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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 199 added, 169 removed, 238 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.

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.

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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.

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.

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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.

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.

For trade names we also provide a qualitative assessment to determine if there is any indication of impairment.

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We have concluded that our business has three reporting units.

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 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.

Each brand, Oceania Cruises, Regent 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 Norwegian and Regent reporting units and for each brand’s trade names.

As of December 31, 2024, there was $135.8 million of goodwill for the Regent and Norwegian reporting units.

Trade names were $500.5 million as of December 31, 2024.

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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 Income (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 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.

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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 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.

In measuring our ability to control costs in a manner that

positively impacts our net income, 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.

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

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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.

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 Income and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income and EPS.

We use Adjusted Net Income 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 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 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.

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

For example, for the year ended December 31, 2024, we had a benefit of $161.9 million related to the reversal of the majority of our U.S.

deferred tax asset valuation allowance.

We included this as an adjustment in the reconciliation of Adjusted Net Income since the benefit is not representative of our day-to-day operations, and 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.

Financing Transactions

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

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.

Financing Transactions and Newbuild Orders

In February 2024, NCLC and the Commitment Parties entered into the third amended commitment letter, which became effective in March 2024.

Pursuant to the third amended commitment letter, 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 at NCLC’s option, which option is available through March 2025 and we do not expect to extend.

In connection with the execution of the third amended commitment letter, NCLC agreed to repurchase all of the outstanding $250 million aggregate principal amount of 9.75% senior secured notes due 2028 at a negotiated premium plus accrued and unpaid interest thereon.

See Note 9 – “Long-Term Debt” for more information.

In April 2024, we obtained export credit financing for 80% of the contract price of two new Regent Seven Seas Cruises ship orders and two new Oceania Cruises ship orders as well as related premiums.

Contemporaneously, the ship orders became effective.

The Norwegian brand also placed a four-ship order, for which the shipbuilding contracts were finalized in February 2025 and financing is still being finalized.

We refer you to “—Liquidity and Capital Resources— Future Capital Commitments” and “—Liquidity and Capital Resources— Material Cash Requirements” for details regarding our newbuild orders.

Additionally, in April 2024, a €200 million commitment became available that can be used for future newbuild payments.

See Note 9 – “Long-Term Debt” for more information.

In September 2024, NCLC issued $315.0 million aggregate principal amount of 6.250% senior unsecured notes due 2030.

The net proceeds, together with cash on hand, were used to redeem $315.0 million aggregate principal amount of the 3.625% senior unsecured notes due 2024, including to pay any accrued and unpaid interest thereon.

See Note 9 – “Long-Term Debt” for more information.

In January 2025, the full amount of outstanding borrowings under the Breakaway one loan, Breakaway two loan, Marina newbuild loan and Riviera newbuild loan, plus any accrued and unpaid interest thereon, was repaid with funds drawn from the Revolving Loan Facility.

NCLC also issued $1.8 billion aggregate principal amount of 6.750% senior unsecured notes due 2032.

The net proceeds, together with cash on hand, were used to redeem $600.0 million aggregate principal amount of 8.375% senior secured notes due 2028 and $1.2 billion aggregate principal amount of 5.875% senior unsecured notes due 2026, together with any accrued and unpaid interest thereon, and to pay any related transaction premiums, fees and expenses.

Concurrently, the Revolving Loan Facility was increased from $1.2 billion to $1.7 billion with the maturity date extended to 2030 and the collateral of the Revolving Loan Facility and the 8.125% senior secured notes due 2029 were modified.

See Note 9 – “Long-Term Debt” for more information.

Update on Bookings

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 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 experience strong consumer demand for its offerings across itineraries and brands throughout 2025 and into 2026.

As a result, the Company remains at the upper range of its optimal booked position on a 12-month forward basis.

Margin Enhancement Initiative

During 2024, we continued to see improvements in operating costs 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” in our Annual Report for additional information.

