Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Second Quarter 2024 Earnings Conference Call. My name is Donna, and I will be your operator. [Operator Instructions] As a reminder, to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Sarah Inman. Ms. Inman please proceed.

Harry Sommer:

Thank you, Sarah, and good morning, everyone. We appreciate you joining us today for our second quarter 2024 earnings call. This is an exciting time for Norwegian Cruise Line Holdings. The second quarter had surpassed our expectations with results exceeding guidance on all key metrics allowing us to increase our full year guidance for the third time this year. At our Investor Day, we emphasized our unwavering commitment to balancing return on experience what we call ROX and return on investment or ROI. This strategy is clearly yielding results. We are witnessing robust demand with strong pricing and booking volumes, leading to record-breaking advance ticket sales. This demand, coupled with our onboard offering and high-quality service, has led to strong guest satisfaction scores while we continue to effectively control costs. These indicators affirm that our strategic approach is positioning us for sustained long-term success on our well-defined path forward for continued growth to achieve our charting the course strategy, which includes ambitious 2026 financial and sustainability targets. Today, I am excited to discuss some of our key milestones for the second quarter and the factors that drove our enhanced guidance for the remainder of 2024. We're thrilled to see how the pillars and initiatives under our charting the course strategy are moving the needle for our business. As these are strongly underpinned by our global sustainability program, Sail and Sustain, we're also excited to share the progress outlined in our recent sustainability report. Later in the call, I will hand it over to Mark, who will provide more color on our second quarter performance and updated outlook for 2024. We kicked off the second quarter with impressive momentum, continuing the positive trends from the beginning of 2024 and proudly executing on our exceptional performance pillar. As you can see on slide four, our second quarter results beat guidance across the board. Adjusted EBITDA grew 14% and adjusted EPS was up 33%. Notably, we hit our year-end target of decreasing net leverage by one and a half turns a full six months early. As we move forward, we remain committed to further deleveraging with a clear focus and attaining a 2026 target of mid-four times. These strong results also allowed us to raise our full-year revenue and earnings guidance. We now expect to end the year with adjusted operational EBITDA margin of 34.5%, a full 400 basis point improvement over 2023, which puts us well on the way to our 2026 target of approaching historical margin levels of 39%. We also increased our adjusted EPS guidance for the full year to $1.53, an approximate 120% increase over 2023, and an impressive step forward towards our 2026 target of $2.45. And lastly, we are on track to achieve double-digit adjusted ROIC by year-end. This acceleration in our financial results speaks volumes about our team's dedication and hard work. Turning to slide five, I want to emphasize how our long-term growth platform pillar is set to deliver measured capacity growth and optimize our fleet to drive strong financial returns. Historically, capacity growth has driven outsized revenue and adjusted EBITDA growth, and we expect this trend to continue with the incorporation of larger and more efficient, state-of-the-art vessels to our fleet, which I'll now give some updates on. Turning to slide six, we are currently focused on our next two new ships being delivered in 2025, both currently scheduled for an on-time delivery. Our first milestone in the quarter was the float-out of Norwegian Aqua, which we celebrated with our partner Fincantieri. Norwegian Aqua, the first ship in the next-generation Prima Plus class, is an evolution of the previous Prima class ship and will be 10% larger. This space allows for more innovative offerings, including the world's first-ever hybrid roller coaster and water slide, the Aqua Slide Coaster. We are also building a digital sports complex with an interactive LED floor and our most expansive 360-degree outdoor promenade, the Ocean Boulevard. We cannot wait for Aqua to make her debut in April 2025. Most recently, we also celebrated the float-out of Oceania's Allura at the Fincantieri Shipyard in Genoa. This marked the transition of the vessel from dry dock to fitting out berth, initiating the final stages of construction. Allura will redefine luxury with its designer-inspired interiors, including opulent suites, sophisticated lounges, and exceptional new dining venues. Scheduled to enter service in the Mediterranean in July 2025, she will follow her normal summer season with winter voyages in the Caribbean. Oceania was also busy this quarter with the return to service of Marina after an extensive refurbishment. This all-encompassing rejuvenation includes the addition of three new dining options and reimagined penthouse suites. And just as we add more capacity and new features on existing ships, we are also excited for enhancements to our destination and home ports. We're increasing our sailing to exciting destinations, such as Bermuda and Great Stirrup Cay, where we plan to complete construction of our two-ship pier towards the end of next year. We'll also be adding a new home port to our roster in 2025, JAXPORT, in Jacksonville, Florida. And in April 2026, NCL will make its return to Philadelphia after a 17-year hiatus. With the addition of Philadelphia, NCL will now service seven of the top ten largest metropolitan regions in the United States. We are excited about our deployment, and our guests are as well, as shown by our booking trends, which you can see on slide seven. The company continues to experience strong consumer demand. In the second quarter, we continue to see strong bookings, with our 12-month forward book position at the upper end of our optimal range on strong pricing. During the second quarter, we observed continued strength in onboard revenue as well, which was driven by our guests' continued enjoyment of our shore excursion and onboard amenities, including specialty restaurants and communication services, which had been bolstered by the continued implementation of Starlink across the fleet. Additionally, pre-booked onboard revenue for capacity day showed solid growth, increasing by 15% as more guests opted for pre-cruise purchases. And as we've seen from prior experience, higher pre-cruise spend typically results in higher overall spend throughout a guest's cruise journey. As a result, our net yield grew 6.3% during the second quarter, surpassing our guidance by a full 200 basis points. During the second quarter, about 3% of our capacity was originally scheduled to be in the Middle East region, with high team percentages on our Oceania and region brands scheduled to be in that region. The cancellation of these itineraries resulted in a very short resale cycle. Despite this setback, results for this quarter were strong enough to offset this, underscoring the robust demand environment for cruises and the agility and effectiveness of our team to overcome difficult challenges. Without a doubt, our financial performance exceeded our expectations, and we're therefore raising our yearly net yield growth guidance, increasing 100 basis points from 7.2% to 8.2%. It is worth noting that our occupancy guidance remains essentially unchanged as we're already guiding to full shifts, so the entire increase in our guidance is on the back of stronger pricing. As such, we are anticipating strong pricing growth across all four quarters in 2024. Turning to slide eight, to continue cementing our leading position beyond 2024, I am excited to announce that our second quarter advance ticket sales surpassed the first quarter, increasing 11% year-over-year and reaching a new all-time high of $3.9 billion. This success was driven by robust pricing, a dynamic deployment mix, coupled with increased pre-sale packages and capacity growth. Now moving on to what is at the core of our charting, the core strategy, our sustainability program, Sale & Sustain. In June, we were pleased to result our annual sustainability report. On slide nine, we summarized some of our main 2023 highlights, which underscore our commitment to integrating sustainability into our overall business approach. Some noticeable accomplishments include achieving our 2024 target to equip 50% of our fleet with shore power technology a full year early. We reign on track to equip 70% of our fleet with this technology by 2025. In fact, we recently celebrated the launch of shore power at Port Miami, making it the first major cruise port on the U.S. East Coast to offer shore power at five of its terminals, including our own Terminal B, the Pearl of Miami. We also reached our goal of testing 20% of our fleet with biodiesel blend by expanding tests to four more ships throughout 2023. Our new target is 40% of our fleet to test biodiesel by 2024. Finally, doubling down on our people excellence pillar, we continue diversifying our sourcing, having spent over $635 million with small businesses and businesses with minority, women, veteran, or economically disadvantaged qualifications in 2023. And most recently, Forbes named us as the best American employer for women, a milestone we are particularly pleased with. Our journey does not stop here. We remain dedicated to advancing towards our sale and sustained targets going forward, maintaining high standards of operational excellence, and creating lasting value for our business and various stakeholders through sustainable practices. I couldn't be more proud of our entire team for all of these impressive accomplishments. With that, I'll turn it over to Mark to walk you through our financial results and outlook. Mark?

