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    Norwegian Cruise Line Holdings Ltd (NCLH)

    Business Description

    Norwegian Cruise Line Holdings Ltd. (NCLH) is a leading global cruise company that operates three distinct brands: Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. The company offers a wide array of cruise itineraries to destinations across the globe, including Europe, Asia, Australia, New Zealand, South America, Africa, Canada, Bermuda, the Caribbean, Alaska, and Hawaii. NCLH provides a variety of features and amenities on its ships, such as multiple dining venues, bars, lounges, spas, casinos, retail shopping areas, and numerous entertainment options, along with shore excursions and hotel packages for pre- or post-voyage stays . The company's revenue is categorized into "passenger ticket" revenue, which includes accommodations, meals, and certain onboard entertainment, and "onboard and other" revenue, which encompasses casino operations, beverage sales, shore excursions, specialty dining, retail sales, spa services, and Wi-Fi services .

    1. Passenger Ticket Revenue - Generates income from accommodations, meals, certain onboard entertainment, government taxes, fees, and port expenses.
    2. Onboard and Other Revenue - Includes casino operations, beverage sales, shore excursions, specialty dining, retail sales, spa services, and Wi-Fi services. Also earns from onboard activities performed by independent concessionaires, sharing in their revenue.

    Q2 2024 Summary

    Initial Price$20.97April 1, 2024
    Final Price$17.68July 1, 2024
    Price Change$-3.29
    % Change-15.69%

    What went well

    • Strong demand with no signs of slowing down, especially from the North American consumer, leading to robust pricing and booking volumes. ,
    • Onboard spending remains strong, with no decrease in ancillary revenue, indicating customers are willing to spend more on cruises.
    • The company is ahead of its leverage reduction targets, reaching its year-end target 6 months early and making significant progress towards its 2026 net leverage target of mid-4x.

    What went wrong

    • The company acknowledges that the European and Asian consumer is "only on the margin important", suggesting limited growth potential outside the North American market.
    • Executives describe their financial targets as "ambitious", which may raise concerns about the achievability of their 2026 financial targets.
    • Maintaining cost savings could be challenging, as management mentions it's "a bit early to comment on what 2025 is going to look like" regarding cost management amid inflation pressures.

    Q&A Summary

    1. Cost Savings and Margin Outlook
      Q: Can you elaborate on cost savings and their impact?
      A: Management is confident in achieving their cost reduction goals, aiming for $300 million in savings over three years through 2026. They are already ahead of their $100 million goal for this year. They expect to deliver sub-inflationary unit cost growth and see no material headwinds in 2025 other than normal inflation ,. They are focusing on eliminating waste while preserving the guest experience.

    2. Booking Trends and Pricing Power
      Q: How are booking trends and pricing power shaping up?
      A: Demand is strong across all itineraries, with particular strength in Alaska and Europe for next summer. Pricing for 2025 is robust, with prices "up significantly compared to this time last year for '24" ,. They focus on maximizing yield rather than occupancy, aiming for optimal booked positions to enhance pricing.

    3. Capital Expenditures and Investment Plans
      Q: Will new investments impact costs next year?
      A: Management does not anticipate any material increase in capital expenditures over the next year or two. Investments in the private island will be made over time in a measured way, with additions in 2025 alongside the pier and more in 2026 and 2027. They have no material investment in Jacksonville or Philadelphia, as these are led by local communities.

    4. Fourth Quarter Yield Guidance and Middle East Impact
      Q: How does Middle East exposure affect Q4 guidance?
      A: The Middle East Red Sea accounts for a 1 to 2-point impact for the year, disproportionately weighted to Q4, with about 10% of capacity in that region. Despite this, they are guiding to a 5-point yield increase year-over-year for Q4. They see this as part of normal business ebbs and flows.

