What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 175 added, 258 removed, 204 unchanged (68% 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 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, plans or goals for our sustainability program and decarbonization efforts, our expectations for future cash flows and profitability, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements.

All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the impact of Russia’s recent invasion of Ukraine, our expectations regarding cruise voyage occupancy, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, plans or goals for our sustainability program and decarbonization efforts, our expectations for future cash flows and profitability, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements.

Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend,” “future” and similar words.

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Examples of these risks, uncertainties and other factors include, but are not limited to the impact of:

● the spread of epidemics, pandemics and viral outbreaks and specifically, the COVID-19 pandemic, including its effect on the ability or desire of people to travel (including on cruises), which 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 United States Centers for Disease Control and Prevention’s (“CDC”) 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;

● the spread of epidemics, pandemics and viral outbreaks and specifically, the COVID-19 pandemic, including its effect on the ability or desire of people to travel (including on cruises), which is expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price;

● implementing precautions in coordination with regulators and global public health authorities to protect the health, safety and security of guests, crew and the communities we visit and to comply with regulatory restrictions related to the pandemic;

● legislation prohibiting companies from verifying vaccination status;

● 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;

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

● our ability to work with lenders and others or otherwise pursue options to defer, renegotiate, refinance or restructure our existing debt profile, near-term debt amortization, newbuild related payments and other obligations and to work with credit card processors to satisfy current or potential future demands for collateral on cash advanced from customers relating to future cruises;

● our need for additional financing or financing to optimize our balance sheet, which may not be available on favorable terms, or at all, and may be dilutive to existing shareholders;

● 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;

● our need for additional financing or financing to optimize our balance sheet, which may not be available on favorable terms, or at all, and our outstanding exchangeable notes and any future financing which may be dilutive to existing shareholders;

● the unavailability of ports of call;

● future increases in the price of, or major changes or reduction in, commercial airline services;

● changes involving the tax and environmental regulatory regimes in which we operate, including new regulations aimed at reducing greenhouse gas emissions;

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

● our success in controlling operating expenses and capital expenditures;

● our guests’ election to take cash refunds in lieu of future cruise credits or the continuation of any trends relating to such election;

● trends in, or changes to, future bookings and our ability to take future reservations and receive deposits related thereto;

● the unavailability of ports of call;

● future increases in the price of, or major changes or reduction in, commercial airline services;

● adverse events impacting the security of travel, such as terrorist acts, armed conflict and threats thereof, acts of piracy, and other international events;

● adverse events impacting the security of travel, such as terrorist acts, armed conflict, such as Russia’s recent invasion of Ukraine, and threats thereof, acts of piracy, and other international events;

● adverse incidents involving cruise ships;

● adverse general economic and related factors, such as fluctuating or increasing levels of unemployment, underemployment and the volatility of fuel prices, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;

● any further impairment of our trademarks, trade names or goodwill;

● adverse general economic and related factors, including as a result of the impact of the COVID-19 pandemic, Russia’s recent invasion of Ukraine or otherwise, such as fluctuating or increasing levels of interest rates, inflation, unemployment, underemployment and the volatility of fuel prices, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;

● breaches in data security or other disturbances to our information technology and other networks or our actual or perceived failure to comply with requirements regarding data privacy and protection;

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● the risks and increased costs associated with operating internationally;

● fluctuations in foreign currency exchange rates;

● overcapacity in key markets or globally;

● our expansion into and investments in new markets;

● our inability to recruit or retain qualified personnel or the loss of key personnel or employee relations issues;

● our inability to obtain adequate insurance coverage;

● pending or threatened litigation, investigations and enforcement actions;

● any further impairment of our trademarks, trade names or goodwill;

● volatility and disruptions in the global credit and financial markets, which may adversely affect our ability to borrow and could increase our counterparty credit risks, including those under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees;

● our inability to recruit or retain qualified personnel or the loss of key personnel or employee relations issues;

● our reliance on third parties to provide hotel management services for certain ships and certain other services;

● our inability to keep pace with developments in technology;

● changes involving the tax and environmental regulatory regimes in which we operate;

● other factors set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 202 0, filed with the SEC on February 26, 2021 (“Annual Report on Form 10-K”).

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic.

● fluctuations in foreign currency exchange rates;

● our expansion into new markets and investments in new markets and land-based destination projects;

● overcapacity in key markets or globally;

● other factors set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022 (“Annual Report on Form 10-K”).

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic and Russia’s recent invasion of Ukraine.

It is not possible to predict or identify all such risks.

There may be additional risks that we consider immaterial or which are unknown.

