Mark A. Kempa
Executive Vice President, Chief Financial Officer at Norwegian Cruise Line
Thank you, Harry, and good morning everyone. My commentary today will focus on our fourth quarter 2023 financial results, 2024 guidance and our financial position. Unless otherwise noted, my commentary on 2023 and 2024 Net Per Diem, net yield, and adjusted net cruise cost, excluding fuel per capacity day metrics are on a constant currency basis and comparisons are to the same period in 2019 and 2023, respectively.
Let's begin with our fourth quarter results, which are highlighted on Slide 11. Starting with the top line, results were strong, with net per diems increasing approximately 14.5% and net yield increasing approximately 8.6%. As discussed last quarter, several factors contributed to the exceptionally strong growth, we saw, including the favorable comp from the rapid exit of Cuba in 2019, as well as a very strong close-in demand for Caribbean sailings.
Looking at cost, adjusted net cruise cost, excluding fuel per capacity day was in line with guidance at $151 in the quarter, marking our fourth consecutive quarter of improvement on this important metric. As expected, this included approximately $1 of certain non-recurring net benefits realized in the quarter. We have made significant progress streamlining our cost base during 2023, demonstrating our focus and commitment to our margin enhancement initiatives, and expect to continue this focus in 2024 and beyond.
Adjusted EBITDA was approximately $360 million, in line with guidance, while adjusted EPS was a loss of negative $0.18, slightly below guidance due to a $0.06 from FX below the line.
Overall, we were very pleased with results we generated in the fourth quarter and full year. Strong top line growth, combined with continued progress on reducing costs, enabled us to generate full year adjusted EBITDA just short of $1.9 billion and adjusted EPS of $0.70, all which drove strong adjusted free cash flow of $1.1 billion. I am confident that our improved financial performance in 2023 has set the foundation for a solid 2024 and beyond.
Moving on to expectations for '24 our outlook for the first quarter and full year can be found on Slide 12. Starting with the full year, adjusted EBITDA is expected to be approximately $2.2 billion, an 18% improvement versus 2023, with adjusted EBITDA margins expected to improve by almost 250 basis points. Adjusted net income is expected to be approximately $635 million with adjusted EPS expected at approximately $1.23 a 76% increase versus 2023.
Before I get into our top line expectations, there are a couple of important points to keep in mind for your models. First, given our strong expected net income growth for the year, shares related to our exchangeable notes are expected to be dilutive, and are included in our share count for 2024.
As a reminder, we must settle the exchangeable notes due in 2024 and 2025 in shares, while both of our exchangeable notes due 2027 can be settled in cash or shares at our sole election. However, the accounting treatment requires we consider all notes as if they were settled in shares. As a result, we assume our full [Technical Issue] million.
Secondly, we successfully migrated our tax residency from the UK to Bermuda as of December 31, 2023, and we do not expect recently enacted Bermuda corporate income tax legislation to have a significant impact on our overall tax rate as this was already assumed in our planning.
Taking a closer look at the components of the outlook, occupancy is expected to be approximately 105%. Net yield is expected to increase approximately 5.5%, inclusive of the headwinds from the outsized impact of the Middle East and Red Sea on our Oceania and Regent brands, primarily in the second and fourth quarter. For modeling purposes, our yield growth will be highest in the first quarter, as we are lapping lower load factors and a non-optimized itinerary mix in the first quarter of 2023.
In addition, we are seeing strong demand for Caribbean sailings in the first quarter of 2024, which represents approximately 58% of our total deployment in the quarter. For the remainder of the year, yield growth is expected to return to more normalized levels, despite the pressure from the aforementioned Middle East and Red Sea headwinds.
Moving to costs, adjusted net cruise cost, excluding fuel per capacity day, is expected to average approximately $159 for the full year. This represents a 3.4% increase versus full year 2023, but which includes the incremental impact of more dry dock days in 2024. Excluding that impact, our core costs are essentially flat on a year-over-year basis. To put this in perspective, this effectively represents approximately $100 million of cost savings, given our expected core inflation rate of around 3% for next year.
