Royal Caribbean Group today provided an update on demand and updated its 2024 guidance.
The company said it continues to be very encouraged about the demand and pricing environment for 2024.
Since its most recent update on its Q4 2023 earnings call, the WAVE booking season has exceeded the company’s initial expectations, with the first five weeks of the year resulting in the best WAVE booking weeks in the company’s history.
“Bookings have been significantly higher than during the same period last year, with the back half of the year up by more than the front half. For 2024, all four quarters and all key products are booked ahead of the same time last year in both rate and volume. Consumer spending for onboard purchases continue to exceed prior years driven by greater participation at higher prices, indicating quality and healthy future demand,” the company said in a statement.
“Since our last earnings call, robust demand for our vacation experiences has significantly exceeded our initial expectations,” said Jason Liberty, president and CEO of Royal Caribbean. “As a result, we are increasing our 2024 guidance on stronger revenue outlook, and we expect to achieve all Trifecta goals in 2024. Trifecta marks an important milestone as we remain intensely focused on delivering a lifetime of vacations and priceless memories for our guests while delivering exceptional long-term shareholder value.”
As a result of the strong WAVE season, the company is increasing its 2024 Adjusted EPS guidance by $0.40 compared to its February guidance. For the full year, Adjusted EPS is now expected to be $9.90 to $10.10 driven by an increase in constant currency net yield growth of approximately 100 bps compared to the February guidance. Approximately $0.15 of the full year increase in adjusted EPS is driven by an improved revenue outlook for the first quarter of 2024. The company now expects to achieve all Trifecta goals in 2024.
Norwegian Cruise Line Holdings today reported financial results for the third quarter ended September 30, 2023 and provided guidance for the fourth quarter and full year 2023.
Third Quarter 2023 Highlights:
The company met or exceeded guidance for all key metrics in the third quarter.
Generated total revenue of $2.5 billion, a record for the company and up 33% compared to the same period in 2019, and GAAP net income of $345.9 million, or EPS of $0.71.
Achieved Adjusted EBITDA of $752 million and Adjusted EPS of $0.76, exceeding guidance of $730 million and $0.70 respectively. Third quarter performance was driven by solid revenue performance and continued focus on cost reduction.
Occupancy was 106% in the quarter, in line with guidance, and total revenue per Passenger Cruise Day increased approximately 16% both as reported and in constant currency, compared to the same period in 2019.
Ongoing margin enhancement initiative continued to drive sequential improvement in operating costs. Gross Cruise Costs per Capacity Day was approximately $311 in the quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $152, in line with guidance and lower than the prior quarter of $156, representing the third consecutive quarter of sequential operating cost improvement since the initiative was implemented.
Cumulative booked position for the fourth quarter of 2023 continues to be at record levels and at higher pricing. The company also remains within its optimal booked position on a 12-month forward basis and at higher pricing.
Successfully completed refinancing of Operating Credit Facility which extended debt maturity profile and provided incremental liquidity. Liquidity at quarter end was $2.2 billion and would have been $2.5 billion including the impact of the October refinancing.
Full year 2023 Adjusted EBITDA is expected to be approximately $1.86 billion, within the previously provided range despite the impact of global events including the wildfires in Maui and the escalating conflict in Israel. Full year 2023 Adjusted EPS is expected to be $0.73, below prior guidance of $0.80.
“We achieved strong third quarter results, meeting or beating guidance on all key metrics, driven not only by healthy demand from our target upmarket consumer, but also as our ongoing margin enhancement initiative, including relentless efforts to rightsize our cost base, continues to bear fruit,” said Harry Sommer, president and chief executive officer of Norwegian Cruise Line Holdings Ltd.
“Looking ahead, while we are prudently moderating short term expectations and keeping a close eye on rapidly evolving global macroeconomic and geopolitical events, we remain encouraged by our strong forward booked position and robust pricing and are focused on sustaining this momentum as we close out 2023.”
Sommer continued: “I am confident that we are taking the right steps today to best position us to deliver on our goals of rebuilding margins, generating outsized returns on our disciplined capacity growth, reducing leverage, and maintaining best-in-class product and service offerings which we believe will drive value for all of our stakeholders.”
