Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Concerning Forward-Looking Statements

Some of the statements, estimates or projections contained in this report are “forward-looking statements” within the meaning of the U.S. federal securities laws intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our expectations regarding the impacts of the COVID-19 pandemic, Russia’s invasion of Ukraine and general macroeconomic conditions, our expectations regarding cruise voyage occupancy, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, plans or goals for our sustainability program and decarbonization efforts, our expectations for future cash flows and profitability, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements. Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend,” “future” and similar words. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to the impact of:

	●	the spread of epidemics, pandemics and viral outbreaks, including the COVID-19 pandemic, and their effect on the ability or desire of people to travel (including on cruises), which is expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price;

	●	implementing precautions in coordination with regulators and global public health authorities to protect the health, safety and security of guests, crew and the communities we visit and to comply with regulatory restrictions related to the pandemic;

	●	our indebtedness and restrictions in the agreements governing our indebtedness that require us to maintain minimum levels of liquidity and be in compliance with maintenance covenants and otherwise limit our flexibility in operating our business, including the significant portion of assets that are collateral under these agreements;

	●	our ability to work with lenders and others or otherwise pursue options to defer, renegotiate, refinance or restructure our existing debt profile, near-term debt amortization, newbuild related payments and other obligations and to work with credit card processors to satisfy current or potential future demands for collateral on cash advanced from customers relating to future cruises;

	●	our need for additional financing or financing to optimize our balance sheet, which may not be available on favorable terms, or at all, and our outstanding exchangeable notes and any future financing which may be dilutive to existing shareholders;

	●	the unavailability of ports of call;

	●	future increases in the price of, or major changes or reduction in, commercial airline services;

	●	changes involving the tax and environmental regulatory regimes in which we operate, including new regulations aimed at reducing greenhouse gas emissions;

	●	the accuracy of any appraisals of our assets as a result of the impact of the COVID-19 pandemic or otherwise;

	●	our success in controlling operating expenses and capital expenditures;

	●	trends in, or changes to, future bookings and our ability to take future reservations and receive deposits related thereto;

	●	adverse events impacting the security of travel, such as terrorist acts, armed conflict, such as Russia’s invasion of Ukraine, and threats thereof, acts of piracy, and other international events;

	●	adverse incidents involving cruise ships;

	●	adverse general economic and related factors, including as a result of the impact of the COVID-19 pandemic, Russia’s invasion of Ukraine or otherwise, 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 that decrease the level of disposable income of consumers or consumer confidence;

	●	breaches in data security or other disturbances to our information technology and other networks or our actual or perceived failure to comply with requirements regarding data privacy and protection;

	●	changes in fuel prices and the type of fuel we are permitted to use and/or other cruise operating costs;

	●	mechanical malfunctions and repairs, delays in our shipbuilding program, maintenance and refurbishments and the consolidation of qualified shipyard facilities;

	●	the risks and increased costs associated with operating internationally;

	●	our inability to recruit or retain qualified personnel or the loss of key personnel or employee relations issues;

	●	our inability to obtain adequate insurance coverage;

	●	pending or threatened litigation, investigations and enforcement actions;

	●	any further impairment of our trademarks, trade names or goodwill;

	●	volatility and disruptions in the global credit and financial markets, which may adversely affect our ability to borrow and could increase our counterparty credit risks, including those under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees;

	●	our reliance on third parties to provide hotel management services for certain ships and certain other services;

	●	fluctuations in foreign currency exchange rates;

	●	our expansion into new markets and investments in new markets and land-based destination projects;

	●	overcapacity in key markets or globally; and

	●	other factors set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022 (“Annual Report on Form 10-K”).

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic, Russia’s invasion of Ukraine and the impact of general macroeconomic conditions. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown.

The above examples are not exhaustive and new risks emerge from time to time. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we expect to operate in the future. These forward-looking statements speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based, except as required by law.

Terminology

This report includes certain non-GAAP financial measures, such as Adjusted Gross Margin, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS. Definitions of these non- GAAP financial measures are included below. For further information about our non-GAAP financial measures including detailed adjustments made in calculation our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measure, we refer you to “Results of Operations” below.

Unless otherwise indicated in this report, the following terms have the meanings set forth below:

	●	2024 Exchangeable Notes. On May 8, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee, NCLC issued $862.5 million aggregate principal amount of exchangeable senior notes due 2024.

	●	2024 Senior Secured Notes. On May 14, 2020, pursuant to an indenture among NCLC, as issuer, the guarantors party thereto, and U.S. Bank National Association, as trustee and security agent, NCLC issued $675.0 million aggregate principal amount of 12.25% senior secured notes due 2024.