Harry Sommer:

Well, thank you, Mark. I want to close by reminding everyone of the ambitious targets and strategies that we laid out in investor day just two months ago, which are listed on slide 17. Our bold vision is to provide guests with exceptional vacation experiences, allowing them to vacation better and experience more. This vision is the foundation of our charting the course strategy supported by our four pillars, people excellence, guest-centric product offering, long-term growth platform, and exceptional performance. These pillars are all underpinned by our commitment to sustainability through our sale and sustain program. This new strategy and vision lead to a simple yet powerful earnings and return algorithm that Mark discussed earlier that will help us deliver on our 2026 financial targets. Our entire management team is driven and focused on this new strategy, and I'm positive that this quarter's results gives you even greater confidence that we are on track to achieve our long-term goals. We are optimistic about our future and look forward to sharing this journey of growth and success with you. With that, I'll hand the call back over to the operator to begin our Q&A session.

Steven Wieczynski:

Hey, guys. Good morning. Congrats on the results here. So Harry or Mark, in terms of booking trends, it seems like you're obviously well-booked out for this year. As you noted, most of your bookings today are for 2025 or beyond. Just wondering, as we look out to 2025, if you're seeing pretty much strength across all itineraries at this point, or are there certain itineraries that are getting more attention right now? Then you also noted that you're at the high end of what you call your optimal book position. Has that optimal book position changed at all, given how much further out your customers are booking these days?

Steven Wieczynski:

And Harry, maybe if I can ask one more real quick one here, but you made a remark in your prepared remarks about, you know, how you're charting the course targets are, you used the word ambitious, which, I think is a pretty interesting adjective there. So maybe I'm reading too much into that remark, but, as we sit here today, I mean, if you guys are targeting double-digit, ROICs by the end of this year and your target out to 2026 is 12%, I mean, that doesn't seem overly ambitious to us. So maybe that's not even a question, but, I'll stop there and see how you would respond to that.