    5. Onboard Spending Trends
      Q: Are there any declines in onboard spending?
      A: There are absolutely no decreases in onboard spend; in fact, preselling of onboard services is up considerably. The company benefits from a significant value gap between hotel ADRs and cruise line yields, providing long-term tailwinds.

    6. Below-the-Line Items for 2025
      Q: What are expectations for interest, share count, and D&A in 2025?
      A: Share count is expected to be around 515–516 million fully diluted shares, similar to this year. Depreciation and amortization runs about 9.5% of gross revenue. Interest expense is expected to improve as they pay down debt, with guidance of about $760 million for this year.

    7. Leverage Targets and Balance Sheet
      Q: How are you progressing towards leverage targets?
      A: The company has reached their year-end leverage target ahead of schedule and expects to see significant improvements quarter after quarter. They are making progress toward their 2026 target of mid-4s net leverage.

    8. Commissions Leverage and Net Yields
      Q: Is commissions leverage sustainable, and what's driving it?
      A: The improvement in commissions was due to buying air more effectively, resulting in lower gross revenue and air costs. This enhances net revenue and helps drive demand. They believe there is still room for further improvements in air purchasing.

    9. Occupancy Levels and Yield Maximization
      Q: Will occupancy be a tailwind into 2025?
      A: The company focuses on maximizing yield rather than occupancy. Their core driver of revenue is the first and second guests in a cabin, not the third guest, who contributes less. Therefore, they prioritize cabin occupancy over passenger occupancy.

    10. Profit Targets and Ambitious Goals
      Q: Are the 'Charting the Course' targets overly ambitious?
      A: Management believes the targets are ambitious but achievable. They are committed to hitting them by 2026 and view them as driving the company forward to achieve great results.

    11. Loyalty Program Plans
      Q: Any updates on loyalty programs across the brand portfolio?
      A: Management is aware of the importance of loyalty programs but is not prepared to discuss details at this time.

    12. Cost Impact of Dry-Docks in 2025
      Q: Are dry-dock headwinds expected next year?
      A: There is no substantial step-up in dry-dock days or capacity next year; thus, no material cost headwinds are anticipated from dry-docks.

    13. Investment in Pier and Private Island
      Q: Will investments parallel the opening of the pier in 2025?
      A: There will be some parallel investments, but development is a long-term plan with additions in 2025 and beyond. Investments will be made in a measured and disciplined way.

    14. Ancillary Spend Compared to Hotels
      Q: How does ancillary spend compare to hotels?
      A: The cruise industry benefits from guests being on the ship for the entire duration, allowing for better ancillary revenue opportunities. Fundamental factors make their business more resilient in onboard spend than hotels.

    15. Airfare Costs and Net Yields
      Q: Should we expect airfare costs to continue decreasing?
      A: The company will continue to improve on airfare costs to the extent possible, aiming for further improvements. They are focused on leveraging better air purchasing to enhance net yields.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Passenger Ticket Revenue1,208.8-1,733.594--1,459.814-1,944.9
    Onboard and Other Revenue613.1-802.443--731.401-861.7
    Total Revenue1,821.92,205.52,536.0371,986.468,549.92,191.2152,372.52,806.6
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    North America1,361.11,221.181,234.91,185.625,002.81,560.7721,176.11,315.224
    Europe81.3880.131,284.4508.372,754.225.2361,055.11,439.473
    Asia-Pacific205.789.8916.0221.91533.5397.002118.550.294
    South America--------
    Other173.914.300.870.5259.5208.20522.81.587
    - U.S.-sourced guests--------
    Total Revenue1,821.92,205.492,536.01,986.518,549.92,191.2152,372.52,806.578
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Berths61,00062,00065,000+66,500-66,50066,50066,500
    Passengers Carried633,910693,085740,658648,893-736,559711,918812,529
    Passenger Cruise Days5,497,1065,781,7506,176,4035,856,413-6,112,3706,077,5746,521,610
    Capacity Days5,415,5475,513,2885,820,4485,903,305-5,841,0155,736,3856,033,707
    Occupancy Percentage101.5%104.9%106.1%99.2%-104.6%105.9%108.1%
    Gross Margin per Capacity Day ($)66.47115.79148.2379-101.99124.01176.45
    Net Yield ($)238.68278.74309.48243.27-277.86296.31336.48
    Gross Cruise Cost per Capacity Day ($)298315311280-300315.27314.39
    Net Cruise Cost per Capacity Day ($)200.73193.55184.42186.29-202.30198.00185.72
    Net Cruise Cost Excluding Fuel per Capacity Day ($)164.74163.76155.06154.64-168.45167.50158.38
    Adjusted Net Cruise Cost Excluding Fuel per Capacity Day ($)159155.58152151-165163154.84