	●	2025 Exchangeable Notes. On July 21, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee, NCLC issued $450.0 million aggregate principal amount of exchangeable senior notes due 2025.

	●	2026 Senior Secured Notes. On July 21, 2020, pursuant to an indenture among NCLC, as issuer, the guarantors party thereto, and U.S. Bank National Association, as trustee and security agent, NCLC issued $750.0 million aggregate principal amount of 10.25% senior secured notes due 2026.

	●	2027 1.125% Exchangeable Notes. On November 19, 2021, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee, NCLC issued $1,150.0 million aggregate principal amount of exchangeable senior notes due 2027.

	●	Adjusted EBITDA. EBITDA adjusted for other income (expense), net and other supplemental adjustments.

	●	Adjusted EPS. Adjusted Net Loss divided by the number of diluted weighted-average shares outstanding.

	●	Adjusted Gross Margin. Gross margin adjusted for payroll and related, fuel, food, other and ship depreciation. Gross margin is calculated pursuant to GAAP as total revenue less total cruise operating expense and ship depreciation.

	●	Adjusted Net Cruise Cost Excluding Fuel. Net Cruise Cost Excluding Fuel adjusted for supplemental adjustments.

	●	Adjusted Net Loss. Net loss adjusted for supplemental adjustments.

	●	Allura Class Ships. Oceania Cruises’ Vista and one additional ship on order.

	●	Berths. Double occupancy capacity per cabin (single occupancy per studio cabin) even though many cabins can accommodate three or more passengers.

	●	Capacity Days. Berths available for sale multiplied by the number of cruise days for the period for ships in service.

	●	CDC. The U.S. Centers for Disease Control and Prevention.

	●	Constant Currency. A calculation whereby foreign currency-denominated revenue and expenses in a period are converted at the U.S. dollar exchange rate of a comparable period to eliminate the effects of foreign exchange fluctuations.

	●	Dry-dock. A process whereby a ship is positioned in a large basin where all of the fresh/sea water is pumped out in order to carry out cleaning and repairs of those parts of a ship which are below the water line.

	●	EBITDA. Earnings before interest, taxes, and depreciation and amortization.

	●	EPS. Loss per share.

	●	Explorer Class Ships. Regent’s Seven Seas Explorer, Seven Seas Splendor, and Seven Seas Grandeur.

	●	GAAP. Generally accepted accounting principles in the U.S.

	●	Gross Cruise Cost. The sum of total cruise operating expense and marketing, general and administrative expense.

	●	Gross Tons. A unit of enclosed passenger space on a cruise ship, such that one gross ton equals 100 cubic feet or 2.831 cubic meters.

	●	Net Cruise Cost. Gross Cruise Cost less commissions, transportation and other expense and onboard and other expense.

	●	Net Cruise Cost Excluding Fuel. Net Cruise Cost less fuel expense.

	●	Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days. A percentage greater than 100% indicates that three or more passengers occupied some cabins.

	●	Passenger Cruise Days. The number of passengers carried for the period, multiplied by the number of days in their respective cruises.

	●	Prima Class Ships. Norwegian Prima, Norwegian Viva and four additional ships on order.

	●	Private Exchangeable Notes. On May 28, 2020, pursuant to an indenture among NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee, NCLC issued $400.0 million aggregate principal amount of exchangeable senior notes due 2026.

	●	Revolving Loan Facility. $875.0 million senior secured revolving credit facility.

	●	SEC. U.S. Securities and Exchange Commission.

	●	Shipboard Retirement Plan. An unfunded defined benefit pension plan for certain crew members which computes benefits based on years of service, subject to certain requirements.

	●	Term Loan A Facility. The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of September 30, 2022.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Adjusted Gross Margin, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, to enable us to analyze our performance. See “Terminology” for the definitions of these and other non-GAAP financial measures. We utilize Adjusted Gross Margin 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 net income (loss), we believe changes in Adjusted Gross Margin, Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.

As our business includes the sourcing of passengers and deployment of vessels outside of the U.S., a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, Euro and Australian dollar which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis, whereby current period revenue and expenses denominated in foreign currencies are converted to U.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We 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. 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 (loss), 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 Loss and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net loss and EPS. We use Adjusted Net Loss 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 during normal operations. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net Loss and Adjusted EPS may not be indicative of future adjustments or results.

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

historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section.

Financial Presentation

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; however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages was phased in gradually. Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, 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 gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo 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.