Business, Operations and Booking Environment Update
According to a press release, the company continues to experience healthy consumer demand with the cumulative booked position for the fourth quarter of 2023 ahead of 2019 levels at continued higher pricing. On a 12-month forward basis the company also continues to be within its optimal booked position and at higher pricing. Onboard revenue generation remains robust with broad-based strength across all revenue streams. As of September 30, 2023, the company’s advance ticket sales balance, including the long-term portion, was $3.1 billion, approximately 59% higher than the third quarter of 2019.
During the third quarter and into the fourth quarter, the company experienced operational impacts from global events including the wildfires in Maui and the escalating conflict in Israel.
Pride of America, which offers year-round inter-island Hawaii itineraries, modified certain itineraries in August to avoid stressing local resources in Maui. Beginning in early September, with the guidance and encouragement of the Hawaii Governor and Hawaii Tourism Authority, the company resumed scheduled weekly calls to Kahului, Maui. However, following the wildfires the company experienced a temporary slowdown in close-in bookings for sailings in Hawaii, primarily concentrated in the fourth quarter of 2023. Demand has improved in recent weeks and is now approaching normalized levels. In addition to Pride of America, the company also had one additional ship operating in the region, Norwegian Spirit, bringing total capacity with calls to Hawaii to approximately 6% for the fourth quarter of 2023.
In addition, as a result of the escalation of the conflict in Israel, the company has cancelled and redirected all calls to Israel and certain calls to the surrounding region for the remainder of 2023. The company is also in the process of cancelling all calls to Israel in 2024 as well, and will continue to closely monitor and evaluate future sailings and adjust as needed. Prior to the conflict, approximately 7% of capacity in the fourth quarter of 2023 and 4% of capacity for the full year 2024 visited the Middle East1.
Occupancy averaged 106.1% for the third quarter of 2023, in line with guidance and reflective of the company’s strategic shift to longer, more immersive itineraries. Full year 2023 Occupancy is expected to average 102.6%, which is slightly lower than prior guidance due to temporary disruptions impacting the fourth quarter.
Pricing growth in the third quarter was also strong on 20% capacity growth compared to 2019. Total revenue was up 33% in the third quarter versus 2019 with total revenue per Passenger Cruise Day up approximately 16% as reported and in constant currency. Gross margin per Capacity Day was approximately $148 in the quarter. Net Yield growth of approximately 3.1% versus 2019 on a constant currency basis was in line with guidance.
Looking ahead, the company expects fourth quarter Net Per Diem and Net Yield growth to be strong at approximately 15.00% to 16.00% and 7.75% to 8.75% on a constant currency basis and compared to 2019, respectively. This is below previous expectations due to the aforementioned external headwinds, as well as lower than expected close-in demand for certain longer, exotic itineraries on Norwegian Cruise Line (“NCL”) in late season Eastern Mediterranean and certain parts of Asia. As NCL has strategically shifted to its new longer, more immersive deployment mix, the booking curves, sourcing and marketing plans for certain itineraries continue to be optimized. While this caused a temporary disconnect versus initial expectations in the fourth quarter of 2023, plans have now been recalibrated resulting in a significantly better booked position for the same fourth quarter period in 2024, compared to same time last year for 2023. As a result, the company’s full year 2023 Net Per Diem and Net Yield growth are expected to be 9.25% to 9.75% and 4.25% to 4.75% on a constant currency basis compared to 2019, versus previous guidance of 9.0% to 10.5% and 5.0% to 6.5%.
The company once again demonstrated continued progress on its ongoing margin enhancement initiative and efforts to maximize revenue opportunities and rightsize its cost base. Gross Cruise Costs per Capacity Day in constant currency was approximately $311 in the quarter, compared to $315 last quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency in the third quarter of 2023 was approximately $152, an improvement versus the second quarter of $156 and in line with guidance, representing the third consecutive quarter since this initiative began of sequential improvement in this key metric. As expected, in addition to core cost savings realized in the quarter, the third quarter also included certain one-time cost benefits that are not expected to reoccur.
