What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 126 added, 116 removed, 328 unchanged (42% of the section changed)

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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 voluntary suspension, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the resumption of cruise voyages and the timing for such resumption of cruise voyages, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, 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.

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 suspension of certain cruise voyages, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the resumption of cruise voyages and the timing for such resumption of cruise voyages, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, 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.

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● 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 are expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price;

● our ability to comply with the U.S.

Centers for Disease Control and Prevention’s (“CDC”) Framework for Conditional Sailing Order and any additional or future regulatory restrictions on our operations and to otherwise develop enhanced health and safety protocols to adapt to the pandemic’s unique challenges once operations resume and to otherwise safely resume our operations when conditions allow;

● our ability to comply with the CDC’s Conditional Order and any additional or future regulatory restrictions on our operations and to otherwise develop enhanced health and safety protocols to adapt to the pandemic’s unique challenges once operations resume and to otherwise safely resume our operations when conditions allow;

● legislation prohibiting companies from verifying vaccination status;

● coordination and cooperation with the CDC, the federal government and global public health authorities to take precautions to protect the health, safety and security of guests, crew and the communities visited and the implementation of any such precautions;

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● our indebtedness and restrictions in the agreements governing our indebtedness that require us to maintain minimum levels of liquidity and otherwise limit our flexibility in operating our business, including the significant portion of assets that are collateral under these agreements;

● the accuracy of any appraisals of our assets as a result of the impact of COVID-19 or otherwise;

● the accuracy of any appraisals of our assets as a result of the impact of the COVID-19 pandemic or otherwise;

● our success in reducing operating expenses and capital expenditures and the impact of any such reductions;

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The Conditional Order replaced the CDC’s previously issued No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director’s rescission or modification of the Conditional Order based on specific public health or other considerations, or c) November 1, 2021.

Effective as of July 23, 2021, for cruise ships arriving in, within, or departing from a port in Florida, the Conditional Order only persists as a non-binding recommendation.

● Constant Currency.

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1 to the Credit Agreement, dated as of April 28, 2020, and as further amended by Amendment No.

2 to the Credit Agreement, dated as of January 29, 2021), among NCLC, as borrower, the lenders party thereto, Nordea Bank Abp, New York Branch, as administrative agent and collateral agent, and Nordea Bank Abp, New York Branch, Mizuho Bank, Ltd., MUFG Bank, Ltd., and Skandinaviska Enskilda Banken AB

(Publ), as joint bookrunners, arrangers and co-documentation agents, providing for a $230.0 million senior secured credit facility.

2 to the Credit Agreement, dated as of January 29, 2021), among NCLC, as borrower, the lenders party

thereto, Nordea Bank Abp, New York Branch, as administrative agent and collateral agent, and Nordea Bank Abp, New York Branch, Mizuho Bank, Ltd., MUFG Bank, Ltd., and Skandinaviska Enskilda Banken AB (Publ), as joint bookrunners, arrangers and co-documentation agents, providing for a $230.0 million senior secured credit facility.

● Project Leonardo.

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● Term Loan A Facility .

The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of March 31, 2021.

The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of June 30, 2021.

Non-GAAP Financial Measures

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In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in 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 during the first quarter of 2021, we did not have any Capacity Days.

Accordingly, we have not presented herein per Capacity Day data for the three months ended March 31, 2021.

As a result of our voluntary suspension of sailings from March 2020 through June 2021, we did not have any Capacity Days during the suspension period.

Accordingly, we have not presented herein per Capacity Day data for the three or six months ended June 30, 2021 or June 30, 2020.

As our business includes the sourcing of passengers and deployment of vessels outside of the U.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, the U.S.

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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.

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.

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accordingly, our presentation of Adjusted Net Loss and Adjusted EPS may not be indicative of future adjustments or results.

For example, for the three months ended March 31, 2020, we incurred $1.6 billion related to impairment losses.

For example, for the six months ended June 30, 2020, we incurred $1.6 billion related to impairment losses.

We included this as an adjustment in the reconciliation of Adjusted Net Loss since the expenses are not representative of our day-to-day operations;

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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 have been completely suspended since March 2020 due to the COVID-19 pandemic.

however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic.

