What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-08 · 131 added, 190 removed, 242 unchanged (57% of the section changed)

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

● adverse general economic factors, 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;

● 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;

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● the unavailability of ports of call;

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

● future increases in the price of, or major changes, disruptions 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;

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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 invasion of Ukraine, and threats thereof, acts of piracy, and other international events;

● adverse events impacting the security of travel, or customer perceptions of 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 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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● 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;

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

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

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● 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”).

● other factors set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023 (“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, Russia’s invasion of Ukraine and the impact of general macroeconomic conditions.

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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 Adjusted Gross Margin, 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 Yield, 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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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 .

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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 .

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

● 2027 2.5% Exchangeable Notes .

On February 15, 2022, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee, NCLC issued $473.2 million aggregate principal amount of exchangeable senior notes due 2027.

● Adjusted EBITDA.

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● Allura Class Ships .

Oceania Cruises’ Vista and one additional ship on order.

Oceania Cruises’ Vista and Oceania Cruises’ Allura.

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

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Berths available for sale multiplied by the number of cruise days for the period for ships in service.

Centers for Disease Control and Prevention.

● Constant Currency.

A calculation whereby foreign currency-denominated revenue and expenses in a period are converted at the U.S.

dollar exchange rate of a comparable period to eliminate the effects of foreign exchange fluctuations.

A process whereby a ship is positioned in a large basin where all of the fresh/sea water is pumped out in order to carry out cleaning and repairs of those parts of a ship which are below the water line.

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Net Cruise Cost less fuel expense.

● Occupancy Percentage .

Adjusted Gross Margin per Capacity Day.

● Occupancy or Occupancy Percentage .

The ratio of Passenger Cruise Days to Capacity Days.

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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, March 25, 2021, November 12, 2021 and December 6, 2022, 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, 2022.

The senior secured term loan A facility having an outstanding principal amount of approximately $0.8 billion as of March 31, 2023.

Non-GAAP Financial Measures

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.

We use certain non-GAAP financial measures, such as Adjusted Gross Margin, Net Yield, 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 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 utilize Adjusted Gross Margin and Net Yield 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 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.

In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis, whereby current period revenue and expenses denominated in foreign currencies are converted to U.S.

dollars using currency exchange rates of the comparable period.

We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.

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

Per Capacity Day data is not considered meaningful for the three months ended March 31, 2022 and is not presented herein.

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance.

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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 during normal operations.

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

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

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Our non-GAAP financial measures may not be comparable to other companies.

historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section.

Please see a historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section.

Financial Presentation

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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 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.

Onboard and other revenue primarily consists of revenue from gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo services.

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, with full operation of our fleet resumed in May 2022.

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, port fees and taxes 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.

Onboard and other revenue

primarily consists of revenue from casino, beverage sales, shore excursions, specialty dining, retail sales, spa services and Wi-Fi services.

Our onboard revenue is derived from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

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● Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue.

These costs include travel agent commissions, air and land transportation expenses, related credit card fees, certain port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price.

These costs include travel advisor commissions, air and land transportation expenses, related credit card fees, certain port fees and taxes and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price.

● Onboard and other primarily consists of direct costs incurred in connection with onboard and other revenue, including casino, beverage sales and shore excursions.

● Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships.

The cost of crew repatriation, including charters, housing, testing and other costs related to COVID-19 are also included.

● Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.

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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 Invasion of Ukraine

The conflict from Russia’s ongoing 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 adverse

impacts on 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

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.

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

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 ongoing 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.

On Oceania Cruises, 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.

On Regent, fully vaccinated guests are not required to test prior to embarkation and unvaccinated guests or those unwilling to present proof of vaccination must present a negative COVID-19 test prior to embarkation.

Effective October 4, 2022, Norwegian updated its global health and safety protocols to remove all COVID-19 testing, masking and vaccination requirements for guests.

Requirements may differ for guests traveling on voyages departing from or visiting destinations with specific local regulations.

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

The Company continues to follow applicable travel guidelines and local protocols as required by 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 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.

Standard payment schedules and cancellation penalties apply for all sailings after September 30, 2022.

The f uture cruise credits that have been issued as face value reimbursement for cancelled bookings due to COVID-19 are generally valid for any sailing through June 30, 2023 , and we may further 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.

Financing Transactions

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 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.

In February 2023, NCLC issued $600 million aggregate principal amount of 8.375% senior secured notes due 2028.

