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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-28 · 173 added, 189 removed, 234 unchanged (61% of the section changed)

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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, with full operation of our fleet resumed in May 2022 as described under “—Update Regarding COVID-19 Pandemic” below.

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.

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

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

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.

These costs include travel advisor commissions, air and land transportation expenses, related credit card fees, certain government taxes, fees and port expenses 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.

● Payroll and related consists of the cost of wages, benefits and logistics 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.

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

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Actual results could differ materially from these estimates.

We believe that the following

critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated financial statements.

These critical accounting policies, which are presented in detail in our notes to our audited consolidated financial statements, relate to liquidity, ship accounting and asset impairment.

We make several critical accounting estimates with respect to our liquidity.

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

The level of occupancy on our ships will depend on a number of factors including, but not limited to, the conditions discussed below under “Macroeconomic Trends and Uncertainties”, further resurgences of COVID-19 or the emergence of other public health crises and any related governmental regulations and new health and safety protocols, port availability, travel restrictions, bans and advisories, and our ability to staff our ships.

In addition, 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 experienced significant volatility and disruptions, including increases in inflation rates, fuel prices, and interest rates.

These conditions have resulted, and may continue to result, in increased expenses and also have impacted travel and consumer discretionary spending.

We believe the ongoing effects of the foregoing factors and events on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity.

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

Our principal assumptions for future cash flow projections include:

● Expected gradual return to historical occupancy levels;

● Expected increase in revenue per passenger cruise day through a combination of both passenger ticket and onboard revenue as compared to 2019;

● Forecasted cash collections in accordance with the terms of our credit card processing agreements (see Note 13 - “Commitments and Contingencies”);

● Expected sustained higher fuel prices and the impact of inflation.

Our projected liquidity requirements also reflect our principal assumptions surrounding ongoing operating costs, as well as liquidity requirements for financing costs and necessary capital expenditures.

We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change materially due to the dynamic nature of the current economic landscape.

Accordingly, the full effect of the COVID-19 pandemic and other global events impacting macroeconomic conditions and travel and consumer discretionary spending, including Russia’s ongoing invasion of Ukraine, on our financial performance and financial condition cannot be quantified at this time.

We have made reasonable estimates and judgments of the impact of these events within our financial statements;

however, there may be material changes to those estimates in future periods.

We have taken actions to improve our liquidity, including completing various capital market and financing transactions and making capital expenditure and operating expense reductions, and we expect to continue to pursue further opportunities to improve our liquidity.

We believe that the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated

financial statements.

These critical accounting policies, which are presented in detail in our notes to our audited consolidated financial statements, relate to ship accounting and asset impairment.

Ship Accounting

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Our residual value is established based on our long-term estimates of the expected remaining future benefit at the end of the ships’ weighted average useful lives.

In the third quarter of 2022, the Company took delivery of Norwegian’s first Prima Class Ship.

Based on the design, structure and technological advancements made to this new class of ship and the analysis of its major components, which is generally performed upon the introduction of a new class of ship, we have assigned the Prima Class Ships a weighted-average

useful life of 35 years with a residual value of 10%.

In 2022 and 2023, the Company took delivery of Norwegian’s first Prima Class Ship and Oceania Cruises’ first Allura Class Ship, respectively.

Based on the design, structure and technological advancements made to these new classes of ships and the analyses of their major components, which is generally performed upon the introduction of a new class of ship, we have assigned the Prima Class Ships and Allura Class Ships a weighted-average useful life of 35 years with a residual value of 10%.

Ship improvement costs that we believe add value to our ships are capitalized to the ship and depreciated over the shorter of the improvements’ estimated useful lives or the remaining useful life of the ship.

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Should certain factors or circumstances cause us to revise our estimate of ship service lives or projected residual values, depreciation expense could be materially lower or higher.

In 2020, one ship had significant improvements that extended the remaining weighted average useful life of the vessel.

Accordingly, we updated our estimate of both its useful life and residual value based on the new weighted average useful life of its current components.

The impact of the change in estimate was accounted on a prospective basis and was not material.

If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense.

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For ship impairment analyses, the lowest level for which identifiable cash flows are largely independent of other assets and liabilities is each individual ship.

We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset.

We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from the use of the asset.

If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its estimated fair value.