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.

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Suspension of Cruise Voyages

Due to the continued spread of COVID-19, ongoing travel restrictions and limited access to ports around the world, in March 2020, we implemented a voluntary suspension of all cruise voyages across our three brands, which has subsequently been extended through June 2021 and announced a limited resumption of cruises beginning in July 2021.

This is the first time we have completely suspended our cruise voyages, and as a result of these unprecedented circumstances, we are not able to predict the full impact of such a suspension on our Company.

The duration of any voluntary suspensions we have implemented and the full resumption of operations both inside and outside of the United States will be dependent, in part, on our ability to comply with governmental regulations, the severity and duration of the COVID-19 global pandemic, including further resurgences and new variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, the lifting of various travel restrictions and travel bans issued by various countries and communities around the world, as well as the availability of ports.

The Company has announced its phased relaunch plans for all 28 ships across its three brands which began with Norwegian Jade on July 25, 2021 and continues through April 1, 2022.

The first cruise to commence in the U.S.

was on August 7, 2021 with Norwegian Encore sailing to Alaska from Seattle.

The Company expects to have approximately 40% of capacity operating by September 30, 2021 and approximately 75% by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022.

Certain sailings have been or may be cancelled in conjunction with the new voyage resumption plans for each vessel.

As a result of the unprecedented circumstances caused by the pandemic, we are not able to predict the full impact of the pandemic on our Company.

Refer to “Item 1A.

Risk Factors” for further details regarding the significant impact the COVID-19 pandemic has had, and is expected to continue to have, on our financial condition and operations.

Preparation for the Safe Resumption of Operations

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The panel also submitted its recommendations to the CDC, in response to a CDC request for public comment to inform future public health guidance and preventative measures relating to travel on cruise ships.

The panel’s recommendations are informing new detailed health and safety protocols for our return-to-service plan.

The panel’s recommendations have informed new detailed health and safety protocols for our return-to-service plan.

The Company also further extended its depth and breadth of experts with the formation of its SailSAFE Global Health and Wellness Council, comprised of six experts at the forefront of their fields and led by Chairman Dr.

Scott Gottlieb.

The Council’s work will complement the Healthy Sail Panel initiative and will focus on the implementation, compliance with and continuous improvement of health and safety protocols across the Company’s operations.

The Council’s work complements the Healthy Sail Panel initiative and focuses on the implementation, compliance with and continuous improvement of health and safety protocols across the Company’s operations.

The Company continues to work with its expert advisors, the Healthy Sail Panel, and global public health authorities and government agencies to refine its comprehensive and multi-layered health and safety strategy to enhance its already rigorous health and safety standards in response to COVID-19.

On October 30, 2020, the CDC issued a Conditional Order that introduced a phased approach for the resumption of passenger cruises in the U.S.

depending on a cruise line’s ability to implement certain protocols and procedures.

These phases include:

a) the establishment of laboratory testing of crew onboard cruise ships in U.S.

b) simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships;

c) a certification process;

and d) a return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission or spread among passenger and crew onboard ships and ashore to communities.

The Conditional Order replaced the CDC’s

No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director’s rescission or modification of the Conditional Order based on specific public health or other considerations, or c) November 1, 2021.

Additionally, pursuant to the Conditional Order, the CDC has issued and may continue to issue additional requirements through technical instructions or orders as needed and the phases described above may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

We are working through recently issued and modified technical guidance from the CDC for which additional clarification is needed on how the incorporation of vaccine requirements impacts the Conditional Order and our path forward.

We have made a request to the CDC to lift the Conditional Order for our ships, but it is unclear whether the CDC will lift the Conditional Order, and if not, whether we will be able to comply with the Conditional Order.

As a result, the timing for our ability to resume cruises in the U.S.

is uncertain.

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 once operations resume.

We have begun the planning process to implement some of these recommendations, including purchasing related equipment and supplies.

We have announced a limited relaunch of certain cruise voyages embarking outside of the U.S.

beginning in July 2021 with our ships initially operating at reduced occupancy levels.

We plan to initially resume cruises in Europe and the Caribbean on a limited number of ships and gradually add ships from each brand.