In addition, some of our executive officers and directors have not sold their shares in us since the beginning of the COVID-19 pandemic as a gesture of support for our Company as they navigated us through unprecedented challenges.

Now that we have resumed operations, we anticipate that our executive officers and directors may sell shares under Rule 10b5-1 plans beginning in the first quarter of 2022 as part of their ordinary course financial planning.

The above examples are not exhaustive and new risks emerge from time to time.

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We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based, except as required by law.

This report includes certain non-GAAP financial measures, such as Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS.

This report includes certain non-GAAP financial measures, such as Adjusted Gross Margin, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS.

Definitions of these non- GAAP financial measures are included below.

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Unless otherwise indicated in this report, the following terms have the meanings set forth below:

● Acquisition of Prestige .

In November 2014, we acquired Prestige in a cash and stock transaction for total consideration of $3.025 billion, including the assumption of debt.

● 2024 Exchangeable Notes .

On May 8, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee, NCLC issued $862.5 million aggregate principal amount of exchangeable senior notes due 2024.

● 2024 Senior Secured Notes .

On May 14, 2020, pursuant to an indenture among NCLC, as issuer, the guarantors party thereto, and U.S.

Bank National Association, as trustee and security agent, NCLC issued $675.0 million aggregate principal amount of 12.25% senior secured notes due 2024.

● 2025 Exchangeable Notes .

On July 21, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee, NCLC issued $450.0 million aggregate principal amount of exchangeable senior notes due 2025.

● 2026 Senior Secured Notes .

On July 21, 2020, pursuant to an indenture among NCLC, as issuer, the guarantors party thereto, and U.S.

Bank National Association, as trustee and security agent, NCLC issued $750.0 million aggregate principal amount of 10.25% senior secured notes due 2026.

● 2027 1.125% Exchangeable Notes .

On November 19, 2021, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee, NCLC issued $1,150.0 million aggregate principal amount of exchangeable senior notes due 2027.

● Adjusted EBITDA.

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Adjusted Net Loss divided by the number of diluted weighted-average shares outstanding.

● Adjusted Gross Margin.

Gross margin adjusted for payroll and related, fuel, food, other and ship depreciation.

Gross margin is calculated pursuant to GAAP as total revenue less total cruise operating expense and ship depreciation.

● Adjusted Net Cruise Cost Excluding Fuel.

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● Allura Class Ships .

Oceania Cruises’ two ships on order.

Oceania Cruises’ Vista and one additional ship on order.

Double occupancy capacity per cabin (single occupancy per studio cabin) even though many cabins can accommodate three or more passengers.

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Centers for Disease Control and Prevention.

● Conditional Order.

The CDC’s Framework for Conditional Sailing Order issued on October 30, 2020 that introduced a phased approach for the resumption of passenger cruises.

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 previously issued No Sail Order that expired on October 31, 2020 and remained in effect until November 1, 2021.

The CDC adopted a Temporary Extension and Modification of the Framework for Conditional Sailing Order (the “Temporary Extension”) that became effective on November 1, 2021 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 Temporary Extension based on specific public health or other considerations, or c) January 15, 2022 at which point it will revert to a voluntary program.

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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A unit of enclosed passenger space on a cruise ship, such that one gross ton equals 100 cubic feet or 2.831 cubic meters.

● Jewel Credit Facility.

The Credit Agreement, dated as of May 15, 2019 (as amended by Amendment No.

1 to the Credit Agreement, dated as of May 1, 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, Bank of America, N.A., as administrative agent and collateral agent, Bank of America, N.A., Truist Bank (formerly known as Branch Banking and Trust Company), Fifth Third Bank and Mizuho Bank, Ltd., as joint bookrunners and arrangers, and Bank of America, N.A., Truist Bank (formerly known as Branch Banking and Trust Company), Fifth Third Bank and Mizuho Bank, Ltd., as co-documentation agents, providing for a $260.0 million senior secured credit facility.

● Net Cruise Cost.

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The number of passengers carried for the period, multiplied by the number of days in their respective cruises.

● Pride of America Credit Facility .

The Credit Agreement, dated as of January 10, 2019 (as amended by Amendment No.

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.

● Project Leonardo.

The next generation of ships for our Norwegian brand.

● Prima Class Ships.

Norwegian Prima, Norwegian Viva and four additional ships on order.

● Private Exchangeable Notes.

On May 28, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee, NCLC issued $400.0 million aggregate principal amount of exchangeable senior notes due 2026.

● Revolving Loan Facility.

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Securities and Exchange Commission.

● Senior Secured Credit Facility.