Steven Wieczynski:

Okay, great. Thanks, Harry. Appreciate it.

Benjamin Chaiken:

Hey, good morning. Thanks for taking my question. I know you called out timing as a factor between 2Q and 3Q for costs, but it sounds like some incremental progress on the cost side as well that helped offset costs both in the quarter and the year. I'm not sure if there's anything you can elaborate on. Were these essentially incremental cost saves as part of the longer term goal that you found early or maybe incremental opportunities? And I guess what I'm referring to is the incremental compensation expense, yet essentially unchanged full year cost guide. And then any quantification would be super helpful. Thanks. And then I have one more.

Benjamin Chaiken:

Got you. That's helpful. And then switching gears, thinking longer term, I know the peer will be complete in October 25. Do you plan on making incremental investments in parallel with that opening, or do you think at least subsequent to?

Harry Sommer:

And Ben, I just want to highlight that that will be over time. We are not anticipating or should you expect there's going to be some level of ramped up CapEx over the next year or two. We will make measured disciplined investments there while looking to repurpose dollars that were otherwise going to be spent within the organization. So again, it will be in a measured way and associated with returns that we would expect with such investment.

Operator:

Thank you. The next question is coming from Conor Cunningham of Melius Research. Please go ahead.

Mark Kempa:

Yes. Good morning, Conor. Look, I think when you think about 2025, we're not expecting any sort of material headwinds from our core fundamental costs, other than what we would expect against normal inflation, which again, we've been very adamant. We believe we can deliver sub-inflationary costs. But things around the island or even I think you mentioned dry docks, when we think about dry docks year-over-year, there is no substantial step up. I think our dry dock days, you know, might change year-over-year. It's in the single digit number. Now, there may be different capacity days in terms of timing of the dry docks or similar of next year. But overall, that's not a headwind when you think about it from a 20,000-foot level. So we're focused on, as we've been saying, we're focused on our algorithm. We believe we can deliver sub-inflationary unit cost growth or better. And Q2 and our second half guidance is another testament to that, that we're on a strong path toward that course.

Conor Cunningham:

Okay. Helpful. And then on the comment...

Conor Cunningham:

Okay. Helpful. Then on the comment of booking for 2025 and just where the curve sits, in the past, you've talked about the negative impact to having like longer, more immersive, cruises that won't let you -- basically will inhibit you from getting back to 2019 occupancy levels. But just given the stated demand, like why wouldn't occupancy be a further tailwind into 2025, outside of you guys just pushing rate in general for yield? Thank you.

Conor Cunningham:

That's actually helpful. Thank you.

Matthew Boss:

Great, thanks. And congrats on a nice quarter. So, two-part question. Harry, on the robust demand that you cited into the back half of the year, could you elaborate on pricing power globally or just any pushback at all that you're seeing in any region? And then, Mark, with the fourth quarter net yield raised today, and if we think about demand momentum, if demand momentum continued, I guess, how linear is the 2.5 point cost spread target multi-year? Thinking if net yields were to continue to outperform your plan, how best to think about that 2.5 point cost spread?

Mark Kempa:

Yes. Matthew, just to highlight some things. So look, when we announced our targets, what I think it would be important to understand is, number one, there is no hockey stick implication or assumption that we're going to do X in 2025, and we have to do Y in 2026. That was a very broad-based spread that we've committed to. So what do I mean by that? Yes, there may be some variability between quarters either upward or downward of that. I mean it's very, very early when we look at 2025 and 2026. So I wouldn't get caught up on the quarterly spread. I would concentrate on the full year spread, which is what we're aiming for. And again, we're not assuming any sort of hockey stick scenario, and I think that's the important thing to keep in mind in your models and your thinking.

Mark Kempa:

Thank you, Matt.

Brandt Montour:

Good morning, everybody. Thanks for taking my question. So the first one, just on the fourth quarter implied guide, I think the fourth quarter guidance on our math for per diems is something in the low two percentage range. And I think there's Middle East there. Can you -- or can you just start up quantifying what the Middle East impact is on the fourth quarter in particular?

Harry Sommer:

And the only additional color, Brandt, that I'll add is we now, as I said earlier in the Q&A session, we managed to yield not to price and we're guiding now to a 5-point yield increase year-over-year, which, quite frankly, considering that we're guiding at 6% now for Q2 and Q3, and -- we don't view that as a material difference. We don't go 6% 1 quarter, 5% another quarter as anything other than the normal ebbs and flows of businesses. So I think this conversation about some sort of deceleration can finally be put to bed. We tried last time, but we're obviously weren't successful. Hopefully, after this time, we can finally put that to bed.