The timing for returning our ships to service 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 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, port availability, travel restrictions, bans and advisories and our ability to re-staff our ships and implement new enhanced health and safety protocols.

Pursuant to the Conditional Order, the CDC has issued and may continue to issue additional requirements through technical instructions or orders as needed and the phases of the Conditional Order may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

We have received conditional sailing certificates for

certain ships and are in the process of seeking certifications for the remaining ships in our fleet that will be operating out of the U.S.

Additionally, in the U.S., certain states have enacted legislation prohibiting companies from verifying the vaccination status of guests.

We challenged such a prohibition in Florida in court and received a preliminary injunction allowing us to operate as planned.

As a result of these and other regulatory requirements and other logistical challenges, the timeline for our ability to return our entire fleet to cruises both in and outside of the U.S.

Nevertheless, 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 as we begin to resume operations.

We began a phased relaunch of cruise voyages in July 2021.

Initially, ship occupancy will be limited to generally between 60% to 80% of capacity.

During the first two months of a ship’s return to service, occupancy is expected to be incrementally increased until the ship reaches full capacity.

By the end of 2021, we are planning for all ships to be ready to sail at full capacity.

We plan to continue gradually launching ships from each brand through April 1, 2022.

Refer to “Item 1A.

Risk Factors” for further details regarding the uncertainties of returning to sailing at full fleet capacity.

Modified Policies

Our brands have launched new cancellation policies for certain sailings booked during certain time periods to permit our guests to cancel cruises which were not part of our 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 currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through October 31, 2021.

Certain cruises booked for certain periods, will be permitted a 60-day cancellation window for refunds.

The future cruise credits issued under these programs are valid for any sailing through December 31, 2022, and we may extend the length of time these future cruise credits may be redeemed.

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We may incur incremental commission expense for the use of these future cruise credits.

In addition, to provide more flexibility to our guests, we have also extended our modified final payment schedule for all voyages on Regent Seven Seas Cruises through August 31, 2021 and for voyages on Oceania Cruises and for the majority of bookings for voyages on Norwegian Cruise Line through October 31, 2021 which now requires payment 60 days prior to embarkation versus the standard 120 days.

In addition, to provide more flexibility to our guests, we have also extended our modified final payment schedule for all voyages on Regent Seven Seas Cruises through September 30, 2021, on Oceania Cruises through October 31, 2021 and for specified future voyages, and for the majority of voyages on Norwegian Cruise Line through March 31, 2022, which now requires payment 60 days prior to embarkation versus the standard 120 days.

Our brands currently expect to provide cash refunds for cash bookings for future sailings we may cancel.

Update on Bookings

Bookings have been strong for future periods resulting in an elongated booking window as guests book further into the future, despite reduced sales and marketing investments and a travel agency industry that has not been at full strength for months.

During the first quarter 2021, overall bookings, net of cancellations, were more than double the volumes during the prior quarter.

2022 booking and pricing trends are very positive driven by strong pent up demand.

The Company is experiencing robust future demand with the overall cumulative booked position for the first half of 2022 meaningfully ahead of 2019’s record levels with pricing higher when excluding the dilutive impact of future cruise credits.

Bookings continue to be strong for future periods despite reduced sales and marketing investments and a travel agency industry that has not been at full strength since the start of the pandemic.

2022 booking and pricing trends continue to be very positive driven by strong pent-up demand.

The Company is experiencing robust future demand across all brands with the overall cumulative booked position for full year 2022 meaningfully ahead of 2019’s record levels at higher pricing even when including the dilutive impact of future cruise credits.

Our operations may be suspended beyond our announced suspensions 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.

The ongoing effects of the COVID-19 pandemic on our operations and global bookings have had, and we believe they will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue

well beyond the containment of the pandemic.

Significant events affecting travel, including COVID-19, typically have an impact on the demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions.

Due to the unknown duration and extent of the COVID-19 pandemic, uncertainty surrounding the availability of COVID-19 vaccines and therapeutics, travel restrictions and advisories, uncertainties around our ability to comply with governmental regulations, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, there are remaining uncertainties about when our full fleet will be back in service 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 for the three months ending June 30, 2021 and expect to report a net loss until we are able to resume regular voyages, including for the year ending December 31, 2021.