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Our estimate of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the associated risk.

We evaluate goodwill and trade names for impairment on December 31 or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable.

We evaluate goodwill and trade names for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable.

In 2023, we changed our annual evaluation date for impairment from December 31 to October 1.

We believe this measurement date, which represents a change in the method of applying an accounting principle, is preferable because it better aligns with the timing of the Company’s financial planning process, which is a key component of the annual impairment tests.

The change in the measurement date did not delay, accelerate or prevent an impairment charge.

The accounting policy change is not material and will be applied prospectively.

For our evaluation of goodwill, we use a qualitative assessment which allows us to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the estimated fair value of a reporting unit is less than its carrying value.

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● Decline in share price (in both absolute terms and relative to peers).

We believe our estimates and judgments with respect to our long-lived assets, principally ships, goodwill, tradenames and other indefinite-lived intangible assets are reasonable.

It is at our discretion whether to perform the qualitative test and we may bypass the qualitative test in any period and proceed directly to the quantitative impairment test.

We may also, at our discretion, resume performing the qualitative assessment in any subsequent period.

We believe our estimates and judgments with respect to our long-lived assets, principally ships, goodwill, trade names and other indefinite-lived intangible assets are reasonable.

Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge.

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Each brand, Oceania Cruises, Regent Seven Seas and Norwegian, constitutes a business for which discrete financial information is available and management regularly reviews the operating results and, therefore, each brand is considered an operating segment.

For our annual impairment evaluation, we performed a qualitative assessment for the Regent Seven Seas reporting unit and of each brand’s trade names.

As part of our analysis, we performed an assessment of current factors compared to key assumptions impacting the quantitative tests performed in 2020.

For our annual impairment evaluation, we performed a quantitative assessment for the Regent Seven Seas reporting unit and of each brand’s trade names.

Based on the results of the assessment, we determined there was no impairment of goodwill because the fair value of the Regent Seven Seas reporting unit substantially exceeded its carrying value.

As of December 31, 2023, there was $98.1 million of goodwill remaining for the Regent Seven Seas reporting unit.

Trade names were $500.5 million as of December 31, 2023.

As of December 31, 2022, our annual impairment reviews support the carrying values of these assets.

As of October 1, 2023, our annual impairment reviews support the carrying values of these assets.

See Note 2 – “Summary of Significant Accounting Policies” for more information.

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

See “Terms Used in this Annual Report” 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 our results of operations, 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 our 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 presented for the year ended December 31, 2022 as we do not consider it meaningful for comparison purposes due to our phased restart of cruise operations, which was completed in May 2022.

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.

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, 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, 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 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.

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;

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.

For example, for the year ended December 31, 2022, we incurred $12.1 million related to restructuring costs or charges.

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

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

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

however, this adjustment did not occur and is not included in the comparative period presented within this Annual Report.

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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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.

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, we 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, we completed the phased relaunch of our entire fleet with all ships now in operation with guests on board.

Occupancy levels have sequentially increased in recent quarters, most recently averaging 87% in the fourth quarter 2022, with the Company expecting to return to historical Occupancy levels for the second quarter of 2023.

During 2022, we benefitted from significant improvements in the public health environment which allowed for the removal of most COVID-19 related health and safety protocols by year-end, unless required by local jurisdictions.

For example, 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.

We will continue to modify and evolve our health and safety protocols as needed along with the broader public health and regulatory environments.

We continue to prioritize the health and safety of our guests, crew and communities we visit and follow applicable travel guidelines and local protocols as required by the ports and destinations we visit.

The relaxation of protocols, continued easing of travel restrictions and reopening of most ports around the globe to cruise ships has improved travel experiences, expanded the addressable cruise market, allowed us to expand the variety of our itineraries and provided 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 for cruises embarking prior to December 31, 2022 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.

Standard payment schedules and cancellation penalties apply for all sailings after December 31, 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 and 2023, we continued to take actions to bolster our financial condition as part of our long-term post-pandemic financial recovery strategy.

In February 2022, we received additional financing through various debt financings, collectively totaling $2.1 billion in gross proceeds, which was 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 December 2022, we amended the Senior Secured Credit Facility to extend approximately $1.4 billion of maturities by one year to January 2025.

The amendment also updated certain financial covenants and increased our ability to incur additional debt.