Mark Kempa:

Sure. I'll give you a short answer and then a longer answer. So the short answer is no. We are seeing no absolutely 0 decrease in onboard spend. I think we mentioned in our prepared remarks, in fact, have the preselling of onboard is actually up considerably over the prior period that we comped to. The slightly longer answer is you need to keep in mind a couple of factors. The huge value gap between hotel ADRs and cruise line yields. I think at our Investor Day, we referenced a 40% value gap, which really still means we have tremendous runway to go to catch up the hotels. We consider that a long-term tailwind for the company. And also the fact that because our bookings pattern is so much further in advance, we have lots of opportunities to engage with our consumer and discuss with them all the value of being on our ship. I gave a little bit of the fact that the people are in our product, the whole time, unlike a hotel where people come and go, sort of are on the ship for extended periods of their vacation, which gives us a little bit of a tailwind there as well. So overall, the short answer is no cracks, no deterioration. If anything, it continues to be strong and more long-term, I think there are fundamental things that work in our favor that make our business quite a bit more resilient than the hotel on the ancillary/onboard spend category.

Mark Kempa:

Next question. Donna?

Vincent Ciepiel:

Great. So really encouraging to hear about the positive revision of the fourth quarter. And I think you used the word robust to describe what you're seeing for pricing for 2025. So it sounds like things are setting up pretty well for that low to mid-single-digit yield growth range that you target. Could you comment on how you think new hardware and maybe any itinerary or geographic type changes could impact yield for next year? Is it something that you think will be accretive, neutral, dilutive to yield? How should we be thinking about that?

Vincent Ciepiel:

Thanks. And an unrelated follow-up on loyalty, I know this is something that we've talked about briefly in the past. Just curious where you guys are at in that process, and if you've given more thought or are already taking steps to help, reward folks for staying within the brand family across the portfolio of brands?

Vincent Ciepiel:

Okay, thank you. Thank you.

James Hardiman:

Hey, good morning, and thanks for taking my questions. So, you guys have done a great job the last couple quarters and really implied in the guidance for the year on the cost front, basically keeping that cruise cost flat next to dry dock. Maybe help us think through how long you can continue to do that, i.e., if we think about this year, was there a disproportionate benefit from some of the cost saves that would inevitably slow next year? And I guess, conversely, how to think about inflation next year, or could that sort of flattish ex-dry dock trend continue for longer? Thanks.

James Hardiman:

Got it. And then obviously, it's way too early to really handicap 2025 in terms of some of the key sort of demand and cost factors. But I don't know if you could maybe help corral us in terms of some of the below-the-line items, as I think about interest expense, share count, DNA for next year. Obviously, your balance sheet is changing. You've got some converts. Any help with that math so we could all be maybe within the same ballpark?

James Hardiman:

Got it. Really helpful. Thanks, Mark.

Lizzie Dove:

Hi there. Thanks so much for taking the question, and congrats on a nice set of results. I just wanted to ask about kind of the algo, I suppose, for net yield. It feels like maybe the gross side of things in terms of onboarding ticket was a touch lower than expected, but really, really nice kind of commissions leverage that you got there. So I guess any change of how you're kind of thinking about that longer term, and I'll ask my follow-up now, is there, how much more room to go is there on that kind of commissions leverage that you're getting? And is that really just coming from more direct bookings, changing demographics that you're seeing? Any help there would be great. Thank you.

Lizzie Dove:

Okay, thank you. That’s helpful.

Operator:

Thank you. Our next question is coming from Dan Pulitzer of Wells Fargo. Please go ahead.

Mark Kempa:

I think, Dan, generally speaking, to the extent we can continue to improve on that line item, we're going to continue to improve on it. Obviously, we are at the mercy of some of the market volatility in terms of whatever air does. But I think it's a good assumption to assume that we're going to continue to work hard on that and see improvements. So a bit of a not exact answer, because I think there is some variability there, but I think we're going to continue to see improvements there.

Mark Kempa:

Yes, I think the way to think about it is it provides us another solid milestone toward our 2026 target of mid-fours. I think generally the models out there know what our debt is, net debt is. And I think you have a good handle on obviously where our EBITDA is. So we are making progress and we think by year-end we're going to see significant improvements in that quarter after quarter.

Harry Sommer:

Okay. So once again, I want to thank everyone for joining us today. We'll be around to answer any questions you may have. Have a great day and we look forward to seeing you in our next call. Thanks, everyone.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings First Quarter 2024 Earnings Conference Call. My name is Joe, and I will be your operator. [Operator Instructions] As a remainder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Sarah Inman. Ms. Inman, please proceed.

Harry Sommer:

Thank you, Sarah, and good morning, everyone. Thank you all for joining us today for our first quarter 2024 earnings call. It's such an exciting time for our company with wonderful new products available across all 3 of our award-winning brands, strong demand and some recent noteworthy announcements that have solidified our trajectory for years to come.

Daniel Politzer:

I was hoping we could dive in a little bit more on kind of the pricing and set up for the remainder of the year. I mean it seems certainly the first quarter was very strong. As we think about the tweaks to your capacity allocation for the rest of 2024 and certainly similar Europe and at least in the second quarter, but kind of falling off in the back half. How should we think about the relationship between that capacity allocation relative to pricing?

