact of weather and natural disasters; and other risks discussed in the Company's filings with the Securities and Exchange Commission. You should not place undue reliance on forward-looking statements as a prediction of actual results. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. In addition, certain financial measures in this release constitute non-GAAP financial measures as defined by Regulation G. A reconciliation of these items can be found attached hereto and on the Company's web site at www.ncl.com/investors.
NORWEGIAN CRUISE LINE CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands) Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Revenue Passenger ticket $ 392,473 $ 467,798 $ 1,005,886 $ 1,200,799 Onboard and other 158,203 171,191 447,662 474,752 Total revenue 550,676 638,989 1,453,548 1,675,551 Cruise operating expense Commissions, 97,144 102,589 247,332 275,187 transportation and other Onboard and other 47,462 57,173 124,173 149,609 Payroll and related 78,434 89,968 241,014 290,836 Fuel 45,038 78,729 113,853 211,777 Food 31,018 34,605 91,422 96,993 Other operating 45,735 68,918 169,895 217,689 Total cruise operating 344,831 431,982 987,689 1,242,091 expense Marketing, general and 54,202 65,510 179,159 212,014 administrative expense Depreciation and 38,212 40,889 114,331 121,043 amortization expense Total operating expense 437,245 538,381 1,281,179 1,575,148 Operating income 113,431 100,608 172,369 100,403 Non-operating income (expense) Interest income 132 1,139 767 1,966 Interest expense, net of (25,813 ) (35,143 ) (77,860 ) (117,275 ) capitalized interest Other income (expense) (2,125 ) 104,582 10,957 14,089 Total non-operating (27,806 ) 70,578 (66,136 ) (101,220 ) income (expense) Net income (loss) $ 85,625 $ 171,186 $ 106,233 $ (817 )
NORWEGIAN CRUISE LINE CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except share data) September 30, December 31, 2009 2008 Assets Current assets: Cash and cash equivalents $ 143,640 $ 185,717 Restricted cash 3,321 4,004 Accounts receivable, net 7,498 6,047 Inventories 32,896 29,494 Prepaid expenses and other assets 42,341 24,460 Total current assets 229,696 249,722 Property and equipment, net 3,851,993 4,119,222 Goodwill and tradenames 602,792 602,792 Other assets 189,223 75,405 $ 4,873,704 $ 5,047,141 Liabilities and shareholders' equity Current liabilities: Current portion of long-term debt $ 4,664 $ 182,487 Accounts payable 34,008 70,412 Accrued expense and other liabilities 219,017 278,213 Due to Affiliate, net 2,962 210,058 Advance ticket sales 256,503 250,638 Total current liabilities 517,154 991,808 Long-term debt 2,529,517 2,474,014 Other long-term liabilities 91,641 31,520 Total liabilities 3,138,312 3,497,342 Commitments and contingencies Shareholders' equity: Ordinary shares, $.0012 par value; 40,000,000 and 25,000,000 shares authorized; 21,000,000 and 20,000,000 shares issued and outstanding 25 24 Additional paid-in capital 2,330,924 2,242,946 Accumulated other comprehensive income (loss) (8,482 ) 137 Accumulated retained earnings (deficit) (587,075 ) (693,308 ) Total shareholders' equity 1,735,392 1,549,799 $ 4,873,704 $ 5,047,141
NORWEGIAN CRUISE LINE CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Nine months ended September 30, 2009 2008 Cash flows from operating activities Net income (loss) $ 106,233 $ (817 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 126,258 132,635 Loss (gain) on translation of debt 15,836 (37,737 ) Loss (gain) on derivatives (28,637 ) 15,227 Write-off of unamortized loan fees - 6,788 Stock compensation expense 3,190 612 Changes in operating assets and liabilities: Accounts receivable, net (1,451 ) 21 Inventories (3,402 ) 4,102 Prepaid expenses and other assets (52,955 ) (41,012 ) Accounts payable (36,404 ) (19,318 ) Accrued expense and other liabilities (49,625 ) 15,050 Advance ticket sales 5,865 (51,313 ) Net cash provided by operating activities 84,908 24,238 Cash flows from investing activities Additions to property and equipment, net (135,038 ) (124,950 ) Restricted cash 687 (2,033 ) Net cash used in investing activities (134,351 ) (126,983 ) Cash flows from financing activities Repayments of long-term debt (175,281 ) (1,419,185 ) Proceeds from long-term debt 30,000 903,000 Transactions with Affiliates, net 71,550 (198,309 ) Contribution from Affiliates, net 100,000 948,111 Other (18,903 ) (790 ) Net cash provided by financing activities 7,366 232,827 Net increase (decrease) in cash and cash (42,077 ) 130,082 equivalents Cash and cash equivalents at beginning of period 185,717 40,291 Cash and cash equivalents at end of period $ 143,640 $ 170,373