There are remaining uncertainties about when our full fleet will be back in service 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 for the three months ending September 30, 2021 and expect to report a net loss until we are able to resume regular voyages, including for the year ending December 31, 2021.

Refer to “Item 1A.

Risk Factors” for further details regarding the significant impact the COVID-19 pandemic has had, and is expected to continue to have, on our financial condition and operations.

Financing Transactions and Cost Containment Measures

In 2021, we have continued to take actions to bolster our financial condition while our global cruise voyages are suspended.

In March 2021, we received additional financing through various debt financings and an equity offering, collectively totaling $2.7 billion in gross proceeds.

In 2021, we have continued to take actions to bolster our financial condition while our global cruise voyages are disrupted.

In March 2021, we received additional financing through various debt financings and an equity offering,

collectively totaling $2.7 billion in gross proceeds.

From the proceeds, approximately $1.5 billion was used to extinguish debt.

Refer to Note 6 – “Long-Term Debt” for further details about the above transactions.

We have also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures and deferral of debt amortization as well as a reduction in operating expenses, including ship operating expenses and selling, general and administrative expenses.

Cost savings initiatives to reduce selling, general and administrative expenses already implemented include the significant reduction or deferral of marketing expenditures, the implementation of hiring freezes, a 20% salary or hours reduction for certain shoreside team members, a pause in our 401(k) matching contributions and corporate travel freezes for shoreside employees.

We have returned certain shoreside team members to full salary and hours and expect to continue to do so over time as we prepare to resume cruise voyages.

Further, as part of our ongoing strategy to improve our ability to sustain the long-term health of the business and to preserve financial flexibility during the COVID-19 crisis, we have furloughed certain shoreside employees, subject to change based on business needs.

While on furlough, employees will not receive salary or hourly wages, but will continue to receive health benefit coverage if they currently participate in a Company-sponsored plan.

We undertook several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, including the reduction of capital expenditures and deferral of debt amortization as well as a reduction in operating expenses, including ship operating expenses and selling, general and administrative expenses.

Cost savings initiatives to reduce selling, general and administrative expenses, which had already been implemented at the beginning of 2021, included the significant reduction or deferral of marketing expenditures, the implementation of hiring freezes, a 20% salary or hours reduction for certain shoreside team members, a pause in our 401(k) matching contributions, corporate travel freezes for shoreside employees, and employee furloughs.

Some of these cost savings initiatives have been discontinued as we begin our resumption of cruise voyages.

See “—Liquidity and Capital Resources” below for more information.

Quarterly Overview

Three months ended March 31, 2021 (“2021”) compared to three months ended March 31, 2020 (“2020”)

● Total revenue decreased 99.8% to $3.1 million compared to $1.2 billion.

● Net loss and diluted EPS were $(1.4) billion and $(4.16), respectively, compared to $(1.9) billion and $(8.80), respectively.

● Operating loss was $(571.3) million compared to operating loss of $(1.8) billion.

● Adjusted Net Loss and Adjusted EPS were $(668.6) million and $(2.03), respectively, in 2021, which included $701.6 million of adjustments primarily consisting of expenses related to losses on extinguishment and modifications of debt.

Adjusted Net Loss and Adjusted EPS were $(211.3) million and $(0.99), respectively, in 2020, which included $1.7 billion of adjustments primarily consisting of impairment losses.

Three months ended June 30, 2021 (“2021”) compared to three months ended June 30, 2020 (“2020”)

● Total revenue decreased 74.2% to $4.4 million compared to $16.9 million.

● Net loss and diluted EPS were $(717.8) million and $(1.94), respectively, compared to $(715.2) million and $(2.99), respectively.

● Operating loss was $(605.1) million compared to $(595.4) million.

● Adjusted Net Loss and Adjusted EPS were $(714.7) million and $(1.93), respectively, in 2021, which included $3.1 million of net adjustments.