However, global macroeconomic events have created volatility and disruptions in the past that have adversely impacted our costs and they may do so again in the future.

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

See “Item 1A—Risk Factors” in our Annual Report for additional information.

Climate Change

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;

We believe the increasing focus on climate change, including the Company’s 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 Sail & Sustain Report (which does not constitute a part of, and shall not be deemed incorporated by reference into, this Report).

We expect to incur significant expenses related to these regulatory requirements and commitments, which have and will include expenses related to GHG emissions reduction initiatives, including modifications to our ships, and have and will include the purchase of emissions allowances, among other things.

During 2024, we spent $47.7 million on capital expenditures for projects that are intended to reduce carbon emissions from our existing fleet.

We have changed 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 also 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 GHG emissions;

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

During 2024, we recognized $19.3 million of expense related to compliance with the E.U.

ETS, a portion of which was collected directly from passengers through revenue.

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

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

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

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.

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.

Deferred Tax Asset Valuation Allowance and Income Tax Expense

The Company continues to maintain a full valuation allowance against the net deferred tax assets in the Bermuda jurisdiction, which has a balance of $547.8 million as of December 31, 2024, primarily related to a 3-year cumulative loss.

Although the Pillar 2 rules became effective in Bermuda as of January 1, 2025, the Company does not expect to have a material change in its income tax expense for 2025.

Additionally, the Company previously provided a full valuation allowance against the net deferred tax assets in the U.S.

jurisdiction.

As discussed in Note 12 – “Income Taxes” to our financial statements, during the fourth quarter of 2024, the Company released $161.9 million of the valuation allowance related to its U.S.

net deferred tax assets, resulting in a non-cash benefit to income tax expense.

In determining the need for a valuation allowance, the Company considers both the positive and negative evidence including its ability to forecast future operating results, historical tax losses and its ability to utilize deferred tax assets within the requisite carryforward periods.

After weighing all of the evidence, the Company determined that the positive evidence outweighed the negative evidence and concluded that it is more likely than not that the majority of the U.S.

net deferred tax assets will be realized.

The positive evidence considered by the Company includes continuous improvement in its operating results and profitability, implementation of certain tax planning actions, its projections showing sufficient utilization of tax attributes within their requisite carryforward periods, the non recurring nature of the losses tied to the suspension of sailings due to COVID-19 and not having a history of expiration of tax attributes.

The negative evidence considered includes that the Company has been in a three-year cumulative book loss position for the past four years.

The Company continues to maintain a valuation allowance against the deferred tax assets for which it concluded it is more likely than not they will not be realized.

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

The ultimate realization of the Company’s deferred tax assets is dependent upon a number of uncertainties including future taxable income of the appropriate character during the requisite carryforward periods.

Executive Overview

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For the year ended December 31, 2024, we had net income and diluted EPS of $910.3 million and $1.89, respectively.

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

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.

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

Operating income increased to $1.5 billion for the year ended December 31, 2024 from $930.9 million for the year ended December 31, 2023.

We had Adjusted Net Income and Adjusted EPS of $937.5 million and $1.82, respectively, for the year ended December 31, 2024, including $(36.0) million of adjustments primarily consisting of the reversal of a valuation allowance partially offset by share-based compensation, compared to Adjusted Net Income and Adjusted EPS of $298.0 million and $0.70, respectively, for the year ended December 31, 2023.

Adjusted EBITDA increased 31.7% to $2.5 billion for the year ended December 31, 2024 from $1.9 billion for the year ended December 31, 2023.

We refer you to our “Results of Operations” below for a calculation of Adjusted Net Income, 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, 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.

For a comparison of the Company’s results of operations for the fiscal years ended December 31, 2023 to the year ended December 31, 2022, 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, 2023, which was filed with the U.S.

Securities and Exchange Commission on February 28, 2024.