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 agent commissions, air and land transportation expenses, related credit card fees, certain 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 casino, beverage sales and shore excursions.

	●	Payroll and related consists of the cost of wages and benefits 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. The cost of crew repatriation, including charters, housing, testing and other costs related to COVID-19 are also included.

	●	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

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For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” included in our Annual Report on Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K.

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Russia’s Invasion of Ukraine

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The conflict from Russia’s ongoing invasion of Ukraine resulted in the cancellation or modification of approximately 60 sailings in 2022, which included all voyages with calls to ports in Russia. Three ships were redeployed as a result of the conflict including Norwegian Getaway to Port Canaveral, Oceania Cruises’ Marina to the British Isles and Regent’s Seven Seas Splendor to Northern Europe. In addition, the Company has also removed all calls to ports in Russia from its itineraries in 2023 and 2024. In addition to the direct impacts noted above, the conflict has also had indirect adverse

impacts on customer demand (see “Update on Bookings”) and the cost of fuel and could continue to have an impact on travel and consumer discretionary spending.

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Update Regarding COVID-19 Pandemic

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Safe Resumption of Operations

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Due to the impact of COVID-19, travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across our three brands. In the third quarter of 2021, we began a phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels. In early May 2022, the Company completed the phased relaunch of its entire fleet with all ships now in operation with guests on board. The level of occupancy on our ships and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences of COVID-19 or the emergence of other public health crises, our ability to comply with governmental regulations and implement new health and safety protocols, port availability, travel restrictions, bans and advisories, our ability to staff certain ships and additionally the impact of other events impacting travel or consumer discretionary spending, such as Russia’s ongoing invasion of Ukraine, and general macroeconomic conditions discussed below under “Macroeconomic Trends and Uncertainties.”

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The Company continues to benefit from significant improvements in the public health environment. In July 2022, the CDC announced that its voluntary COVID-19 Program for Cruise Ships Operating in U.S. Waters was no longer in effect, but that it will continue to publish health and safety guidance. The Company continues to operate under its science-backed SailSAFE health and safety program which will evolve along with the public health environment. On Oceania Cruises, vaccinated guests aged 12 and over will no longer have any pre-cruise COVID-19 related protocols and unvaccinated travelers may embark with a negative COVID-19 test taken within 72 hours prior to departure. Guests 11 and under will be exempt from all vaccination and testing requirements. On Regent, fully vaccinated guests are not required to test prior to embarkation and unvaccinated guests or those unwilling to present proof of vaccination must present a negative COVID-19 test prior to embarkation. Effective October 4, 2022, Norwegian updated its global health and safety protocols to remove all COVID-19 testing, masking and vaccination requirements for guests. Requirements may differ for guests traveling on voyages departing from or visiting destinations with specific local regulations. The Company will continue to evaluate its protocols and modify as needed as the public health environment evolves.

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The Company continues to follow applicable travel guidelines and local protocols as required by the ports and destinations it visits. We continue to work with federal agencies, public health authorities and national and local governments in areas where we operate to take all necessary measures to protect our guests, crew and the communities visited. The protocol revisions in conjunction with continued easing of travel restrictions and reopening to cruise in more ports around the globe are positive as it reduces friction, expands the addressable cruise market, brings variety to itineraries, and provides additional catalysts on the road to recovery.

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Modified Policies

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We have launched cancellation policies for certain sailings booked during certain time periods to permit certain guests to cancel cruises which were not part of a temporary suspension of voyages up to 15 days prior to embarkation or in the event of a positive COVID-19 test and receive a refund in the form of a credit to be applied toward a future cruise. These programs are in place for cruises booked through specific time periods specified by brand. Standard payment schedules and cancellation penalties apply for all sailings after September 30, 2022. The future cruise credits that have been issued as face value reimbursement for cancelled bookings due to COVID-19 are generally valid for any sailing through June 30, 2023, and we may further extend the length of time these future cruise credits may be redeemed. The use of such credits may prevent us from garnering certain future cash collections as staterooms booked by guests with such credits will not be available for sale, resulting in less cash collected from bookings to new guests. We may incur incremental commission expense for the use of these future cruise credits.

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Financing Transactions

In 2022, we have continued to take actions to bolster our financial condition while the global cruise environment remains challenging. To enhance our liquidity profile and financial flexibility, in February 2022, we received additional financing through various debt financings, collectively totaling $2.1 billion in gross proceeds, which has been used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

In July 2022, the Company amended its $1 billion commitment, which provides additional liquidity to the Company, extending the commitment through March 31, 2023. The Company has not drawn and currently does not intend to draw under this commitment.

