What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 132 added, 88 removed, 291 unchanged (43% 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 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.

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 expectations regarding the impacts of the COVID-19 pandemic, Russia’s invasion of Ukraine and general macroeconomic conditions, 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 is expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price;

● the spread of epidemics, pandemics and viral outbreaks, including the COVID-19 pandemic, and their 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;

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

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

● adverse incidents involving cruise ships;

● 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;

● adverse general economic and related factors, including as a result of the impact of the COVID-19 pandemic, Russia’s 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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● 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.

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, Russia’s invasion of Ukraine and the impact of general macroeconomic conditions.

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

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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, 2022.

The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of June 30, 2022.

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 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 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 and six months ended June 30, 2022 or June 30, 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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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.

Russia’s Invasion of Ukraine

The conflict from Russia’s 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 and 2024.

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.

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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.

In early May 2022, the Company completed the phased relaunch of its entire fleet with all ships now in operation 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 of COVID-19 or the emergence of other public health crises, 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 invasion of Ukraine, and general macroeconomic conditions discussed below under “Macroeconomic Trends and Uncertainties.”

The Company continues to benefit from significant improvements in the public health environment.

In July 2022, the CDC announced that its voluntary COVID-19 Program for Cruise Ships Operating in U.S.

Waters was no longer in effect, but that it will continue to publish health and safety guidance.

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.

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.

Effective September 3, 2022, vaccinated guests aged 12 and over will no longer have any pre-cruise COVID-19 related protocols and unvaccinated travelers may embark with a negative COVID-19 test taken within 72 hours prior to departure.

Guests 11 and under will be exempt from all vaccination and testing requirements.

Requirements may differ for guests traveling on voyages departing from or visiting destinations with specific local regulations, including but not limited to Canada, Greece and Bermuda.

The Company will continue to evaluate its protocols and modify as needed as the public health environment evolves.

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

We continue to work with 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.

The protocol revisions in conjunction with continued easing of travel restrictions and reopening to cruise in more ports around the globe are positive as it reduces friction, expands the addressable cruise market, brings variety to itineraries, and provides additional catalysts on the road to recovery.

Modified Policies

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.

We have launched cancellation policies for certain sailings booked during certain time periods to permit certain guests to cancel cruises which were not part of a temporary suspension of voyages up to 15 days prior to embarkation or in the event of a positive COVID-19 test 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.

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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 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.

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 and for certain voyages on Oceania Cruises through September 30, 2022.

Financing Transactions

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

In 2022, we have continued to take actions to bolster our financial condition while the global cruise environment remains challenging.

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.

In July 2022, the Company amended its $1 billion commitment, which provides additional liquidity to the Company, extending the commitment through March 31, 2023.

The Company has not drawn and currently does not intend to draw under this commitment.

See Note 7 – “Long-Term Debt” for more information.

Update on Bookings

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.

As expected, the Company’s current cumulative booked position for the second half of 2022 remains below the comparable 2019 period but at higher prices even when including the dilutive impact of future cruise credits and despite the impact in the third quarter of the Russia-Ukraine conflict on premium-priced Baltic and Eastern Mediterranean itineraries.

Booking trends for full year 2023 remain positive with cumulative booked position in line with a record 2019 inclusive of the Company’s 20% increase in capacity.

Pricing continues to be significantly higher than that of 2019 at a similar point in time and thus at record levels for full year 2023.

Sequentially, net booking volumes continue to increase as the Company’s brands ramp up to sail at historical load factor levels;

however, 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 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.

however, we will report a net loss for the third quarter of 2022.

Macroeconomic Trends and Uncertainties

As a result of conditions associated with the COVID-19 pandemic and other global events, such as Russia’s invasion of Ukraine and actions taken by the United States and other governments in response to the invasion, the global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including increases in inflation rates, fuel prices, and interest rates.

Our costs have been and are expected to be impacted by these increases.

To attempt to mitigate the risk of adverse changes in fuel prices and interest expense, we have used and may continue to use derivative s .

In an attempt to mitigate risks related to inflation, our Supply Chain Department has negotiated contracts with varying terms, with a goal of providing us with the ability to take advantage of cost declines as and when they occur, and diversified our sourcing options.

Due to the dynamic nature of the current economic landscape, the severity and duration of the impact of these conditions on our business cannot be predicted.

See Item 1A, “Risk Factors” for additional information.

Climate Change

We believe the increasing focus on climate change and evolving regulatory requirements may materially impact our future capital expenditures and results of operations.

We expect to incur significant expenses related to these regulatory requirements, which may include expenses related to greenhouse gas emissions reduction initiatives and the purchase of emissions allowances, among other things.

If requirements become more stringent, we may be required to change certain

operating procedures, for example slowing the speed of our ships, which could adversely impact our operations.

We are evaluating the effects of climate change related requirements, which are still evolving, and, consequently, the full impact to the Company is not yet known.

Refer to “Impacts related to climate change may adversely affect our business, financial condition and results of operations” in “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for further information.

Quarterly Overview

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 $(1.0) billion and $(2.35), respectively, compared to $(1.4) billion and $(4.16), respectively.

Three months ended June 30, 2022 (“2022”) compared to three months ended June 30, 2021 (“2021”)

● Total revenue increased to $1.2 billion compared to $4.4 million.

● Net loss and diluted EPS were $(509.3) million and $(1.22), respectively, compared to $(717.8) million and $(1.94), respectively.

● Operating loss was $(396.8) million compared to $(605.1) million.

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Adjusted Gross Margin was $834.8 million compared to $(3.5) 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.

● Adjusted Net Loss and Adjusted EPS were $(478.3) million and $(1.14), respectively, in 2022, which included $31.1 million of adjustments primarily related to share-based compensation.

Adjusted Net Loss and Adjusted EPS were $(714.7) million and $(1.93), respectively, in 2021, which included $3.1 million of adjustments primarily related to share-based compensation and offset by losses on extinguishment and modifications of debt.

● Adjusted EBITDA improved 54.7% to $(184.5) million compared to $(407.5) million.

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

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Three Months Ended

Six Months Ended

Passengers carried

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Occupancy Percentage

(1) Excludes certain capacity on Pride of America which is temporarily unavailable.

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

Three Months Ended

Six Months Ended

Total revenue

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Three Months Ended

Six Months Ended

Total cruise operating expense

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Three Months Ended

Six Months Ended

Non-GAAP Adjustments:

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Three Months Ended

Six Months Ended

Interest expense, net

Income tax expense

Income tax (benefit) expense

Depreciation and amortization expense

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Adjusted EBITDA

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

(1) In 2022, primarily consists of gains and losses, net for foreign currency remeasurements.

In 2021, primarily consists of gains and losses, net for fuel swaps not designated as hedges.

(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.

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.

Three months ended June 30, 2022 (“2022”) compared to three months ended June 30, 2021 (“2021”)

Total revenue increased to $1.2 billion in 2022 compared to $4.4 million in 2021.

In 2022, revenue increased as we returned to service with 3.0 million Passenger Cruise Days.

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Total cruise operating expense increased 329.8% in 2022 compared to 2021.

In 2022, the second quarter started with 23 ships operating with guests onboard and ended with the entire 28-ship fleet in service compared to 2021, during which all voyages were cancelled.

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.

Additionally, in 2022, there was an increase in COVID-19 related costs, including testing.

Gross Cruise Cost increased 222.2% 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.

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Interest expense, net was $144.4 million in 2022 compared to $137.3 million in 2021.

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.

Interest expense in 2021 reflects a $20.4 million gain recognized from extinguishment of debt.

Excluding this gain, interest expense decreased as a result of lower interest expense in connection with recent refinancings, partially offset by higher debt balances and higher LIBOR rates.

Other income (expense), net was income of $31.0 million in 2022 compared to $25.5 million in 2021.

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

In 2022, the income primarily related to gains on foreign currency remeasurements.

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

Six months ended June 30, 2022 (“2022”) compared to six months ended June 30, 2021 (“2021”)

Total revenue increased to $1.7 billion in 2022 compared to $7.5 million in 2021.

In 2022, revenue increased as we returned to service with 4.4 million Passenger Cruise Days.

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

Total cruise operating expense increased 301.4% in 2022 compared to 2021.

In 2022, the six months started with 16 ships operating with guests onboard and ended with the entire 28-ship fleet in service compared to 2021, during which all voyages were cancelled.

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 COVID-19 related costs, including testing.

Gross Cruise Cost increased 190.0% 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 34.5% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

Interest expense, net was $472.1 million in 2022 compared to $961.7 million in 2021.

The decrease in interest expense reflects lower net losses in 2022 from extinguishment of debt and debt modification costs, which were $188.4 million in 2022 compared to $653.7 million in 2021.

Excluding these losses, interest expense decreased as a result of 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 $69.1 million in 2022 compared to $52.7 million in 2021.

In 2022, the income primarily related to gains on foreign currency remeasurements.

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

Liquidity and Capital Resources

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.

As of June 30, 2022, our liquidity consisted of cash and cash equivalents of $1.9 billion and a $1 billion undrawn commitment less related fees.

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

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Refer to Note 7 – “Long-Term Debt” for further information.

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.

In July 2022, the Company amended its $1 billion commitment, which provides additional liquidity to the Company, extending the commitment through March 31, 2023.

The Company has not drawn and currently does not intend to draw under this commitment.

See Note 7 – “Long-Term Debt” for more information.

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

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Refer to “Item 1A.

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

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 and the impact of Russia’s recent invasion of Ukraine.

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

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 dynamic nature of the current operating environment, including the impacts of the COVID-19 global pandemic, Russia’s invasion of Ukraine and current macroeconomic conditions such as inflation, rising fuel prices and rising interest rates.

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.

Beyond 12 months, we will pursue refinancings and other balance sheet optimization transactions from time to time in order to reduce interest expense or 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.

However, no assurances can be made that such amendments would be approved by our lenders.

We have received amendments to certain financial and other debt covenants and added new free liquidity requirements.

The relief offered by the debt covenant amendments is generally in effect through December 31, 2022.

At June 30, 2022, taking into account such amendments, 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 additional amendments to or waivers of the covenants.

However, no assurances can be made that such amendments or waivers would be approved by our lenders.

Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which would have a material adverse impact to our operations and liquidity.

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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 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.

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 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.

As of June 30, 2022, we had advance ticket sales of $2.5 billion, including the long-term portion, which included approximately $0.4 billion of future cruise credits.

We also have agreements with our credit card processors that, as of June 30, 2022, governed approximately $2.1 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, 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.

As of June 30, 2022, we had cash collateral reserves of approximately $1.0 billion with credit card processors, of which approximately $455.4 million is recognized in accounts receivable, net and approximately $508.2 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 “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.

In this section, references to “2022” refer to the six months ended June 30, 2022 and references to “2021” refer to the six months ended June 30, 2021.

Net cash used in operating activities was $108.8 million in 2022 as compared to net cash used in operating activities of $1.5 billion in 2021.

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

The net losses include losses on extinguishment of debt of $188.4 million in 2022 and $601.5 million in 2021.

Advance ticket sales increased by $755.2 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.

Advance ticket sales increased by $191.6 million in 2021 while the change in 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, in 2021.

Net cash used in investing activities was $81.1 million in 2022 and $700.2 million in 2021.

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

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

Net cash provided by financing activities was $0.6 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.

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The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $1.0 billion for the remainder of 2022 and $2.0 billion and $0.6 billion for the years ending December 31, 2023 and 2024, respectively.

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

Anticipated non-newbuild capital expenditures for the remainder of 2022 are approximately $0.25 billion.

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

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 Norwegian brand, the first Prima Class Ship, Norwegian Prima, at approximately 143,500 Gross Tons and with 3,100 Berths, was delivered in July 2022.

We have five additional Prima Class Ships on order, each ranging from approximately 143,500 to 156,300 Gross Tons with approximately 3,100 to 3,550 Berths, with expected delivery dates from 2023 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 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 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 March 31, 2022.

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, Russia’s invasion of Ukraine and/or other macroeconomic events are expected to 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, including Norwegian Prima, was approximately €7.7 billion, or $8.1 billion based on the euro/U.S.

dollar exchange rate as of June 30, 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 March 31, 2022 and 2021 was $13.3 million and $8.2 million, respectively, primarily associated with the construction of our newbuild ships.

Capitalized interest for the three months ended June 30, 2022 and 2021 was $14.8 million and $9.9 million, respectively, and for the six months ended June 30, 2022 and 2021 was $28.1 million and $18.0 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):

As of June 30, 2022, our material cash requirements for debt and ship construction were as follows (in thousands):

Long-term debt (1)

Ship construction contracts (2)

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

(1) Includes principal as well as estimated interest payments with LIBOR held constant as of June 30, 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 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.

dollar exchange rate as of June 30, 2022.

As of June 30, 2022, we have committed undrawn export-credit backed facilities of approximately $6.5 billion which funds approximately 80% of our ship construction contracts.

Funding Sources

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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.

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

We have received amendments to certain financial and other debt covenants and added new free liquidity requirements.

After taking into account such amendments, we believe we were in compliance with these covenants as of June 30, 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.

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.

We believe our cash on hand, the net impact of the undrawn $1 billion commitment less related fees, 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.

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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