What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-05 · 98 added, 80 removed, 293 unchanged (38% 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 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.

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 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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● 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;

● 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;

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

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

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

● impacts related to climate change and our ability to achieve our climate-related or other sustainability goals;

● our inability to obtain adequate insurance coverage;

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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, 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.

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

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

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

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

Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we expect to operate in the future.

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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 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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● Adjusted EPS.

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

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

● Adjusted Gross Margin.

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Net Cruise Cost Excluding Fuel adjusted for supplemental adjustments.

● Adjusted Net Loss.

Net loss adjusted for supplemental adjustments.

● Adjusted Net Income (Loss).

Net income (loss) adjusted for the effect of dilutive securities and other supplemental adjustments.

● Allura Class Ships .

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Earnings before interest, taxes, and depreciation and amortization.

Loss per share.

Earnings (loss) per share.

● Explorer Class Ships.

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● Term Loan A Facility .

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

The senior secured term loan A facility having an outstanding principal amount of approximately $0.8 billion as of June 30, 2023.

Non-GAAP Financial Measures

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.

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 Income (Loss) and Adjusted EPS, to enable us to analyze our performance.

See “Terminology” for the definitions of these and other 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 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.

Per Capacity Day data is not considered meaningful for the three or six months ended June 30, 2022 due to our phased restart of cruise operations, which was completed in May 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.

We also believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense.

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

Adjusted EBITDA is not a defined term under GAAP nor is it intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income (loss), as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.

In addition, Adjusted Net Loss and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net loss and EPS.

We use Adjusted Net Loss and Adjusted EPS as key performance measures of our earnings performance.

In addition, Adjusted Net Income (Loss) and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income (loss) and EPS.

We use Adjusted Net Income (Loss) and Adjusted EPS as key performance measures of our earnings performance.

We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods.

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

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

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

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

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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.

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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Update on Bookings

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.

Occupancy reached approximately 105% for the three months ended June 30, 2023, in line with our expectations and marking a significant milestone with the phased ramp-up now complete.

As expected, Occupancy for the three months ended June 30, 2023 is slightly lower compared to the same period in 2019, reflecting the Company’s strategic shift to longer, more immersive itineraries.

This shift naturally results in lower Occupancy levels and is expected to attract higher quality guests, generate higher Net Yield, improve guest satisfaction and cultivate stronger loyalty over time.

The Company continues to experience strong and resilient consumer demand.

The cumulative booked position for the second half of 2023 is ahead of 2019 levels at continued higher pricing.

On a 12-month forward basis, the Company continues to be in its optimal booked position of approximately 60-65%.

Onboard revenue generation remains robust with broad-based strength across all revenue streams.

The Company continues to focus on increasing its pre-sold revenue from guests prior to sailing, as this typically results in higher overall spend throughout the cruise journey as well as earlier and more predictable cash inflow.

Macroeconomic Trends and Uncertainties

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.

As a result of conditions associated with global events, including the lingering 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.

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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.

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 continued 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.

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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.

We are now targeting a reduction in greenhouse gas intensity of 10% by 2026 and 25% by 2030, compared to a 2019 baseline and measured on a per Capacity Day basis (the targets cover the Company’s emissions from its fleet of ships, islands and facilities (Scopes 1 & 2) as well as upstream fuel- and energy-related activities, including well-to-tank emissions (a portion of Scope 3).

We expect to incur significant expenses related to these regulatory requirements and commitments, 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.

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Quarterly Overview

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 $(159.3) million and $(0.38), respectively, compared to $(1.0) billion and $(2.35), respectively.

Three months ended June 30, 2023 (“2023”) compared to three months ended June 30, 2022 (“2022”)

● Total revenue increased to $2.2 billion compared to $1.2 billion.

● Net income (loss) and diluted EPS were $86.1 million and $0.20, respectively, compared to $(509.3) million and $(1.22), respectively.

● Operating income was $272.5 million compared to operating loss of $(396.8) million.

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Adjusted Gross Margin was $1.5 billion compared to $834.8 million.

● Adjusted Net Income and Adjusted EPS were $137.0 million and $0.30, respectively, in 2023, which included $46.3 million of adjustments primarily related to share-based compensation.