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

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

Year Ended December 31,

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Total cruise operating expense

Operating income (loss)

Net income (loss)

Operating income

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

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Total other operating expense

Operating income (loss)

Operating income

Non-operating income (expense)

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Total non-operating income (expense)

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net income before income taxes

Income tax benefit

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 in 2022.

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

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Non-cash share-based compensation (2)

Restructuring costs (3)

Adjusted Net Cruise Cost Excluding Fuel

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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.

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

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

Restructuring costs related to the workforce reduction are included in marketing, general and administrative expense.

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

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

Year Ended December 31,

Net income (loss)

Effect of dilutive securities - exchangeable notes

Net income and assumed conversion of exchangeable notes

Non-GAAP Adjustments:

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Non-cash share-based compensation (2)

Restructuring costs (3)

Extinguishment and modification of debt (3)

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.

Reversal of U.S.

deferred tax asset valuation allowance (4)

Adjusted Net Income

Diluted weighted-average shares outstanding - Net income and Adjusted Net Income

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

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

Restructuring costs related to the workforce reduction are included in marketing, general and administrative expense.

Losses on extinguishments and modifications of debt are primarily included in interest expense, net.

Non-cash income tax benefit related to the reversal of a valuation allowance on our U.S.

deferred tax assets.

The deferred tax assets accumulated during the COVID-19 pandemic and a portion of the valuation allowance was released related to the deferred tax assets that more likely than not will be realized in the future.

We consider this adjustment to be non-recurring as it originated as a result of losses incurred during the pandemic.

Future income tax expense is not expected to change materially as a result of the reversal.

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

Year Ended December 31,

Net income (loss)

Interest expense, net

Income tax (benefit) expense

Income tax benefit

Depreciation and amortization expense

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Non-cash share-based compensation (3)

Restructuring costs (4)

Adjusted EBITDA

(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.

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

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

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

Restructuring costs related to the workforce reduction are included in marketing, general and administrative expense.

Year Ended December 31, 2024 (“2024”) Compared to Year Ended December 31, 2023 (“2023”)

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

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 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.

Total revenue increased 10.9% to $9.5 billion in 2024 compared to $8.5 billion in 2023 primarily due to an increase in Capacity Days and an increase in passenger ticket pricing and onboard spending.

The increase in Capacity Days was primarily related to the delivery of three new ships in 2023 partially offset by increased Dry-dock days in 2024.

Total cruise operating expense increased 4.0% in 2024 compared to 2023 primarily related to the delivery of three new ships in 2023 partially offset by a reduction in air costs largely due to changes in itinerary mix.

Total other operating expense increased 8.1% in 2024 compared to 2023 primarily related to an increase in depreciation expense from the delivery of three new ships in 2023 and variable compensation due to strong financial performance of the business.

Interest expense, net was $747.2 million in 2024 compared to $727.5 million in 2023.

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.

The increase in 2024 primarily reflects higher losses from extinguishment of debt and debt modification costs, which were $29.2 million in 2024 and $8.8 million in 2023.

Other income (expense), net was income of $54.2 million in 2024 compared to expense of $40.2 million in 2023 primarily related to net gains and losses on foreign currency remeasurements.

Income tax benefit was $137.4 million in 2024 compared to $3.0 million in 2023.

The increase in the benefit was due to the reversal of the majority of our valuation allowance for the U.S.

deferred tax assets in 2024.

Liquidity and Capital Resources

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.

As of December 31, 2024, our liquidity of approximately $2.0 billion consisted of cash and cash equivalents of $190.8 million, borrowings available of $955.0 million under our Revolving Loan Facility, a €200 million commitment that can be used for future newbuild payments 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 February 2023, NCLC issued $600 million aggregate principal amount of 8.375% senior secured notes due 2028.

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

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.

In February 2024, NCLC and the Commitment Parties entered into the third amended commitment letter, which became effective in March 2024.

Additionally, in April 2024, a €200 million commitment became available that can be used for future newbuild payments.