Adjusted Net Loss and Adjusted EPS were $(666.4) million and $(2.78), respectively, in 2020, which included $48.8 million of adjustments primarily consisting of share-based compensation and losses on extinguishment and modifications of debt.

● Adjusted EBITDA decreased 3.7% to $(407.5) million compared to $(393.1) million.

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Three Months Ended

Six Months Ended

Passengers carried

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Occupancy Percentage

Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):

Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands):

Three Months Ended

Six Months Ended

Total cruise operating expense

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Adjusted Net Cruise Cost Excluding Fuel

Capacity Days

Gross Cruise Cost per Capacity Day

Net Cruise Cost per Capacity Day

Net Cruise Cost Excluding Fuel per Capacity Day

Adjusted Net Cruise Cost Excluding Fuel per Capacity Day

(1) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.

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Three Months Ended

Six Months Ended

Non-GAAP Adjustments:

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Impairment loss (5)

Non-cash interest on beneficial conversion feature (6)

Adjusted Net Loss

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The impairments of goodwill and trade names are included in impairment loss and the impairment of property and equipment is included in depreciation and amortization expense.

(6) Non-cash interest expense related to a beneficial conversion feature recognized on our exchangeable notes, which is recognized in interest expense, net.

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

Three Months Ended

Six Months Ended

Interest expense, net

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Adjusted EBITDA

(1) Primarily consists of gains and losses, net for proceeds from insurance, a litigation settlement and foreign currency exchanges.

(1) Primarily consists of gains and losses, net for fuel swaps not designated as hedges or hedges released into earnings as a result of the forecasted transactions no longer being probable 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.

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(4) Impairment loss consists of goodwill and trade name impairments.

Three months ended March 31, 2021 (“2021”) compared to three months ended March 31, 2020 (“2020”)

Three months ended June 30, 2021 (“2021”) compared to three months ended June 30, 2020 (“2020”)

Total revenue decreased 74.2% to $4.4 million in 2021 compared to $16.9 million in 2020.

In 2021 and 2020, our total revenue was insignificant.

The adverse impact on revenue was due to the cancellation of sailings beginning March 13, 2020 as a result of the COVID-19 pandemic.

Total cruise operating expense decreased 17.2% in 2021 compared to 2020.

In 2021, our cruise operating expenses were primarily related to crew costs, including salaries, food and other travel costs;

and other ongoing costs such as insurance and ship maintenance.

Additionally, in 2020, our cruise operating expenses were increased due to costs associated with the suspension of cruise voyages, including the cost of crew repatriation and the continued payment of protected commissions.

Gross Cruise Cost increased 0.5% in 2021 compared to 2020 primarily related to the decrease in costs described above offset by an increase in marketing, general and administrative expenses as we prepare to return to sailing.

Total other operating expense increased 15.8% in 2021 compared to 2020 primarily due to the increase in marketing, general and administrative costs as a result of increased advertising costs as well as an increase in salaries and benefits as we return to a more normalized cost structure.

Interest expense, net was $137.3 million in 2021 compared to $114.5 million in 2020.

The increase in interest expense reflects additional debt outstanding at higher interest rates, partially offset by lower LIBOR.

Also, included in 2020 were losses on extinguishment of debt and debt modification costs of $21.2 million.

Other income (expense), net was income of $25.5 million in 2021 compared to expense of $14.4 million in 2020.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges.

In 2020, the expense was primarily related to losses on foreign currency exchange and losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

Six months ended June 30, 2021 (“2021”) compared to six months ended June 30, 2020 (“2020”)

Total revenue decreased 99.4% to $7.5 million in 2021 compared to $1.3 billion in 2020.

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and other ongoing costs such as insurance and ship maintenance.

Additionally, in 2020, our cruise operating expenses were increased due to costs associated with the suspension of cruise voyages, including the cost of the related protected commissions.

Gross Cruise Cost decreased 68.1% in 2021 compared to 2020 primarily related to the costs described above in addition to a decrease in marketing, general and administrative expenses from cost savings initiatives in connection with the COVID-19 pandemic and as described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures.” Total other operating expense decreased 82.0% in 2021 compared to 2020 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic in 2020 as well as cost savings described above in marketing, general and administrative expenses and a decrease in depreciation and amortization expense.