Full year 2023 Adjusted Net Cruise Costs excluding Fuel per Capacity Day is now expected to be approximately $155 on a constant currency basis, an improvement versus previous guidance of $156. 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.
Liquidity and Financial Position
The company is committed to prioritizing efforts to optimize its balance sheet and reduce leverage. As of September 30, 2023, the company had total debt of $13.9 billion, total Net Debt of $13.2 billion and continues to expect improvement in its Net Leverage. The company repaid approximately $130 million and $1.5 billion of debt in the third quarter and first nine months of 2023, respectively.
In October, the Operating Credit Facility refinancing was successfully completed, extending the company’s debt maturity profile and providing incremental liquidity. The Revolving Loan Facility was upsized from $875 million to $1.2 billion with a 3-year term maturing in October 2026. In addition, in October the company issued $790 million aggregate principal amount of 8.125% senior secured notes due 2029. The net proceeds, together with cash on hand, were used to fully repay approximately $800 million of term loans maturing in January 2025 under the Operating Credit Facility.
At quarter-end, liquidity was $2.2 billion, or approximately $2.5 billion adjusting for the October refinancing. This consists of approximately $680 million of cash and cash equivalents, $1.2 billion of availability under its Revolving Loan Facility and a $650 million undrawn backstop commitment.
“Last month we successfully completed the refinancing of our Operating Credit Facility, extending our debt maturity profile and further improving our liquidity position,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “We were also pleased that the transaction was not only oversubscribed by multiples, but also generated significant interest from new investors, reflecting confidence in our company and trajectory.”
Kempa continued: “We continue to believe that our strong liquidity position, coupled with our ongoing cash generation and attractive growth profile, provide a path to meet our near-term liquidity needs, including scheduled debt amortization payments and capital expenditures, and significantly reduce leverage and de-risk our balance sheet over time.”
Third Quarter 2023 Results
GAAP net income was $345.9 million or EPS of $0.71 compared to net loss of $(295.4) million or EPS of $(0.70) in the prior year. The Company reported Adjusted Net Income of $388 million or Adjusted EPS of $0.76 in the third quarter of 2023. This compares to Adjusted Net Loss and Adjusted EPS of $(268.3) million and $(0.64), respectively, in the third quarter of 2022. Adjusted EBITDA in the third quarter was approximately $752 million, better than guidance driven primarily by solid revenue performance and lower Adjusted Net Cruise Costs.
Gross Cruise Costs per Capacity Day was approximately $311 in the quarter. Adjusted Net Cruise Costs excluding Fuel per Capacity Day in constant currency was approximately $152, reflecting a decrease compared to the second quarter of 2023 as benefits from the Company’s ongoing margin enhancement initiative continue to be realized.
The Company reported fuel expense of $171 million in the quarter. Fuel price per metric ton, net of hedges, decreased to $727 from $830 in 2022. Fuel consumption of 235,000 metric tons was approximately 2% lower than projected reflecting an increased focus on fuel efficiency.
Interest expense, net was $181.2 million in 2023 compared to $152.3 million in 2022. The increase in interest expense is primarily the result of higher interest rates.
Other income (expense), net was income of $12.1 million in 2023 compared to income of $31.5 million in 2022. In 2023, the income primarily related to net gains and losses on foreign currency remeasurements.
Royal Caribbean Group today reported second-quarter Earnings per Share of $1.70 and Adjusted Earnings per Share of $1.82.
These results were significantly better than the company’s guidance due to more robust pricing on closer-in demand and further strength in onboard revenue, the company said in a statement.
As a result of the accelerating demand environment for its vacation experiences, the company is increasing its 2023 Adjusted Earnings per Share guidance by 33% to $6.00 – $6.20.
“Our brands continue to fire on all cylinders, resulting in record yields and second-quarter earnings significantly exceeding our expectations,” said Jason Liberty, president and CEO, of Royal Caribbean Group. “Demand for cruising and our brands is exceptionally strong and we have seen another step change in booking volumes and pricing, leading us to now expect double-digit net yield growth for the full year. We also expect to achieve record Adjusted EBITDA per APCD and Return on Invested Capital this year and are well on our way toward achieving our Trifecta goals.”
