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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.09pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.06pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.25pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+4
conflicts+2
threat+2
conflict+2
recession+2
Positive rising
opportunities+2
effective+1
favorable+1
benefit+1
best+1
Risk Factors (Item 1A)
11,486 words
Item 1A. Risk Factors
In addition to the other information contained in this Annual Report, you should carefully consider the following risk factors in evaluating our business. If any of the risks discussed or additional risks and uncertainties not currently known to us or that we currently deem to be immaterial actually occur, our business, financial condition and results of operations could be materially adversely affected. The ordering of the risk factors below is not intended to reflect an indication of priority or likelihood. In connection with the forward-looking statements that appear in this Annual Report, you should also carefully review the cautionary statement referred to under “Cautionary Statement Concerning Forward–Looking Statements.”
Debt/Liquidity Related Risk Factors
If our results of operations and financial performance do not perform as planned, we may not be in compliance with maintenance covenants in certain of our debt facilities.
Certain of our debt facilities include maintenance and financial covenants. For example, under the Seventh ARCA, we are required to maintain a loan to value ratio of less than 0.70 to 1.00. Financial covenants include free liquidity of no less than $250,000,000 at all times, an EBITDA to consolidated debt service ratio of at least 1.25 to 1.00 at the end of each fiscal quarter unless free liquidity is greater than or equal to $300,000,000 at that time and a total net funded debt to total capitalization ratio. If we expect not to be in compliance, we would expect to seek waivers from the lenders under these facilities or these facilities prior to any covenant .
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+4
closing+2
missteps+1
Positive rising
great+3
prestige+2
gains+1
constructive+1
enhance+1
MD&A (Item 7)
8,743 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Presentation
The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. You should read this information in conjunction with the consolidated financial statements and the notes thereto included in this Annual Report. See also “Cautionary Statement Concerning Forward-Looking Statements” immediately prior to Part I, Item 1 in this Annual Report.
We categorize revenue from our cruise and cruise-related activities as either “passenger ticket” revenue or “onboard and other” revenue. Passenger ticket revenue and onboard and other revenue vary according to product offering, the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere’s summer months. 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. Onboard and other revenue primarily consists of revenue from casinos, beverage sales, shore excursions, specialty dining, retail sales, spa services and Wi-Fi services. Our onboard revenue is derived from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.
Any covenant waiver or renegotiation of any of our debt facilities has led, and may in the future lead, to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under these debt facilities, and such increased costs, restrictions and modifications may vary among debt facilities. Our ability to provide additional lender protections under these facilities will be limited by the restrictions in our indebtedness. There can be no assurance that we would be able to obtain waivers or renegotiate these facilities in a timely manner, on acceptable terms or at all.
If we were not able to obtain a covenant waiver under any one or more of these debt facilities or renegotiate or repay such facilities, we would be in default of such agreements, which could result in cross defaults to our other debt agreements and an acceleration of the indebtedness under such debt facilities. As a consequence, we would need to refinance or repay the applicable debt facility or facilities and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities, and there can be no assurance that we would be successful in doing so. In addition, in such events, our credit card processors could hold back payments to create a reserve. We cannot provide assurances that we would have sufficient liquidity to repay, or the ability to refinance, our debt and derivative contract payables if such amounts were accelerated upon an event of default. If we were unable to repay those amounts, the holders of our secured indebtedness could proceed against the collateral granted to them to secure that indebtedness, which includes a significant portion of our assets, including our ships. Any such action would have an adverse impact on our business, financial condition and results of operations. As a result, the failure to obtain the covenant waivers or renegotiate or repay our facilities as described above would have a material adverse effect on us and our ability to service our debt obligations.
We anticipate that we will need additional financing in the future, which may not be available on favorable terms, or at all, and our outstanding exchangeable notes and any future financing may be dilutive to existing shareholders.
We anticipate that we will need additional equity and/or debt financing in the future to refinance our existing debt and to fund our newbuild program. We may be unable to obtain any desired additional financing on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors that are outside of our control, including general economic and market conditions, the health of financial institutions, our credit ratings and investors’ and lenders’ assessments of our prospects and the prospects of the cruise industry in general.
If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants, which may be more restrictive than the covenants in our existing debt agreements, and we may be required to
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further encumber our assets. We may not have sufficient available collateral to pledge to support additional financing. If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our operations or respond to competitive pressures, which could negatively affect our business. Our credit ratings, which have been downgraded in the past, could be downgraded again in the future, which could have an impact on the availability and/or cost of financing. In addition, we may conclude that there is a substantial doubt about our ability to operate as a going concern, which could have additional effects on our credit ratings and the availability and/or cost of financing. There can be no assurance that our ability to access the credit and/or capital markets will not be adversely affected by changes in the financial markets and the global economy. If we are not able to fulfill our liquidity needs through operating cash flows and/or borrowings under credit facilities or otherwise in the capital markets, our business and financial condition could be adversely affected, and it may be necessary for us to reorganize our Company in its entirety, including through bankruptcy proceedings, and our shareholders may lose their investment in our ordinary shares.
If we raise additional funds through equity and/or debt issuances, NCLH’s shareholders could experience dilution of their ownership interest, and these securities could have rights, preferences, and privileges that are superior to that of holders of NCLH’s ordinary shares. Further, the exchange of some or all of our outstanding exchangeable notes may dilute the ownership interests of NCLH’s shareholders. Upon exchange of any of the exchangeable notes, any sales in the public market of NCLH’s ordinary shares issuable upon such exchange could adversely affect prevailing market prices of NCLH’s ordinary shares. In addition, the existence of the exchangeable notes may encourage short selling by market participants that engage in hedging or arbitrage activity, and anticipated exchange of any of the exchangeable notes into NCLH ordinary shares could depress the price of NCLH’s ordinary shares.
Our indebtedness, and the agreements governing our indebtedness, may limit our flexibility in operating our business and a substantial majority of our assets are collateral under our debt agreements.
A substantial portion of our cash flow from operations is dedicated to the repayment of our indebtedness, which may limit our available funds for other business functions and strategic opportunities and may make us more vulnerable to downturns in our business, the economy and the industry in which we operate. We may not be able to generate sufficient cash to service our indebtedness, and we may be forced to take other actions to satisfy our obligations under our indebtedness, including refinancing our indebtedness, which may not be successful. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
In addition, the agreements governing our indebtedness contain, and any instruments governing future indebtedness of ours may contain, covenants that impose significant operating and financial restrictions on us, including restrictions or prohibitions on our ability to, among other things: incur or guarantee additional debt or issue certain preference shares; pay dividends on or make distributions in respect of our share capital or make other restricted payments, including the ability of NCLH’s subsidiaries, including NCLC, to pay dividends or make distributions to NCLH; repurchase or redeem capital stock or subordinated indebtedness; make certain investments or acquisitions; transfer, sell or create liens on certain assets; and consolidate or merge with, or sell or otherwise dispose of all or substantially all of our assets to other companies. As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
The impact of volatility and disruptions in the global credit and financial markets could increase our counterparty credit risks, including those under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees.
Economic downturns, including failures of financial institutions and any related liquidity crisis, can disrupt the capital and credit markets. Such disruptions could cause counterparties under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees to be unable to perform their obligations or to breach their obligations to us under our contracts with them, which could include failures of financial institutions to fund required borrowings under our loan agreements and to pay us amounts that may become due under our derivative contracts and other agreements. Also, we may be limited in obtaining funds to pay amounts due to our counterparties under our derivative contracts and to pay amounts that may become due under other agreements. If we were to elect to replace any counterparty for their failure to perform their obligations under such instruments, we would likely incur
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significant costs to replace the counterparty. Any failure to replace any counterparties under these circumstances may result in additional costs to us or an ineffective instrument.
Any potential impairment of our trade names or goodwill could adversely affect our financial condition and operating results.
We evaluate trade names and goodwill for impairment on an annual basis, or more frequently when circumstances indicate that the carrying value of a reporting unit may not be recoverable. Several factors including a challenging operating environment impacting consumer demand or spending, the deterioration of general macroeconomic conditions, or other factors could result in a change to the future cash flows we expect to derive from our operations. Reductions of the cash flows used in the impairment analyses may result in the recording of an impairment charge to a reporting unit’s trade name or goodwill. For example, we recognized significant impairmentlosses during 2020 related to a pandemic. We believe that we have made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges.
Operational Related Risk Factors
Unavailability of ports of call may materially adversely affect our business, financial condition and results of operations.
We believe that attractive port destinations are a major reason why guests choose to go on a particular cruise or on a cruise vacation. The availability of ports is affected by a number of factors, including, but not limited to, health, safety, and environmental concerns, existing capacity constraints, security, adverse weather conditions and natural disasters, financial limitations on port development, political instability, armed conflicts, exclusivity arrangements that ports may have with our competitors, governmental regulations, including sanctions and fees, and local community concerns about port development and tourism. For example, currently and in the past, regulatory changes, global pandemics, armed conflicts and damages to ports from hurricanes have prohibited our cruise voyages from visiting certain regions. Certain ports have also significantly increased fees related to cruise visits, affecting the profitability of visiting those destinations. There can be no assurance that our ports of call will not be similarly affected in the future. Due to environmental and over-crowding concerns, some local governments have begun to take measures to limit the number of cruise ships and passengers allowed at certain destinations. Limitations on the availability of ports of call or on the availability of shore excursions and other service providers at such ports have adversely affected our business, financial condition and results of operations in the past and could do so in the future.
We rely on scheduled commercial airline services for passenger and crew connections. Increases in the price of, or major changes, significant delays and disruptions, or reductions in, commercial airline services has, and could in the future, disrupt our operations.
Many of our passengers and crew depend on scheduled commercial airline services to transport them to ports of embarkation for our cruises. Increases in the price of airfare due to increases in fuel prices, fuel surcharges, changes in commercial airline services as a result of health and safety events, strikes, airspace congestion or air traffic control and other airline- or airport-related staffing shortages, weather or other events, or the lack of availability due to schedule changes or increased airline bookings, have and could adversely affect our ability to transport guests and crew and thereby increase our cruise operating expenses which, in turn, have had and could have an adverse effect on our financial condition and results of operations. For example, many commercial airlines reduced services, experienced staffing shortages and suffered other disruptions due to a pandemic and other macroeconomic conditions. Pandemic-related regulations also prevented us from using commercial airline services to transport our crew members to and from our ships, which resulted in increased costs to our Company.
Global events and conditions, including terrorist acts, geopolitical conflict, armed conflicts, acts of piracy, and other international events impacting the security of travel or the global economy, or threats thereof, could adversely affect our business.
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Global events and conditions, including the threat or possibility of future terrorist acts, geopolitical conflict, outbreaks of hostilities or armed conflict, political unrest and instability, government shutdowns, the issuance of government travel advisories or elevated threatwarnings, increases in the activity of pirates, and other geo-political uncertainties, or the possibility or fear of such events, have had in the past and may again in the future have an adverse impact on our business. Any of these events or conditions may adversely affect demand for, and pricing of, our cruises. Such events or conditions may also have downstream effects on the global economic environment, including increased fuel and commodity pricing, supply chain shortages, labor shortages, volatility in the global capital markets, contraction of the global economy leading to decreased consumer discretionary spending, and other effects impossible to predict at this time.
Armed conflicts have also impacted, and could in the future impact, our profitability and product offering by limiting the destinations to which we can travel and our operations by making it more difficult to source crew members, guests and third-party vendors from affected regions and making it more difficult or costly to source goods we need to run our operations or to build or maintain our ships. Further, armed conflicts have contributed to extreme volatility in the global financial markets and have had, and may continue to have, further global economic consequences, including disruptions of the global supply chain and energy markets and heightened volatility of commodity fuel prices. Such volatility or disruptions have had, and may continue to have, adverse consequences to our business, our suppliers and our customers. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy, capital markets or commodity fuel prices resulting from armed conflicts and other geopolitical tensions.
Additionally, we have been, and may continue to be, impacted by heightened regulations around customs and border control, travel bans to and from certain geographical areas, voluntary changes to our itineraries in light of geopolitical events, government policies increasing the difficulty of travel and limitations on issuing international travel visas.
Public health crises have had, and may in the future have, a significant impact on our financial condition, results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price.
Public health crises have in the past, and could have in the future, significant negative impacts on all aspects of our business. We have been, and may in the future be, subject to heightened governmental regulations, travel advisories, travel bans and restrictions that have and could significantly impact our global guest sourcing and our access to various ports of call around the globe. We have had instances of disease outbreaks on our ships, and there is no guarantee that the health and safety protocols we implement will be successful in preventing the spread of infectious disease onboard our ships and among our passengers and crew. We have been and may in the future be the subject of lawsuits and investigations stemming from outbreaks of infectious disease. We cannot predict the number or outcome of any such proceedings and the impact that they will have on our financial results, but any such impact may be material.
Epidemics, pandemics and viral outbreaks or other wide-ranging public health crises in the future would likely also adversely affect our business, financial condition and results of operations. For example, in March 2020, we implemented a voluntary suspension of all cruise voyages across our three brands due to the COVID-19 pandemic. This caused significant costs and lost revenue as a result of, among other things, the suspension of cruise voyages, implementation of additional health and safety measures, increased concern related to illness when traveling to, from, and on our ships, reduced demand for cruise vacations, guest compensation, itinerary modifications, redeployments and cancellations, travel restrictions and advisories, the unavailability of ports and/or destinations and protected commissions. We were also negatively impacted by adverse impacts to our travel agencies and suppliers due to COVID-19, and we may experience similar impacts in the event of a future pandemic or other public health crises.
Adverseincidents involving cruise ships may adversely affect our business, financial condition and results of operations.
The operation of cruise ships carries an inherent risk of loss caused by adverse weather conditions and maritime disasters, including, but not limited to, oil spills and other environmental mishaps, extreme weather conditions, fires,
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mechanical failures, collisions, human error, war, terrorism, piracy, political action, civil unrest and insurrections in various countries and other circumstances or events. Any such event may result in loss of life or property, loss of revenue or increased costs and the frequency and severity of natural disasters may increase due to climate change. The operation of cruise ships also involves the risk of other incidents at sea, while in port or during shore excursions operated and/or offered by us and third parties, including missing guests, inappropriate crew or passenger behavior and onboard crimes, which may bring into question passenger safety, may adversely affect future industry performance and may lead to litigationagainst us. We have experienced accidents and other incidents involving our cruise ships in the past and there can be no assurance that similar events will not occur in the future. It is possible that we could be forced to cancel cruises due to these factors or incur increased port-related and other costs resulting from such adverse events. Any such event involving our cruise ships or other passenger cruise ships may adversely affect guests’ perceptions of safety or result in increased governmental or other regulatory oversight. An adverse judgment or settlement in respect of any of the ongoing claimsagainst us may also lead to negative publicity about us. The expanded use of social media has increased the speed that negative publicity spreads and makes it more difficult to mitigate reputational damage. Geopolitical conflicts, including ongoing conflicts, may affect itineraries, destination access, fuel availability and costs, and consumer demand, and may heighten cyber and operational risks. Anything that damages our reputation (whether or not justified), could also have an adverse impact on demand, which could adversely affect our business, financial condition and results of operations. If there is a significant accident, mechanical failure or similar problem involving a ship, we may have to place a ship in an extended Dry-dock period for repairs. This could result in material lost revenue and/or increased expenditures.
Our business depends on maintaining and strengthening our brand to attract new customers and maintain ongoing demand for our offerings, and a significant reduction in such demand could harm our results of operations.
Our name and brand image are integral to the growth of our business, as well as to the implementation of our strategies for expanding our business. Our ability to execute our marketing and growth strategy depends on many factors, including the perceived quality of our services, our communication activities, including advertising, social media, and public relations, and our management of the customer experience, including through customer service. Maintaining, promoting, and positioning our brand are important to expanding our customer base and will depend largely on the success of our marketing efforts and our ability to provide consistent, high-quality customer experiences despite any impacts from our cost management and capital allocation strategies.
We have used, and expect to continue to use, corporate partnerships, brand ambassadors and traditional, digital and social media to promote our business. Marketing campaigns can be expensive and may not result in the cost-effective acquisition of customers. Ineffective marketing and promotional activities, negative publicity, unfair labor practices, and failure to protect the intellectual property rights in our brand are some of the potential threats to the strength of our brand, and those and other factors could rapidly and severelydiminish customer confidence in us. Furthermore, actions taken by individuals that we partner with, such as brand ambassadors, influencers or our associates, that fail to represent our brand in a manner consistent with our brand image, whether through our social media platforms or their own, could also harm our brand reputation and materially impact our business. Future marketing campaigns may not attract new customers at the same rate as past campaigns. If we are unable to attract new customers, or fail to do so in a cost-effective manner, our growth could be slower than we expect and our business could be harmed.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology, including the adoption and use of artificial intelligence (“AI”). These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. In the past, we have not always achieved the anticipated benefits from the implementation of new systems or technologies, and we may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies or reservation systems, in the future and a failure to do so could result in higher than anticipated costs or could impair our operating results.
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The adverse impact of general economic and related factors, such as fluctuating or increasing levels of interest rates, inflation, unemployment, underemployment and the volatility of fuel prices, declines in the securities and real estate markets and perceptions of these conditions can decrease the level of disposable income of consumers or consumer confidence. The demand for cruises is affected by international, national and local economic conditions.
The demand for cruises is affected by international, national, local and other macroeconomic conditions. Adverse changes in the perceived or actual economic climate in North America or globally, such as the volatility of fuel prices, elevated interest rates, which have risen significantly in recent years and may remain at elevated levels or fluctuate, stock and real estate market declines and/or volatility, more restrictive credit markets, higher unemployment or underemployment rates, inflation, which has moderated from recent historical highs but may persist or re-accelerate, higher taxes, changes in governmental policies and political developments impacting international trade, trade disputes, increased tariffs or customers’ willingness to travel with us, could reduce the level of discretionary income or consumer confidence in the countries from which we source our guests. Economic conditions remain uncertain, and the potential for an economic slowdown or recession could materially reduce consumer discretionary spending, including spending on cruise vacations. Even absent a recession, sustained elevated interest rates and lingering effects of prior inflationary periods may continue to constrain consumer spending patterns. Consequently, this may negatively affect demand for cruise vacations. Decreases in demand for cruise vacations could result in price discounting or lower Occupancy Percentages, which, in turn, could reduce the profitability of our business. In addition, these conditions could also impact our suppliers, which could result in disruptions in our suppliers’ services and financial losses for us. Our revenues are also sensitive to the activities of other cruise lines in many areas including pricing, itineraries, capacity and promotions, which can have a material adverse impact not only on our revenues, but also on overall industry revenues.
Breaches in data security or other disturbances to our information systems and other networks or our actual or perceived failure to comply with requirements regarding data privacy and protection could impair our operations, subject us to significant fines, penalties and damages, and have a material adverse impact on our business, financial condition and results of operations.
The integrity and reliability of our information systems and networks are crucial to our business operations and a breach, compromise, damage or other disruption to these systems or networks could impair our operations, have an adverse impact on our financial results and negatively affect our reputation and customer demand. In addition, certain networks are dependent on third-party technologies, systems and service providers for which there is no certainty of uninterrupted availability. Among other things, actual or threatened natural disasters, information systems failures, computer viruses, denial-of-service attacks and other cybersecurity incidents may cause disruptions to our information systems, telecommunications and other networks. Our business continuity, disaster recovery, data restoration plans and data and information system security may not prevent disruptions that could result in adverse effects on our operations and financial results. We carry limited business interruption insurance for certain shoreside operations, subject to limitations, exclusions and deductibles.
As part of our ordinary business operations, we and certain of our third-party service providers collect, process, transmit and store a large volume of personally identifiable information, including sensitive information. The security of the systems and networks where we and our service providers store this data is a critical element of our business. We experience cybersecurity threats and incidents of varying degrees on our systems and networks and, as a result, unauthorized parties have obtained in the past, and may in the future, obtain access to our computer systems and networks, including cloud-based platforms. The technology infrastructure and systems of our suppliers, vendors, service providers and partners have in the past experienced and may in the future experience such attacks. Cybersecurity threats can include computer viruses, malware, worms, hackers and other malicious software programs or other attacks, including physical and electronic break-ins, router disruption, sabotage or espionage, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), impersonation of authorized users and coordinated denial-of-service attacks. Threat actors are increasingly leveraging AI to enhance the sophistication, speed, and effectiveness of cyberattacks. The proliferation of AI tools may lower barriers for threat actors and increase the frequency and severity of attacks we face, and our security measures may not keep pace with these evolving capabilities. There can be no assurance that a breach or incident will not have a material impact on our operations and financial results in the future. In addition, we may not be in a position to promptly address security breaches, unauthorized access or other cybersecurity incidents or to implement adequate preventative measures if we are unable to
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immediately detect such incidents. Our failure to successfully prevent, mitigate or timely respond to such incidents could impair our ability to conduct business and damage our reputation.
We are also subject to laws in multiple jurisdictions relating to the privacy and protection of personal data. Noncompliance with these laws or the compromise of information systems used by us or our service providers resulting in the loss, disclosure, misappropriation of or access to the personally identifiable information of our guests, prospective guests, employees or vendors could result in governmental investigation, civil liability or regulatory penalties under laws protecting the privacy of personal information, any or all of which could disrupt our operations and materially adversely affect our business. Additionally, any material failure by us or our service providers to maintain compliance with the Payment Card Industry security requirements or to rectify a data security issue may result in fines and restrictions on our ability to accept credit cards as a form of payment. The regulatory framework for data privacy and protection is uncertain for the foreseeable future, and it is possible that legal and regulatory obligations may continue to increase and may be interpreted and applied in a manner that is inconsistent or possibly conflicting from one jurisdiction to another.
In the event of a data security breach of our systems and/or third-party systems or a cybersecurity incident, we may incur costs associated with the following: response, notification, forensics, regulatory investigations, public relations, consultants, credit identity monitoring, credit freezes, fraud alert, credit identity restoration, credit card cancellation, credit card reissuance or replacement, data restoration, regulatory fines and penalties, vendor fines and penalties, legal fees, damages and settlements. In addition, a data security breach or cybersecurity incident may cause business interruption, information system disruption, disruptions as a result of regulatory investigation or litigation, digital asset loss related to corrupted or destroyed data, loss of company assets, damage to our reputation, damages to intangible property and other intangible damages, such as loss of consumer confidence, all of which could impair our operations and have an adverse impact on our financial results.
Changes in fuel prices and the type of fuel we are permitted to use and/or other cruise operating costs would impact the cost of our cruise ship operations and our hedging strategies may not protect us from increased costs related to fuel prices.
Fuel expense is a significant cost for our Company. Increases in fuel costs are expected as regulatory requirements take effect and alternative fuel demand outpaces infrastructure deployment, and our strategies may not fully offset these pressures.
We are required to use alternate fuel sources as regulations aimed at reducing carbon intensity have been introduced, and we may choose to use alternative fuels in order to achieve any emissions reduction targets we have and may in the future adopt. For example, the E.U. included the maritime shipping sector in the scope of its Emissions Trading System, which regulates GHG emissions through a “cap and trade” principle, since January 2024. In addition, as of January 1, 2025, the FuelEU Maritime regulation is designed to promote the use of renewable, low-carbon fuels and clean energy technologies for ships, and mandates ships calling at E.U. ports gradually reduce the GHG intensity of their fuel usage. Under the FuelEU Maritime regulation, ships that have a higher GHG intensity than the requirement must pay a penalty that is progressively increased if the ship has a compliance deficit for two or more consecutive reporting periods. We could also experience increases in other cruise operating costs due to market forces, global inflationary pressures and economic or political instability resulting from increases or volatility in fuel expense. Our hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to market conditions, including choice of hedging instruments, breakdown of correlation between hedging instrument and market price of fuel and failure of hedge counterparties. To the extent that we use hedge contracts that have the potential to create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit our ability to benefit fully from lower fuel costs in the future. Additionally, deterioration in our financial condition could negatively affect our ability to enter into new hedge contracts in the future.
Mechanical malfunctions and repairs, delays in our shipbuilding program, maintenance and refurbishments and the consolidation of qualified shipyard facilities could adversely affect our results of operations and financial condition.
The new construction, refurbishment, repair and maintenance of our ships are complex processes and involve risks similar to those encountered in other large and sophisticated equipment construction, refurbishment and repair projects.
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Our ships are subject to the risk of mechanical failure or accident, which we have occasionally experienced and have had to repair. For example, in the past we have had to delay or cancel cruises due to mechanical issues on our ships. There can be no assurance that we will not experience similar events in the future. If there is a mechanical failure or accident in the future, we may be unable to procure spare parts when needed or make repairs without incurring material expense or suspension of service, especially if a problem affects certain specialized maritime equipment, such as the radar, a pod propulsion unit, the electrical/power management system, the steering gear or the gyro system. Limited capacity and availability of shipyards and related subcontractors, including a lack of viable Dry-dock facilities in the Western Hemisphere, could impact our ability to construct or repair ships as needed. Delays or mechanical faults may result in cancellation of cruises and/or necessitate unscheduled Dry-docks and repairs of ships.
In addition, availability, work stoppages, insolvency or financial problems in the shipyards’ construction, refurbishment or repair of our ships, other “force majeure” events that are beyond our control and the control of shipyards or subcontractors, or changes to technical specifications due to regulatory changes, sustainability initiatives or other strategic initiatives could also delay or prevent the newbuild delivery, refurbishment and repair and maintenance of our ships. Any termination or breach of contract following such an event may result in, among other things, the forfeiture of prior deposits or payments made by us, potential claims and impairment of losses. A significant delay in the delivery of a new ship, or a significant performance deficiency or mechanical failure of a new ship could also have an adverse effect on our business. The impacts of global events including armed or geopolitical conflicts and pandemics, a lack of viable Dry-dock facilities, modifications to our newbuilds, including potential initiatives to improve environmental sustainability, and other macroeconomic events have resulted in some delays in expected ship deliveries, and may result in additional delays in ship deliveries in the future, which may be prolonged. The consolidation of the control of certain European cruise shipyards could result in higher prices for the construction of new ships and refurbishments and could limit the availability of qualified shipyards to construct new ships. Also, the lack of qualified shipyard repair facilities could result in the inability to repair and maintain our ships on a timely basis. Any occurrence that prevented such third party from continuing to oversee such projects or substantially increased the costs related to such oversight could have an adverse effect on our operations. These potential events and the associated losses, to the extent that they are not adequately covered by contractual remedies or insurance, could adversely affect our results of operations and financial condition.
Conducting business internationally may result in increased costs and risks.
We operate our business internationally and plan to continue to develop our international presence. Operating internationally exposes us to a number of risks, including political risks, risks of increases in duties, taxes and tariffs, risks relating to anti-bribery laws, as well as risks that laws and policies affecting cruising, vacation or maritime businesses, or governing the operations of foreign-based companies may change. Additional risks include imposition of trade barriers, withholding and other taxes on remittances and other payments by subsidiaries and changes in and application of foreign taxation structures, including value added taxes. If we are unable to address these risks adequately, our business, financial condition and results of operations could be materially and adversely affected.
Operating internationally also exposes us to numerous and sometimes conflicting legal and regulatory requirements. In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards. We have implemented safeguards and policies to prevent violations of various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business by our employees and agents. However, our existing safeguards and policies and any future improvements may prove to be less than effective, and our employees or agents may engage in conduct prohibited by our policies, but for which we nevertheless may be held responsible. If our employees or agents violate our policies, if we fail to maintain adequate record-keeping and internal accounting practices to accurately record our transactions or if we fail to implement or maintain other adequate safeguards, we may be subject to regulatory sanctions or severecriminal or civil sanctions and penalties.
Our failure or inability to recruit or retain qualified personnel or the loss of key personnel or employee relations issues may materially adversely affect our business, financial condition and results of operations.
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We must continue to recruit, retain and motivate management and other employees to maintain our current business and support our projected growth. We need to hire and train a considerable number of qualified crew members to staff the ships that will be joining our fleet in the coming years. This may require significant efforts on the part of our management team, and our failure or inability to hire a sufficient number of qualified crew members would adversely affect our business. Currently, we are a party to collective bargaining agreements with certain crew members. Any future amendments to such collective bargaining agreements or inability to satisfactorilyrenegotiate such agreements may increase our labor costs and have a negative impact on our financial condition. In addition, although our collective bargaining agreements have a no-strike provision, they may not prevent a disruption in work on our ships in the future. Any such disruptions in work could have a material adverse effect on our financial results.
Our executive officers and other members of senior management have substantial experience and expertise in our business and have made significant contributions to our growth and success. The loss of services of one or more of these individuals could materially adversely affect us.
Negative perceptions about the cruise industry, carbon intensity, sustainability or otherwise may make it increasingly difficult to retain and hire additional crew members to staff our fleet and to recruit new employees generally.
Shareholder activism could adversely affect our business, financial condition, results of operations and share price.
Actions by activist shareholders that target our company and our business may not align with our business strategies or the best interests of all of our shareholders. Responding to activist shareholders can be costly and time-consuming, diverting the attention of our Board of Directors and management from the pursuit of our business strategies. We have incurred, and may in the future incur, significant expenses related to such matters, including legal, financial, advisory and proxy solicitation costs. Shareholder activism could also give rise to perceived uncertainties as to our future direction, make it more difficult to attract and retain qualified personnel, and cause our share price to fluctuate based on speculative market perceptions that do not reflect our underlying business fundamentals, which could adversely affect our business, financial condition, results of operations and share price.
Impacts related to climate change may adversely affect our business, financial condition and results of operations.
There has been an increased focus on GHG and other emissions from global regulators, consumers and other stakeholders. Regulations addressing climate change that have already been adopted or are being considered, as described under “Risks Related to the Regulatory Environment in Which We Operate,” may have significant adverse impacts to our profitability and operations. In addition, concern about climate change may cause consumers to avoid certain kinds of travel including cruise and air travel, which could impact our ability to source guests. Increasing concerns about GHG emissions may attract scrutiny from investors and may make it more difficult and/or costly for us to raise capital. 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. We expect to make significant investments in technology, equipment and alternative fuels in order to comply with climate-related regulations and achieve any climate-related targets we may set, and our profitability and operations may be adversely impacted by such investments. These investments may have costs beyond our expectations and may not ultimately benefit us as expected. The actions we take to meet our emissions reduction goals and requirements have in the past and may again result in delays to our shipbuilding program. Our ability to achieve our sustainability commitments and goals will depend on a number of variable factors, some of which are outside of our control. We may fall short of any sustainability goals we set, including those disclosed publicly, which may result in negative impacts to our reputation, financial condition and results of operations. Conversely, backlash against our sustainability initiatives and commitments may harm our reputation among other stakeholders and expose us to related liabilities.
Our inability to obtain adequate insurance coverage may adversely affect our business, financial condition and results of operations.
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There can be no assurance that our risks are fully insured against or that any particular claim will be fully paid by our insurance. Such losses, to the extent they are not adequately covered by contractual remedies or insurance, could affect our financial results. In addition, we have been and continue to be subject to calls, or premiums, in amounts based not only on our own claim records, but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity coverage for tort liability. Our payment of these calls and increased premiums could result in significant expenses to us. If we, or other members of our protection and indemnity associations, were to sustain significant losses in the future, our ability to obtain insurance coverage at commercially reasonable rates or at all could be materially adversely affected. For example, in the past our protection and indemnity associations have increased certain deductibles and determined not to cover certain categories of claims. Moreover, irrespective of the occurrence of such events, there can still be no assurance that we will be able to obtain adequate insurance coverage at commercially reasonable rates or at all.
Litigation, enforcement actions, fines or penalties could adversely impact our financial condition or results of operations and damage our reputation.
Our business is subject to various U.S. and international laws and regulations that could lead to enforcement actions, fines, civil or criminalpenalties or the assertion of litigationclaims and damages. In addition, improper conduct by our employees or agents could damage our reputation and/or lead to litigation or legal proceedings that could result in civil or criminalpenalties, including substantial monetary fines. In certain circumstances, it may not be economical to defendagainst such matters, and a legal strategy may not ultimately result in us prevailing in a matter. Such events could lead to an adverse impact on our financial condition or results of operations.
As a result of any ship-related or other incidents, litigationclaims, enforcement actions and regulatory actions and investigations, including, but not limited to, those arising from personal injury, loss of life, loss of or damage to personal property, business interruptionlosses or environmental damage to any affected coastal waters and the surrounding area, may be asserted or brought against various parties, including us and/or our brands. The time and attention of our management may also be diverted in defending such claims, actions and investigations. Subject to applicable insurance coverage, we may also incur costs both in defendingagainst any claims, actions and investigations and for any judgments, fines, civil or criminalpenalties if such claims, actions or investigations are adversely determined.
We rely on third parties to provide hotel management services for certain ships and certain other services, and we are exposed to risks facing such providers. In certain circumstances, we may not be able to replace such third parties or we may be forced to replace them at an increased cost to us.
We rely on external third parties to provide hotel management services for certain ships and certain other services, such as technology and payment processing services, that are vital to our business. If these service providers suffer financial hardship or sufferdisruptions or are unable to continue providing such services, we cannot guarantee that we will be able to replace such service providers in a timely manner, which may cause an interruption in our operations. To the extent that we are able to replace such service providers, we may be forced to pay an increased cost for equivalent services. Both the interruption of operations and the replacement of the third-party service providers at an increased cost could adversely impact our financial condition and results of operations.
Fluctuations in foreign currency exchange rates could adversely affect our financial results.
We earn revenues, pay expenses, purchase and own assets and incur liabilities in currencies other than the U.S. dollar; most significantly, a portion of our revenue and expenses are denominated in foreign currencies, particularly British pounds, Canadian dollars, euros and Australian dollars. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. The strengthening of the U.S. dollar against our other major currencies may adversely affect our U.S. dollar financial results and will reduce the U.S. dollar amount received upon conversion of these currencies into U.S. dollars.
We currently have certain ship construction contracts and newbuild-related debt denominated in euros. We are exposed to fluctuations in the euro exchange rate for the portions of the ship construction contracts and euro-denominated debt
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that have not been hedged with foreign currency derivatives. A weakening of the U.S. dollar against the euro would have a negative impact on our financial performance to the extent that these contracts have not been hedged. Additionally, if a shipyard is unable to perform under the related ship construction contract, any associated foreign currency hedges that were entered into to manage the currency risk would need to be terminated.
Our expansion into new markets and investments in new markets, businesses and land-based destination projects may not be successful.
We believe there remains significant opportunity to expand our passenger sourcing into major markets in the future, such as Europe and Australia, as well as into emerging markets and to expand our itineraries in new markets. Expansion into new markets requires significant levels of investment and attention from management. There can be no assurance that these markets will develop as anticipated or that we will have success in these markets, and if we do not, we may be unable to recover our investment spent to expand our business into these markets and may forgo opportunities in more lucrative markets, which could adversely impact our business, financial condition and results of operations. From time to time, we pursue acquisitions and may pursue acquisitions in the future, which are subject to, among other factors, our ability to identify attractive business opportunities and to negotiate favorable terms for such opportunities. Accordingly, we cannot make any assurances that potential acquisitions will be completed timely or at all, or that if completed, we would realize the anticipated benefits of such acquisitions. We have also made, and plan to continue to make, investments in land-based projects including port facilities and destination projects that are susceptible to impacts from, among other things, weather events, regulatory restrictions, labor risks, shortages of goods and materials and resistance from local populations. Any such impacts to our land-based projects could adversely impact our business, financial condition and results of operations.
Overcapacity in key markets or globally could adversely affect our operating results.
We continue to expand our fleet through our newbuild program and expect to add additional ships to our fleet. Our competitors have also announced similar expansions to their fleets. These increases in capacity in the cruise industry globally and potential overcapacity in certain key markets may cause us to lower pricing, which would reduce profitability and adversely affect our results of operations. Additionally, older ships in our fleet may not be as competitive as new ships enter the market, and we may not be able to effectively sell or charter such older ships at optimal prices.
Our use of AI technologies may present business, compliance, and reputational risks.
We use AI technologies in some of our business processes, including some consumer-facing features. Developing our own AI technologies requires resources to develop, test, and maintain such technologies, which could be costly. Adding AI technologies, especially generative AI, in both new and existing business processes may introduce additional risks, including increased governmental or regulatory scrutiny, litigation, compliance issues, ethical concerns, as well as other factors that could adversely affect our business, reputation, and financial results. Specifically, using AI technologies may lead to accuracy issues, security vulnerabilities, or biases, among other things, which may compromise data security, intellectual property, or client information, and adversely impact our reputation, business, financial condition and results of operations. We may also fail to adopt AI technologies at an appropriate pace, which could put us at a competitive disadvantage.
We operate in a highly competitive vacation market, which could adversely affect our results.
We compete in a broad and highly competitive vacation market in which cruising is one of many leisure options available to consumers. We face competition not only from other cruise lines, but also from a wide range of alternative vacation offerings, including hotels, resorts, short-term lodging providers, theme parks and packaged travel experiences. Competition within the cruise industry is driven by factors such as pricing, itinerary and destination offerings, ship features, service levels, marketing and travel advisor relationships. Competitive actions, including changes in pricing, capacity, deployment and promotional activity, may adversely affect our revenues, margins and operating results.
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Risks Related to the Regulatory Environment in Which We Operate
We are subject to complex laws and regulations, including environmental, health and safety, labor, data privacy and protection and maritime laws and regulations, which could adversely affect our operations and certain recently introduced laws and regulations and future changes in laws and regulations could lead to increased costs and/or decreased revenue.
Increasingly stringent and complex international, federal, state, and local laws and regulations addressing environmental protection and health and safety of workers could affect our operations. The IMO, a United Nations agency with responsibility for the safety and security of shipping and the prevention of marine pollution by ships, the Council of the European Union, individual countries, the United States, and individual states have implemented and are considering, new laws and rules to manage cruise ship operations. Many aspects of the cruise industry are subject to international treaties such as SOLAS, an international safety regulation, MARPOL, IMO’s requirements governing environmental protection, and STCW, an IMO regulation governing ship manning. In the United States, the EPA and the U.S. Coast Guard both have regulations addressing cruise ship operations.
The U.S. and various state and foreign government and regulatory agencies have enacted or are considering new environmental regulations and policies aimed at restricting or taxing emissions, including those of greenhouse gases, requiring the use of low-sulfur fuels, requiring the use of shore power while in port, increasing fuel efficiency requirements, reducing the threat of invasive species in ballast water, and improving sewage and greywater-handling capabilities. For example, the maritime shipping sector has been included in the E.U.’s Emissions Trading System since the beginning of 2024. Under the directive ships over 5,000 Gross Tons that transport passengers or cargo to or from E.U. member state or EEA ports are required to purchase and surrender emissions allowances equivalent to emissions for all or a half of a covered voyage, depending on whether the voyage was between two E.U. or EEA ports or an E.U. or EEA and a non-E.U. or EEA port. The requirements are being phased in from 2024 to 2026. Beginning in 2024, covered entities were required to procure and surrender allowances equivalent to 40% of their carbon emissions, with the amount increasing to 70% of carbon emissions in 2025 and 100% of GHG emissions in 2026. The IMO has also implemented and considered additional requirements for the shipping industry that promote the reduction of GHG emissions.
Compliance with such laws and regulations has resulted in increased costs to our Company and is expected to entail significant expenses for a combination of: ship modifications, purchases of emissions allowances, alternative fuels and higher-cost compliant newbuilds. Compliance is also expected to result in changes to our operating procedures, including limitations on our ability to operate in certain locations and slowing the speed of our ships and may render some ships obsolete, which would adversely impact our operations. These issues are, and we believe will continue to be, areas of focus by the relevant authorities throughout the world. This could result in the enactment of more stringent regulation of cruise ships that would subject us to increasing compliance costs in the future. We may not be able to comply with future and existing regulations and may be subject to fines, penalties and limitations on our ability to operate. Some environmental groups continue to lobby for more extensive oversight of cruise ships and have generated negative publicity about the cruise industry and its environmental impact.
Additionally, currently and in the past, states have implemented taxes and fees that impact the cruise industry. It is possible that other states, countries or ports of call that our ships regularly visit may also decide to assess new taxes or fees or change existing taxes or fees specifically applicable to the cruise industry and its employees and/or guests, which could increase our operating costs and/or could decrease the demand for cruises.
Changes in tax laws, or challenges to our tax positions, could adversely affect our results of operations and financial condition.
We believe and have taken the position that substantially all of our income that is considered to be derived from the international operation of ships, as well as certain income that is considered to be incidental to such income (“shipping income”), is exempt from U.S. federal income taxes under Section 883, based upon certain assumptions as to shareholdings and other information as more fully described in “Item 1—Business—Taxation.”
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The provisions of Section 883 are subject to change at any time, possibly with retroactive effect. Moreover, the exemption for shipping income is only available for years in which NCLH will satisfy complex stock ownership tests or the publicly-traded test under Section 883 as described in “Item 1—Business—Taxation—Exemption of International Shipping Income under Section 883 of the Code.” There are factual circumstances beyond our control, including changes in the direct and indirect owners of NCLH’s ordinary shares, which could cause us or our subsidiaries to lose the benefit of this tax exemption. Accordingly, there can be no assurance that we will continue to be exempt from U.S. income tax on U.S. source shipping income in the future. If we were not entitled to the benefit of Section 883, we and our subsidiaries would be subject to U.S. taxation on a portion of the income derived from or incidental to the international operation of our ships, which would reduce our net income.
We may be subject to state, local and non-U.S. income or non-income taxes in various jurisdictions, including those in which we transact business, own property or reside. We may be required to file tax returns in some or all of those jurisdictions. Our state, local or non-U.S. tax treatment may not conform to the U.S. federal income tax treatment discussed above. We may be required to pay non-U.S. taxes on dispositions of foreign property or operations involving foreign property that may give rise to non-U.S. income or other tax liabilities in amounts that could be substantial.
The various tax regimes to which we have historically been subject result in a relatively low effective tax rate on our worldwide income. These tax regimes, however, are subject to change, possibly with retroactive effect. For example, the OECD and numerous jurisdictions have had an increased focus on issues concerning the taxation of multinational businesses and have adopted several related reforms, including the implementation of a global minimum tax rate of at least 15% for large multinational businesses that was effective January 1, 2024 or later, which could have a material adverse effect on our aggregate tax liability and effective tax rate. In late 2023, in response to the OECD’s BEPS 2.0 Pillar 2 global tax reform, the Company restructured its organizational structure by realigning many of its operations across its three different brands into a single jurisdiction, Bermuda. In connection with the reorganization, among other steps, certain NCLH subsidiaries were redomiciled to Bermuda. If our assumptions and interpretations regarding the global minimum tax rules or our efforts to reorganize prove to be incorrect for any reason, our business, financial condition and results of operations could be materially adversely affected. We expect global tax reform will continue to evolve over the coming years and will continue to monitor these developments and plan accordingly.
The global minimum tax rules include three Pillar 2 taxing mechanisms to ensure large multinational businesses pay a minimum effective tax rate of 15% on their profits worldwide. The primary taxing mechanism is the Qualified Domestic Minimum Top-up Tax (“QDMTT”). No other taxing mechanisms apply to constituent entities (i.e., NCLH’s group companies) that are tax residents in a jurisdiction that has enacted a QDMTT. Since Bermuda has not implemented a QDMTT, the other two taxing mechanisms could apply such as the Income Inclusion Rule (“IIR”) or the Undertaxed Profits Rule (“UTPR”). Even though NCLH and its subsidiaries became subject to the UTPR effective January 1, 2025, the Company does not expect to have a material impact from the UTPR mechanism. The primary reason for this result is that a large portion of the Company’s shipping income is exempt under the Pillar 2 shipping income exemption rule discussed below.
Additionally, previously we obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax, including tax on profits or income among others, such tax shall not be applicable to them until March 31, 2035. Such assurances were superseded by the passage of new legislation as described below.
On December 27, 2023, the Bermuda Corporate Income Tax Act 2023 (“Bermuda Act”) was enacted in Bermuda. Under the Bermuda Act, the corporate income tax will be determined based on a statutory tax rate of 15% effective for fiscal years beginning on or after January 1, 2025. The corporate income tax will apply only to Bermuda tax resident businesses that are part of multinational enterprise groups with €750 million or more in annual revenues, pursuant to the consolidated financial statements of the ultimate parent entity, in at least two of the four fiscal years immediately preceding the year in question.
As enacted, the Bermuda Act makes it clear that any corporate income tax liability is due regardless of the above assurances under the Exempted Undertakings Protection Act 1966. Therefore, we are subject to the Bermuda corporate income tax as of January 1, 2025. Similar to Pillar 2, and as described above, the Bermuda Act provides for an
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international shipping income exclusion. In order for a Bermuda entity’s international shipping income to qualify for the exclusion, the entity must demonstrate that the strategic or commercial management of all ships concerned is effectively carried on from or within Bermuda. We believe we have met the necessary requirements to qualify for the international shipping income exclusion during 2025, but we cannot provide any assurances. Additionally, the Bermuda Act provides for companies to be able to offset 80% of their Bermuda taxable income with any tax loss deductions available on an annual basis. The Bermuda Act provides for opening tax loss carryforwards based on the Bermuda taxable income (loss) results of the individual Bermuda entities in the five fiscal years prior to the enactment date, which includes 2020 through 2024 calendar years for the Company. If our assumptions and interpretations regarding the Bermuda Act prove to be incorrect for any reason, our business, financial condition, and results of operations could be materially adversely affected.
In addition, there cannot be certainty that the relevant tax authorities are in agreement with our interpretation of applicable tax laws. If our tax positions are challenged by relevant tax authorities, the imposition of additional taxes could increase our effective tax rate and have a negative effect on our business, financial condition and results of operations. The occurrence of any of the foregoing tax risks could have a material adverse effect on our business, financial condition and results of operations.
Our ability to comply with economic substance requirements in certain jurisdictions and increased costs associated with our efforts to comply may have a negative impact on our operations.
Our Company and certain of its subsidiaries are or may be subject to economic substance requirements in their jurisdictions of formation or continuation, including, but not limited to, Bermuda, Guernsey, Isle of Man, British Virgin Islands, The Bahamas and Saint Lucia. Pursuant to the legislation passed in each jurisdiction, entities subject to each jurisdiction’s laws that carry out relevant activities as specified in such laws are required to demonstrate adequate economic substance in that jurisdiction and meet the economic substance requirements under such laws. In general terms, such economic substance requirements mean that: (i) the entity must be actually directed and managed in the jurisdiction; (ii) core income-generating activities relating to the applicable relevant activity must be performed in the jurisdiction; (iii) there are adequate suitably qualified employees in the jurisdiction; (iv) the entity maintains adequate physical presence in the jurisdiction; and (v) there is adequate operating expenditure incurred in the jurisdiction. We have evaluated the activities of NCLH, NCLC and their subsidiaries and have concluded that, in some cases, those activities are “relevant activities” for the purposes of the applicable economic substance laws and that, consequently, certain entities within our organization will be required to demonstrate compliance with these economic substance requirements. We have in the past and may in the future be subject to increased costs and our management team may be required to devote significant time to satisfying economic substance requirements in certain of these jurisdictions. If such entities cannot demonstrate compliance with these requirements, we may be liable to pay penalties and fines in the applicable jurisdictions and/or may take the decision to re-domicile such entities to different jurisdictions that may have tax regimes and other regulatory regimes which may be less favorable. We continued to take what we believe were the necessary steps to meet Bermuda’s economic substance requirements during 2025.
Risks Related to NCLH’s Ordinary Shares
Shareholders of NCLH may have greaterdifficulties in protecting their interests than shareholders of a U.S. corporation.
We are a Bermuda exempted company. The Companies Act 1981 of Bermuda (the “Companies Act”), which applies to NCLH, differs in material respects from laws generally applicable to U.S. corporations and their shareholders. Taken together with the provisions of NCLH’s bye-laws, some of these differences may result in you having greaterdifficulties in protecting your interests as a shareholder of NCLH than you would have as a shareholder of a U.S. corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with our Company, what approvals are required for business combinations by our Company with a large shareholder or a wholly-owned subsidiary, what rights you may have as a shareholder to enforce specified provisions of the Companies Act or NCLH’s bye-laws, and the circumstances under which we may indemnify our directors and officers.
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NCLH does not expect to pay any cash dividends for the foreseeable future.
NCLH does not currently pay dividends to its shareholders, and NCLH’s Board of Directors may never declare a dividend. Our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of NCLH’s subsidiaries, including NCLC, to pay distributions to NCLH and NCLH’s ability to pay cash dividends to its shareholders. In addition, any determination to pay dividends in the future will be entirely at the discretion of NCLH’s Board of Directors and will depend upon our results of operations, cash requirements, financial condition, business opportunities, contractual restrictions, restrictions imposed by applicable law and other factors that NCLH’s Board of Directors deems relevant. We are not legally or contractually required to pay dividends. In addition, NCLH is a holding company and would depend upon its subsidiaries for their abilities to pay distributions to NCLH to finance any dividend or pay any other obligations of NCLH. Investors seeking dividends should not purchase NCLH’s ordinary shares.
Provisions in NCLH’s constitutional documents may prevent or discourage takeovers and business combinations that NCLH’s shareholders might consider to be in their best interests.
NCLH’s bye-laws contain provisions that may delay, defer, prevent or render more difficult a takeover attempt that its shareholders consider to be in their best interests. For instance, these provisions may prevent NCLH’s shareholders from receiving a premium to the market price of NCLH’s shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of NCLH’s shares if they are viewed as discouraging takeover attempts in the future. These provisions include (i) the ability of NCLH’s Board of Directors to designate one or more series of preference shares and issue preference shares without shareholder approval; (ii) a classified board of directors; (iii) the sole power of a majority of NCLH’s Board of Directors to fix the number of directors; (iv) the power of NCLH’s Board of Directors to fill any vacancy on NCLH’s Board of Directors in most circumstances, including when such vacancy occurs as a result of an increase in the number of directors or otherwise; and (v) advance notice requirements for nominating directors or introducing other business to be conducted at shareholder meetings.
Additionally, NCLH’s bye-laws contain provisions that prevent third parties from acquiring beneficial ownership of more than 4.9% of its outstanding shares without the consent of NCLH’s Board of Directors and provide for the lapse of rights, and sale, of any shares acquired in excess of that limit. The effect of these provisions may preclude third parties from seeking to acquire a controlling interest in NCLH in transactions that shareholders might consider to be in their best interests and may prevent them from receiving a premium above market price for their shares.
Our cruise operating expense is classified as follows:
Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel advisor commissions, air and land transportation expenses, related credit card fees, certain government taxes, fees and port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price.
Onboard and other primarily consists of direct costs incurred in connection with onboard and other revenue, including casinos, beverage sales and shore excursions.
Payroll and related consists of the cost of wages, benefits and logistics for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships.
Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.
Food consists of food costs for passengers and crew on certain ships.
Other consists of repairs and maintenance (including Dry-dock costs), ship insurance and other ship expenses.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make these estimates and judgments. 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. 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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Ship Accounting
Ships represent our most significant assets, and we record them at cost less accumulated depreciation. Depreciation of ships is computed on a straight-line basis over the weighted average useful lives of primarily 30 years after a 15% reduction for the estimated residual value of the ship. Our residual value is established based on our long-term estimates of the expected remaining future benefit at the end of the ships’ weighted average useful lives. In 2022 and 2023, the Company took delivery of Norwegian’s first Prima Class Ship and Oceania Cruises’ first Allura Class Ship, respectively. Based on the design, structure and technological advancements made to these new classes of ships and the analyses of their major components, which is generally performed upon the introduction of a new class of ship, we have assigned the Prima Class Ships and Allura Class Ships a weighted-average useful life of 35 years with a residual value of 10%. Ship improvement costs that we believe add value to our ships are capitalized to the ship and depreciated over the shorter of the improvements’ estimated useful lives or the remaining useful life of the ship. When we record the retirement of a ship component included within the ship’s cost basis, we estimate the net book value of the component being retired and remove it from the ship’s cost basis. Repairs and maintenance activities are charged to expense as incurred. We account for Dry-dock costs under the direct expense method, which requires us to expense all Dry-dock costs as incurred.
We determine the weighted average useful lives of our ships based primarily on our estimates of the costs and useful lives of the ships’ major component systems on the date of acquisition, such as cabins, main diesels, main electric, superstructure and hull, and their related proportional weighting to the ship as a whole. The useful lives of components of new ships and ship improvements are estimated based on the economic lives of the new components. In addition, to determine the useful lives of the major components of new ships and ship improvements, we consider the impact of the historical useful lives of similar assets, manufacturer recommended lives, planned maintenance programs and anticipated changes in technological conditions. Given the large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require judgment and are uncertain. Should certain factors or circumstances cause us to revise our estimate of ship service lives or projected residual values, depreciation expense could be materially lower or higher.
If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense. If we reduced our estimated weighted average ship service life by one year, depreciation expense for the year ended December 31, 2025 would have increased by $22.3 million. In addition, if our ships were estimated to have no residual value, depreciation expense for the same period would have increased by $94.3 million. We believe our estimates for ship accounting are reasonable and our methods are consistently applied. We believe that depreciation expense is based on a rational and systematic method to allocate our ships’ costs to the periods that benefit from the ships’ usage.
Asset Impairment
We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. For ship impairment analyses, the lowest level for which identifiable cash flows are largely independent of other assets and liabilities is generally each individual ship. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its estimated fair value. We estimate fair value based on the best information available utilizing estimates, judgments and projections as necessary. Our estimate of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the associated risk.
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. For our evaluation of goodwill, we use a qualitative assessment which allows us to first assess qualitative factors to determine whether it is
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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.
In order to make this evaluation, we consider whether any of the following factors or conditions exist:
Changes in general macroeconomic conditions, such as a deterioration in general economic conditions; limitations on accessing capital; fluctuations in foreign exchange rates; or other developments in equity and credit markets;
Changes in industry and market conditions such as a deterioration in the environment in which an entity operates; an increased competitive environment; a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers); a change in the market for an entity’s products or services; or a regulatory or political development;
Changes in cost factors that have a negative effect on earnings and cash flows;
Decline in overall financial performance (for both actual and expected performance);
Entity and reporting unit specific negative events such as changes in management, key personnel, strategy, or customers; litigation; or a change in the composition or carrying amount of net assets; and
Decline in share price (in both absolute terms and relative to peers).
It is at our discretion whether to perform the qualitative test, and we may bypass the qualitative test in any period and proceed directly to the quantitative impairment test. We may also, at our discretion, resume performing the qualitative assessment in any subsequent period.
We believe our estimates and judgments with respect to our long-lived assets, principally ships, goodwill, trade names and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge. If a material change occurred or the result of the qualitative assessment indicated it is more likely than not that the estimated fair value of the asset is less than its carrying value, we would conduct a quantitative assessment comparing the fair value to its carrying value.
We have concluded that our business has three reporting units. 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, 2025, there was $135.8 million of goodwill for the Regent and Norwegian reporting units. Trade names were $500.5 million as of December 31, 2025. As of October 1, 2025, our annual impairment reviews support the carrying values of these assets. See Note 2 – “Summary of Significant Accounting Policies” for more information.
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 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. We utilize Adjusted Gross Margin and Net Yield to manage our business on a day-to-day basis because it reflects revenue earned net of certain direct variable costs. 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, 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.
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We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We also 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. 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, 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. These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance. In addition, management uses Adjusted EPS as a performance measure for our incentive compensation. 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 and Adjusted EPS may not be indicative of future adjustments or results. For example, for the year ended December 31, 2025, we had a loss of $95.1 million related to the write-off of certain information technology assets. We included this as an adjustment in the reconciliation of Adjusted Net Income since the loss 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.
In 2025, drew down on euro-denominated debt for two newbuilds that is primarily unhedged, and we expect to take delivery of ships that have euro-denominated debt in the future. Due to the significant increase in our euro-denominated debt in 2025 and the fact that a substantial portion of our debt is in dollars, we have included the related net foreign currency remeasurement losses as a supplemental adjustment in our calculation of Adjusted Net Income and Adjusted EPS. To ensure comparability, we have retrospectively applied this adjustment to the corresponding periods in 2024, using a consistent methodology. The quantitative impact of these adjustments is presented in the accompanying reconciliation tables within this Annual Report. Non-GAAP diluted weighted-average shares are calculated using the treasury stock method to calculate the effect of restricted share units and options and the if-converted method to calculate the effect of convertible instruments. This is the same methodology that is used when calculating GAAP diluted weighted-average shares. However, the determination of whether the shares are dilutive or anti-dilutive is made independently on a GAAP and non-GAAP net income basis, and therefore, the number of diluted weighted-average shares outstanding for GAAP and non-GAAP may be different.
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 in the “Results of Operations” section.
Financing Transactions
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, and the related collateral was also released. 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
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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.
In April 2025, certain holders exchanged $353.9 million of 2025 Exchangeable Notes for 2030 0.875% Exchangeable Notes and an aggregate Cash Payment of $64.0 million, plus accrued and unpaid interest on the 2025 Exchangeable Notes that were exchanged to, but excluding, the closing date of the Exchange. Additionally, in April 2025, the Company completed April Equity Offerings of 3,358,098 ordinary shares to those holders at a price of $19.06 per share. The Company used the net proceeds from the April Equity Offerings, together with cash on hand, to make the Cash Payment.
In June 2025, NCLC amended the Seventh ARCA to increase the aggregate amount of the lenders’ commitments under the Revolving Loan Facility from $1.7 billion to approximately $2.5 billion.
In September 2025, NCLC issued approximately $1.4 billion of 2030 0.750% Exchangeable Notes, $1.2 billion of 2031 Notes, and $850.0 million of 2033 Notes. Additionally, in September 2025, the Company completed the September Equity Offering with certain institutional investors of 3,313,868 ordinary shares at a price of $24.53 per share. The net proceeds from these transactions, together with cash on hand, were used to (i) complete the Repurchases of a portion of the 2027 1.125% Exchangeable Notes and 2027 2.50% Exchangeable Notes, (ii) complete the Tender Offer or redeem all of the 2026 Notes, 2027 Notes and 2029 Notes and (iii) pay related accrued and unpaid interest, transaction premiums, fees and expenses. The collateral of the Revolving Loan Facility was also modified.
See Note 9 – “Long-Term Debt” for more information.
Update on Bookings
The Company enters 2026 against a pressured backdrop as it is slightly below the optimal booking range following certain execution missteps in aligning our commercial strategy with our deployment. First-quarter performance reflects the absorption of a material increase in capacity in the Caribbean, while longer-term demand trends remain constructive. The Company’s deployment shift is resulting in higher load factors. Demand has been particularly strong across the Company’s luxury brands which benefit from longer booking curves.
Strategic Destination Investment
We announced a second phase of expansion plans for Great Stirrup Cay, the Company’s private island destination in The Bahamas, including a nearly six-acre Great Tides Waterpark expected to open in the summer of 2026. The addition of the nearly six-acre, 19-slide, Great Tides Waterpark which includes a 800-foot dynamic river and a 9,000-square-foot kids’ splash zone, along with other new amenities, will further enhance the guest experience at one of our most popular destinations. This is in addition to the previously announced pier, pool, family splash pad, welcome center and tram, which opened in 2025. The second side of the pier is also expected to open in the summer of 2026.
Strategic Cost Optimization and Macroeconomic Trends
Our strategic cost optimization efforts are driving a disciplined, company-wide focus on identifying efficiencies and optimizing costs across the organization. These initiatives are designed to deliver sustainable savings without compromising the guest experience or the quality of our offerings. Beyond the financial impact, this effort represents an evolution in our culture, embedding cost awareness, accountability, and continuous improvement into the way we operate.
While macroeconomic headwinds or misalignment between our commercial strategy and deployment have and may put pressures on revenue, we believe these impacts may be at least partially offset through the continued execution of our cost optimization efforts. Our focus remains on managing the business for the long term, balancing disciplined pricing and cost control with guest experience and strategic investments for the future. Furthermore, we are exposed to fluctuations in the euro exchange rate for certain portions of ship construction contracts, euro-denominated debt and
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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 targets for greenhouse gas (“GHG”) 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 GHG emissions and provide more details about such targets 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 and alternative fuels, among other things. During 2025, we spent $36.1 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 impact to the Company is not known. During 2025, we recognized $34.2 million of expense related to compliance with the E.U. ETS, the majority 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.
Executive Overview
Total revenue increased 3.7% to $9.8 billion for the year ended December 31, 2025 compared to $9.5 billion for the year ended December 31, 2024. Capacity Days increased by 4.2%.
For the year ended December 31, 2025, we had net income and diluted EPS of $423.2 million and $0.92, respectively. For the year ended December 31, 2024, we had net income and diluted EPS of $910.3 million and $1.89, respectively. Operating income increased to $1.6 billion for the year ended December 31, 2025 from $1.5 billion for the year ended December 31, 2024.
We had Adjusted Net Income and Adjusted EPS of $1.0 billion and $2.11, respectively, for the year ended December 31, 2025, including $607.6 million of adjustments primarily related to certain euro foreign currency remeasurements and losses on extinguishment and modification of debt, compared to Adjusted Net Income and Adjusted EPS of $911.7 million and $1.77, respectively, for the year ended December 31, 2024. Adjusted EBITDA increased 11.4% to $2.7 billion for the year ended December 31, 2025 from $2.5 billion for the year ended December 31, 2024. We refer you to our “Results of Operations” below for a calculation of Adjusted Net Income, Adjusted EPS and Adjusted EBITDA.
Results of Operations
The discussion below compares the results of operations for the year ended December 31, 2025 to the year ended December 31, 2024. 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, 2024 to the year ended December 31, 2023, 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, 2024, which was filed with the U.S. Securities and Exchange Commission on February 27, 2025.
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We reported total revenue, total cruise operating expense, operating income, net income and EPS as follows (in thousands, except per share data):
Year Ended December 31,
Total revenue
Total cruise operating expense
Operating income
Net income
EPS:
Basic
Diluted
The following table sets forth operating data as a percentage of total revenue:
Year Ended December 31,
Revenue
Passenger ticket
Onboard and other
Total revenue
Cruise operating expense
Commissions, transportation and other
Onboard and other
Payroll and related
Fuel
Food
Other
Total cruise operating expense
Other operating expense
Marketing, general and administrative
Depreciation and amortization
Total other operating expense
Operating income
Non-operating income (expense)
Interest expense, net
Other income (expense), net
Total non-operating income (expense)
Net income before income taxes
Income tax benefit (expense)
Net income
The following table sets forth selected statistical information:
Year Ended December 31,
Passengers carried
Passenger Cruise Days
Capacity Days
Occupancy Percentage
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Adjusted Gross Margin and Net Yield were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):
Year Ended December 31,
Total revenue
Less:
Total cruise operating expense
Ship depreciation
Gross margin
Ship depreciation
Payroll and related
Fuel
Food
Other
Adjusted Gross Margin
Capacity Days
Gross margin per Capacity Day
Net Yield
Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):
Year Ended December 31,
Total cruise operating expense
Marketing, general and administrative expense
Gross Cruise Cost
Less:
Commissions, transportation and other expense
Onboard and other expense
Net Cruise Cost
Less: Fuel expense
Net Cruise Cost Excluding Fuel
Less Other Non-GAAP Adjustments:
Non-cash deferred compensation (1)
Non-cash share-based compensation (2)
Adjusted Net Cruise Cost Excluding Fuel
Capacity Days
Gross Cruise Cost per Capacity Day
Net Cruise Cost per Capacity Day
Net Cruise Cost Excluding Fuel per Capacity Day
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day
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.
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Adjusted Net Income and Adjusted EPS were calculated as follows (in thousands, except share and per share data):
Year Ended December 31,
Net income
Effect of dilutive securities - exchangeable notes
Net income and assumed conversion of exchangeable notes
Non-GAAP Adjustments:
Non-cash deferred compensation (1)
Non-cash share-based compensation (2)
Extinguishment and modification of debt (3)
Reversal of U.S. deferred tax asset valuation allowance (4)
Information technology write-off (5)
Net foreign currency adjustments on euro-denominated debt (6)
Effect of dilutive securities - exchangeable notes (7)
Adjusted Net Income
Diluted weighted-average shares outstanding - Net income
Diluted weighted-average shares outstanding - Adjusted Net Income (7)
Diluted EPS
Adjusted EPS
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.
Losses on extinguishments and modifications of debt are included in interest expense, net.
Non-cash income tax benefit related to the reversal of valuation allowances on our U.S. federal and state deferred tax assets. The deferred tax assets primarily represent an accumulation of net operating losses during the COVID-19 pandemic and a portion of the valuation allowances were released related to the deferred tax assets that more likely than not will be realized in the future. We consider these adjustments to be non-recurring as they originated as a result of losses incurred during the pandemic for each jurisdiction. Future income tax expense is not expected to change materially as a result of the reversals.
Losses related to the write-off of an internal use-software project, which are included in depreciation and amortization expense.
Net gains and losses for foreign currency remeasurements of our euro-denominated debt principal included in other income (expense), net, which is primarily not hedged.
The impact of the above non-GAAP adjustments results in an anti-dilutive effect on Adjusted EPS related to our exchangeable notes for which we are adjusting the impact from GAAP net income and dilutive weighted average shares.
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EBITDA and Adjusted EBITDA were calculated as follows (in thousands):
Year Ended December 31,
Net income
Interest expense, net
Income tax (benefit) expense
Depreciation and amortization expense
EBITDA
Other (income) expense, net (1)
Other Non-GAAP Adjustments:
Non-cash deferred compensation (2)
Non-cash share-based compensation (3)
Adjusted EBITDA
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.
Year Ended December 31, 2025 (“2025”) Compared to Year Ended December 31, 2024 (“2024”)
Revenue
Total revenue increased 3.7% to $9.8 billion in 2025 compared to $9.5 billion in 2024 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 Norwegian Aqua in March 2025 and Oceania Allura in July 2025 partially offset by increased number of Berths in Dry-dock as larger ships were in Dry-dock.
Expense
Total cruise operating expense decreased 0.9% in 2025 compared to 2024 primarily related to a reduction in air costs largely due to changes in itinerary mix and fuel cost offset by delivery of Norwegian Aqua in March 2025 and Oceania Allura in July 2025. Total other operating expense increased 13.0% in 2025 compared to 2024 primarily related to an increase in depreciation and amortization expense from the delivery of the two ships, ship improvements and write-off of an internal use-software project. Additionally, the increase in other operating expense includes an increase in marketing, general and administrative expense from higher advertising and promotions.
Interest expense, net was $953.5 million in 2025 compared to $747.2 million in 2024. The change in interest expense reflects higher losses in 2025 from extinguishment of debt and debt modification costs, which were $272.5 million in 2025 compared to $29.2 million in 2024. Excluding these losses, interest expense decreased primarily as a result of lower average rates, partially offset by higher debt outstanding in connection with the delivery of ships.
Other income (expense), net was expense of $178.6 million in 2025 compared to income of $54.2 million in 2024 primarily related to net gains and losses on foreign currency remeasurements.
Income tax benefit (expense) was an expense of $5.5 million in 2025 compared to a benefit of $137.4 million in 2024. The decrease in the benefit was due to the reversal of the majority of our valuation allowance for the U.S. federal deferred tax assets in 2024.
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Liquidity and Capital Resources
General
As of December 31, 2025, our liquidity of approximately $1.6 billion consisted of cash and cash equivalents of $209.9 million and borrowings available of $1.4 billion under our Revolving Loan Facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service. As of December 31, 2025, we had a working capital deficit of $4.3 billion. This deficit included $3.2 billion of advance ticket sales, which represents the total revenue we collected in advance of sailing dates and accordingly are substantially more like deferred revenue balances rather than actual current cash liabilities. 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 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, and the related collateral was also released. 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.