The Credit Agreement, originally dated as of May 24, 2013, as amended and restated on October 31, 2014, June 6, 2016, October 10, 2017, January 2, 2019 and May 8, 2020, and as further amended on January 29, 2021 and March 25, 2021, by and among NCLC and Voyager Vessel Company, LLC, as co-borrowers, JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and various lenders and agents, providing for a senior secured credit facility consisting of (i) the Revolving Loan Facility and (ii) the Term Loan A Facility .

● Shipboard Retirement Plan .

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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 September 30, 2021 .

The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of March 31, 2022.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, to enable us to analyze our performance.

We use certain non-GAAP financial measures, such as Adjusted Gross Margin, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, to enable us to analyze our performance.

See “Terminology” for the definitions of these and other non-GAAP financial measures.

We utilize Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to manage our business on a day-to-day basis.

In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in 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 from March 2020 until July 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 nine months ended September 30, 2021 or September 30, 2020.

We utilize Adjusted Gross Margin to manage our business on a day-to-day basis because it reflects revenue earned net of certain direct variable costs.

We also utilize Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to manage our business on a day-to-day basis.

In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in Adjusted Gross Margin, Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.

As a result of our voluntary suspension of sailings from March 2020 until July 2021 and our gradual phased return to service beginning in July 2021, per Capacity Day data is not meaningful for the three months ended March 31, 2022 or March 31, 2021 and is not presented herein.

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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These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance.

In addition, management uses Adjusted EPS as a performance measure for our incentive compensation.

In addition, management uses Adjusted EPS as a performance measure for our incentive compensation during normal operations.

The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period;

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

For example, for the nine months ended September 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;

however, this adjustment did not occur and is not included in the comparative period presented within this Form 10-Q.

You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis.

In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation.

Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP.

Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these

measures in isolation or as a substitute for analysis of our results as reported under GAAP.

Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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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 were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages will be phased in gradually as described under “—Update Regarding COVID-19 Pandemic” below.

however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages was phased in gradually.

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us.

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For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” included in our Annual Report on Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K.

Russia’s Recent Invasion of Ukraine

The conflict from Russia’s recent invasion of Ukraine resulted in the cancellation or modification of approximately 60 sailings in 2022, which included all voyages with calls to ports in Russia.

Three ships were redeployed as a result of the

conflict including Norwegian Getaway to Port Canaveral, Oceania Cruises’ Marina to the British Isles and Regent’s Seven Seas Splendor to Northern Europe.

In addition, the Company has also removed all calls to ports in Russia from its itineraries in 2023.

In addition to the direct impacts noted above, the conflict has also had indirect impacts to customer demand (see “Update on Bookings”) and the cost of fuel and could continue to have an impact on travel and consumer discretionary spending.

Update Regarding COVID-19 Pandemic

Suspension of Cruise Voyages

Safe Resumption of Operations

Due to the impact of COVID-19, travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across our three brands.

As of the date hereof, 11 of our ships were operating with guests on board as part of our phased return to service.

The Company continues to execute on the phased relaunch plans for its 28-ship fleet.

The Company expects to have approximately 75% of capacity operating 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

We have developed SailSAFE TM , a comprehensive and multi-faceted health and safety strategy to enhance our already rigorous protocols and address the unique public health challenges posed by COVID-19.

In July 2020, we announced a collaboration with Royal Caribbean Group to form a group of experts called the “Healthy Sail Panel” to guide the industry in the development of new and enhanced cruise health and safety standards.

The panel is co-chaired by Dr.

Scott Gottlieb, former commissioner of the U.S.

Food and Drug Administration, and Governor Mike Leavitt, former Secretary of the U.S.

Department of Health and Human Services, and consists of globally recognized experts from various disciplines, including public health, infectious disease, biosecurity, hospitality and maritime operations.

On September 21, 2020, the expert panel published a report, which included detailed best practices across five key areas of focus to protect the public health and safety of guests, crew and the communities where our cruise ships visit.

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 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 four experts at the forefront of their fields and led by Chairman Dr.

Scott Gottlieb.

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.

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 additional 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.

In the third quarter of 2021, we began a phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels.

As of May 7, 2022, all of our 28 ships are operating with guests on board.

The level of occupancy on our ships and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences and new more contagious and/or vaccine-resistant variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations and implement new health and safety protocols, port availability, travel restrictions, bans and advisories, our ability to staff certain ships and additionally the impact of other events impacting travel or consumer discretionary spending, such as Russia’s recent invasion of Ukraine.

In recent months, the Company has seen a significant improvement in the global public health and regulatory environment.