See Note 7 – “Long-Term Debt” for more information.

Update on Bookings

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As expected, the Company’s current cumulative booked position for the fourth quarter of 2022 is below the comparable 2019 period but at higher prices even when including the dilutive impact of future cruise credits. Booking trends for full year 2023 remain positive with cumulative booked position equal to record 2019 levels inclusive of the Company’s increase in capacity. Pricing is higher than that of 2019 at a similar point in time for full year 2023. Net booking volumes continue to be at the pace needed to reach historical Occupancy Percentage levels in 2023; however, our full fleet may not achieve historical occupancy levels on our expected schedule and as a result, current booking data may not be informative. In addition, because of our updated cancellation policies, bookings may not be representative of actual cruise revenues.

There are remaining uncertainties about when our full fleet will be back at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty; however, we will report a net loss for the fourth quarter of 2022.

Macroeconomic Trends and Uncertainties

As a result of conditions associated with the COVID-19 pandemic and other global events, such as Russia’s ongoing invasion of Ukraine and actions taken by the United States and other governments in response to the invasion, the global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including increases in inflation rates, fuel prices, and interest rates. Our costs have been, and are expected to continue to be, impacted by these increases. To attempt to mitigate the risk of adverse changes in fuel prices and interest expense, we have used and may continue to use derivatives. In an attempt to mitigate risks related to inflation, our Supply Chain Department has negotiated contracts with varying terms, with a goal of providing us with the ability to take advantage of cost declines when they occur, and diversified our sourcing options. Due to the dynamic nature of the current economic landscape, the severity and duration of the impact of these conditions on our business cannot be predicted. See Item 1A, “Risk Factors” for additional information.

Climate Change

We believe the increasing focus on climate change and evolving regulatory requirements may materially impact our future capital expenditures and results of operations. We expect to incur significant expenses related to these regulatory requirements, which may include expenses related to greenhouse gas emissions reduction initiatives and the purchase of emissions allowances, among other things. If requirements become more stringent, we may be required to change certain operating procedures, for example slowing the speed of our ships, which could adversely impact our operations. We are evaluating the effects of climate change related requirements, which are still evolving, and, consequently, the full impact to the Company is not yet known. Refer to “Impacts related to climate change may adversely affect our business, financial condition and results of operations” in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for further information.

Quarterly Overview

Three months ended September 30, 2022 (“2022”) compared to three months ended September 30, 2021 (“2021”)

	●	Total revenue increased to $1.6 billion compared to $153.1 million.

	●	Net loss and diluted EPS were $(295.4) million and $(0.70), respectively, compared to $(845.9) million and $(2.29), respectively.

	●	Operating loss was $(185.2) million compared to $(689.1) million.

	●	Gross margin was $202.2 million compared to $(445.8) million. Adjusted Gross Margin was $1.1 billion compared to $101.4 million.

	●	Adjusted Net Loss and Adjusted EPS were $(268.3) million and $(0.64), respectively, in 2022, which included $27.1 million of adjustments primarily related to share-based compensation. Adjusted Net Loss and Adjusted EPS were $(801.4) million and $(2.17), respectively, in 2021, which included $44.5 million of adjustments primarily related to share-based compensation.

	●	Adjusted EBITDA improved 105.9% to $28.1 million compared to $(475.0) million.

We refer you to our “Results of Operations” below for a calculation of Adjusted Gross Margin, Adjusted Net Loss, Adjusted EPS and Adjusted EBITDA.

Results of Operations

The following table sets forth selected statistical information:

​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended			​	Nine Months Ended			​
​	​	September 30,			​	September 30,			​
​		2022		2021		2022		2021	​
Passengers carried		526,838		57,931		1,111,931		57,931	​
Passenger Cruise Days		3,982,559		402,656		8,411,308		402,656	​
Capacity Days (1)		4,887,415		701,350		12,505,203		701,350	​
Occupancy Percentage		81.5	%	57.4	%	67.3	%	57.4	%

(1)	Excludes certain capacity on Pride of America which is temporarily unavailable.

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Adjusted Gross Margin was calculated as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended								​	Nine Months Ended
​	​	September 30,								​	September 30,
​		​	​		2022			​	​		​	​		2022			​	​
​	​	​	​		Constant		​	​	​	​	​	​		Constant		​	​	​
​	​	2022			Currency		​	2021		​	​	2022		Currency		​	2021
Total revenue	​	$	1,615,510	​	$	1,634,452	​	$	153,081	​	$	3,324,631	​	$	3,351,727	​	$	160,549
Less:	​		​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total cruise operating expense	​		1,238,898	​		1,252,792	​		439,756	​		3,047,627	​		3,070,239	​		890,338
Ship depreciation	​		174,393	​		174,393	​		159,116	​		511,785	​		511,785	​		482,273
Gross margin	​	​	202,219	​	​	207,267	​	​	(445,791)	​	​	(234,781)	​	​	(230,297)	​	​	(1,212,062)
Ship depreciation	​	​	174,393	​	​	174,393	​	​	159,116	​	​	511,785	​	​	511,785	​	​	482,273
Payroll and related	​	​	287,390	​	​	287,576	​	​	154,440	​	​	790,697	​	​	791,008	​	​	323,225
Fuel	​	​	186,984	​	​	187,064	​	​	79,238	​	​	503,682	​	​	503,787	​	​	175,931
Food	​	​	76,810	​	​	78,477	​	​	16,672	​	​	177,483	​	​	179,549	​	​	27,314
Other	​	​	208,176	​	​	214,931	​	​	137,762	​	​	623,374	​	​	635,919	​	​	294,092
Adjusted Gross Margin	​	$	1,135,972	​	$	1,149,708	​	$	101,437	​	$	2,372,240	​	$	2,391,751	​	$	90,773

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Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended								​	Nine Months Ended
​	​	September 30,								​	September 30,
​	​	​	​		2022		​	​	​	​	​	​		2022		​	​	​
​		​	​		Constant			​	​		​	​		Constant			​	​
​	​	2022			Currency		​	2021		​	2022			Currency		​	2021
Total cruise operating expense	​	$	1,238,898	​	$	1,252,792	​	$	439,756	​	$	3,047,627	​	$	3,070,239	​	$	890,338
Marketing, general and administrative expense	​		375,291	​		379,003	​		229,142	​		1,000,578	​		1,008,328	​		617,820
Gross Cruise Cost	​		1,614,189	​		1,631,795	​		668,898	​		4,048,205	​		4,078,567	​		1,508,158
Less:	​			​			​			​			​			​
Commissions, transportation and other expense	​		352,798	​		358,004	​		32,338	​		696,946	​		704,531	​		47,935
Onboard and other expense	​		126,740	​		126,740	​		19,306	​		255,445	​		255,445	​		21,841
Net Cruise Cost	​		1,134,651	​		1,147,051	​		617,254	​		3,095,814	​		3,118,591	​		1,438,382
Less: Fuel expense	​		186,984	​		187,064	​		79,238	​		503,682	​		503,787	​		175,931
Net Cruise Cost Excluding Fuel	​		947,667	​		959,987	​		538,016	​		2,592,132	​		2,614,804	​		1,262,451
Less Non-GAAP Adjustments:	​			​			​			​			​			​
Non-cash deferred compensation (1)	​		700	​		700	​		904	​		2,098	​		2,098	​		2,714
Non-cash share-based compensation (2)	​		26,083	​		26,083	​		39,922	​		88,923	​		88,923	​		88,974
Adjusted Net Cruise Cost Excluding Fuel	​	$	920,884	​	$	933,204	​	$	497,190	​	$	2,501,111	​	$	2,523,783	​	$	1,170,763

(1)	Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.

(2)	Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.

Adjusted Net Loss and Adjusted EPS were calculated as follows (in thousands, except share and per share data):

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended					​	Nine Months Ended
​	​	September 30,					​	September 30,
​		2022			2021			2022			2021
Net loss	​	$	(295,394)	​	$	(845,885)	​	$	(1,787,429)	​	$	(2,933,866)
Non-GAAP Adjustments:	​			​			​			​
Non-cash deferred compensation (1)	​		1,012	​		1,002	​		3,036	​		3,009
Non-cash share-based compensation (2)	​		26,083	​		39,922	​		88,923	​		88,974
Extinguishment and modification of debt (3)	​		—	​		3,562	​		188,433	​		657,226
Adjusted Net Loss	​	$	(268,299)	​	$	(801,399)	​	$	(1,507,037)	​	$	(2,184,657)
Diluted weighted-average shares outstanding - Net loss and Adjusted Net Loss	​		420,798,538	​	​	370,016,479	​		419,224,710	​		356,591,143
Diluted loss per share	​	$	(0.70)	​	$	(2.29)	​	$	(4.26)	​	$	(8.23)
Adjusted EPS	​	$	(0.64)	​	$	(2.17)	​	$	(3.59)	​	$	(6.13)

(1)	Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense and other income (expense), net.