    Executive Team

    NamePositionStart DateShort Bio
    Harry SommerDirector, President and Chief Executive OfficerJuly 1, 2023Harry Sommer has served as the President and CEO of NCLH since July 1, 2023. He was previously the President and CEO of Norwegian Cruise Line from January 2020 to March 2023. Sommer has extensive experience in the cruise industry, holding various executive positions within the company .
    Mark A. KempaExecutive Vice President and Chief Financial OfficerAugust 2018Mark A. Kempa has been the Executive Vice President and CFO of NCLH since August 2018. He was Interim CFO from March 2018 to August 2018 and has been with the company in various roles since 1998, including Senior Vice President, Finance .
    David HerreraPresident, Norwegian brandApril 2023David Herrera has been President of Norwegian Cruise Line since April 2023. He was previously the Chief Consumer Sales and Marketing Officer from October 2021 to March 2023 and has held various senior positions within the company .
    Andrea DeMarcoPresident, Regent brandJanuary 2023Andrea DeMarco has served as President of the Regent brand since January 2023. She has over 20 years of experience in the cruise industry, previously serving as Chief Sales and Marketing Officer for Regent Seven Seas Cruises .
    Frank A. Del RioPresident, Oceania Cruises brandJanuary 2023Frank A. Del Rio has been President of the Oceania Cruises brand since January 2023. He started his career in the cruise industry in 2003 and has held various positions within the company .
    Patrik DahlgrenExecutive Vice President, Vessel OperationsJune 12, 2023Patrik Dahlgren has been the Executive Vice President, Vessel Operations for NCLH since June 12, 2023. He previously held various positions at Royal Caribbean Group, including Senior Vice President, Global Marine Operations .
    Daniel S. FarkasExecutive Vice President, General Counsel, Chief Development OfficerJanuary 2019Daniel S. Farkas has been Executive Vice President and General Counsel since January 2019 and became Chief Development Officer in April 2023. He joined the company in January 2004 and has held various roles, including Secretary and Senior Vice President .
    Faye L. AshbySenior Vice President and Chief Accounting OfficerFebruary 2016Faye L. Ashby has been the Senior Vice President and Chief Accounting Officer since February 2016. She joined NCLH as Controller in November 2014 after the acquisition of Prestige and has held various financial roles .
    Stella DavidChairperson of the BoardAugust 12, 2024Stella David has been a director at NCLH since January 2017. She has extensive experience in running multinational corporations and significant expertise in marketing and branding. She previously served as CEO of William Grant & Sons Limited .

    Questions to Ask Management

    1. Given the cancellation of itineraries in the Middle East resulting in a very short resell cycle and the geopolitical uncertainties in that region , how do you plan to mitigate similar risks in the future, and what impact might this have on your capacity planning and financial targets?

    2. While you achieved your net leverage goal six months ahead of schedule, reducing leverage by approximately 1.5x turns to 5.9x , what specific strategies are in place to reach your 2026 target of mid-4x, and what risks could impede progress toward this goal?

    3. With plans to add larger and more efficient vessels leading to capacity growth , how confident are you that demand will continue to outpace supply, especially considering potential economic headwinds and the necessity to maintain strong pricing to achieve your yield targets?