In March, the CDC removed its Travel Health Notice for cruising for the first time since the start of the pandemic.

The CDC also recently announced a relaxation of certain protocols and recommendations in its voluntary COVID-19 Program for Cruise Ships Operating in U.S.

In addition, more ports globally have re-opened to cruise and travel restrictions continue to ease around the world creating a more favorable environment for ship deployment.

The Company continues to operate under its science-backed SailSAFE health and safety program which will evolve along with the public health environment.

The Company also follows applicable local protocols at the ports and destinations it visits.

Our COVID-19 vaccination policy requires that all guests, with the exception of guests under the age of 12 on Norwegian Cruise Line sailings beginning March 1, 2022, and all crew must be vaccinated.

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 each ship is expected to operate at reduced occupancy, which will gradually increase over time.

Based on the current conditions, we are planning for all ships to sail at full capacity by June 30, 2022.

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.

We continue to work with other federal agencies, public health authorities and national and local governments in areas where we operate to take all necessary measures to protect our guests, crew and the communities visited.

Modified Policies

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 were 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.

We have launched cancellation policies for certain sailings booked during certain time periods to permit our guests to cancel cruises which were not part of a temporary suspension of voyages up to 15 days prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise.

These programs are in place for cruises booked through specific time periods specified by brand.

Certain cruises booked for certain periods, will be permitted a 60-day or 75-day cancellation window for refunds.

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

The use of such credits may prevent us from garnering certain future cash collections as staterooms booked by guests with such credits will not be available for sale, resulting in less cash collected from bookings to new guests.

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

In addition, to provide more flexibility to our guests, we 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 April 30, 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.

In addition, to provide more flexibility to our guests, we modified our final payment schedules to require payment 60 days prior to embarkation versus the standard 120 days for most voyages on Regent Seven Seas Cruises through July 31, 2022, for certain voyages on Oceania Cruises through September 30, 2022 and for all voyages on Norwegian Cruise Line through April 30, 2022.

Financing Transactions

In 2022, we have continued to take actions to bolster our financial condition while our global cruise voyages are disrupted.

To enhance our liquidity profile and financial flexibility, in February 2022, we received additional financing through various debt financings, collectively totaling $2.1 billion in gross proceeds, which has been, or will be, used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

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

Update on Bookings

Net booking volumes in the third quarter of 2021 were negatively impacted by the Delta variant of COVID-19.

The resulting slowdown in net booking volumes was heavily weighted to sailings in the fourth quarter of 2021 and early 2022 and improved sequentially through 2022.

The impact has since abated and net bookings have materially improved over the past several weeks with particular strength for bookings related to sailings in the second half of 2022 and into 2023.

Despite the temporary Delta impact, the Company’s 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, when the full fleet is expected to be back in operation and at normalized occupancy levels, is meaningfully higher than 2019 and at higher prices.

Our full fleet may not resume operations on our expected schedule and as a result, current booking data may not be informative.

The quarter began with net bookings, particularly for close-in voyages, negatively impacted by the Omicron surge, which began to improve in mid-January.

This momentum was temporarily disrupted as the Company experienced elevated cancellations, primarily for itineraries in the Baltic region, in the immediate weeks following the start of Russia’s recent invasion of Ukraine.

However, this impact was short-lived and net booking volumes have since shown sequential improvement, not only rebounding back to pre-Omicron levels but also now approaching the booking pace needed to consistently sail at historical load factor levels.

As a result of the temporary setbacks from Omicron and Russia’s recent invasion of Ukraine, the Company’s current cumulative booked position for the second half of 2022 is below the comparable 2019 period but at meaningfully higher pricing even when including the dilutive impact of future cruise credits.

The booked position improves throughout the year with the fourth quarter of 2022 in line with the comparable 2019 period and at meaningfully higher prices.

Booking trends for 2023 continue to be positive with both booked position and pricing significantly higher and at record levels when compared to bookings for 2019 and pre-pandemic 2020 at a comparable point in the booking curve.

Our full fleet may not achieve historical occupancy levels on our expected schedule and as a result, current booking data may not be informative.

In addition, because of our updated cancellation policies, bookings may not be representative of actual cruise revenues.

There are remaining uncertainties about when our full fleet will be back 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 and year ending December 31, 2021 and expect to report a net loss until we are able to resume regular voyages.

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 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.

In November 2021, the Company executed a $1 billion commitment through August 15, 2022 that provides additional liquidity to the Company.

Refer to Note 7 – “Long-Term Debt” for further details about the above transactions.

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.

These cost savings initiatives have now been discontinued as we continue our resumption of cruise voyages.