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 $(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 379.1% to $514.8 million compared to $(184.5) 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.

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

Results of Operations

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Three Months Ended

Six Months Ended

Passengers carried

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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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Net Cruise Cost Excluding Fuel

Less Non-GAAP Adjustments:

Less Other Non-GAAP Adjustments:

Non-cash deferred compensation (1)

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

Adjusted Net Loss and Adjusted EPS were calculated as follows (in thousands, except share and per share data):

Adjusted Net Income (Loss) and Adjusted EPS were calculated as follows (in thousands, except share and per share data):

Three Months Ended

Six Months Ended

Net income (loss)

Effect of dilutive securities - exchangeable notes

Net income (loss) and assumed conversion of exchangeable notes

Non-GAAP Adjustments:

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Extinguishment and modification of debt (3)

Adjusted Net Loss

Diluted weighted-average shares outstanding - Net loss and Adjusted Net Loss

Diluted loss per share

Adjusted Net Income (Loss)

Diluted weighted-average shares outstanding - Net income (loss) and assumed conversion of exchangeable notes and Adjusted Net Income (Loss)

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

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Three Months Ended

Six Months Ended

Net income (loss)

Interest expense, net

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Adjusted EBITDA

(1) In 2023, primarily consists of gains and losses, net for foreign currency remeasurements.

In 2022, primarily consists of gains and losses, net for fuel swaps not designated as hedges and foreign currency remeasurements.

(1) Primarily consists of gains and losses, net for foreign currency remeasurements.

(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, 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 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.

Three months ended June 30, 2023 (“2023”) compared to three months ended June 30, 2022 (“2022”)

Total revenue increased to $2.2 billion in 2023 compared to $1.2 billion in 2022.

In 2023, revenue primarily increased as a result of increases in our Occupancy following our return to service with 5.8 million Passenger Cruise Days compared to 3.0 million in 2022.

Total cruise operating expense increased 28.9% in 2023 compared to 2022.

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 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.

In 2023, our cruise operating expenses increased due to the resumption of voyages, resulting in higher direct variable costs of fully operating ships.

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

Gross Cruise Cost increased 23.8% 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.

Total other operating expense increased 7.6% in 2023 compared to 2022 primarily due to an increase in salaries and benefits, which includes higher share-based compensation expenses as well as other expenses related to the retirement of our prior President and Chief Executive Officer.

Interest expense, net was $177.7 million in 2023 compared to $144.4 million in 2022.

The increase in interest expense is primarily as a result of higher rates.

Other income (expense), net was expense of $8.0 million in 2023 compared to income of $31.0 million in 2022.

The income and expense primarily related to net gains and losses on foreign currency remeasurements.

Six months ended June 30, 2023 (“2023”) compared to six months ended June 30, 2022 (“2022”)

Total revenue increased to $4.0 billion in 2023 compared to $1.7 billion in 2022.

In 2023, revenue primarily increased as a result of increases in our Occupancy following our return to service with 11.3 million Passenger Cruise Days compared to 4.4 million in 2022.

Total cruise operating expense increased 47.3% in 2023 compared to 2022.

In 2023, our cruise operating expenses increased due to the resumption of voyages, resulting in higher payroll, food and direct variable costs of fully operating ships.

In 2022, the six months started with 16 ships operating with guests onboard and ended with the full fleet in service.

Gross Cruise Cost increased 37.7% in 2023 compared to 2022 primarily related to the change in costs described above.

Total other operating expense increased 9.6% in 2023 compared to 2022 primarily due to an increase in salaries and benefits, which includes higher share-based compensation expenses as well as other expenses related to the retirement of our prior President and Chief Executive Officer.

Marketing costs also increased in 2023 compared to 2022 as we returned to historical Occupancy and prepared for three new ship deliveries in 2023.

Interest expense, net was $348.9 million in 2023 compared to $472.1 million in 2022.

The decrease in interest expense reflects lower losses in 2023 from extinguishment of debt and debt modification costs, which were $3.2 million in 2023 compared to $188.4 million in 2022.

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Other income (expense), net was expense of $17.0 million in 2023 compared to income of $69.1 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.

