Norwegian Cruise Line today reported results for the quarter ended September 30, 2011.

Operating income for the quarter improved 18.3% to $162.7 million from $137.6 million and Adjusted EBITDA increased 13.4% to $210.0 million from $185.2 million primarily driven by strong revenue performance across the fleet.  Net Revenue grew 4.6% to $491.6 million from $469.8 million in 2010 mainly as a result of an increase in Net Yield of 3.8%, or 2.3% on a Constant Currency basis.  The increase in Net Yield was driven by higher ticket pricing.

Benefits realized from ongoing business improvement initiatives coupled with non-recurring expenses in the third quarter of 2010 related to the launch of Norwegian Epic resulted in a decrease in Net Cruise Cost per Capacity Day of 2.0%, or 2.8% on a Constant Currency basis, after considering a 17.9% increase in the price of fuel to $598 per metric ton from $507 in 2010.  Excluding fuel expense, Net Cruise Cost per Capacity Day decreased 5.3%, or 6.2% on a Constant Currency basis.

“A strong summer season resulted in solid top-line growth in the quarter,” said Kevin Sheehan, President and Chief Executive Officer of Norwegian Cruise Line. “Pricing was up across the fleet despite several voyages being impacted due to tropical weather conditions in the Northeast and Caribbean,” continued Sheehan.

Interest expense, net of capitalized interest, increased to $49.9 million in the quarter compared to $46.2 million in 2010 due to higher average interest rates in the period resulting from the issuance of $250 million in senior notes in November of 2010.  Net income for the quarter improved to $110.2 million on revenue of $666.6 million compared to $93.0 million on revenue of $634.1 million in 2010.

Quarter Highlights and Updates
As a result of a successful naming contest in conjunction with USA Today, Norwegian Breakaway and Norwegian Getaway were selected from the more than 230,000 entries that were submitted. Norwegian Breakaway will be delivered in April 2013 followed by her sister ship, Norwegian Getaway, in April 2014. Sheehan commented on the naming of the vessels, “Both ‘Breakaway’ and ‘Getaway’ capture the essence of a Freestyle Cruising® vacation on a Norwegian ship, one that allows our guests to escape the stress of everyday life and enjoy an experience that is tailored to their wishes.”  Soon after the announcement of the ship names, the first steel was cut for Norwegian Breakaway at Meyer Werft in Papenburg, Germany, marking the ceremonial beginning of construction.  Plans and renderings for all stateroom categories, from the popular Studio single cabins to the luxury suites in The Haven by Norwegian, have been revealed and are receiving rave reviews.

In early October, at an event in New York City hosted by Mayor Michael Bloomberg, the Company announced the homeport, inaugural summer itinerary and hull artist for Norwegian Breakaway.  Hailed by Mayor Bloomberg as a major coup for the city, Norwegian Breakaway will homeport year-round in New York City beginning in May 2013, initially sailing seven-day voyages to Bermuda.  And furthering her ties to New York, the Company announced that famed pop artist and New York resident Peter Max will be designing the signature hull art for Norwegian Breakaway.  “Norwegian Breakaway will bring an incredible cruising experience to the doorstep of one of the world’s largest and most vibrant metropolitan areas.  Guests on board Norwegian Breakaway, whether local New Yorkers or visitors from out of town, will be amazed by her incredible offerings and luxurious accommodations,” said Sheehan.

On the heels of the Norwegian Breakaway announcement in New York, the Company launched its newest and most ambitious brand platform and national advertising campaign to date, inviting the public to “Cruise Like a Norwegian.”  The multi-faceted rollout expands the Company’s presence on television, digital and social media. Commented Sheehan, “The introduction of our exciting new brand platform is a significant milestone.  After four years of hard work improving our product and cultivating our brand, we felt this is the right time to issue this bold invitation to cruise with us by piquing interest and creating excitement around our brand.  We believe this new brand platform will differentiate us and help clearly define a Norwegian cruise as one of the best vacations. I’m incredibly excited about the launch of our new campaign which not only expresses the various ways to enjoy a vacation on a Norwegian cruise, from dining like a Parisian to surfing like a Hawaiian, but also expands the way we engage and interact with our guests.”

Terminology
Adjusted EBITDA.  EBITDA adjusted for other income (expense), impairment loss and other supplemental adjustments.

Berths.  Double occupancy capacity per cabin even though many cabins can accommodate three or more passengers.

Capacity Days.  Berths multiplied by the number of cruise days for the period.

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

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

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

Gross Yield.  Total revenue per Capacity Day.

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.

Net Revenue.  Total revenue less commissions, transportation and other expense and onboard and other expense.

Net Yield. Net Revenue per Capacity Day.

Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days.  A percentage in excess of 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.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost and Adjusted EBITDA to enable us to analyze our performance. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs and are commonly used in the cruise industry to measure revenue performance. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance and are commonly used in the cruise industry as a measurement of costs.

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

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance, is a factor in the evaluation of the performance of management and is the primary metric used in determining the Company’s performance incentive bonus paid to its employees.  We believe that Adjusted EBITDA is a useful measure in determining the Company’s performance as it reflects certain operating drivers of the Company’s business, such as sales growth, operating costs, selling, general and administrative expenses and other operating income and expense.  You are encouraged to evaluate each adjustment and the reasons we consider them appropriate for supplemental analysis.  In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation.  Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA is not a defined term under GAAP. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or measures 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.

Our non-GAAP financial measures may not be comparable to other companies.  Please see a historical reconciliation of these measures to items in our consolidated financial statements below in the “Results of Operations” section.