The proceeds from the notes were used to repay the loans outstanding under our Term Loan A Facility that otherwise would have become due in January 2024, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

In February 2023, our $1 billion commitment letter was extended through February 2024, with an option for NCLC to further extend the commitments through February 2025 at its election.

Simultaneously, the amount of the commitment was reduced to $650 million, which may be drawn in up to two draws, and in connection with the execution of the amended commitment letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028.

NCLC will use the net proceeds for general corporate purposes.

In February 2023, NCLC entered into a Backstop Agreement with MS, pursuant to which MS has agreed to provide backstop committed financing to refinance and/or repay in whole or in part up to $300 million of amounts outstanding under the Senior Secured Credit Facility at any time between October 4, 2023 and January 2, 2024.

In April 2023, $82.5 million in aggregate principal amount of the Revolving Loan Facility that was not previously extended was assigned to a new lender under the same terms as the existing lenders who extended commitments in December 2022 under Amendment No.

4 to the Senior Secured Credit Facility.

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

Update on Bookings

As expected, the Company’s current cumulative booked position for the fourth quarter of 2022 is below the comparable 2019 period but at higher prices even when including the dilutive impact of future cruise credits.

Booking trends for full year 2023 remain positive with cumulative booked position equal to record 2019 levels inclusive of the Company’s increase in capacity.

Pricing is higher than that of 2019 at a similar point in time for full year 2023.

Net booking volumes continue to be at the pace needed to reach historical Occupancy Percentage levels in 2023;

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 for the fourth quarter of 2022.

The Company continues to experience strong consumer demand.

The cumulative booked position for the remainder of 2023 is ahead of 2019 levels inclusive of the Company’s increase in capacity, at continued higher pricing.

Onboard revenue generation remains robust and the Company continues to focus on increasing its pre-sold revenue from guests prior to voyage sailing.

The phased Occupancy ramp-up is expected to be complete in the second quarter of 2023.

Macroeconomic Trends and Uncertainties

As a result of conditions associated with the COVID-19 pandemic and other global events, such as Russia’s ongoing 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 continue 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 .

As a result of conditions associated with global events, including the downstream effects of the COVID-19 pandemic and Russia’s ongoing 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 experienced significant volatility and disruptions, including impacts to inflation rates, fuel prices, foreign currencies and interest rates.

Our costs have been, and are expected to continue to be, adversely impacted by these factors.

We have used, and may continue to use, derivative instruments to attempt to mitigate the risk of volatility in fuel prices and interest rates.

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 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.

These strategies may not fully offset the impact of current macroeconomic conditions;

however, cost savings from our ongoing margin enhancement initiative were realized earlier than anticipated, and as a result, we expect operating costs per capacity day to show improvement in 2023.

Furthermore, we are exposed to fluctuations in the euro exchange rate for certain portions of ship construction contracts that have not been hedged.

See “Item 1A.

Risk Factors” in our Annual Report on Form 10-K 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 believe the increasing focus on climate change, including the Company’s recently established targets for greenhouse gas reductions, and evolving regulatory requirements will 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.

We are evaluating the effects of global climate change related requirements, which are still evolving, including our ability to mitigate certain future expenses through initiatives to reduce greenhouse gas emissions;

consequently, the full impact to the Company is not yet known.

Additionally, our ships, port facilities, corporate offices and island destinations have in the past and may again be adversely affected by an increase in the frequency and intensity of adverse weather conditions caused by climate change.

For example, certain ports have become temporarily unavailable to us due to hurricane damage and other destinations have either considered or implemented restrictions on cruise operations due to environmental concerns.

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

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Quarterly Overview

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

Three months ended March 31, 2023 (“2023”) compared to three months ended March 31, 2022 (“2022”)

● Total revenue increased to $1.8 billion compared to $521.9 million.

● Net loss and diluted EPS were $(295.4) million and $(0.70), respectively, compared to $(845.9) million and $(2.29), respectively.

● Operating loss was $(185.2) million compared to $(689.1) million.

● Net loss and diluted EPS were $(159.3) million and $(0.38), respectively, compared to $(1.0) billion and $(2.35), respectively.

● Operating income was $10.7 million compared to operating loss of $(688.8) million.

● Gross margin was $360.0 million compared to $(380.1) million.

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● Adjusted Net Loss and Adjusted EPS were $(127.7) million and $(0.30), respectively, in 2023, which included $31.6 million of adjustments primarily related to share-based compensation.

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 share-based compensation.

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 extinguishment and modification of debt.