Each of our export-credit backed facilities were also amended to conform the financial covenants with the Senior Secured Credit Facility.

In February 2023, a commitment of $82.5 million in aggregate principal amount of the Revolving Loan Facility that was not previously extended was obtained to assign the commitment to a new lender under the same terms as the extending lenders.

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 July 2022, we amended our $1 billion commitment, which provided additional liquidity to the Company through March 31, 2023.

In February 2023, the commitment was further 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 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.

Refer to Note 8 – “Long-Term Debt” for further details about the above transactions.

The net 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 current commitment letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028.

NCLC used the net proceeds for general corporate purposes.

In February 2024, we extended the $650 million undrawn commitment from February 2024 to March 2024 while maintaining our option to further extend the commitment.

We are currently taking steps to refinance the commitment, which is subject to approval by our Board of Directors.

We expect the refinanced commitment to be extended for one year through March 2025, when effective.

In October 2023, NCLC issued $790 million aggregate principal amount of 8.125% senior secured notes due 2029.

The net proceeds from the notes, together with cash on hand, were used to repay the Term Loan A Facility, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

No term loans remain outstanding.

Also in October 2023, NCLC entered into the Sixth ARCA, an amendment and restatement of the Senior Secured Credit Facility, which among other things, increased the aggregate amount of the Revolving Loan Facility from $875 million to $1.2 billion.

See Note 8 – “Long-Term Debt” for more information.

Update on Bookings

The Company entered the year with a record cumulative booked position of approximately 62% for full year 2023, in line with previously outlined expectations and within the Company’s optimal 60% to 65% range, and at higher prices than 2019 at a similar point in time.

Booking volumes have accelerated in recent months buoyed by strong WAVE season demand.

The Company’s brands achieved several booking records in recent months including at Norwegian Cruise Line which reached an all-time record booking month in November, boosted by Black Friday and Cyber Monday, which was subsequently exceeded in January 2023.

As a result, full year 2023 cumulative booked position is ahead of 2019 levels inclusive of the Company’s approximately 19% increase in capacity, at continued higher pricing.

Net booking volumes continue to be at the pace needed to reach historical Occupancy levels for the second quarter of 2023 and beyond;

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 cancellation policies, bookings may not be representative of actual cruise revenues.

There are 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 first quarter of 2023.

The Company continues to experience healthy consumer demand and is at an all-time high booked position and with pricing reflective of some of the best booking weeks in the Company’s history beginning with Black Friday and Cyber Monday.

However, because of our cancellation policies, bookings may not be representative of actual revenues.

Additionally, onboard revenue remains robust, with broad-based strength across all revenue streams.

As a result of the ongoing conflict in Israel and the Red Sea, the Company cancelled and redirected all calls to Israel during the fourth quarter of 2023.

Additionally, all calls to Israel and the Red Sea have been cancelled and redirected for the entirety of 2024.

Prior to the conflict, approximately 7% of the capacity in the fourth quarter of 2023 and 4% of capacity for the full year 2024 expected to visit the Middle East, which includes Bahrain, Cyprus, Egypt, Israel, Jordan, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Approximately 1% of second quarter 2024 capacity and 1% of 2024 capacity were expected to sail through the Red Sea.

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 increases in inflation rates, fuel prices, and interest rates.

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

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

As a result of conditions associated with global macroeconomic events, the global economy, including the financial and credit markets, has experienced 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.

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

however, during 2023, we continued to see progress from our ongoing margin enhancement initiative.

The Company continues to prioritize identifying and evaluating a variety of initiatives to improve its cost structure and margin profile, while preserving its brand equity and optimal guest satisfaction levels.

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” for additional information.

See “Item 1A.

Risk Factors” in our Annual Report for additional information.

Climate Change

We believe the increasing focus on climate change 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 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 have set interim targets to guide us on our path to net zero and provide more details about them in our annual ESG Report.

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.

We have and may continue to be required to change certain operating procedures, for example slowing the speed of our ships, to meet regulatory requirements, which could adversely impact our operations.

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;

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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.

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

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

Risk Factors” for further information.

Pillar 2 and Income Tax Expense

During the three months ended December 31, 2023, in response to changes in the global tax landscape due to the implementation of the OECD’s Pillar 2 global tax reform initiative, the Company restructured its organizational footprint by realigning many of its operations across its three different brands into a single jurisdiction, Bermuda, and exited our U.K.

tax residency status for NCLH and NCLC as of December 31, 2023.

