Mark Kempa
Executive Vice President and CFO at Norwegian Cruise Line
Thank you, Harry, and good morning, everyone. I'm a little under the weather today, so if my voice cracks I apologize in advance.
My commentary today will focus on our strong first quarter 2024 financial results, our improved full year 2024 guidance and our increasingly solid financial position. Unless otherwise noted, my commentary on 2024 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 2023.
Let's begin with our first quarter results, which are highlighted on Slide 10. We had an exceptional start to the year, and we exceeded guidance across the board, beating our already ambitious targets for the first quarter, which we only announced 2 months ago. Starting with the top line. Results were impressive with net yield increasing 16.2%, materially exceeding our guidance of 15.5%. As discussed last quarter, several factors contributed to the exceptionally strong top line growth we saw this quarter, including the lapping of lower load factors and a less-than-optimized itinerary mix in the first quarter of 2023. But more importantly, we experienced unprecedented demand for Caribbean sailings in the first quarter of 2024, which represented approximately 58% of our total deployment in the quarter.
Looking at costs. Adjusted net cruise costs, excluding fuel per capacity day, came in slightly below guidance at $164. As expected, this number includes approximately $5 from the increased dry dock days and related costs in the quarter compared to 2023. Excluding the impact of dry docks, our adjusted net cruise costs, excluding fuel, would have been essentially flat year-over-year, demonstrating our ability to offset the impacts of inflation with our disciplined cost savings initiatives across the organization.
Adjusted EBITDA was approximately $464 million, exceeding guidance of $450 million and almost doubling the prior year's results. We returned to first quarter profitability with adjusted EPS of $0.16, exceeding guidance of $0.12 in the quarter and well above the loss of $0.30 in the prior year. Overall, we are incredibly pleased with the results we generated in the first quarter. Strong top line growth, combined with continued progress in reducing costs, allowed us to essentially beat all of our guidance metrics in the quarter.
We are building on this momentum and with our revised expectations for 2024 are raising our full year guidance on several metrics, which can be seen on Slide 11. We raised our full year net yield growth a full percentage point from 5.4% to approximately 6.5%. This 100 basis point increase reflects the strength we experienced in the first quarter, but more importantly, our higher expectations through the rest of the year as a result of strong demand and record bookings that we have experienced for the remainder of 2024.
Last quarter, we mentioned the impact on our business due to cancellations and redeployment of itineraries in the Middle East and Red Sea. The strength we have seen in the business through wave season, however, has allowed us to almost fully offset this impact. Our full year guidance implies net yield growth for the remainder of the year in the low to mid-single-digit range and is exceeding our pre-pandemic growth rate. Adjusted EBITDA guidance for the year increased $50 million to $2.5 billion building on the first quarter guidance beat of $14 million. Adjusted EPS guidance for the year increased on a net basis of $0.09 to $1.32, made up of our $0.04 beat in the first quarter, a $0.10 raise for the balance of the year due to higher demand and pricing, which was partially offset by higher fuel costs and interest expense of approximately $0.04. These strong numbers and related guidance raise would not be possible without the continued focus and efforts from our entire team, both shoreside and shipboard.
Now let's take a look at our guidance for the second quarter. We expect a strong second quarter with net yield growth expected to increase approximately 4.3%, which is slightly above our historical averages despite the impacts of the canceled itineraries and redeployments in the Middle East and Red Sea. Adjusted net cruise costs, excluding fuel per capacity day is expected to be approximately $165 or approximately 5.8% above the same quarter last year. As we mentioned last quarter, dry dock days in 2024 will make comparisons to prior year more challenging.
Second quarter '24 has approximately 70 more dry dock days scheduled than last year. This increase for the quarter results in a $9 or 550 basis point impact on adjusted net cruise cost ex fuel in the quarter. Excluding the dry dock impact, adjusted net cruise cost excluding fuel is expected to be approximately $156, essentially flat year-over-year, demonstrating once more the continued success of our cost savings initiatives across the organization. As a result, adjusted EBITDA for the second quarter is expected to be approximately $555 million. Adjusted net income is expected to be about $160 million and adjusted EPS to be approximately $0.32.
Moving to Slide 12. I want to dive a bit deeper into our margin enhancement initiatives. We remain fully committed to boosting margins and reducing costs across the organization. With a meticulous approach supported by our transformation office, we are continuously pinpointing opportunities irrespective of their scale across every facet of our business. The results of these efforts are clear in the first quarter of 2024 where adjusted net cruise cost ex fuel per capacity day was $165 but was flat -- essentially flat compared to the first quarter in 2023, excluding the dry dock impact.
Our guidance on adjusted net cruise cost ex fuel remains unchanged for the full year 2024 and is expected to be $159, net of the approximately $5 impact from dry docks in the full year, which are ex the drydock, which are essentially expected to be flat. For your models, I would remind you that we expect to see about 2/3 of the drydock impact during the first half of the year with the remainder in the fourth quarter.
Turning over to slide 13. I want to focus on an important metric that we track internally, which is our adjusted operational EBITDA margin which is calculated by dividing adjusted EBITDA by adjusted gross margin. Looking at the last 12 months, you can see the significant improvements we have made as we have returned the business to full operations and focus on rightsizing our cost basis. In Q1, trailing 12-month adjusted operational EBITDA margin was 32.7%, improving 200 basis points compared to the full year 2023. We expect to see this margin continue to improve throughout the year, ending 2024 at approximately 33.5% based on our updated guidance. As you know, we are striving to improve our margins, and this journey will be fueled by 2 main drivers: first, capitalizing on the strong demand in the market, and converting this into quality and sustainable net yield growth; and second, continued focus on net cruise costs and rightsizing our cost base.
Shifting to the balance sheet and debt maturity profile on Slide 14. During the quarter, we completed the refinancing of our $650 million backstop commitment from a secured to an unsecured basis. In connection with this refinancing, we repaid $250 million 9.75% secured notes due in 2028, which was our highest interest rate debt. This refinancing reduces our interest expense and improves leverage while also releasing all related collateral, another important step forward in strengthening our balance sheet.
Moving to leverage on Slide 15. We have a track record of delivering on net leverage reduction, as we have discussed in many previous earnings calls, and we are currently on a path to do so again. In the first quarter alone, we reduced our net leverage by a full turn from year-end and turned the quarter at 6.3x. This is a significant reduction for 1 quarter, and we expect to continue to improve net leverage over time propelled by our organic cash generation and scheduled debt amortization payments. By the end of 2024, we anticipate reducing our net leverage by approximately 1.5x from year-end 2023, ending 2024 in the upper 5x range, with sequential improvements in each quarter. We are currently refining a multiyear plan to further continue the reduction of leverage and derisk our balance sheet to drive shareholder value. I plan to share more on this plan at our Investor Day on May 20th.
Closing out my section, I want to reiterate, this has been a fantastic quarter, where we beat guidance on all key metrics. The strong momentum we have seen in the quarter is carrying over to the full year, and we've been able to raise our guidance for the full year on yield adjusted EBITDA, adjusted net income and adjusted EPS. This quarter is a testament to our ability to use strong top line results, coupled with efficiencies to enhance margins and drive strong EBITDA and related cash flows, resulting in lower leverage and derisking the balance sheet. We are excited to see how the rest of the year plays out after the strong start.
With that, I'll turn it back to Harry for closing remarks.