● Adjusted EBITDA improved 149.2% to $234.2 million compared to $(476.2) million.

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Three Months Ended

Nine Months Ended

September 30,

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):

Adjusted Gross Margin and Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):

Three Months Ended

Nine Months Ended

September 30,

Total revenue

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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):

Capacity Days

Gross margin per Capacity Day

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

Three Months Ended

Nine Months Ended

September 30,

Total cruise operating expense

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Adjusted Net Cruise Cost Excluding Fuel

Capacity Days

Gross Cruise Cost per Capacity Day

Net Cruise Cost per Capacity Day

Net Cruise Cost Excluding Fuel per Capacity Day

Adjusted Net Cruise Cost Excluding Fuel per Capacity Day

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

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Three Months Ended

Nine Months Ended

September 30,

Non-GAAP Adjustments:

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Three Months Ended

Nine Months Ended

September 30,

Interest expense, net

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

Three months ended March 31, 2023 (“2023”) compared to three months ended March 31, 2022 (“2022”)

Total revenue increased to $1.8 billion in 2023 compared to $521.9 million in 2022.

In 2022, revenue increased as we had returned to service with 4.0 million Passenger Cruise Days compared to 0.4 million in 2021.

In 2023, revenue primarily increased as a result of our return to service with 5.5 million Passenger Cruise Days compared to 1.4 million in 2022.

Total cruise operating expense increased 74.1% in 2023 compared to 2022.

In 2022, the third quarter had the entire 29-ship fleet in service compared to 2021, which began with no ships in service and ended with only 8 ships returned to service.

In 2023, 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 141.3% 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.

Total other operating expense increased 39.6% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

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

In 2022, the three months started with 16 ships operating with guests onboard and ended with 23 ships in service.

Gross Cruise Cost increased 56.7% in 2023 compared to 2022 primarily related to the change in costs described above.

Total other operating expense increased 11.7% in 2023 compared to 2022 primarily due to an increase in marketing costs as we return to historical occupancy and prepare for three new ship deliveries in 2023.

Interest expense, net was $171.3 million in 2023 compared to $327.7 million in 2022.

Interest expense decreased primarily as a result of lower interest expense in connection with recent refinancings and higher interest income, partially offset by higher debt balances and higher rates.

Other income (expense), net was income of $31.5 million in 2022 compared to $4.7 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 and foreign currency remeasurements.

Nine months ended September 30, 2022 (“2022”) compared to nine months ended September 30, 2021 (“2021”)

Total revenue increased to $3.3 billion in 2022 compared to $160.5 million in 2021.

In 2022, revenue increased as we returned to service with 8.4 million Passenger Cruise Days compared to 0.4 million in 2021.

Total cruise operating expense increased 242.3% in 2022 compared to 2021.

In 2022, the nine months started with 16 ships operating with guests onboard and ended with the entire 29-ship fleet in service compared to 2021, during which only 8 ships were returned to service in the third quarter.

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 168.4% 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 36.3% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

Interest expense, net was $624.4 million in 2022 compared to $1.1 billion in 2021.

The decrease in interest expense reflects lower losses in 2023 from extinguishment of debt and debt modification costs, which were $2.4 million in 2023 compared to $188.4 million in 2022.

Excluding these losses, interest expense decreased primarily as a result of lower interest expense in connection with the recent refinancings, partially offset by higher debt balances and higher rates.

Other income (expense), net was income of $100.6 million in 2022 compared to $57.5 million in 2021.

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

Excluding these losses, interest expense increased primarily as a result of higher rates.

Other income (expense), net was expense of $9.0 million in 2023 compared to income of $38.1 million in 2022.

In 2023, the expense primarily related to losses on foreign currency remeasurements.

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

Liquidity and Capital Resources

As of September 30, 2022, our liquidity consisted of cash and cash equivalents of $1.2 billion and a $1 billion undrawn commitment less related fees.

As of March 31, 2023, our liquidity consisted of cash and cash equivalents of $700.6 million, a $591 million undrawn Revolving Loan Facility and a $650 million undrawn commitment less related fees.

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

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.

In February 2023, NCLC issued $600 million aggregate principal amount of 8.375% senior secured notes due 2028.

In February 2023, our $1 billion commitment letter was extended through February 2024, with an option for NCLC to further extend the commitments through February 2025 at its election.

NCLC will use the net proceeds for general corporate purposes.

4 to the Senior Secured Credit Facility.