The Company continues to monitor further regulations related to the implementation of the Bermuda Corporate Income Tax Act, and the forecast of the Company’s non-exempt taxable income in the Bermuda and U.S.

jurisdictions, and the outlooks for the cruise industry and broader economy.

As a result of the enactment of the Bermuda Corporate Income Tax Act 2023, the Company recognized additional deferred tax assets and has a valuation allowance related to our Bermuda deferred tax assets of $532.4 million as of December 31, 2023.

The Bermuda deferred tax assets amount will continue to be evaluated through the enactment date, January 1, 2025, and is subject to material change as this is an estimated amount.

Refer to Note 12 – “Income Taxes” for further information.

Additionally, the Company continues to maintain a valuation allowance with respect to its U.S.

net deferred tax assets, which has a balance of $159.8 million as of December 31, 2023.

We will continue to evaluate all relevant positive and negative evidence in monitoring the realizability of our deferred tax assets and determining the appropriate timing for the recognition of any valuation allowance reversal.

In the future, the Company may recognize a material reversal of its valuation allowance on both its U.S.

and Bermuda deferred tax assets.

The Company would not expect to have a material change in its income tax expense, with the exception of any potential impact from a release of the valuation allowance.

Executive Overview

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Capacity Days increased by 29.0%.

For the year ended December 31, 2022, we had net loss and diluted EPS of $(2.3) billion and $(5.41), respectively.

For the year ended December 31, 2023, we had net income and diluted EPS of $166.2 million and $0.39, respectively.

For the year ended December 31, 2022, we had net loss and diluted EPS of $(2.3) billion and $(5.41), respectively.

Operating loss decreased 39.2% to $(1.6) billion for the year ended December 31, 2022 from $(2.6) billion for the year ended December 31, 2021.

We had Adjusted Net Loss and Adjusted EPS of $(1.9) billion and $(4.64), respectively, for the year ended December 31, 2022, including $0.3 billion of adjustments primarily consisting of losses on the extinguishment and modification of debt and share-based compensation, compared to Adjusted Net Loss and Adjusted EPS of $(2.9) billion and $(8.07), respectively, for the year ended December 31, 2021.

A 60.9% improvement in Adjusted EBITDA was incurred for the same period.

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

Operating income increased to $930.9 million for the year ended December 31, 2023 from an operating loss of $(1.6) billion for the year ended December 31, 2022.

We had Adjusted Net Income and Adjusted EPS of $298.0 million and $0.70, respectively, for the year ended December 31, 2023, including $131.8 million of adjustments primarily consisting of share-based compensation, compared to Adjusted Net Loss and Adjusted EPS of $(1.9) billion and $(4.64), respectively, for the year ended December 31, 2022.

Adjusted EBITDA increased to $1.9 billion for the year ended December 31, 2023 from $(673.9) for the year ended December 31, 2022.

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

Results of Operations

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You should read this discussion in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report.

For a comparison of the Company’s results of operations for the fiscal years ended December 31, 2021 to the year ended December 31, 2020, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S.

Securities and Exchange Commission on March 1, 2022.

We reported total revenue, total cruise operating expense, operating loss and net loss as follows (in thousands, except per share data):

For a comparison of the Company’s results of operations for the fiscal years ended December 31, 2022 to the year ended December 31, 2021, see “Item 7, Management’s Discussion and

Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S.

Securities and Exchange Commission on February 28, 2023.

We reported total revenue, total cruise operating expense, operating income (loss) and net income (loss) as follows (in thousands, except per share data):

Year Ended December 31,

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Total cruise operating expense

Operating loss

Operating income (loss)

Net income (loss)

The following table sets forth operating data as a percentage of total revenue:

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Total other operating expense

Operating loss

Operating income (loss)

Non-operating income (expense)

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Total non-operating income (expense)

Net loss before income taxes

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

The following table sets forth selected statistical information:

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Occupancy Percentage

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

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

(1) Excludes certain capacity on Pride of America, which was temporarily unavailable in 2022.