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

There are remaining uncertainties about when our full fleet will be back at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty;

however, we will report a net loss but expect net cash provided by operating activities to be positive during the second quarter of 2022.

Quarterly Overview

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

Three months ended March 31, 2022 (“2022”) compared to three months ended March 31, 2021 (“2021”)

● Total revenue increased to $521.9 million compared to $3.1 million.

● Net loss and diluted EPS were $(845.9) million and $(2.29), respectively, compared to $(677.4) million and $(2.50), respectively.

● Net loss and diluted EPS were $(1.0) billion and $(2.35), respectively, compared to $(1.4) billion and $(4.16), respectively.

● Operating loss was $(688.8) million compared to $(571.3) million.

● Adjusted Net Loss and Adjusted EPS were $(801.4) million and $(2.17), respectively, in 2021, which included $44.5 million of adjustments primarily related to non-cash compensation.

Adjusted Net Loss and Adjusted EPS were $(638.7) million and $(2.35), respectively, in 2020, which included $38.6 million of adjustments primarily consisting of non-cash compensation and losses on extinguishment and modifications of debt.

● Gross margin was $(380.1) million compared to $(357.4) million.

Adjusted Gross Margin was $401.4 million compared to $(7.2) million.

● Adjusted Net Loss and Adjusted EPS were $(760.5) million and $(1.82), respectively, in 2022, which included $222.2 million of adjustments primarily related to losses on extinguishments of debt.

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

● Adjusted EBITDA decreased 27.5% to $(476.2) million compared to $(373.4) million.

We refer you to our “Results of Operations” below for a calculation of Adjusted Net Loss, Adjusted EPS and Adjusted EBITDA.

We refer you to our “Results of Operations” below for a calculation of Adjusted Gross Margin, Adjusted Net Loss, Adjusted EPS and Adjusted EBITDA.

Results of Operations

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Three Months Ended

Nine Months Ended

September 30,

Passengers carried

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Occupancy Percentage

Adjusted Gross Margin was calculated as follows (in thousands):

Three Months Ended

Total revenue

Total cruise operating expense

Ship depreciation

Payroll and related

Adjusted Gross Margin

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

Nine Months Ended

September 30,

Total cruise operating expense

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Three Months Ended

Nine Months Ended

September 30,

Non-GAAP Adjustments:

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Extinguishment and modification of debt (3)

Amortization of intangible assets (4)

Impairment loss (5)

Non-cash interest on beneficial conversion feature (6)

Adjusted Net Loss

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(3) Losses on extinguishment of debt and modification of debt are included in interest expense, net.

(4) Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense.

(5) Impairment loss consists of goodwill, trade name and property and equipment impairments.

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

Nine Months Ended

September 30,

Interest expense, net

Income tax (benefit) expense

Income tax expense

Depreciation and amortization expense

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Non-cash share-based compensation (3)

Impairment loss (4)

Adjusted EBITDA

(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.

(1) Primarily consists of gains and losses, net for fuel swaps not designated as hedges and foreign currency exchanges.

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

(3) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.

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

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

Three months ended March 31, 2022 (“2022”) compared to three months ended March 31, 2021 (“2021”)

Total revenue increased to $521.9 million in 2022 compared to $3.1 million in 2021.

Revenue in 2021 and 2020 has been adversely impacted due to the cancellation of sailings as a result of the COVID-19 pandemic.

Revenue increased in 2021 as certain ships have returned to service.

In 2022, revenue increased as we returned to service with 1.4 million Passenger Cruise Days.

In 2021, voyages were cancelled due to the COVID-19 pandemic.

Total cruise operating expense increased 266.1% in 2022 compared to 2021.

In 2021, our cruise operating expenses increased primarily related to crew costs, including salaries, food and other travel costs as we began our return to service;

ship maintenance, including Dry-dock expenses;

and costs related to COVID-19, including crew and passenger testing.

In 2020, our cruise operating expenses were primarily related to crew costs, including salaries, food and other repatriation costs;

and other ongoing costs such as insurance and ship maintenance.

Gross Cruise Cost increased 92.9% in 2021 compared to 2020 primarily related to the increase in costs described above and an increase in marketing, general and administrative expenses as we return to sailing.

Total other operating expense increased 20.4% in 2021 compared to 2020 primarily due to the increase in marketing, general and administrative costs as a result of the discontinuation of cost savings initiatives described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” as we return to service.

In 2022, our cruise operating expenses were increased due to the resumption of voyages, resulting in higher payroll, fuel, and direct variable costs of fully operating ships.

Costs for certain items such as food, fuel and logistics also increased related to inflation.