Harry Sommer:

So Dan, and thanks for joining us today. Listen, I wouldn't say that there are any areas that are outsized or undersized. We're seeing good pricing yield strength across all 3 of our brands, across all the major areas that we deploy our ships. We're doing well in Europe, we're doing well in Alaska, Bermuda, Hawaii, of course, the Caribbean. I think the only place where we've talked before, where we had a little bit of a challenge is the voyages in Q2 and Q4 that had previously visited the Red Sea and had to redeploy to other itineraries.

Daniel Politzer:

Got it. And then just pivoting to the cost side. Can you just remind us a couple of those pockets where you really seem to be cutting the fat, right? I think food is an area where you've seen some success. Also I think on marketing, you've talked about the expenses you've cut there. So as we think about the kind of the buckets across the cost structure, where have you seen more success? And where is kind of the additional opportunity that you see looking ahead?

Harry Sommer:

And Dan, I'll just add one more thing, specifically related to the food. I just want to emphasize we have in no way reduced the quality of food that we serve our guests. We still serve, especially on Oceania region, the best quality food that we can and in NCL very good quality food as well, where we have seen the efficiencies, if you will, are in things like buying direct as opposed to intermediaries and in logistics.

Operator:

And our next question comes from the line of Vince Ciepiel with Cleveland Research.

Mark Kempa:

Vince, yes, you are correct. We still expect third quarter to be the highest yield growth quarter. And I will remind everybody that in Q4 of '23, if I recall correctly, we had pricing of growth of 15% and yield growth of 9%. So we are rolling over a very healthy Q4 of 2023. So that's not to be implied that Q4 of this year is not doing well, but it is just certainly rolling over a much higher comp, but we do expect third quarter to be the highest.

Harry Sommer:

Yes. So when we look at our 2 private islands we have today, Great Stirrup Cay in the Bahamas and Harvest Caye in Belize, those are our 2 highest-rated destinations. Now we really had a pier at Harvest Caye. So there were no issues in that area. But in GSC, Great Stirrup Cay, excuse me, the lack of a pier caused us to miss much more frequently than we would have liked.

Operator:

And our next question comes from the line of Steven Wieczynski with Stifel.

Operator:

Our next question comes from the line of Brandt Montour with Barclays.

Mark Kempa:

We lost Brandt.

Mark Kempa:

Yes. So we'll move on to next caller.

Conor Cunningham:

In your prepared remarks, or even in the press release, I think you mentioned that you're at a record book position over the next 12 months. I know you want to talk only about '24, but just curious on how '25 is shaping up? I assume pricing is up. Just any details around that would be helpful.

Conor Cunningham:

Okay. And then I appreciate the details on the dry-dock headwinds, and I realize that kind of lingers throughout '24, but does that roll off in '25? Or is it more of a '26? Just trying to understand, your exit rate on cost is obviously going to be really good in '24. So just curious on how we should think about dry-dock specifically next year and the year after?

Operator:

Our next question comes from the line of Brandt Montour with Barclays.

Mark Kempa:

Well, we'll try again on Brandt. Let's go to the next question.

Operator:

And the next question will come from the line of Patrick Scholes with Truist Securities.

Harry Sommer:

Yes. Thanks, Patrick. So, no, what we're seeing is not a reflection of changes in direct or significant changes in passenger mix. It's really more driven by the airline. You know that as a cruise line, we package air across all 3 of our brands. And as participation rate shifts from year-to-year -- and also, we're buying air a little bit better this year versus last year. The air component cost goes down. So it's a combination of slightly lower participation rate for air and us buying air a little bit more efficiently than we did last year. But our general direct versus trade, new to cruise has remained substantially the same year-over-year across the brands.

Mark Kempa:

Yes, Patrick. Look, we won't give an exact percentage. What I can tell you is, if you refer to our prior remarks on our calls, generally speaking, we had said our sweet spot is somewhere in that 60% to 65% on a forward 12-month basis or at any given time, I should say. And so if you think of it from that reference, we could be up from there, but I won't give any specific percentages on that, other than the fact that we continue to see a very strong consumer, consumers who are willing to book further out and who are willing to pay higher prices. So I think all of that lends itself to a great environment to continue to capitalize on this demand.

Mark Kempa:

Well, I think if you think about, as Harry said, our forward 12 months, which would include Q1, would imply that Q1 is ahead. But we won't comment on the rest of the year other than bookings are in line with our expectations where we believe they should be. So...

Operator:

Our next question comes from the line of Ben Chaiken with Mizuho.

Mark Kempa:

Yes. Ben, the moving parts in Q2 are really the Mid East and Red Sea for the most part, and that also impacts Q4 as well as Q4 having a significant rollover versus the same quarter in 2023.

Harry Sommer:

I wouldn't interpret it that way. I'm not prepared here to discuss our full long-term plans for Great Stirrup Cay. We'll talk a little bit more about that in 3 weeks. I'm just -- my comment was meant to say that the pier was the gating item that before we committed and have a schedule for the pier, it would not have been prudent for us to make substantial additional investments to the island, which for the record, is already a great experience. But now that we have the pier, it allows us to have a slightly more long-term view towards that.