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

Year Ended December 31,

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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):

Year Ended December 31,

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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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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

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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Restructuring costs related to the workforce reduction are included in marketing, general and administrative 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):

Year Ended December 31,

Net income (loss)

Non-GAAP Adjustments:

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Extinguishment and modification of debt (4)

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 Adjusted Net Income (Loss)

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

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Year Ended December 31,

Net income (loss)

Interest expense, net

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Adjusted EBITDA

(1) Primarily consists of gains and losses, net of foreign currency remeasurements and derivatives not designated as hedges.

(1) Primarily consists of gains and losses, net of foreign currency remeasurements, and in 2022, derivatives not designated as hedges.

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

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Total revenue increased 76.5% to $8.5 billion in 2023 compared to $4.8 billion in 2022.

In 2022, revenue primarily increased as we returned to service with 12.8 million Passenger Cruise Days compared to 1.8 million in 2021.

In 2023, revenue primarily increased as a result of increases in our Occupancy following our return to service with 23.3 million Passenger Cruise Days compared to 12.8 million in 2022.

Total cruise operating expense increased 28.2% in 2023 compared to 2022.

In 2022, the year started with 16 ships operating with guests onboard and ended with the entire 29-ship fleet in service compared to 2021, during which only 16 ships were returned to service in the second half of the year.

In 2022, our cruise operating expenses increased as more ships resumed 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.

Gross Cruise Cost increased 125.9% 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 33.7% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

Interest expense, net was $0.8 billion in 2022 compared to $2.1 billion in 2021.

The decrease in 2022 primarily reflects lower losses from extinguishment of debt and debt modification costs, which were $1.4 billion in 2021.

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

Other income (expense), net was income of $76.6 million in 2022 compared to $124.0 million in 2021.

Other income in 2022 and 2021 was primarily due to gains on fuel swaps not designated as hedges and foreign currency remeasurements.

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 year started with 16 ships operating with guests onboard and ended with the full fleet in service, which was completed in May 2022.

Gross Cruise Cost increased 20.6% in 2023 compared to 2022, primarily related to the change in costs described above.

Interest expense, net was $727.5 million in 2023 compared to $801.5 million in 2022.

The decrease in 2023 primarily reflects lower losses from extinguishment of debt and debt modification costs, which were $8.8 million in 2023 and $193.4 million in 2022.

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

Other income (expense), net was expense of $40.2 million in 2023 compared to income of $76.6 million in 2022.

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

In 2022, the income was primarily due to gains on derivatives not designated as hedges and gains from foreign currency remeasurements.

Liquidity and Capital Resources

As of December 31, 2022, our liquidity consisted of cash and cash equivalents of $0.9 billion and a $1 billion undrawn commitment, less related fees, available through March 31, 2023.

As of December 31, 2023, our liquidity of $2.3 billion consisted of cash and cash equivalents of $402.4 million, borrowings available under our $1.2 billion fully 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.

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Our business model, along with our liquidity and undrawn export-credit backed facilities , allows us to operate with a working capital deficit and still meet our operating, investing and financing needs.

In December 2022, we amended our Senior Secured Credit Facility to extend approximately $1.4 billion of maturities by one year to January 2025, subject to, if a one-time minimum liquidity threshold is not satisfied on September 16, 2024, a springing maturity date of September 16, 2024.

The amendment also updated certain financial covenants and increased our ability to incur additional debt.

Each of our export-credit backed facilities were also amended to conform the financial covenants with the Senior Secured Credit Facility.

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

In July 2022, we amended our $1 billion commitment, which provided additional liquidity to the Company through March 31, 2023.

In February 2023, the commitment was further 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 senior secured notes due 2028.

NCLC will use the net proceeds for general corporate purposes.

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 current commitment letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028.

NCLC used the net proceeds for general corporate purposes.

In February 2024, we extended the $650 million undrawn commitment from February 2024 to March 2024 while maintaining our option to further extend the commitment.

In October 2023, NCLC issued $790 million aggregate principal amount of 8.125% senior secured notes due 2029.

No term loans remain outstanding.

Refer to Note 8 – “Long-Term Debt” for further details about 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 Item 1A, “Risk Factors” for further details regarding uncertainty related to Russia’s ongoing invasion of Ukraine and 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.

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.

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

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 current macroeconomic events and conditions such as inflation, rising fuel prices and higher interest rates.