Additionally, in 2022, there was an increase in repair and maintenance costs, including planned Dry-docks.

Gross Cruise Cost increased 155.3% in 2022 compared to 2021 primarily related to the change in costs described above plus an increase in marketing, general and administrative expenses primarily related to increased marketing costs as we returned to service.

Total other operating expense increased 27.2% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

Interest expense, net was $327.7 million in 2022 compared to $824.4 million in 2021.

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

Other income (expense), net was income of $4.7 million in 2021 compared to expense of $23.7 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 expense was primarily related to losses on foreign currency exchange and fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

Nine months ended September 30, 2021 (“ 2021 ”) compared to nine months ended September 30, 2020 (“ 2020 ”)

Total revenue decreased 87.4% to $160.5 million in 2021 compared to $1.3 billion in 2020.

In 2021, the adverse impact on revenue was due to the cancellation of sailings as a result of the COVID-19 pandemic and lower occupancy as we return to service.

In 2020, voyages were cancelled beginning March 13, 2020.

Total cruise operating expense decreased 40.1% 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, including Dry-dock expenses.

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 26.2% in 2021 compared to 2020 primarily related to the change in costs described above offset by an increase in marketing, general and administrative expenses primarily related to the discontinuation of cost savings initiatives described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” as we return to service.

Total other operating expense decreased 58.3% 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.

Interest expense, net was $1.1 billion in 2021 compared to $323.1 million in 2020.

The increase in interest expense reflects losses on extinguishment of debt and debt modification costs of $657.2 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 $57.5 million in 2021 compared to expense of $32.3 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 expense was primarily related to losses on fuel hedges recognized in earnings as a result of the forecasted transactions no longer being probable and foreign currency exchange.

The decrease in interest expense reflects lower losses from extinguishment of debt and debt modification costs, which were $188.4 million in 2022 compared to $674.0 million in 2021.

The decrease in interest expense also reflects lower interest expense in connection with the recent refinancings, partially offset by higher debt balances and higher LIBOR rates.

Other income (expense), net was income of $38.1 million in 2022 compared to $27.2 million in 2021.

In 2022 and 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency exchange.

Liquidity and Capital Resources

As of September 30, 2021, our liquidity was $1.9 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.

In connection with such amendment, our minimum liquidity requirement was increased to $200 million and such requirement applies through December 31, 2022.

In addition, in February 2021, we amended certain of our export-credit backed facilities to defer amortization payments aggregating approximately $680 million through March 31, 2022.

We also amended all of our export-credit backed facilities to provide that, from the effective date of the amendments to and including December 31, 2022, certain of the financial covenants under such facilities will be suspended and the free liquidity test will be replaced by a covenant to maintain at least $200 million in free liquidity.

The amendments also made certain other changes to the facilities, including imposing further restrictions on NCLC’s ability to incur debt, create security, issue equity and make dividends and other distributions.

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

The Pride of America Credit Facility and Jewel Credit Facility were extinguished from proceeds of the debt financings.

We also extinguished the Private Exchangeable Notes in March

2021 by using approximately $1.0 billion of cash proceeds from an equity offering completed in March 2021 to repurchase the notes.

See Note 7 – “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.

In November 2021, the Company executed a $1 billion commitment through August 15, 2022 that provides additional liquidity to the Company.

As of March 31, 2022, our liquidity was $3.1 billion consisting of cash and cash equivalents and a $1 billion undrawn commitment available through August 15, 2022.

Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

In February 2022, we received additional financing through various debt financings, collectively totaling $2.1 billion in gross proceeds, which has been, or will be, used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

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

The Company's monthly average cash burn for the third quarter of 2021 was approximately $275 million, below prior guidance of approximately $285 million.

Looking ahead, the Company expects fourth quarter of 2021 monthly average cash burn to increase to approximately $350 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 contribution from ships that have re-entered service.

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 third quarter of 2021 cash burn rate and fourth 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 Company's monthly average cash burn for the first quarter of 2022 was approximately $375 million, below the prior estimate of approximately $390 million.

This cash burn rate does not include cash inflows from bookings or contribution from ships that re-entered service.

Beginning in April 2022, the Company resumed debt amortization payments which were deferred during the pandemic.

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

The first quarter of 2022 cash burn rate reflects the previously agreed to deferral of debt amortization and newbuild related payments.

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

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

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.

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 or operate at significantly reduced occupancy levels for a prolonged period.

We also expect to opportunistically pursue refinancings and other balance sheet optimization transactions from time to time, which could include equity, equity-linked or debt financings.

