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Saturday, August 8, 2015

Norwegian Cruise Line Holdings reports improved financial results; announces new "exotic" itineraries

Second Quarter Adjusted EPS Improves 29.3% to $0.75

Second Quarter Adjusted EBITDA Improves 42.8% to $313.4 million

2016 Synergy Capture Increased to $125 million

New Exotic Itineraries Announced for the Norwegian Brand, Including Australia and Asia
MIAMI, Florida – August 4, 2015 – Norwegian Cruise Line Holdings Ltd. (Nasdaq: NCLH together with NCL Corporation Ltd., “Norwegian Cruise Line Holdings”, “Norwegian” or the “Company”), today reported financial results for the quarter ended June 30, 2015 and provided guidance for the third quarter and full year 2015. 

Second Quarter 2015 Highlights

  • Improvement in Adjusted EPS of 29.3% to $0.75 on Adjusted Net Income of $171.6 million.
  • Increase in Adjusted Net Yield on a Combined Company basis of 1.5%, or 3.2% on a Constant Currency basis, driven by pricing improvement in the quarter.  Increase of 18.2% on an as reported basis.

  • Continued synergy identification efforts from the integration of Norwegian and Prestige lead to synergies of $75 million in 2015 and $125 million in 2016 prior to reinvestment.
Second Quarter 2015 Results

“The benefits of the combination of Norwegian and Prestige are beginning to hit their full stride, resulting in strong earnings growth in the quarter,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd.  “Many of the strategies we have previously communicated are gaining more and more traction, from the weaving of Prestige’s go to market strategy into the Norwegian brand’s pricing and marketing practices, to the focus on adding value for our guests in lieu of discounting, in addition to leveraging our scale to maximize cost efficiencies,” continued Del Rio.  

The Company generated Adjusted Net Income of $171.6 million, or $0.75 per share.  Adjusted EPS increased 29.3% over prior year and was at the top end of the Company’s guidance benefiting from solid Net Yield performance along with favorable timing of certain expenses.  On a GAAP basis, Net Income was $158.5 million, or $0.69 per share compared to prior year of $111.6 million or $0.54 per share.

Adjusted Net Yield improved 18.2% (20.2% on a Constant Currency basis) mainly due to the addition of the Oceania Cruises and Regent Seven Seas Cruises brands which occurred in the fourth 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 increased 1.5%, (3.2% on a Constant Currency basis), reflecting improved pricing in both ticket and onboard revenue in the quarter.  Adjusted Net Revenue in the period was $832.4 million compared to $595.7 million in 2014, an increase of 39.7% primarily as a result of the addition of the Oceania Cruises and Regent brands.

Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 21.1% (22.0% on a Constant Currency basis), primarily as a result of the Acquisition of Prestige, while on a Combined Company basis decreased 4.7% (4.0% on a Constant Currency basis), primarily due to the timing of certain expenses that will now occur in the second half of the year.  The Company’s fuel price per metric ton, net of hedges, decreased 10.3% to $558 from $622 in 2014.

Interest expense, net increased to $52.4 million from $31.9 million as a result of the incremental debt from the Acquisition of Prestige.  Other income (expense) was $(3.7) million, reflecting a non-recurring charge related to certain of the Company’s fuel derivatives, partially offset by the fair value increase related to a foreign exchange collar for the Seven Seas Explorer newbuild.  The charge related to fuel derivatives resulted from a shift in the original implementation timeline for the Company’s exhaust gas scrubber project. As a result of this shift, the Company changed the mix of its future fuel consumption, resulting in a dedesignation of the associated fuel hedges.

2015 Guidance and Sensitivities

In addition to the results for the second quarter, the Company also provided guidance for the third quarter and full year 2015, along with accompanying sensitivities.  Guidance for Adjusted Net Yield and Adjusted Net Cruise Cost Excluding Fuel per Capacity Day are provided on an as reported basis as well as a Combined Company basis, which compares expectations to 2014 results that include the results of Prestige assuming the acquisition had occurred at the beginning of 2014.

The strong booking environment that began with the 2015 wave season has continued into the second and third quarters with volumes continually outpacing the same time last year.  Looking to 2016, resurgence in Caribbean demand, combined with the strong booking environment, has resulted in 30% more booked revenue compared to the same time last year on a capacity increase of approximately 11%.

“Building on the strong results for the first half of the year, we are raising the midpoint of our 2015 full year earnings guidance,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd.  “While still early in the 2016 booking cycle, we have seen strong demand across all three brands,” continued Beck.