As noted above, we extended the $650 million undrawn commitment from February 2024 to March 2024 while maintaining our option to further extend the commitment.

In February 2024, the Commitment Parties (as defined in Note 8 – “Long-Term Debt”) entered into a third amended and restated commitment letter (the “third amended commitment letter”), which is expected to become effective in March 2024.

The effectiveness is subject to approval by our Board of Directors.

Upon effectiveness, the third amended commitment letter will amend and restate the current commitment letter and extend the commitments thereunder through March 2025.

Pursuant to the third amended commitment letter, and subject to effectiveness thereof, the Commitment Parties have agreed to purchase from NCLC an aggregate principal amount of $650 million of senior unsecured notes due five years after the issue date (the “Commitment Notes”) at NCLC’s option.

If drawn, the Commitment Notes will bear interest at a rate per annum equal to (A) the greater of (i) the interest rate of the 7.75% senior notes due 2029 (“2029 Unsecured Notes”) and (ii) the then-current secondary trading yield applicable to the 2029 Unsecured Notes plus (B) 200 basis points.

The Commitment Notes will be subject to a one-time structuring fee of 0.50% and a quarterly commitment fee of 0.75% for so long as the commitments with respect to the Commitment Notes are outstanding.

If drawn, the Commitment Notes will be subject to an issue fee of 0.50%.

In connection with the execution of the third amended commitment letter, and subject to effectiveness thereof, NCLC has agreed to repurchase all of the outstanding Class A Notes (as defined in Note 8 – “Long-Term Debt”) at a purchase price of 107% of the principal amount thereof plus accrued and unpaid interest thereon.

We also intend to refinance the $565.0 million 3.625% senior unsecured notes due in December 2024 prior to September 2024.

Within the next twelve months, we may pursue other 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, including the modification of our free liquidity requirements.

At December 31, 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.

Refer to Item 1A, “Risk Factors” for further details regarding risks and uncertainties that may cause our results to differ from our expectations.

At December 31, 2023, 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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Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which would have a material adverse impact to our operations and liquidity.

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 $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-.

Our Moody’s long-term issuer rating is B2, our senior secured rating is B1 and our senior unsecured rating is Caa1.

Our S&P Global issuer credit rating is B, our issue-level rating on our $1.2 billion Revolving Loan Facility, 2028 Senior Secured Notes and 2029 Senior Secured Notes is BB-, our issue-level rating on our other senior secured notes is B+ and our senior unsecured rating is CCC+.

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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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.

Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash

funds directly to the card processor.

Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash funds directly to the card processor.

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

As of December 31, 2022, we had cash collateral reserves of approximately $622.0 million with credit card processors, of which approximately $118.4 million is recognized in accounts receivable, net and approximately $503.6 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 reduce our liquidity.

As of December 31, 2023, we had cash collateral reserves of approximately $51.6 million, which includes $20.1 million recognized in accounts receivable, net and $31.5 million recognized in other long-term assets.

During the year ended December 31, 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 year ended December 31, 2023, references to 2022 refer to the year ended December 31, 2022.

Net cash provided by operating activities was $210.0 million in 2022 compared to net cash used in operating activities of $2.5 billion in 2021.

The net cash used in operating activities included net losses due to the suspension of global cruise voyages from March 2020 through July 2021, the subsequent resumption of cruise voyages through May 2022 and the timing differences in cash receipts and payments relating to operating assets and liabilities.

The net cash provided by operating activities in 2022 included net losses of $(2.3) billion, an increase in advance ticket sales of $928.9 million and loss on extinguishment of $188.8 million.

The net cash used in operating activities in 2021 included net losses of $(4.5) billion and a decrease of $1.2 billion in cash from accounts receivable, which includes our collateral reserves with credit card processors, offset by an increase in advance ticket sales of $521.9 million and loss on extinguishment of $1.4 billion.

Net cash provided by operating activities was $2.0 billion in 2023 compared to net cash provided by operating activities of $210.0 million in 2022.

Net cash provided by operating activities included net income (loss) and the timing differences in cash receipts and payments relating to operating assets and liabilities.

The net cash provided by operating activities in 2023 included net income of $166.2 million and an increase in advance ticket sales of $503.7 million.

The net cash provided by operating activities in 2022 included net losses of $(2.3) billion, an increase in advance ticket sales of $928.9 million and loss on extinguishment of debt of $188.8 million.