In 2020, our cruise operating expenses subsequent to the suspension of cruise voyages on March 13, 2020 primarily included the cost of protected commissions and crew costs, including salaries, food and other repatriation costs.

Gross Cruise Cost decreased 50.6% in 2021 compared to 2020 primarily related to the change in costs described above in addition to a decrease in marketing, general and administrative expenses from cost savings initiatives in connection with the COVID-19 pandemic and as described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures.” Total other operating expense decreased 69.3% in 2021 compared to 2020 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic in 2020.

Depreciation and amortization expense decreased primarily due to a $25.5 million impairment loss recognized in 2020.

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The increase in interest expense reflects losses on extinguishment of debt and debt modification costs of $653.7 million primarily related to the repurchase of the Private Exchangeable Notes as well as additional debt outstanding at higher interest rates, partially offset by lower LIBOR.

Other income (expense), net was income of $27.2 million in 2021 compared $5.8 million in 2020.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency exchange.

In 2020, the income was primarily related to gains on foreign currency exchange offset by losses on fuel hedges recognized in earnings as a result of the forecasted transactions no longer being probable.

Other income (expense), net was income of $52.7 million in 2021 compared to expense of $8.6 million in 2020.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges.

In 2020, the expense was primarily related to losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable offset by gains from foreign currency exchange.

Liquidity and Capital Resources

As of March 31, 2021, our liquidity was $3.5 billion consisting of cash and cash equivalents.

As of June 30, 2021, our liquidity was $2.8 billion consisting of cash and cash equivalents.

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022.

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See Note 6 – “Long-Term Debt” for further information.

In July 2021, we amended nine credit facilities for our newbuild agreements and increased the combined commitments under such credit facilities by approximately $770 million to cover owner’s supply (generally consists of provisions for the ship), modifications and financing premiums.

The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense.

See “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” above for further information.

The Company's monthly average cash burn for the first quarter of 2021 was in line with prior guidance at approximately $190 million per month, or approximately $170 million per month excluding previously disclosed non-recurring debt modification costs.

The Company paid approximately $50 million of one-time debt deferral and modification costs and fees in the first quarter of 2021 as a result of successful debt deferrals and covenant waivers and suspensions, which combined with newbuild payment extensions, have resulted in approximately $1 billion of additional liquidity through the first quarter of 2022.

For the second quarter of 2021, the Company expects the average cash burn rate to be approximately $190 million per month, as it prepares for a return to service this summer.

Cash burn rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes 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 Company's monthly average cash burn for the second quarter 2021 was approximately $200 million, higher than prior guidance of approximately $190 million and above the prior quarter, as it prepared for a return to service this summer.

Return to service expenses are primarily related to repositioning, provisioning and staffing of vessels, implementing new health and safety protocols and a measured ramp up of demand generating marketing investments.

Looking ahead, we expect third quarter 2021 monthly average cash burn to increase to approximately $285 million driven by the continued phased relaunch of additional vessels.

Cash burn rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes, debt deferral fees and expected non-newbuild capital expenditures and exclude cash refunds of customer deposits as well as cash inflows from new and existing bookings, newbuild related capital expenditures and other working capital changes.

Future cash burn rate estimates also exclude unforeseen expenses.

The first quarter 2021 cash burn rate and second quarter 2021 estimate also reflect the deferral of debt amortization and newbuild related payments.

The relaunch we have announced to begin in July 2021 will be limited, and we continue to expect a gradual phased relaunch of our ships after the voyage suspension period, with our ships initially operating at reduced occupancy levels.

The timing for bringing our ships back to service 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 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, port availability, travel restrictions, bans and advisories, and our ability to re-staff our ships and implement new health and safety protocols.

The second quarter 2021 cash burn rate and third quarter estimate also reflect the deferral of debt amortization and newbuild related payments.

We continue to expect a gradual phased relaunch of our ships, with our ships initially operating at reduced occupancy levels as described in “Update Regarding COVID-19 Pandemic— Preparation for the Safe Resumption of Operations.” Refer to “Item 1A.