    4. You've increased your net yield growth guidance to 8.2% for the full year, driven entirely by stronger pricing since occupancy is at full capacity ; are you observing any signs of consumer price resistance, and how sustainable is this pricing strategy in the current market environment?

    5. The 2.5% cost spread target for 2025 and 2026 was described as a baseline ; given potential cost pressures such as fuel and labor, how achievable is this target, and what measures are you implementing to ensure you can meet or exceed it?

    Past Guidance

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024

    Guidance:

    1. FY 2024:

      • Adjusted EBITDA: Approximately $2.2 billion, an 18% improvement versus 2023, with margins improving by almost 250 basis points .
      • Adjusted Net Income: Approximately $635 million .
      • Adjusted EPS: Approximately $1.23, a 76% increase versus 2023 .
      • Occupancy: Approximately 105% .
      • Net Yield: Increase of approximately 5.5% .
      • Adjusted Net Cruise Cost Excluding Fuel per Capacity Day: Average of approximately $159, a 3.4% increase versus 2023 .

    2. Q1 2024:

      • Net Yield: Increase of approximately 15.5% .
      • Adjusted Net Cruise Cost Excluding Fuel per Capacity Day: $165, a 3% increase versus the same quarter last year .
      • Adjusted EBITDA: Approximately $450 million .
      • Adjusted Net Income: Approximately $50 million .
      • Adjusted EPS: Approximately $0.12 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024

    Guidance:

    1. FY 2024:

      • Net Yield Growth: Raised to approximately 6.5% .
      • Adjusted EBITDA: Increased to $2.5 billion .
      • Adjusted EPS: Increased to $1.32 .
      • Net Leverage: Reduction by approximately 1.5 turns from year-end 2023 .
      • Adjusted Operational EBITDA Margin: Expected to end 2024 at approximately 33.5% .

    2. Q2 2024:

      • Net Yield Growth: Expected to increase by approximately 4.3% .
      • Adjusted Net Cruise Costs, Excluding Fuel per Capacity Day: Approximately $165, with a $9 impact due to increased dry dock days .
      • Adjusted EBITDA: Approximately $555 million .
      • Adjusted Net Income: Approximately $160 million .
      • Adjusted EPS: Approximately $0.32 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024

    Guidance:

    1. FY 2024:

      • Adjusted Operational EBITDA Margin: Expected to end the year at 34.5% .
      • Adjusted EPS: Increased to $1.53 .
      • Net Yield Growth: Expected to increase by 8.2% .
      • Adjusted Net Cruise Cost Excluding Fuel Per Capacity Day: Expected to remain flat .
      • Adjusted EBITDA: Increased to $2.35 billion .
      • Adjusted ROIC: On track for double-digit by year-end .

    2. Q3 2024:

      • Net Yield Growth: Anticipated to be almost 6.5% .
      • Adjusted Net Cruise Cost Excluding Fuel PCD: Expected to increase by 3.3% to $156 .
      • Adjusted EBITDA: Expected to be $870 million .
      • Adjusted EPS: Expected to be $0.92 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A

    Guidance:

    • The documents do not contain information about the Q3 2024 earnings call for Norwegian Cruise Line Holdings (NCLH). Therefore, I cannot provide the guidance metrics from that specific earnings call.

    Latest news

    Recent developments and announcements about NCLH.

    Corporate Leadership

      Leadership Change

      ·
      Jan 6, 2025, 1:50 PM

      Who is leaving: Ms. Andrea DeMarco, President of Regent Seven Seas Cruises, is stepping down from her role.

      Why: Her departure is in connection with the appointment of Mr. Jason Montague as Chief Luxury Officer.

      Who is stepping up: Mr. Jason Montague will assume the role of Chief Luxury Officer, effective February 17, 2025. Additionally, Mr. Frank A. Del Rio, President of Oceania Cruises, will report to Mr. Montague.