In September 2024, NCLC issued $315.0 million aggregate principal amount of 6.250% senior unsecured notes due 2030.

NCLC also issued $1.8 billion aggregate principal amount of 6.750% senior unsecured notes due 2032.

Concurrently, the Revolving Loan Facility was increased from $1.2 billion to $1.7 billion with the maturity date extended to 2030, and the collateral of the Revolving Loan Facility and the 8.125% senior secured notes due 2029 were modified.

Refer to Note 9 – “Long-Term Debt” for further details about the above financing transactions.

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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.

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

We expect the holders of the 2025 Exchangeable Notes maturing in August 2025 will exchange their 2025 Exchangeable Notes for NCLH ordinary shares if not refinanced prior to maturity.

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

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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.

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.

Our Moody’s long-term issuer rating is B1, our senior secured rating is Ba3 and our senior unsecured rating is B3.

Our S&P Global issuer credit rating is B+, our issue-level rating on our $1.7 billion Revolving Loan Facility and $790 million 8.125% senior secured notes due 2029 is BB, our issue-level rating on our other senior secured notes is BB- and our senior unsecured rating is B+.

If our credit ratings were to be downgraded as has occurred in the past, 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 negatively impacted.

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

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

As of December 31, 2023, we had advance ticket sales of $3.2 billion, including the long-term portion, which included approximately $78.0 million of future cruise credits.

As of December 31, 2024, we had advance ticket sales of $3.2 billion, including the long-term portion.

We also have agreements with our credit card processors that, as of December 31, 2024, governed approximately $2.8 billion in advance ticket sales that had been received by the Company relating to future voyages.

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

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.

As of December 31, 2024, we had cash collateral reserves of approximately $0.8 million with credit card processors recognized in accounts receivable, net.

The $31.5 million previously recognized in other long-term assets was returned to the Company during the year ended December 31, 2024.

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.

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In this section, references to 2024 refer to the year ended December 31, 2024, references to 2023 refer to the year ended December 31, 2023.

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.

Net cash provided by operating activities was $2.0 billion in 2024 and 2023.

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

The net cash provided by operating activities in 2024 included net income of $910.3 million and an increase in advance ticket sales of $35.7 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.

The net cash provided by operating activities in 2023 included net income of $166.2 million, the return of $500 million cash collateral from one credit card processor and an increase in advance ticket sales of $503.7 million.

Net cash used in investing activities was $1.2 billion in 2024, primarily related to newbuild payments and ship improvements.

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 financing activities was $1.0 billion in 2024, primarily due to repayments of newbuild loans, our 2028 Secured Notes and the 3.625% senior notes due 2024 partially offset by the proceeds from newbuild loan facilities and the 2030 Notes.

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.

For the Company’s cash flow activities for the fiscal year ended December 31, 2022, 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, 2023, which was filed with the U.S.

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

Anticipated expenditures related to ship construction contracts are $0.4 billion, $2.1 billion and $1.4 billion for the years ending December 31, 2024, 2025 and 2026, respectively.

Anticipated expenditures related to ship construction contracts and growth are $2.5 billion, $2.4 billion and $2.4 billion for the years ending December 31, 2025, 2026 and 2027, respectively.

We have export-credit backed financing in place for the anticipated expenditures related to ship construction contracts of $1.5 billion, $1.5 billion and $1.8 billion for the years ending December 31, 2025, 2026 and 2027, respectively.

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

Anticipated other non-newbuild capital expenditures are $0.6 billion for the year ending December 31, 2025.

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

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.

The following chart discloses details about our newbuild program.

The impacts of initiatives to improve environmental sustainability and modifications the Company plans to make to its newbuilds and/or other macroeconomic conditions and events have resulted in delays in expected ship deliveries.

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

Expected delivery dates for our most recently announced newbuilds are preliminary and subject to change.

Gross Tons (1)

Norwegian Cruise Line

Norwegian Aqua