Risk Factors” for further details regarding the significant impact the COVID-19 pandemic has had, and is expected to continue to have, on our financial condition and operations.

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties.

Until we are able to begin our phased relaunch, our projected liquidity requirements reflect our principal assumptions surrounding the costs of the announced limited relaunch of certain cruise voyages, ongoing operating costs during the suspension of cruise voyages, as well as liquidity requirements for financing costs and necessary capital expenditures, and our ability to implement further cash conservation strategies.

Refer to Note 2 – “Summary of Significant Accounting Policies” for further information on liquidity and management’s plan.

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.

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 twelve months even in the event we do not resume cruise voyages during that period.

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 continues to have suspended cruise voyages for a prolonged period.

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 twelve months.

Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and particularly if a substantial portion of our fleet continues to have suspended cruise voyages for a prolonged period.

We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements.

At March 31, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

At June 30, 2021, 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.

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Since April 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 $675 million 2024 Senior Secured Notes and $750 million 2026 Senior Secured Notes to B+ and our senior unsecured rating to B-.

If our credit ratings were 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.

Further, NCLH is seeking shareholder approval to increase its authorized ordinary share capital at its 2021 annual general meeting so that it will have the ability to raise additional equity capital.

Such increase may not be approved.

If our credit ratings were 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 significant capacity to incur additional indebtedness under our debt agreements.

Accordingly, 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 of March 31, 2021, we had advance ticket sales of $1.3 billion, including the long-term portion, which included approximately $0.85 billion of future cruise credits.

We also have agreements with our credit card processors that, as of March 31, 2021, governed approximately $1.1 billion in advance ticket sales that had been received by the Company relating to future voyages.

On May 20, 2021, NCLH’s shareholders authorized a 490,000,000 increase in the number of ordinary shares available for issuance.

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 of June 30, 2021, we had advance ticket sales of $1.4 billion, including the long-term portion, which included approximately $0.8 billion of future cruise credits.

We also have agreements with our credit card processors that, as of June 30, 2021, governed approximately $1.2 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.

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Any cash reserve or collateral requested could be increased or decreased.

As of March 31, 2021, we had a reserve of approximately $580 million with a credit card processor recognized in other long-term assets.

As of June 30, 2021, we had a reserve of approximately $800 million with a credit card processor recognized in accounts receivable, net or other long-term assets.

Additionally, we are required to fund all refunds until further notice and 100% of incoming advance ticket sales deposits with this credit card processor will be withheld and are not expected to be released until the credit card processor’s exposure is fully collateralized.

As of March 31, 2021, the exposure was approximately $840 million.

As of June 30, 2021, the exposure was approximately $940 million.

The reserve shortfall of approximately $140 million will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company.

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Sources and Uses of Cash

In this section, references to “2021” refer to the three months ended March 31, 2021 and references to “2020” refer to the three months ended March 31, 2020.

Net cash used in operating activities was $0.9 billion in 2021 as compared to net cash used in operating activities of $52.7 million in 2020.

In this section, references to “2021” refer to the six months ended June 30, 2021 and references to “2020” refer to the six months ended June 30, 2020.

Net cash used in operating activities was $1.5 billion in 2021 as compared to net cash used in operating activities of $1.3 billion in 2020.

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 $75.6 million in 2021 compared to a decrease of $288.5 million in 2020 while our prepaid expenses and other assets, which contains our reserves with credit card processors, decreased cash by $406.8 million compared to an increase of $145.8 million in 2020.

Net cash used in investing activities was $0.1 billion in 2021 and $0.6 billion in 2020, primarily related to payments for Seven Seas Splendor and ship improvement projects in 2020.

Advance ticket sales increased by $191.6 million in 2021 compared to a decrease of $844.2 million in 2020 while our accounts receivable, net and prepaid expenses and other assets, which contain our reserves with credit card processors, decreased cash by $408.1 million and $242.6 million, respectively, compared to a decrease of $2.1 million and $115.1 million, respectively, in 2020.

Net cash used in investing activities was $315.2 million in 2021 and $751.6 million in 2020, primarily related to newbuild payments in 2021 and payments for Seven Seas Splendor and ship improvement projects in 2020.

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.