(2)	Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.

(3)	Losses on extinguishment of debt and modification of debt are included in interest expense, net.

​

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended					​	Nine Months Ended
​	​	September 30,					​	September 30,
​		2022			2021			2022			2021
Net loss	​	$	(295,394)	​	$	(845,885)	​	$	(1,787,429)	​	$	(2,933,866)
Interest expense, net	​		152,330	​		161,205	​		624,392	​		1,122,905
Income tax (benefit) expense	​		(10,705)	​		294	​		(7,179)	​		2,949
Depreciation and amortization expense	​		186,551	​		173,289	​		547,214	​		517,867
EBITDA	​		32,782	​		(511,097)	​		(623,002)	​		(1,290,145)
Other (income) expense, net (1)	​		(31,461)	​	​	(4,720)	​		(100,572)	​		(57,464)
Other Non-GAAP Adjustments:	​			​			​			​
Non-cash deferred compensation (2)	​		700	​		904	​		2,098	​		2,714
Non-cash share-based compensation (3)	​		26,083	​		39,922	​		88,923	​		88,974
Adjusted EBITDA	​	$	28,104	​	$	(474,991)	​	$	(632,553)	​	$	(1,255,921)

(1)	In 2022, primarily consists of gains and losses, net for foreign currency remeasurements. In 2021, primarily consists of gains and losses, net for fuel swaps not designated as hedges and foreign currency remeasurements.

(2)	Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.

(3)	Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.

​

Three months ended September 30, 2022 (“2022”) compared to three months ended September 30, 2021 (“2021”)

Revenue

Total revenue increased to $1.6 billion in 2022 compared to $153.1 million in 2021. In 2022, revenue increased as we had returned to service with 4.0 million Passenger Cruise Days compared to 0.4 million in 2021.

Expense

Total cruise operating expense increased 181.7% in 2022 compared to 2021. In 2022, the third quarter had the entire 29-ship fleet in service compared to 2021, which began with no ships in service and ended with only 8 ships returned to service. In 2022, our cruise operating expenses were increased due to the resumption of voyages, resulting in higher payroll, fuel, and direct variable costs of fully operating ships. Costs for certain items such as food, fuel and logistics also increased related to inflation. Additionally, in 2022, there was an increase in COVID-19 related costs, including testing. Gross Cruise Cost increased 141.3% in 2022 compared to 2021 primarily related to the change in costs described above plus an increase in marketing, general and administrative expenses primarily related to increased marketing costs. Total other operating expense increased 39.6% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

​

Interest expense, net was $152.3 million in 2022 compared to $161.2 million in 2021. Interest expense decreased primarily as a result of lower interest expense in connection with recent refinancings and higher interest income, partially offset by higher debt balances and higher rates.

​

Other income (expense), net was income of $31.5 million in 2022 compared to $4.7 million in 2021. In 2022, the income primarily related to gains on foreign currency remeasurements. In 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency remeasurements.

​

Nine months ended September 30, 2022 (“2022”) compared to nine months ended September 30, 2021 (“2021”)

Revenue

Total revenue increased to $3.3 billion in 2022 compared to $160.5 million in 2021. In 2022, revenue increased as we returned to service with 8.4 million Passenger Cruise Days compared to 0.4 million in 2021.

Expense

Total cruise operating expense increased 242.3% in 2022 compared to 2021. In 2022, the nine months started with 16 ships operating with guests onboard and ended with the entire 29-ship fleet in service compared to 2021, during which only 8 ships were returned to service in the third quarter. In 2022, our cruise operating expenses were increased due to the resumption of voyages, resulting in higher payroll, fuel, and direct variable costs of fully operating ships. Costs for certain items such as food, fuel and logistics also increased related to inflation. Additionally, in 2022, there was an increase in COVID-19 related costs, including testing. Gross Cruise Cost increased 168.4% in 2022 compared to 2021 primarily related to the change in costs described above plus an increase in marketing, general and administrative expenses primarily related to increased marketing costs as we returned to service. Total other operating expense increased 36.3% in 2022 compared to 2021 primarily due to the increase in marketing, general and administrative expenses.

​

Interest expense, net was $624.4 million in 2022 compared to $1.1 billion in 2021. The decrease in interest expense reflects lower losses in 2022 from extinguishment of debt and debt modification costs, which were $188.4 million in 2022 compared to $657.2 million in 2021. Excluding these losses, interest expense decreased primarily as a result of lower interest expense in connection with the recent refinancings, partially offset by higher debt balances and higher rates.

Other income (expense), net was income of $100.6 million in 2022 compared to $57.5 million in 2021. In 2022, the income primarily related to gains on foreign currency remeasurements. In 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency remeasurements.

​

Liquidity and Capital Resources

General

As of September 30, 2022, our liquidity consisted of cash and cash equivalents of $1.2 billion and a $1 billion undrawn commitment less related fees. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

​

In February 2022, we received additional financing through various debt financings, collectively totaling $2.1 billion in gross proceeds, which has been used to redeem all of the outstanding 2024 Senior Secured Notes and 2026 Senior Secured Notes and to make scheduled principal payments on debt maturing in 2022, including, in each case, to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses. Refer to Note 7 – “Long-Term Debt” for further information.

​

In July 2022, the Company amended its $1 billion commitment, which provides additional liquidity to the Company, extending the commitment through March 31, 2023. The Company has not drawn and currently does not intend to draw under this commitment. See Note 7 – “Long-Term Debt” for more information.

​

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Refer to Note 2 – “Summary of Significant Accounting Policies” for further information on liquidity and management’s plan. Refer to “Item 1A. Risk Factors” for further details regarding uncertainty related to Russia’s ongoing invasion of Ukraine and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for other risks and uncertainties that may cause our results to differ from our expectations.

​

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 the impacts of the COVID-19 global pandemic, Russia’s ongoing invasion of Ukraine and current macroeconomic conditions such as inflation, rising fuel prices and rising interest rates. Based on the liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next 12 months. Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if a substantial portion of our fleet suspends cruise voyages or operates at reduced occupancy levels for a prolonged period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. Beyond 12 months, we will pursue refinancings and other balance sheet optimization transactions from time to time in order to reduce interest expense or extend debt maturities. We expect to collaborate with financing institutions regarding these refinancing and optimization transactions as opportunities arise in the short-term to amend long-term arrangements.

​

We have received amendments to certain financial and other debt covenants and added new free liquidity requirements. At September 30, 2022, taking into account such amendments, 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. The Company is currently taking steps to further amend certain financial and other debt 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.

​

Since March 2020, Moody’s has downgraded our long-term issuer rating to B2, our senior secured rating to B1 and our senior unsecured rating to Caa1. In September 2022, Moody’s reaffirmed our current ratings. Since April 2020, S&P Global has downgraded our issuer credit rating to B, lowered our issue-level rating on our $875 million Revolving Loan

Facility and $1.5 billion Term Loan A Facility to BB-, our issue-level rating on our other senior secured notes to B+ and our senior unsecured rating to B-. If our credit ratings were to be further downgraded, 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 further 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.

​

As of September 30, 2022, we had advance ticket sales of $2.5 billion, including the long-term portion, which included approximately $258 million of future cruise credits. We also have agreements with our credit card processors that, as of September 30, 2022, governed approximately $2.1 billion in advance ticket sales that had been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, 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. Any cash reserve or collateral requested could be increased or decreased. As of September 30, 2022, we had cash collateral reserves of approximately $742.5 million with credit card processors, of which approximately $237.0 million is recognized in accounts receivable, net and approximately $505.5 million in other long-term assets. We may be required to pledge additional collateral and/or post additional cash reserves or take other actions that may further reduce our liquidity.

​

Sources and Uses of Cash

In this section, references to “2022” refer to the nine months ended September 30, 2022 and references to “2021” refer to the nine months ended September 30, 2021.

Net cash used in operating activities was $26.6 million in 2022 as compared to net cash used in operating activities of $2.2 billion in 2021. The net cash used in operating activities included net losses and timing differences in cash receipts and payments relating to operating assets and liabilities. The net losses include losses on extinguishment of debt of $188.4 million in 2022 and $601.5 million in 2021. Advance ticket sales increased by $713.4 million in 2022. Advance ticket sales increased by $469.6 million in 2021 while the change in accounts receivable, net, which includes our reserves with credit card processors, decreased cash by $979.9 million in 2021.

Net cash used in investing activities was $1.6 billion in 2022 and $1.1 billion in 2021. The net cash used in investing activities was primarily related to the delivery of Norwegian Prima in 2022. The net cash used in investing activities was primarily related to purchases of short-term investments, newbuild payments and ship improvement projects partially offset by proceeds from maturities of short-term investments in 2021.

Net cash provided by financing activities was $1.3 billion in 2022 primarily due to newbuild loans and the proceeds of $2.1 billion from our various note offerings partially offset by debt repayments and related redemption premiums associated with extinguishment of certain senior secured notes. Net cash provided by financing activities was $1.3 billion in 2021 primarily due to the proceeds of $2.7 billion from our various note and equity offerings partially offset by debt repayments and a related redemption premium associated with extinguishment of the Private Exchangeable Notes.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including ship construction contracts. Anticipated expenditures related to ship construction contracts were $84.5 million for the remainder of 2022 and $2.4 billion and $0.5 billion for the years ending December 31, 2023 and 2024, respectively, reflecting delays in certain scheduled ship delivery dates. The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $1.9 billion and $0.1 billion for the years ending December 31, 2023 and 2024, respectively. Anticipated non-newbuild capital expenditures for the remainder of 2022 are approximately $155 million. Future expected capital expenditures will significantly increase our depreciation and amortization expense.

For the Norwegian brand, the first Prima Class Ship, Norwegian Prima, at approximately 143,500 Gross Tons and with 3,100 Berths, was delivered in July 2022. We have five additional Prima Class Ships on order, each ranging from approximately 143,500 to 156,300 Gross Tons with approximately 3,100 to 3,550 Berths, with currently scheduled delivery dates from 2023 through 2027. For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths. For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed), Russia’s ongoing invasion of Ukraine and/or other macroeconomic events, have already resulted in some delays in expected ship deliveries. These impacts along with other potential modifications the Company may make to its newbuilds, including potential initiatives to improve environmental sustainability, are expected to result in additional delays in ship deliveries in the future, which may be prolonged.

​

The combined contract prices of the eight ships on order for delivery was approximately €6.7 billion, or $6.6 billion based on the euro/U.S. dollar exchange rate as of September 30, 2022. We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions. 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 impairment losses which may materially impact our business, financial condition and results of operations.

Capitalized interest for the three months ended September 30, 2022 and 2021 was $17.0 million and $12.5 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $45.1 million and $30.6 million, respectively, primarily associated with the construction of our newbuild ships.

Material Cash Requirements

As of September 30, 2022, our material cash requirements for debt and ship construction were as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Remainder of			​	​		​	​		​	​		​	​	​	​	​	​	​	​	​	​	​
​	​	2022			2023			2024			2025			2026			2027			Thereafter			Total
Long-term debt (1)	​	$	446,559	​	$	1,610,548	​	$	4,202,925	​	$	1,527,174	​	$	2,338,005	​	$	3,283,685	​	$	2,980,662	​	$	16,389,558
Ship construction contracts (2)	​		81,979	​	​	2,232,211	​	​	983,027	​	​	1,396,004	​	​	871,534	​	​	761,282	​	​	—	​		6,326,037
Total	​	$	528,538	​	$	3,842,759	​	$	5,185,952	​	$	2,923,178	​	$	3,209,539	​	$	4,044,967	​	$	2,980,662	​	$	22,715,595

(1)	Includes principal as well as estimated interest payments with LIBOR held constant as of September 30, 2022. Includes exchangeable notes which can be settled in shares. Excludes the impact of any future possible refinancings and undrawn export-credit backed facilities.

(2)

Ship construction contracts are for our newbuild ships based on the euro/U.S. dollar exchange rate as of September 30, 2022. As of September 30, 2022, we have committed undrawn export-credit backed facilities of approximately $5.4 billion which funds approximately 80% of our ship construction contracts. After giving effect to delays in certain scheduled ship delivery dates revised subsequent to September 30, 2022, our material cash requirements for ship construction contracts are as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Remainder of			​	​		​	​		​	​		​	​	​	​	​	​	​	​	​	​	​
​	​	2022			2023			2024			2025			2026			2027			Thereafter			Total
Ship construction contracts	​	$	25,047	​	$	2,178,120	​	$	249,655	​	$	1,463,558	​	$	1,648,375	​	$	761,282	​	$	—	​	$	6,326,037

​

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. Substantially all of our ships are pledged as collateral for certain of our debt. We have received amendments to certain financial and other debt covenants and added new free liquidity requirements. After taking into account such amendments, we believe we were in compliance with these covenants as of September 30, 2022.

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, the net impact of the undrawn $1 billion commitment less related fees, the expected return of a portion of the cash collateral from our credit card processors, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period. Certain debt covenants were previously amended in 2021 to enable the Company to maintain compliance, and the Company is currently taking steps to further amend certain financial and other debt covenants. Refer to “—Liquidity and Capital Resources—General” for further information regarding the debt covenant waivers and liquidity requirements.

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.

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. We may also consider the sale of ships, potential 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.

​

We refer you to “—Liquidity and Capital Resources—General” for information regarding collateral provided to our credit card processors.

​