In April 2025, certain holders exchanged $353.9 million of 2025 Exchangeable Notes for 2030 0.875% Exchangeable Notes and an aggregate Cash Payment of $64.0 million, plus accrued and unpaid interest on the 2025 Exchangeable Notes that were exchanged to, but excluding, the closing date of the Exchange. Additionally, in April 2025, the Company completed April Equity Offerings of 3,358,098 ordinary shares to those holders at a price of $19.06 per share. The Company used the net proceeds from the April Equity Offerings, together with cash on hand, to make the Cash Payment.
In June 2025, NCLC amended the Seventh ARCA to increase the aggregate amount of the lenders’ commitments under the Revolving Loan Facility from $1.7 billion to approximately $2.5 billion.
In September 2025, NCLC issued approximately $1.4 billion of 2030 0.750% Exchangeable Notes, $1.2 billion of 2031 Notes, and $850.0 million of 2033 Notes. Additionally, in September 2025, the Company completed the September Equity Offering with certain institutional investors of 3,313,868 ordinary shares at a price of $24.53 per share. The net proceeds from these transactions, together with cash on hand, were used to (i) complete the Repurchases of a portion of the 2027 1.125% Exchangeable Notes and 2027 2.50% Exchangeable Notes, (ii) complete the Tender Offer or redeem all of the 2026 Notes, 2027 Notes and 2029 Notes and (iii) pay related accrued and unpaid interest, transaction premiums, fees and expenses. The collateral of the Revolving Loan Facility was also modified.
Refer to Note 9 – “Long-Term Debt” for further details about the above financing transactions.
Based on our liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next 12 months. 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.
Within the next twelve months, we may pursue additional refinancings in order to reduce interest expense and/or extend debt maturities or pursue other balance sheet optimization transactions. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. Beyond the next 12 months, we will pursue refinancings and other balance sheet optimization transactions in order to reduce interest expense and/or extend debt maturities. Refer to “Item 1A—Risk Factors” for further details regarding risks and uncertainties that may cause our results to differ from our expectations.
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At December 31, 2025, we were in compliance with all of our debt covenants. If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to or waivers of the covenants. However, no assurances can be made that such amendments or waivers would be approved by our lenders. 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 B1 and our senior unsecured rating is B3. Our S&P Global issuer credit rating is B+, our issue-level rating on our Revolving Loan Facility 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.
The Company also has agreements with its credit card processors that govern the vast majority of advance ticket sales that are received by the Company relating to future voyages. These agreements allow the credit card processors to require, under certain circumstances, that the Company maintain a reserve which would be satisfied by posting collateral. Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash funds directly to the card processor. As of December 31, 2025, the Company was not required to maintain any reserve funds.
Sources and Uses of Cash
In this section, references to 2025 refer to the year ended December 31, 2025 and references to 2024 refer to the year ended December 31, 2024.
Net cash provided by operating activities was $2.1 billion in 2025 and $2.0 billion in 2024. Net cash provided by operating activities included net income and the timing differences in cash receipts and payments relating to operating assets and liabilities.
Net cash used in investing activities was $3.3 billion in 2025, primarily related to the delivery of Norwegian Aqua and Oceania Allura in 2025. Net cash used in investing activities was $1.2 billion in 2024, primarily related to newbuild payments and ship improvements.
Net cash provided by financing activities was $1.2 billion in 2025, primarily due to newbuild loans related to the delivery of Norwegian Aqua and Oceania Allura and draws of our Revolving Loan Facility partially offset by payments on other newbuild loan facilities. Net cash used in financing activities was $1.0 billion in 2024, primarily due to repayments of newbuild loans, our 9.75% senior secured notes due 2028 and the 3.625% senior unsecured notes due 2024 partially offset by the proceeds from newbuild loan facilities and the 6.25% senior unsecured notes due 2030.
For the Company’s cash flow activities for the fiscal year ended December 31, 2023, 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, 2024, which was filed with the U.S. Securities and Exchange Commission on February 27, 2025.
Future Capital Commitments
Future capital commitments consist of contracted commitments, including ship construction contracts. Anticipated expenditures related to ship construction contracts and growth, which includes private island developments and enhancements and other strategic growth initiatives, are $2.9 billion, $2.9 billion and $1.8 billion for the years ending December 31, 2026, 2027 and 2028, respectively. We have export-credit backed financing in place for the anticipated expenditures related to ship construction contracts of $1.6 billion, $2.0 billion and $1.4 billion for the years ending
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December 31, 2026, 2027 and 2028, respectively. Anticipated other non-newbuild capital expenditures are $0.5 billion for the year ending December 31, 2026. Future expected capital expenditures will significantly increase our depreciation and amortization expense.
Newbuilds
The following chart discloses details about our newbuild program. The impacts of initiatives to improve environmental sustainability and modifications that NCLH plans to make to its newbuilds to improve their profitability and better space out the newbuilds, along with shipyard availability, have resulted in us resetting delivery dates for certain 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.
Year
Brand
Class
Ship Name
Gross Tons (1)
Berths (1)
Status
Norwegian Cruise Line
Prima Class 4
Norwegian Luna
Contract effective / financed (3)
Regent Seven Seas Cruises
Prestige Class 1
Seven Seas Prestige
Contract effective / financed (3)
Norwegian Cruise Line
Next Gen "Methanol-Ready (2) " Prima Class 5
Norwegian Aura
Contract effective / financed (3)
Oceania Cruises
Sonata Class 1
Oceania Sonata
Contract effective / financed (3)
Norwegian Cruise Line
Next Gen "Methanol-Ready (2) " Prima Class 6
To come
Contract effective / financed (3)
Oceania Cruises
Sonata Class 2
Oceania Arietta
Contract effective / financed (3)
Norwegian Cruise Line
New Class 1
To come
Contract effective / financed (3)
Regent Seven Seas Cruises
Prestige Class 2
To come
Contract effective / financed (3)
Oceania Cruises
Sonata Class 3
To come
Contract effective, but not yet financed
Norwegian Cruise Line
New Class 2
To come
Contract effective / financed (3)
Regent Seven Seas Cruises
Prestige Class 3
To come
Contract will be effective upon financing
Norwegian Cruise Line
New Class 3
To come
Contract effective / financing is being negotiated
Oceania Cruises
Sonata Class 4
To come
Contract effective, but not yet financed
Norwegian Cruise Line
New Class 4
To come
Contract effective / financing is being negotiated
Regent Seven Seas Cruises
Prestige Class 4
To come
Contract will be effective upon financing
Oceania Cruises
Sonata Class 5
To come
Contract will be effective upon financing
Norwegian Cruise Line
New Class 5
To come
Contract will be effective upon financing
Berths and gross tons are preliminary and subject to change as we approach delivery.
Designs for the final two Prima Class ships have been lengthened and reconfigured to accommodate the use of green methanol as a future fuel source. Additional modifications will be needed to fully enable the use of green methanol.
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We have obtained export-credit financing which is expected to fund approximately 80% of the contract price of each ship as well as related financing premiums, subject to certain conditions.
As of December 31, 2025, the combined contract prices, including amendments and change orders, of the 13 ships on order for delivery that are effective was approximately €18.3 billion, or $21.5 billion based on the euro/U.S. dollar exchange rate as of December 31, 2025. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairmentlosses which may materially impact our business, financial condition and results of operations.
Capitalized interest for the year ended December 31, 2025 and 2024 was $88.5 million and $59.9 million, respectively, primarily associated with the construction of our newbuild ships.
Material Cash Requirements
As of December 31, 2025, our material cash requirements for debt and ship construction were as follows (in thousands):
Thereafter
Total
Long-term debt (1)
Ship construction contracts (2)
Total
Includes principal as well as estimated interest payments with Term Secured Overnight Financing Rate (“SOFR”) held constant as of December 31, 2025. Excludes the impact of any future possible refinancings and undrawn export-credit backed facilities.
Ship construction contracts are for our 13 non-cancelable newbuild ships based on the euro/U.S. dollar exchange rate as of December 31, 2025. As of December 31, 2025, we have committed undrawn export-credit backed facilities of $12.2 billion which funds approximately 80% of our effective ship construction contracts, with the exception of the two Sonata Class Ships on order for Oceania Cruises with currently scheduled delivery in 2032 and 2035 and the two additional ships on order for Norwegian Cruise Line with currently scheduled delivery in 2034 and 2036.
For other operational commitments for lease and port obligations, we refer you to Note 6 – “Leases” and Note 13 – “Commitments and Contingencies,” respectively, for further information.
Funding Sources
Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio and maintain certain other ratios. Approximately $14 billion of the net book value of our assets were pledged as collateral for certain of our debt as of December 31, 2025. We believe we were in compliance with our covenants as of December 31, 2025. For additional information regarding certain ratios included in such covenants, see “Item 1A—Risk Factors” in this Annual Report.
In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and NCLH’s ability to pay cash dividends to its shareholders. NCLH is a holding company and depends upon its subsidiaries for their ability to pay distributions to it to finance any dividend or pay any other obligations of NCLH. However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations.
We believe our cash on hand, borrowings available under our Revolving Loan Facility, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt
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payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period. Refer to “—Liquidity and Capital Resources—General” for further information regarding liquidity.
Other
Certain service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions. We refer you to “—Liquidity and Capital Resources—General” for information regarding collateral provided to our credit card processors.
As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships, acquisitions and strategic alliances. If any of these transactions were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.
Additionally, we consider opportunities for the sale of ships and long-term charters with purchase options. For example, the Company executed long-term charter agreements, each inclusive of purchase options, for Norwegian Sky beginning in 2026 and Norwegian Sun beginning in 2027. We are currently contemplating additional ships sales or long-term charters with a purchase option at the end of the lease period. We are currently negotiating a bareboat charter with a purchase option for Seven Seas Navigator, which is expected to be completed before the end of the first quarter of 2026. These types of agreements are being pursued as part of our ship disposal strategy for certain older vessels in our fleet.