As of June 30, 2015, the Company had hedged approximately 48%, 54%, 44% and 17% of its 2015, 2016, 2017 and 2018 projected metric tons of fuel purchases, respectively.  The average fuel price per metric ton of the hedge portfolio for the same periods is $478, $468, $409 and $384, respectively.

Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of June 30, 2015, anticipated capital expenditures were $1.0 billion for the remainder of 2015, and $0.9 billion and $1.1 billion for each of the years ending December 31, 2016 and 2017, respectively, of which we have export credit financing in place for the expenditures related to ship construction contracts of $0.7 billion for the remainder of 2015, $0.5 billion for 2016 and $0.6 billion for 2017.

Company Updates and Other Business Highlights

Integration Update
The integration efforts as a result of the Acquisition of Prestige are substantially complete.  The Company reiterates its 2015 gross synergy capture of $75 million, comprised of $30 million in revenue, $45 million in cost synergies, of which $20 million is earmarked for reinvestment in the year.  The Company has identified an incremental $10 million in synergies for full year 2016, bringing the gross synergy capture for 2016 to $125 million, of which $40 million will be reinvested into business initiatives to further drive demand to the Company’s three brands.

As part of the Acquisition of Prestige a contingent consideration of up to $50 million was payable upon achievement of certain 2015 Net Revenue targets. Based on the probability of achievement of the Net Revenue targets, the Company reversed the remaining contingent consideration liability of $34.3 million in the second quarter.

International Business Development Update
A number of milestones supporting the Company’s international business development strategy are well underway, including the establishment of a sales and marketing center in Sydney, which will represent all three brands in Australia, New Zealand and the Pacific Islands.

The Company has substantially completed its study and assessment of entering the China-sourced market with dedicated vessels perhaps as early as 2017.  Accordingly, the Company expects to announce its decision sooner than the original spring 2016 timeframe.

Other Highlights
The Company announced new exotic itineraries for 2016, including Australia and Asia for the Norwegian brand.  Five Norwegian brand ships have been redeployed for fall 2016 and winter 2017 as part of the Company’s strategy to diversify deployment to higher yielding regions.  “We are leveraging our global worldwide itinerary expertise from Prestige and are excited to expand our portfolio of offerings on the Norwegian brand,” said Frank Del Rio.  “These new offerings will include itineraries in the Far East, Australia and New Zealand, along with a more diversified selection of itineraries in South America, the Mediterranean and the Caribbean,” continued Del Rio. 

About Norwegian Cruise Line Holdings Ltd.

Norwegian Cruise Line Holdings Ltd. is a diversified cruise operator of leading global cruise lines spanning market segments from contemporary to luxury under the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands.

These brands operate a combined 21 ships with approximately 40,000 lower berths and offer itineraries to approximately 510 destinations worldwide.  The Company’s brands will introduce six additional ships through 2019.

Norwegian Cruise Line is the innovator in cruise travel with a history of breaking the boundaries of traditional cruising, most notably with the introduction of Freestyle Cruising, which revolutionized the industry by giving guests more freedom and flexibility on the most contemporary ships at sea.  Oceania Cruises is the market leader in the upper-premium cruise segment featuring the finest cuisine at sea, elegant accommodations, impeccable service and destination-driven itineraries.  Regent Seven Seas Cruises is the market leader in the luxury cruise segment with all-suite accommodations, highly personalized service and the industry’s most inclusive luxury experience featuring round-trip air, fine wines and spirits and unlimited shore excursions among its numerous included amenities.


Acquisition of Prestige. In November 2014, pursuant to the Merger Agreement, we acquired Prestige in cash and stock for a total transaction consideration of $3.025 billion, including the assumption of debt. The acquisition consideration is subject to a contingent cash payment of up to $50 million upon achievement of certain 2015 revenue milestones.
Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Revenue, Adjusted Net Revenue, Gross Yield, Net Yield, Adjusted 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 “Terminology” for the definitions of these non-GAAP financial measures. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in 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 North America, a portion of our revenue and expenses are denominated in foreign currencies, particularly euro and British Pound sterling, which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. 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.

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We 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. Adjusted EBITDA is not 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 charges 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, and 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. The charges excluded in the presentation of Adjusted Net Income and Adjusted EPS may vary from period to period; accordingly, our presentation of Adjusted Net Income and Adjusted EPS may not be indicative of future adjustments or results.

You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below.

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