See Note 6 – “Long-Term Debt” for more information on the above financing transactions.

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.

Refer to Note 2 – “Summary of Significant Accounting Policies” for further information on liquidity.

Refer to “Item 1A.

Risk Factors” for further details regarding uncertainty related to Russia’s ongoing invasion of Ukraine and “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for other risks and uncertainties that may cause our results to differ from our expectations.

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 ongoing invasion of Ukraine and current macroeconomic conditions such as inflation, rising fuel prices and rising interest rates.

Risk Factors” in our Annual Report on Form 10-K for risks and uncertainties that may cause our results to differ from our expectations.

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 any residual impacts of the COVID-19 global pandemic, Russia’s ongoing 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 reduced occupancy levels for a prolonged period.

Within the next twelve months we will pursue refinancings in order to reduce interest expense and/or extend debt maturities.

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

At September 30, 2022, taking into account such amendments, we were in compliance with all of our debt covenants.

Beyond the next 12 months, we will pursue refinancings and other balance sheet optimization transactions in order to reduce interest expense and/or extend debt maturities.

We have received amendments to certain financial and other debt covenants, including the modification of our free liquidity requirements.

At March 31, 2023, 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.

The Company is currently taking steps to further amend certain financial and other debt covenants.

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

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In September 2022, Moody’s reaffirmed our current ratings.

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-.

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 $0.8 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.

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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, 2022, we had advance ticket sales of $2.5 billion, including the long-term portion, which included approximately $258 million of future cruise credits.

We also have agreements with our credit card processors that, as of September 30, 2022, governed approximately $2.1 billion in advance ticket sales that had been received by the Company relating to future voyages.

As of March 31, 2023, we had advance ticket sales of $3.4 billion, including the long-term portion, which included approximately $100.0 million of future cruise credits.

We also have agreements with our credit card processors that, as of March 31, 2023, governed approximately $3.1 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 September 30, 2022, we had cash collateral reserves of approximately $742.5 million with credit card processors, of which approximately $237.0 million is recognized in accounts receivable, net and approximately $505.5 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.

As of March 31, 2023, we had cash collateral reserves of approximately $577.6 million with credit card processors, of which approximately $77.3 million is recognized in accounts receivable, net and approximately $500.3 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 adversely affect our liquidity.

Sources and Uses of Cash

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

Net cash used in operating activities was $26.6 million in 2022 as compared to net cash used in operating activities of $2.2 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 $713.4 million in 2022.

Advance ticket sales increased by $469.6 million in 2021 while the change in accounts receivable, net, which includes our reserves with credit card processors, decreased cash by $979.9 million in 2021.

Net cash used in investing activities was $1.6 billion in 2022 and $1.1 billion in 2021.

The net cash used in investing activities was primarily related to the delivery of Norwegian Prima in 2022.

The net cash used in investing activities was primarily related to purchases of short-term investments, newbuild payments and ship improvement projects partially offset by proceeds from maturities of short-term investments in 2021.

Net cash provided by financing activities was $1.3 billion in 2022 primarily due to newbuild loans and 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 $1.3 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.

In this section, references to “2023” refer to the three months ended March 31, 2023 and references to “2022” refer to the three months ended March 31, 2022.

Net cash provided by operating activities was $503.3 million in 2023 as compared to net cash used in operating activities of $371.0 million in 2022.

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

Advance ticket sales increased by $668.3 million in 2023 and by $417.9 million in 2022.

The net losses also include losses on extinguishment of debt of $188.4 million in 2022.

Net cash used in investing activities was $236.4 million in 2023 and net cash provided by investing activities was $79.7 million in 2022.

The net cash used in investing activities was primarily related to newbuild payments in 2023.

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.

Net cash used in financing activities was $513.4 million in 2023 primarily due debt repayments and a net decrease in our Revolving Loan Facility partially offset by the proceeds of $850 million from our various note offerings.

Net cash provided by financing activities was $921.5 million 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.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including ship construction contracts.

Anticipated expenditures related to ship construction contracts were $84.5 million for the remainder of 2022 and $2.4 billion and $0.5 billion for the years ending December 31, 2023 and 2024, respectively, reflecting delays in certain scheduled ship delivery dates.

The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $1.9 billion and $0.1 billion for the years ending December 31, 2023 and 2024, respectively.

Anticipated non-newbuild capital expenditures for the remainder of 2022 are approximately $155 million.