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

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

Refer to “Item 1A.

Risk Factors” for further details regarding uncertainty related to Russia’s recent invasion of Ukraine.

Based on the liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next 12 months.

Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if a substantial portion of our fleet suspends cruise voyages or operates at significantly reduced occupancy levels for a prolonged period.

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

Beyond 12 months, we will pursue refinancings and other balance sheet optimization transactions from time to time in order to reduce interest rates and extend debt maturities.

We expect to collaborate with financing institutions regarding these refinancing and optimization transactions as opportunities arise in the short-term to amend long-term arrangements.

We have received certain financial and other debt covenant waivers and added new free liquidity requirements.

At March 31, 2022, taking into account such waivers, we were in compliance with all of our debt covenants.

If we do not continue to remain in compliance with our covenants, we would have to seek to amend the covenants.

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Since March 2020, Moody’s has downgraded our long-term issuer rating to B2, our senior secured rating to B1 and our senior unsecured rating to Caa1.

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.

We also have significant capacity to incur additional indebtedness under

our debt agreements.

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

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 other 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.

We also have capacity to incur additional indebtedness under our debt agreements and may issue additional ordinary shares from time to time, subject to our authorized number of ordinary shares.

However, there is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations.

As of September 30, 2021, we had advance ticket sales of $1.7 billion, including the long-term portion, which included approximately $0.75 billion of future cruise credits.

We also have agreements with our credit card processors that, as of September 30, 2021, governed approximately $1.5 billion in advance ticket sales that had been received by the Company relating to future voyages.

As of March 31, 2022, we had advance ticket sales of $2.2 billion, including the long-term portion, which included approximately $0.6 billion of future cruise credits.

We also have agreements with our credit card processors that, as of March 31, 2022, governed approximately $1.7 billion in advance ticket sales that had been received by the Company relating to future voyages.

These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which would be satisfied by posting collateral.

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

As of September 30, 2021, we had cash reserves of approximately $1.2 billion with credit card processors recognized in accounts receivable, net or other long-term assets.

Subsequent to September 30, 2021, $388.3 million in cash reserves have been released to the Company.

As of March 31, 2022, we had cash collateral reserves of approximately $1.1 billion with credit card processors, of which approximately $426.2 million is recognized in accounts receivable, net and approximately $665.3 million in other long-term assets.

We may be required to pledge additional collateral and/or post additional cash reserves or take other actions that may further reduce our liquidity.

Sources and Uses of Cash

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

Net cash used in operating activities was $2.2 billion in 2021 as compared to net cash used in operating activities of $1.9 billion in 2020.

In this section, references to “2022” refer to the three months ended March 31, 2022 and references to “2021” refer to the three months ended March 31, 2021.

Net cash used in operating activities was $371.0 million in 2022 as compared to net cash used in operating activities of $852.0 million in 2021.

The net cash used in operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities.

Advance ticket sales increased by $469.6 million in 2021 compared to a decrease of $834.6 million in 2020 while our accounts receivable, net, which contains our reserves with credit card processors, decreased cash by $979.9 million compared to a decrease of $12.1 million in 2020.

Net cash used in investing activities was $543.0 million in 2021 and $901.6 million in 2020, primarily related to newbuild payments and ship improvement projects in 2021 and payments for Seven Seas Splendor and ship improvement projects in 2020.

Advance ticket sales increased by $417.9 million in 2022.

Advance ticket sales increased by $75.6 million in 2021 while the change in prepaid expenses and other assets, which contains our long-term reserves with credit card processors, decreased cash by $406.8 million in 2021.

Net cash provided by investing activities was $79.7 million in 2022 and net cash used in investing activities was $343.3 million in 2021.

The net cash provided by investing activities was primarily related to maturities of short-term investments partially offset by newbuild payments and ship improvement projects in 2022.

The net cash used in investing activities was primarily related to purchases of short-term investments in 2021.

Net cash provided by financing activities was $0.9 billion in 2022 primarily due to the proceeds of $2.1 billion from our various note offerings partially offset by debt repayments and related redemption premiums associated with extinguishment of certain senior secured notes.

Net cash provided by financing activities was $1.2 billion in 2021 primarily due to the proceeds of $2.7 billion from our various note and equity offerings partially offset by debt repayments and a related redemption premium associated with extinguishment of the Private Exchangeable Notes.

Net cash provided by financing activities was $4.9 billion in 2020 primarily due to the proceeds of $5.2 billion from our revolving credit facilities, various notes, and newbuild loans partially offset by debt repayments.

Additionally, we received net proceeds of $719.1 million from equity offerings.