Key Highlights
Strong ticket pricing from both North America and Europe itineraries, combined with strength in onboard revenue, led to better-than-expected revenues in the second quarter and a significant increase in the company’s full-year outlook for revenue and earnings.
Second Quarter 2023:
Gross Margin Yields increased 13.1% As-Reported, and Net Yields increased 12.9% in Constant-Currency (12.6% As-Reported), both compared to the second quarter of 2019.
Gross Cruise Costs per Available Passenger Cruise Day (“APCD”) increased by 10.9% As-Reported, and Net Cruise Costs (“NCC”), excluding Fuel, per APCD increased by 9.0% in Constant-Currency (8.6% As-Reported), both compared to the second quarter of 2019. The favourable timing of operating expenses was offset by the increase in stock compensation expense due to the rise in share price and expected financial performance.
Total revenues were a record $3.5 billion, Net Income was $458.8 million or $1.70 per share, Adjusted Net Income was $491.7 million or $1.82 per share, Adjusted EBITDA was a record $1.2 billion and Operating Cash Flow was $1.4 billion.
Full Year 2023 Outlook:
Net Yields are expected to increase 11.5% to 12.0% in Constant-Currency and As-Reported, compared to 2019.
NCC, excluding Fuel, per APCD is expected to be up approximately 7.0% in Constant-Currency (6.7% As-Reported), compared to 2019. The increase in costs, relative to previous guidance, is driven by an increase in stock compensation expense due to the rise in share price and expected financial performance.
Adjusted Earnings per Share for the entire year are expected to be in the range of $6.00 to $6.20 per share.
Third Quarter 2023 Outlook:
Net Yields are expected to increase 13.5% to 14.0% in Constant-Currency (14.0% to 14.5% As-Reported), compared to the third quarter of 2019.
NCC, excluding Fuel, per APCD is expected to increase by approximately 11.2% in Constant-Currency and As-Reported, compared to the third quarter of 2019. Approximately half of the cost increase compared to 2019 is related to structural costs, a timing shift of operating expenses from the second quarter, and an increase in stock compensation expense.
Adjusted Earnings per Share for the third quarter are expected to be in the range of $3.38 to $3.48 per share.
Second Quarter 2023
The company reported Net Income for the second quarter of $458.8 million or $1.70 per share compared to Net Loss of $(0.5) billion or $(2.05) per share for the same period in the prior year. The company also reported an Adjusted Net Income of $491.7 million or $1.82 per share for the second quarter compared to an Adjusted Net Loss of $(0.5) billion or $(2.08) per share for the same period in the prior year.
Second-quarter revenue significantly exceeded the company’s guidance due to higher pricing and higher shipboard revenue across the company’s key itineraries, including the Caribbean and Europe. The load factor for the second quarter was 105%.
Gross Cruise Costs per APCD increased by 10.9% As-Reported, compared to 2019. NCC, excluding Fuel, per APCD increased by 8.6% As-Reported and 9.0% in constant currency, compared to 2019. Favourable timing of operating expenses drove NCC lower, however, it was offset entirely by an increase in stock compensation expense-related costs due to the significant rise in share price and expected financial performance.
Update on Bookings
Booking volumes in the second quarter remained significantly higher than in the corresponding period in 2019 and at record pricing levels. Demand for 2023 sailings has significantly exceeded expectations and bookings for 2024 sailings are up significantly versus all prior years at record prices. Demand from the North American consumer has remained incredibly strong throughout the year, and booking volumes from European consumers who are booking European cruises this summer have accelerated.
The further increase in yield expectations for the year is the result of higher pricing and onboard revenue expectations for key itineraries, particularly in North America and Europe. Consumer spending onboard, as well as pre-cruise purchases, continue to significantly exceed 2019 levels driven by greater participation at higher prices.
As of June 30, 2023, the Group’s customer deposit balance was at a record-high $5.7 billion.
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