Operator:

Our next question comes from the line of Lizzie Dove with Goldman Sachs.

Mark Kempa:

Lizzie, I think as we said, we believe in the back half of the year, third quarter will be the highest yielding quarter. Fourth quarter, there was -- if you think about fourth quarter 2023, yes, there was a small impact on occupancy as a result of Hawaii. But I think as we look at the comp rolling over, again, if I recall correctly, somewhere in the zone of 14% pricing growth and maybe 9% to 10% yield last year, that's a very quality comp to roll over.

Harry Sommer:

Yes. I mean the only additional color I'll add, which Mark talked about in an earlier question and not this one is a slight headwind related to Red Sea cancellations in Q4, which would be a little bit more -- a little bit less, excuse me, than the headwind in Q2 because we had a little more time to have the replacement voyages on sale. And that's why it was so critical for us to get well ahead of this for 2025. So we've already canceled all of our voyages that have previously gone to [ Israel ] for 2025 and all the Red Sea crossings in the first half of '25 so that we wouldn't have the same headwind challenges to our 2025 growth.

Harry Sommer:

So I'm trying to distill that question down into some thoughts in my mind. So obviously, we're excited to see new entrants into the market. We think anything that has -- that draws more focus, if you will, to this market and the public market and the excellent opportunity that cruising represents is positive for all of us.

Operator:

Our next question comes from the line of Fred Wightman with Wolfe Research.

Mark Kempa:

Fred, so we have announced all cancellations of our Red Sea and Mid East itineraries for 2025, with the exception, I believe we may have one sailing still on sale in the back half of '25 for the Oceania brand. Apart from that, we have canceled all those sailings. And the thinking there is, obviously, the earlier you reroute those and create better itineraries, the better sales cycle you have. So the -- certainly, the improved yield and economics that you can garner from that should improve.

Frederick Wightman:

Okay. That's fair. And then just trying to understand where there could potentially be some upside for yields throughout the year. It sounded like in response to an earlier question that you were saying the potential upside would come largely from onboard. I think that was in response to 2Q specifically. But just thinking about the back half of the year, especially in 4Q when that Caribbean exposure increases again? I mean you guys still feel like you have the ability to take price and grow yields from a ticket perspective later in the year, right?

Operator:

And our next question comes from the line of Robin Farley with UBS.

Robin Farley:

Yes, just the cost per berth or kind of getting a sense of the change in building costs at the yards, understanding that there will be inflation there, but just trying to get a ballpark for it. And the prior questions have been about the EBITDA. I fully understand the interest expense impact on the EPS. I was looking for the extra $10 million in EBITDA. But anything on the cost per birth?

Operator:

And our last question will come from the line of James Hardiman with Citi.

Harry Sommer:

So the quick answer is yes. We believe that the cost will be essentially flat, excluding dry-dock, as you mentioned for the back half of the year. We're very proud of the efforts that the team are making, not really prepared to comment on '25 and beyond at this point.

Harry Sommer:

Well, what a wonderful set of comments in the call. I share Mark's passion for continuing to improve our operating margins while delivering a fantastic guest experience. I want to thank all of you for your time today, and I really am looking forward to talking about our long-term targets and strategy when we meet on May 20. Thank you all very much.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Donna, and I will be your operator. [Operator Instructions]. I would now like to turn the conference over to your host, Sarah Inman. Ms. Inman please proceed.

Harry Sommer:

Well, thank you, Sarah, and good morning, everyone. Thank you all for joining us today. I want to welcome everyone to our fourth quarter earnings call. It's such a great time to be in the cruise industry with wonderful new products available across all 3 of our award-winning brands. The demand for cruise vacations is certainly as robust as we have ever seen it. And the continued innovation on board is leading to outstanding financial performance and exceptional guest satisfaction scores and guest repeat rates. Today, it's my pleasure to discuss some of our key milestones in 2023, our progress on our near-term priorities, recent booking trends and our outlook for 2024. Later in the call, I'll turn it over to Mark, who will provide more color on our 2023 performance and guidance for 2024. Now 2023 can best be described as a landmark year for Norwegian Cruise Line Holdings. We started the year on the heels of the last of the impact from COVID and the last of the cruise ports reopening in the Asia Pacific region throughout Q1. But as you can see on Slide 5, consumer demand was quick to rebound in full and we were pleased to return to full ships and full year profitability. It is so incredibly rewarding for our staff and crew to be able to operate full ships and deliver vacation experiences of a lifetime to our happy guests. While that in and of itself would have made for a spectacular 2023, we were further going by the introduction of 3 new world-class ships into our fleet, one for each of our 3 award-winning brands. This was an unprecedented achievement and a first in the 57-year history of our company. We welcomed Oceania Cruises Vista in May, Norwegian Viva in August, and most recently, the highly anticipated Regent Seven Seas Grandeur in November. The successful launch of 3 vessels in 1 year would not have been possible without the hard work and unwavering commitment of crew and team members across the globe. Thanks to their dedication and passion for providing an unmatched guest experience, the reception for these new ships continues to be overwhelmingly positive across the board. This reception, combined with the strong demand environment, we continue to experience across all 3 of our brands, has enabled us to successfully absorb an 18% increase in capacity in 2023 versus 2019 levels at record pricing levels. As a result, we have driven revenue per passenger cruise day up 17%, allowing us to finish the year with year-end advanced ticket sales of $3.2 billion up an incredible 56% compared to 2019. At the same time, we continue to maximize onboard revenue generation, as shown by growth onboard revenue per passenger cruise day, which is up 27% over 2019. A main driver of this large improvement is through enhanced presold onboard revenue, so our guests come on board with a fresh wallet. But none of this is new news. As we have been and continue to be the industry leader in net yields. We are proud of the work our teams do day in and day out to drive the highest yields in the industry. But today, I also want to emphasize that we are equally passionate about the cost side of the business. Our relentless focus on cost optimization has produced 4 sequential quarters of year-over-year adjusted new -- of year-over-year adjusted net cruise cost per capacity day reduction with full year 2023 coming in 21% lower than the prior year. We achieved this by focusing our efforts on optimizing spend and investments across all areas of the business, from fuel to food and consumables and marketing. We are committed to continuing to optimize our margins by balancing products, revenue and cost considerations through better leveraging data and analytics to drive decision-making and accountability. The net result of these healthy revenue and cost metrics allowed us to get back to driving results. As we generated $1.9 billion in adjusted EBITDA in 2023, allowing us to generate the adjusted free cash flow to further strengthen our balance sheet with the repayment of nearly $2 billion in debt. On the product front, we are strategically enhancing the guest experience by identifying smart ROI-driven investments and decisions to profitably maximize guest satisfaction. Our recent success has been the rollout of Starlink high-speed Internet. We moved quickly and have been able to roll out this cutting-edge technology across half of our fleet since the spring of 2023 and expect to finish the full fleet by year-end this year. In addition, to significantly elevating the guest experience aboard our ships, we've been focusing on improving the pre-cruise guest experience and better leveraging digital tools across all 3 of our brands. For example, we've been making improvements to our pre-cruise planning functionality at Norwegian to allow guests to book even more before they leave their homes, and we rolled out a flexible air program at Oceania, sharing an innovation which began at Norwegian earlier in the year. This innovation gives guests the few day window to deviate their air at the beginning and end of their cruise so they can have more time to explore and enjoy destinations before and after they sail with us, while at the same time, allowing us to spread air demand over multiple days and save costs, a true win-win for us and our guests. On the digital side, we recently launched the Regent onboard mobile app on Seven Seas Grandeur, and we continue to see strong adoption of the NCL mobile app, which reached record high guest usage in January. These improvements are not only resonating with our guests, giving them a better and more frictionless experience before, during and after their cruise, but are also generating positive returns. Finally, we announced important interim sustainability commitments, announcing our target to reduce greenhouse gas intensity on a capacity a day basis by 10% by 2026 and by 25% by 2030 versus 2019 levels. The company is truly firing on all cylinders. These solid operational and financial results have laid the foundation for a strong 2024 and position us to deliver sustained profitable growth in the future and incredible vacation experiences to the millions of guests who sail with us every year. In addition to these priorities, a key cornerstone of our long-term strategy is delivering measured capacity growth and optimizing our fleet to drive strong financial results. Our new build pipeline of 5 ships, which you can see on Slide 7, represents a capacity growth of 28% from 2023 to 2028 with a 5% CAGR over the period. Historically, capacity growth has led to outsized revenue and EBITDA growth and we expect this capacity growth to be no different and deliver meaningful top and bottom line growth. We believe that these measured capacity additions will enable us to further enhance our long-term profitability and continue to significantly strengthen our balance sheet while providing guests new and innovative experiences. Shifting our discussion to the current booking environment shown on Slide 8. We continue to experience strong and resilient customer demand across all 3 of our brands. The strong momentum we saw in 2023 has continued into 2024 with an all-time high book position and pricing buoyed by strong wave season demand. This has led to some of the best booking weeks in the company history, which began with successful Black Friday and Cyber Monday promotions. In general, we continue to see healthy demand across all markets, brands and products. Let me walk you through some recent trends. First, close-in demand for Caribbean sailing is particularly strong prompting the redeployment of Norwegian Epic and Norwegian Getaway from offering shoulder season full 2024 voyages in the med to offering Caribbean sailings from Port Canaveral and New Orleans, respectively, beginning in October. As a result, our Caribbean capacity for the NCL brand is expected to increase by approximately 300 basis points in 2024 versus the prior year. Our industry's advantage lies in our ability to redeploy our ships and adapt to changes in consumer demand and preferences. These changes demonstrate our team's responsiveness to our guests' preferences. We have also seen demand return for sailings in Hawaii. While only accounting for approximately 4% of capacity in this period, these sailings are performing exceptionally well in 2024. Next, our Norwegian Cruise Line brand continues to see exceptionally strong demand and our book position and pricing are higher than last year for all 4 quarters of 2024. Oceania, Regent also continued to see strong demand across all geographies with the exception of redeployed voyages due to cancellations in the Middle East and Red Sea. Turning to the Middle East. Last quarter, we made the preemptive decision to cancel all calls to Israel in 2024. And recently, we have announced the rerouting of our cruises sailing through the Red Sea for the rest of the year. As a reminder, just 1% and 4% of our capacity in Q1 and full year '24, respectively, was expected to dip in the broader Middle East region. However, the Middle East represents a larger percentage of our capacity for our Oceania and Regent brands making up 12% and 8%, respectively. We now have no calls in the region in 2024 and all replacement cruises have been or are in the process of being put on sale. Overall, we are encouraged by the strength in our book position for 2024, which remains at all-time highs with commensurate higher pricing. As a result, 2024 is shaping up to be a solid year. We expect healthy full year net yield growth of approximately 5.4% this year on a constant currency basis, driven primarily by improved occupancy and pricing strength. Onboard revenue continues to be a bright spot with strength seen across the board, an encouraging indicator that our target consumer remains healthy and resilient. We are continuing to see strong demand for pre-cruise purchases which typically results in higher overall spend throughout a guest cruise journey. And while we have talked about our strong cost focus during 2023, we want to emphasize that this was not just a 1-year exercise for our team. Rather, it is a cultural shift in the way our entire company looks at cost to ensure that we are operating as efficiently as possible while delivering experiences our guests truly value. This company-wide focus should allow us to not only continue to reduce costs but even more importantly, create operating leverage to enhance profitability, which will be foundational for our long-term success. Our recently established transformation office is allowing us to monitor and track these changes holding each area accountable for their initiatives. We believe this is apparent in our guidance where we expect our core cost to be flat in 2024 versus 2023. In conclusion, our strong top line growth, combined with our continued focus on cost and margin enhancements are expected to drive 2024 adjusted EBITDA and adjusted EPS to grow by 18% and 76%, respectively, over last year. We are very excited about the future, and we plan to discuss our multiyear targets with the investment community in mid-May. We look forward to meeting with you all then. With that, I'll turn it over to Mark to walk you through our financial results and outlook. Mark?