The income and expense primarily related to net gains and losses on foreign currency remeasurements.

Liquidity and Capital Resources

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.

As of June 30, 2023, our liquidity was approximately $2.4 billion, including cash and cash equivalents of $899.1 million and borrowings available under our $875 million fully undrawn Revolving Loan Facility and $650 million undrawn commitment less related fees.

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

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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.

At June 30, 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.

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

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 $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-.

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 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.

As of June 30, 2023, we had advance ticket sales of $3.5 billion, including the long-term portion, which included approximately $81.2 million of future cruise credits.

We also have agreements with our credit card processors that, as of June 30, 2023, governed approximately $3.2 billion in advance ticket sales that had been received by the Company relating to future voyages.

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

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

As of March 31, 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.

As of June 30, 2023, we had cash collateral reserves of approximately $31.5 million with credit card processors recognized in accounts receivable, net.

During the three months ended June 30, 2023, the Company received a return of cash collateral from one credit card processor of $500 million, which was previously classified as other long-term assets.

We may be required to pledge additional collateral and/or post additional cash reserves or take other actions in the future that may adversely affect our liquidity.

Sources and Uses of Cash

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.

In this section, references to “2023” refer to the six months ended June 30, 2023 and references to “2022” refer to the six months ended June 30, 2022.

Net cash provided by operating activities was $1.5 billion in 2023 as compared to net cash used in operating activities of $108.8 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.

The net cash provided by operating activities includes the return of $500 million cash collateral from one credit card processor in 2023.

Advance ticket sales increased by $826.2 million in 2023 and by $755.2 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.

Net cash used in investing activities was $992.2 million in 2023 and $81.1 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.

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.

Net cash used in financing activities was $592.3 million in 2023 primarily due to debt repayments and a net decrease in our Revolving Loan Facility balance, partially offset by the proceeds from newbuild loan facilities and $850 million from our various note offerings.

Net cash provided by financing activities was $586.5 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.

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

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 expenditures related to ship construction contracts as of June 30, 2023 were $1.7 billion for the remainder of 2023, including Norwegian Viva, and $0.4 billion and $2.0 billion for the years ending December 31, 2024 and 2025, respectively, reflecting delays in certain scheduled ship delivery dates.

As of June 30, 2023, the Company has export

credit financing in place for the anticipated expenditures related to ship construction contracts of $1.4 billion for the remainder of 2023 and $0.2 billion and $1.5 billion for the years ending December 31, 2024 and 2025, respectively.

Anticipated non-newbuild capital expenditures for the remainder of 2023 are approximately $0.2 billion.

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

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 Norwegian brand, the second Prima Class Ship, Norwegian Viva, at approximately 143,500 Gross Tons and 3,100 Berths, was delivered in August 2023.

For the Norwegian brand, we have four Prima Class Ships on order, each ranging from approximately 156,300 to 169,000 Gross Tons with 3,450 or more Berths, with currently scheduled delivery dates from 2025 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.

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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.

As of June 30, 2023, the combined contract prices of the seven ships on order for delivery, including Norwegian Viva, was approximately €7.4 billion, or $8.1 billion based on the euro/U.S.

dollar exchange rate as of June 30, 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.

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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, 2023 and 2022 was $14.7 million and $13.3 million, respectively, primarily associated with the construction of our newbuild ships.

Capitalized interest for the three months ended June 30, 2023 and 2022 was $16.6 million and $14.8 million, respectively, and for the six months ended June 30, 2023 and 2022 was $31.3 million and $28.1 million, respectively, primarily associated with the construction of our newbuild ships.

Material Cash Requirements

As of March 31, 2023, our material cash requirements for debt and ship construction were as follows (in thousands):

As of June 30, 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/Term SOFR held constant as of March 31, 2023.

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

dollar exchange rate as of June 30, 2023.

As of June 30, 2023, we have committed undrawn export-credit backed facilities of approximately $7.0 billion which funds approximately 80% of our ship construction contracts.

Funding Sources

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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.

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

We believe our cash on hand, the availability under the Revolving Loan Facility and undrawn commitment less related fees, the backstop financing available from October 4, 2023 through January 2, 2024, 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