Anticipated expenditures related to ship construction contracts were $2.4 billion for the remainder of 2023, including Oceania Cruises’ Vista, and $0.4 billion and $1.9 billion for the years ending December 31, 2024 and 2025, respectively, reflecting delays in certain scheduled ship delivery dates.

The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $2.0 billion for the remainder of 2023 and $0.2 billion and $1.5 billion for the years ending December 31, 2024 and 2025, respectively.

This financing includes increases in the Company’s export-credit agency backed commitments of approximately €1.7 billion through 2028 to finance improvements, changes and modifications to certain newbuilds, owners’ supplies associated with preparing these ships

to enter service and related financing premiums.

These changes include the modification and enlargement of the last four Prima Class Ships, which will increase gross tonnage by up to 20% compared to the Norwegian Prima and Norwegian Viva.

The modifications for the last two Prima Class Ships also include changes to accommodate the use of methanol as an alternative fuel source in the future, reinforcing our commitment to reduce greenhouse gas emissions.

Anticipated non-newbuild capital expenditures for the remainder of 2023 are approximately $0.3 billion.

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

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 currently scheduled delivery dates from 2023 through 2027.

For the Oceania Cruises brand, the first Allura Class Ship, Oceania Cruises’ Vista, at approximately 67,000 Gross Tons and with 1,200 Berths, was delivered in April 2023.

For the Norwegian brand, we have five Prima Class Ships on order, each ranging from approximately 143,500 to 169,000 Gross Tons with 3,100 or more Berths, with currently scheduled delivery dates from 2023 through 2028.

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), Russia’s ongoing invasion of Ukraine and/or other macroeconomic events, have already resulted in some delays in expected ship deliveries.

These impacts along with other potential modifications the Company may make to its newbuilds, including potential initiatives to improve environmental sustainability, are expected to result in additional delays in ship deliveries in the future, which may be prolonged.

The combined contract prices of the eight ships on order for delivery was approximately €6.7 billion, or $6.6 billion based on the euro/U.S.

dollar exchange rate as of September 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.

For the Oceania Cruises brand, we have an order for one additional Allura Class Ship to be delivered in 2025, which 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), Russia’s ongoing invasion of Ukraine, initiatives to improve environmental sustainability and modifications the Company plans to make to its newbuilds and/or other macroeconomic events have resulted in delays in expected ship deliveries.

These and other impacts could result in additional delays in ship deliveries in the future, which may be prolonged.

As of March 31, 2023, the combined contract prices of the eight ships on order for delivery, including Oceania Cruises’ Vista, was approximately €7.0 billion, or $7.6 billion based on the euro/U.S.

dollar exchange rate as of March 31, 2023.

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

We do not anticipate any contractual breaches or cancellations to occur.

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, 2022 and 2021 was $17.0 million and $12.5 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $45.1 million and $30.6 million, respectively, primarily associated with the construction of our newbuild ships.

Capitalized interest for the three months ended March 31, 2023 and 2022 was $14.7 million and $13.3 million, respectively, primarily associated with the construction of our newbuild ships.

Material Cash Requirements

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

As of March 31, 2023, 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 September 30, 2022.

(1) Includes principal as well as estimated interest payments with LIBOR/Term SOFR held constant as of March 31, 2023.

Includes exchangeable notes which can be settled in shares.

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

dollar exchange rate as of September 30, 2022.

As of September 30, 2022, we have committed undrawn export-credit backed facilities of approximately $5.4 billion which funds approximately 80% of our ship construction contracts.

After giving effect to delays in certain scheduled ship delivery dates revised subsequent to September 30, 2022, our material cash requirements for ship construction contracts are as follows (in thousands):

dollar exchange rate as of March 31, 2023.

As of March 31, 2023, we have committed undrawn export-credit backed facilities of approximately $5.6 billion which funds approximately 80% of our ship construction contracts.

After giving effect to amendments of our newbuild agreements subsequent to March 31, 2023, our material cash requirements for ship construction contracts are as follows (in thousands):

Ship construction contracts

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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.

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

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 September 30, 2022.

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

We have received amendments to certain financial and other debt covenants, including the modification of our free liquidity requirements.

After taking into account such amendments, we believe we were in compliance with these covenants as of March 31, 2023.

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 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 covenants were previously amended in 2021 to enable the Company to maintain compliance, and the Company is currently taking steps to further amend certain financial and other debt covenants.

We believe our cash on hand, the impact of the undrawn commitment less related fees, the backstop financing available from October 4, 2023 through January 2, 2024, 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.

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

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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