Norwegian Cruise Line 2024 Investor Day Takeaways: She Sails Despite Debtweight

Industry Overview - The cruise industry experienced strong growth in 2024, with most operators reporting record bookings in Q1 earnings reports [16] - The number of ocean-going passengers is expected to rise by 12.6% in 2024, with growth normalizing at a ~4.4% CAGR between 2024 and 2026, aligning with pre-pandemic growth rates of 4.5% [16] Company Performance - Norwegian Cruise Line Holdings (NCLH) underperformed in 2023, delivering low double-digit returns compared to Carnival Corp's 40% and Royal Caribbean's at least twice that return [1] - NCLH's stock continued to underperform in 2024, languishing at the bottom after missing consensus growth targets [2] - NCLH's 2024 Investor Day showed improvements over previous FY24 projections, with updated guidance indicating better net yield growth [3][6][7] Financial Guidance - NCLH's initial FY24 net yield growth projection was 5.4%, later revised to 6.4% in Q1, and finally updated to 7.2% in the Investor Day presentation [6][7][8] - Adjusted EBITDA for FY24 is projected at ~$2.30 billion, representing a margin expansion of 270 basis points [9] - Revenue is expected to reach at least $9 billion in 2024 based on updated net yield growth figures [9] Growth Initiatives - NCLH has ordered 13 new ships, with 4 expected to replace aging ships in 2024, increasing passenger capacity by at least 9% per ship [11] - The Oceania cruise ship capacity is expected to increase by over 20%, and the luxury Regent line by 13%, targeting high-net-worth individuals [11] - Investments in private islands in the Bahamas/Belize region, similar to Royal Caribbean's strategy, aim to expand onboard spending opportunities [12][13] Revenue Drivers - Onboard revenue accounted for ~49% of NCLH's total revenue in 2023, with passengers spending relatively higher once onboard [18] - 84% of NCLH's bookings originate from the USA/Canada region, with a mix of GenX and Millennial higher-income passengers driving higher spending [17] Capital Structure and Risks - NCLH carries ~$14 billion in debt and ~$500 million in cash, with a significant debt load that has doubled post-pandemic [22][23] - Management aims to reduce debt leverage to pre-pandemic levels by 2026, with guidance on raising cash flow targets and improving interest coverage ratios [24][25] Valuation and Outlook - Revenue growth is projected at 9.4% in 2024, 7.5% in 2025, and 9.9% in 2026, with adjusted EBITDA margins expanding to 24.5% in 2024 and 29.9% in 2025 [27][28] - Despite high debt servicing costs, NCLH is estimated to have 24-26% upside, warranting a Buy rating based on strong demand and unique customer demographics [29][31]