Net cash provided by financing activities was $1.8 million in 2020 from our revolving credit facilities and newbuild loans partially offset by debt repayments.

Net cash provided by financing activities was $4.1 billion in 2020 primarily due to the proceeds of $4.0 billion from our revolving credit facilities, various notes, and newbuild loans partially offset by debt repayments.

Additionally, we received net proceeds of $441.9 million from an equity offering.

Future Capital Commitments

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Anticipated expenditures related to ship construction contracts were $0.3 billion for the remainder of 2021 and $1.6 billion and $2.5 billion for the years ending December 31, 2022 and 2023, respectively.

The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $0.2 billion for the remainder of 2021 and

$0.8 billion and $1.8 billion for the years ending December 31, 2022 and 2023, respectively.

The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $0.2 billion for the remainder of 2021 and $1.0 billion and $2.0 billion for the years ending December 31, 2022 and 2023, respectively.

Future expected capital expenditures will significantly increase our depreciation and amortization expense.

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The combined contract prices of the nine ships on order for delivery was approximately €7.6 billion, or $9.0 billion based on the euro/U.S.

dollar exchange rate as of March 31, 2021.

dollar exchange rate as of June 30, 2021.

We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions.

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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 March 31, 2021 and 2020 was $8.2 million and $5.7 million, respectively, primarily associated with the construction of our newbuild ships.

Capitalized interest for the three months ended June 30, 2021 and 2020 was $9.9 million and $5.6 million, respectively, and for the six months ended June 30, 2021 and 2020 was $18.0 million and $11.3 million, respectively, primarily associated with the construction of our newbuild ships.

Off-Balance Sheet Arrangements

Contractual Obligations

As of March 31, 2021 our contractual obligations with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, included the following (in thousands):

As of June 30, 2021, our contractual obligations with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, included the following (in thousands):

Long-term debt (1)

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(3) Ship construction contracts are for our newbuild ships based on the euro/U.S.

dollar exchange rate as of March 31, 2021.

dollar exchange rate as of June 30, 2021.

Export credit financing is in place from syndicates of banks.

Approximately $150.3 million of the ship construction contracts due in less than one year are financed under export credit financing, $54.0 million of payments due within one year have been deferred and we have a memorandum of agreement to finance another $33.8 million.

Approximately $196.2 million of the ship construction contracts due in less than one year are financed under export credit or other newbuild related financing.

(4) Port facilities represent our usage of certain port facilities.

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Customary practice is to prorate these obligations for the annual period impacted.

A portion of our port fees may be

waived as a result of these provisions, including those ports that are presented within operating leases in the table above.

(5) Interest includes fixed and variable rates with LIBOR held constant as of March 31, 2021.

A portion of our port fees may be waived as a result of these provisions, including those ports that are presented within operating leases in the table above.

(5) Interest includes fixed and variable rates with LIBOR held constant as of June 30, 2021.

(6) Other includes future commitments for service, maintenance and other business enhancement capital expenditures contracts.

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We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements.

At March 31, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

At June 30, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

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.

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There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.

Furthermore, 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 continues to have suspended cruise voyages for a prolonged period.

The Company may require additional liquidity to meet ongoing obligations, including debt amortization payments and ship milestone payments net of export-credit financing, of approximately $670 million that are due in July 2022 and its minimum liquidity covenant requirements.

The Company plans to take additional steps following the issuance of these financial statements to increase its liquidity, which may include additional debt and/or equity financing and potential further renegotiations of its debt amortization payments, newbuild payments and covenants.

The extent of these actions to increase the Company’s liquidity will be dependent in part on the timing of the resumption of cruise voyages, which despite the Company’s expectations for a limited relaunch beginning July 2021, is uncertain.

There can be no assurances that the Company will be successful in generating the additional liquidity necessary to meet its obligations beyond twelve months from the issuance of these financial statements on terms acceptable to the Company or at all.

Company is unable to satisfy or renegotiate its minimum liquidity covenant requirements, it could have a significant adverse effect on the Company’s business, financial condition and operating results.

Furthermore, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and particularly if a substantial portion of our fleet continues to have suspended cruise voyages for a prolonged period.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis