Norwegian Reports Stronger Than Expected Q1 Results

Open Jaw

Norwegian Cruise Line Holdings Ltd today reported financial results for the quarter ended 31MAR on better than expected net yields primarily from Oceania and Regent and provided an update on integration of the lines.

“I am pleased to report strong earnings out of the gate for our 1st full quarter of operations following the combination of Norwegian and Prestige late last year,” said Frank Del Rio, President & Chief Executive Officer of Norwegian Cruise Line Holdings Ltd. “These results are even more impressive as they come against strong comparables in the prior year, particularly for the Norwegian brand, and headwinds from foreign currency exchange rates.”

Norwegian generated stronger than expected adjusted earnings per share of $0.27 on Adjusted Net Income of $62.6 million. Earnings exceeded the Company’s guidance of $0.20 to $0.24 per share and benefited from lower than expected interest expense and better than anticipated Net Yield performance. On a GAAP basis, diluted loss per share and net loss were $0.10 and $21.5 million, respectively, primarily due to transaction and integration related costs.

Adjusted Net Yield improved 18.9% (or 19.9% on a Constant Currency basis) mainly due to the acquisition of the Oceania Cruises and Regent Seven Seas Cruises brands in the 4th quarter of 2014. On a Combined Company basis, which compares current results against the combined results of Norwegian and Prestige in the prior year, Adjusted Net Yield was down 0.7% and essentially flat on a Constant Currency basis against a strong 1st quarter of 2014 that included the benefit of a one month charter of Norwegian Jade for the 2014 Winter Olympics. Adjusted Net Revenue for the period increased 46.0% to $728.9 million as a result of the acquisition of the Oceania Cruises and Regent brands as well as approximately 1 month of incremental sailings from Norwegian Getaway which debuted in early 2014. Revenue in the period increased to $938.2 million from $664.0 million in 2014.

Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 28.7% (29.3% on a Constant Currency basis), primarily as a result of the Prestige acquisition, while on a Combined Company basis increased 5.6% (6.1% on a Constant Currency basis). The Company’s fuel price per metric ton decreased 18.2% to $526 from $643 in 2014.

The incremental debt from the acquisition drove an increase in interest expense, net to $51.0 million from $31.2 million; however, lower than anticipated interest rates resulted in expense that was lower than the Company’s guidance. Expense of $30.1 million in other income (expense) in 2015 was primarily attributable to a fair value adjustment on a foreign exchange collar for one of the Company’s newbuilds.

As a result of continued integration and related synergies, NCLH has identified $75 million in synergies for full year 2015, comprised of $30 million in revenue and $45 million in cost synergies. The company had previously communicated the identification of $15 million in revenue and $25 million in cost synergies for a total of $40 million for 2015. Of the incremental synergies, the Company is earmarking $20 million for reinvestment directed to business initiatives to further drive demand to the Company’s 3 brands, resulting in net synergies of $55 million for 2015.

“The identification of additional synergies has come as the result of a truly collaborative effort between our dedicated integration team and all areas of the organization,” said Del Rio. “Tasked with a mandate that synergies have a neutral or positive impact on the guest experience, the organization has come together to identify meaningful incremental synergies. The net synergies will have an immediate impact on the bottom line in 2015, while amounts reinvested in our business initiatives will benefit our strategies for earnings growth in 2016 and beyond,” continued Del Rio.

For the full year 2016, the Company has identified synergies of $115 million which includes the annualization of initiatives introduced in 2015 coupled with new initiatives. Of these, the Company plans to reinvest $40 million, resulting in net synergies for the year of $75 million.

In addition to Q1 results, NCLH also looked ahead to Q2 and full year 2015. NCLH expects impacts from continued fluctuations in foreign exchange rates and an unscheduled Dry-dock for Norwegian Star for warranty-related repairs on its propeller system which malfunctioned following the ship’s scheduled Dry-dock in Q1.

“We are raising the midpoint of our guidance to take into account the better than anticipated interest expense and net yield performance in the first quarter,” said Wendy Beck, Executive Vice President & Chief Financial Officer of Norwegian Cruise Line Holdings Ltd. “We are maintaining our net yield and net cruise cost guidance for the year as benefits from our incremental revenue synergies offset the anticipated foreign currency headwinds and the revenue impact from the unscheduled dry-dock of Norwegian Star. Further, the reinvestment of $20 million into demand-driving initiatives is offset by incremental cost synergies identified in the quarter.”

Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of March 31, 2015, anticipated capital expenditures were $1.1 billion for the remainder of 2015, and $0.9 billion and $1.0 billion for each of the years ending December 31, 2016 and 2017, respectively.

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