NORWEGIAN CRUISE LINE NON-GAAP RECONCILING INFORMATION (unaudited) The following table sets forth selected statistical information: Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Passengers Carried 348,614 360,810 1,019,672 (1) 966,701 Passenger Cruise 2,483,300 2,553,190 7,054,434 7,321,490 Days Capacity Days 2,163,140 2,293,946 6,386,536 6,745,362 Occupancy 114.8 % 111.3 % 110.5 % 108.5 % Percentage (1) Passengers Carried increased in 2009 primarily due to the three and four-night itinerary of Norwegian Sky compared to the seven-night itinerary with Pride of Aloha in 2008. Gross Yield and Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data): Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Passenger ticket $ 392,473 $ 467,798 $ 1,005,886 $ 1,200,799 revenue Onboard and other 158,203 171,191 447,662 474,752 revenue Total revenue 550,676 638,989 1,453,548 1,675,551 Less: Commissions, transportation and 97,144 102,589 247,332 275,187 other expense Onboard and other 47,462 57,173 124,173 149,609 expense Net Revenue $ 406,070 $ 479,227 $ 1,082,043 $ 1,250,755 Capacity Days 2,163,140 2,293,946 6,386,536 6,745,362 Gross Yield $ 254.57 $ 278.55 $ 227.60 $ 248.40 Net Yield $ 187.72 $ 208.91 $ 169.43 $ 185.42 Gross Cruise Cost and Net Cruise Cost were calculated as follows (in thousands, except Capacity Days and per Capacity Day data): Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Total cruise $ 344,831 $ 431,982 $ 987,689 $ 1,242,091 operating expense Marketing, general and administrative 54,202 65,510 179,159 212,014 expense Gross Cruise Cost 399,033 497,492 1,166,848 1,454,105 Less: Commissions, transportation and 97,144 102,589 247,332 275,187 other expense Onboard and other 47,462 57,173 124,173 149,609 expense Net Cruise Cost $ 254,427 $ 337,730 $ 795,343 $ 1,029,309 Capacity Days 2,163,140 2,293,946 6,386,536 6,745,362 Gross Cruise Cost $ 184.47 $ 216.87 $ 182.70 $ 215.57 per Capacity Day Net Cruise Cost $ 117.62 $ 147.23 $ 124.53 $ 152.60 per Capacity Day Operating Income Margin was calculated as follows (in thousands): Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Net Revenue 406,070 479,227 1,082,043 1,250,755 Operating income 113,431 100,608 172,369 100,403 Operating Income 27.9 % 21.0 % 15.9 % 8.0 % Margin EBITDA and Adjusted EBITDA are calculated as follows (in thousands): Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Net income (loss) $ 85,625 $ 171,186 $ 106,233 $ (817 ) Interest income (132 ) (1,139 ) (767 ) (1,966 ) Interest expense, net of capitalized 25,813 35,143 77,860 117,275 interest Other expense 2,125 (104,582 ) (10,957 ) (14,089 ) (income) Operating income 113,431 100,608 172,369 100,403 Depreciation and amortization 38,212 40,889 114,331 121,043 expense EBITDA 151,643 141,497 286,700 221,446 Legal fees and - 3,500 1,500 3,500 settlements (1) NCLA shutdown - 1,724 - 13,138 costs (2) Norwegian Sky start-up expenses - 2,583 - 8,504 (3) Consulting fees - 1,215 - 7,231 Other (4) (3,468 ) 361 (2,662 ) (1,531 ) Adjusted EBITDA $ 148,175 $ 150,880 $ 285,538 $ 252,288
(1) Includes legal fees for the cancellation of a newbuild ship order and for credit facility amendments. (2) Costs in connection with the Hawaii restructuring, which were reimbursed by Star Cruises pursuant to the Reimbursement and Distribution Agreement. (3) Costs incurred from the reflagging of Pride of Aloha from the U.S.-flagged fleet to the international fleet as Norwegian Sky. (4) Includes insurance claim recoveries, costs related to severance agreements, and a supplemental Protection and Indemnity insurance call.
Source: Norwegian Cruise Line
Released November 16, 2009