For modeling purposes, keep in mind that 2023 had less dry docks than normal, as we took the opportunity to dry dock ships while they were out of service. This year, we are returning to a more normalized dry dock schedule and expect roughly 175 dry dock days in the year. This will impact adjusted net cruise cost ex-fuel by approximately 325 basis points on a year-over-year basis or approximately $5 on a unit cost basis. This includes both the impact of dry dock costs and the related reduction of capacity days. Excluding the impact of that, we expect full year adjusted net cruise cost ex-fuel would be approximately $154, essentially flat on a year-over-year basis.
Note that the timing of this impact is expected to be weighted more to the first half of the year, with approximately two-thirds of our dry dock days occurring in that period. This year, we will continue to be relentless in our efforts to enhance margins and reduce costs. We are leaving no stone unturned and are continually identifying opportunities big and small across the business.
Our transformation office is running full speed ahead, in identifying operating inefficiencies, and opportunities for improvement across all areas of our operating platform, in order to enhance the acceleration of our margin recovery, and related cash generation. One key focus area for us has been optimizing both our fuel consumption and bunkering strategy.
Fuel costs are one of our largest expense line items and our teams have been hard at work at fostering partnerships with the likes of DNV on decarbonization and long term agreements with industry leader ABB to drive new opportunities to lower our fuel consumption per capacity day.
In addition to the consumption side of the equation, we have made a big leap in the optimization of our fuel bunkering strategy that allows us to maximize price leverage across the various ports and suppliers, we use during a season, and in many cases even during a single voyage. We believe this will drive double digit millions in savings in the first year alone.
This is just one of the many examples that support our relentless drive to improve our unit costs and leverage our scale, all without impacting the guest experience. I look forward to sharing many more tangible examples in our upcoming Investor Day in May. The combination of our more efficient cost structure and strong expected top line growth for the year is expected to drive the expansion of our full year adjusted EBITDA margins, up by approximately 250 basis points.
Now, let's take a look at our expectations for the first quarter. As I said earlier, net yield is strong in the first quarter and is expected to increase approximately 15.5%. Adjusted net cruise cost ex-fuel per capacity day is expected to be $165 or approximately 3% versus the same quarter last year. As mentioned, we expect an increase in dry dock days in the quarter, which will have $6 or 350 basis point impact on adjusted net cruise cost in Q1. Excluding that impact, adjusted net cruise cost would be $159, essentially flat on a year-over-year basis, demonstrating our ability to offset the impact of inflation with our cost savings. As a result, adjusted EBITDA for the first quarter is expected to be $450 million, adjusted net income is expected to be approximately $50 million and adjusted EPS is expected to be approximately $0.12.
Given the quarter is essentially complete, we do not expect significant outperformance in the top line versus expectations, as the vast majority of our inventory is already sold. Any limited upside would result from our onboard revenue generating performance during the month of March.
Moving on to our balance sheet and debt maturity profile on Slide 14. In 2023 we generated almost $2 billion of net cash from operating activities, which included $500 million return of cash collateral, and we repaid $1.9 billion of debt, including the full paydown of our $875 million revolving loan facility. Most recently, we successfully negotiated a refinancing of our $650 million backstop commitment from a secured to an unsecured basis. And in connection with this refinancing, the $250 million 9.75% secured notes due in 2028, our highest interest rate debt is expected to be repaid. This refinancing, which is expected to close in early March will reduce interest expense, improve leverage, while also releasing all of the related collateral, another important step forward in improving our balance sheet.
Moving to leverage on Slide 15. The Company has a solid track record of delevering the balance sheet. From 2014 to 2019, we successfully delevered by over three turns. We will continue to be opportunistic and look for further ways to strengthen our balance sheet. We are confident we can make meaningful progress on this front going forward. At year end '23 with reported net leverage of approximately 7.3 times or approximately 6.75 times when excluding the impact of ships delivered in the second half of the year, we continue to expect significant improvement in this metric over time, driven by our organic cash generation and scheduled debt amortization payments.
Over the course of 2024, we expect to reduce our reported leverage by almost 1.5 turns with sequential improvements in each quarter. This improvement does not assume any prepayment of debt, apart from the afore mentioned takeout of our $250 million notes expected in early March.
Going forward, we are refining a multi-year plan, to further accelerate the reduction of leverage and derisk our balance sheet, in order to drive shareholder value.
With that, I'll turn it back to Harry for closing remarks.