Net cash used in investing activities was $2.9 billion in 2023, primarily related to three new ship deliveries and newbuild payments.

Net cash used in investing activities was $1.8 billion in 2022, primarily related to the delivery of Norwegian Prima.

Net cash used in investing activities was $1.0 billion in 2021, primarily related to newbuild payments and ship improvement projects and net purchases and maturities of short-term investments.

Net cash provided by financing activities was $346.9 million in 2023, primarily due to newbuild loans and $1.6 billion from our various note offerings, partially offset by debt repayments and a net decrease in our Revolving Loan Facility balance.

Net cash provided by financing activities was $1.0 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 $1.7 billion in 2021, primarily due to $2.6 billion in proceeds from the issuance of debt and $2.7 billion in proceeds from issuance of NCLH’s ordinary shares offset by $2.1 billion of debt principal repayments and $1.4 billion of early redemption premiums.

For the Company’s cash flow activities for the fiscal year ended December 31, 2021, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S.

Securities and Exchange Commission on March 1, 2022.

Securities and Exchange Commission on February 28, 2023.

Future Capital Commitments

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We have export-credit backed financing in place for the anticipated expenditures related to ship construction contracts of $0.2 billion, $1.5 billion and $0.8 billion for the years ending December 31, 2024, 2025 and 2026, respectively.

Anticipated non-newbuild capital expenditures are $0.4 billion for the year ended December 31, 2023.

Anticipated non-newbuild capital expenditures are $475 million for the year ended December 31, 2024.

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

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 one Explorer Class Ship on order 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.

As of December 31, 2022, the combined contract prices of the eight ships on order for delivery was approximately €6.7 billion, or $7.2 billion based on the euro/U.S.

For the Norwegian brand, we have four Prima Class Ships on order, each ranging from approximately 156,300 to 169,000 Gross Tons with 3,550 to 3,850 Berths, with currently scheduled delivery dates from 2025 through 2028.

the Oceania Cruises brand, we have an order for one Allura Class Ship to be delivered in 2025.

The Allura Class Ship will be approximately 67,800 Gross Tons and 1,250 Berths.

As of December 31, 2023, the combined contract prices, including amendments and change orders, of the five ships on order for delivery was approximately €5.8 billion, or $6.4 billion based on the euro/U.S.

dollar exchange rate as of December 31, 2023.

Contract amendments for certain of our ships that are or will become effective subsequent to December 31, 2022 will increase the contract cost by €1.2 billion, of which $0.5 billion is included in the anticipated expenditures related to ship construction contracts discussed above.

We have obtained or expect to obtain fixed rate export-credit backed financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions.

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

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

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Ship construction contracts (2)

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

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

Includes exchangeable notes which can be settled in shares.

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

Subsequent to December 31, 2022, we completed various capital market and financing transactions, including issuing two series of notes totaling an aggregate principal amount of $850 million of senior secured notes due in 2028, of which approximately $600 million was used to repay the loans outstanding under our Term Loan A Facility that otherwise would have become due in January 2024.

Additionally, a commitment of $82.5 million in aggregate principal amount of the Revolving Loan Facility was obtained, which will extend the maturity date of the assigned commitments by one year to January 2025.

See Note 8 – “Long-Term Debt” for further information.

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

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As of December 31, 2023, we have committed undrawn export-credit backed facilities of $5.4 billion which funds approximately 80% of our ship construction contracts.

After giving effect to an amendment to our newbuild agreements for the last two Prima Class Ships subsequent to December 31, 2022, our material cash requirements for ship construction contracts are as follows (in thousands):

Ship construction contracts

Excludes the impact of expected future ship construction contract amendments noted above.

Excludes the impact of expected future ship construction contracts that are not effective noted above.

For other operational commitments for lease and port obligations we refer you to Note 5 – “Leases” and Note 13 – “Commitments and Contingencies,” respectively, for further information.

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Approximately $16.2 billion of our 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 December 31, 2022.

We believe we were in compliance with our covenants as of December 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 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.

We believe our cash on hand, the impact of the undrawn commitment less related fees, borrowings available under our $1.2 billion fully undrawn Revolving Loan Facility, 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.

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

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

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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-K

Item 7. Management’s Discussion and Analysis