Future Capital Commitments

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The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $0.9 billion for the remainder of 2022 and $2.0 billion and $0.7 billion for the years ending December 31, 2023 and 2024, respectively.

Anticipated non-newbuild capital expenditures for the remainder of 2021 are approximately $0.2 billion and approximately $0.5 billion for the year ended December 31, 2022, which includes health and safety investments.

Anticipated non-newbuild capital expenditures for the remainder of 2022 are approximately $0.3 billion, which includes health and safety investments.

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

Project Leonardo will introduce an additional six ships, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately 3,215 to 3,550 Berths, with expected delivery dates from 2022 through 2027.

For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths.

For the Norwegian brand, we have six Prima Class Ships on order, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately 3,215 to 3,550 Berths, with expected delivery dates from 2022 through 2027.

Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths.

For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025.

Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths.

The impacts of

COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 and/or Russia’s recent invasion of Ukraine could result in additional delays in ship deliveries in the future, which may be prolonged.

The combined contract prices of the nine ships on order for delivery was approximately €7.7 billion, or $8.5 billion based on the euro/U.S.

dollar exchange rate as of September 30, 2021.

dollar exchange rate as of March 31, 2022.

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

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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 September 30, 2021 and 2020 was $12.5 million and $6.8 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $30.6 million and $18.1 million, respectively, primarily associated with the construction of our newbuild ships.

Off-Balance Sheet Arrangements

Contractual Obligations

As of September 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):

Capitalized interest for the three months ended March 31, 2022 and 2021 was $13.3 million and $8.2 million, respectively, primarily associated with the construction of our newbuild ships.

Material Cash Requirements

As of March 31, 2022, our material cash requirements for debt and ship construction were as follows (in thousands):

Long-term debt (1)

Operating leases (2)

Ship construction contracts (2)

Port facilities (4)

(1) Long-term debt excludes discounts, premiums, and deferred financing fees, which are a direct addition or deduction from the carrying value of the related debt liability in the consolidated balance sheets.

(2) Operating leases are primarily for port facilities and offices.

(1) Includes principal as well as estimated interest payments with LIBOR held constant as of March 31, 2022.

Excludes the impact of any future possible refinancings and undrawn export-credit backed facilities.

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

dollar exchange rate as of September 30, 2021.

Export credit financing is in place from syndicates of banks.

Approximately $1.0 billion 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.

Our port facilities agreements include force majeure provisions that may alleviate an unspecified amount of obligations under minimum guarantees during the COVID-19 pandemic.

In March 2020, the Company provided the required notice that such provisions were being enacted.

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 September 30, 2021.

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

Certain service providers may require collateral in the normal course of our business.

The amount of collateral may change based on certain terms and conditions.

As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships.

We may also consider the sale of ships, potential acquisitions and strategic alliances.

If any of these were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.

dollar exchange rate as of March 31, 2022.

As of March 31, 2022, we have committed undrawn export-credit backed facilities of approximately $6.7 billion which funds approximately 80% of our ship construction contracts.

Funding Sources

Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio, and maintain certain other ratios and restrict our ability to pay dividends.

Substantially all of our ships and other property and equipment are pledged as collateral for certain of our debt.

Substantially all of our ships are pledged as collateral for certain of our debt.

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

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

We believe we were in compliance with these covenants as of March 31, 2022.

In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and NCLH’s ability to pay cash dividends to its shareholders.

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However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations.

In light of the measures described under "Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures", we believe our cash on hand, the recently completed $1 billion commitment, the return of a portion of the cash collateral from our credit card processors, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period.

Certain debt covenant waivers were received in 2021 to enable the Company to maintain this compliance.

Refer to “—Liquidity and Capital Resources” for further information regarding the debt covenant waivers.

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 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 or operate at significantly reduced occupancy levels for a prolonged period.

We also expect to opportunistically pursue refinancings and other balance sheet optimization transactions from time to time, which could include equity, equity-linked or debt financings.

We believe our cash on hand, the undrawn $1 billion commitment, the expected return of a portion of the cash collateral from our credit card processors, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period.

Certain debt covenant waivers and modifications were received in 2021 to enable the Company to maintain this compliance.

Refer to “—Liquidity and Capital Resources—General” for further information regarding the debt covenant waivers and liquidity requirements.

Certain service providers may require collateral in the normal course of our business.

The amount of collateral may change based on certain terms and conditions.

We may also consider the sale of ships, potential acquisitions and strategic alliances.

If any of these transactions were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.

We refer you to “—Liquidity and Capital Resources—General” for information regarding collateral provided to our credit card processors.

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