Harry Sommer:

Well, thank you, Mark. Truly encouraging results. Moving forward, our entire team will be focused on the most important work. First, we will continue to execute on our near-term priorities and capitalize on the strong demand from cruising from our target upscale demographic. Second, we will build upon the progress we've already made with our ongoing margin enhancement efforts with further improvements in costs. And finally, we will continue to improve our balance sheet and reduce leverage over time. In closing, I couldn't be more excited about the year ahead. I am confident that we have the right resources in place to capitalize on the strong demand environment and deliver exceptional vacation experiences for our guests across all 3 of our brands, execute on our operational and financial goals for 2024 and ultimately deliver long-term profitable growth and shareholder value. I look forward to share you the results of our strategic assessment of our business and defining our vision for the future of the company, including long-term financial targets at our Investor Day this coming May. With that, I'm happy to turn it over to the operator for questions.

Brandt Montour:

So looking at your 1Q guidance and the full year net yield guidance, there obviously is a pretty big decel or sort of a more conservative implied growth in the back -- in the sort of 2Q through 4Q net yield. But it's not out of line with your longer-term algo on that 2Q to 4Q. So I guess the question is, one, would you be willing to, Mark, or Harry willing to sort of quantify the disruption from the Middle East and the repositioning of those ships and sort of give us a sense for what the core business outside of those disruptions, how you see that sort of growing in the back half of the year?

Brandt Montour:

That's super helpful. That's great. And then as a follow-up, taking the Middle East disruption -- direct disruption out of it and just thinking about core Europe sailings, core Norwegian-branded Europe sailings, Americans traveling to Europe. That's an area that people -- that some of us have been a little bit more concerned about. Maybe talk about the evolution of the bookings patterns you're seeing in that specific segment? And should we be taking that into account when we think about the cadence for the 3Q?

Operator:

Thank you. The next question is coming from Andrew Didora of Bank of America.

Harry Sommer:

Well, thank you, Andrew, for that question. We don't give specific guidance on our book position for each quarter. Yes, Mark did say we are entirely booked for Q1 because we're sitting here on February -- late February, February 27. So we're not going to get any more meaningful bookings for Q1. But for the other 3 quarters, we continue to be with the exception of those Red Sea and Middle East Cruises, which I referred to before, in record booked positions where we're referring to as all-time high booked positions across the 3 quarters and especially on the NCL brand.

Mark Kempa:

Andrew, you're right. Technically, we do not have the capability to technically prepay debt until we have all of our deferred amortization cut up. However, with this particular transaction, it is deemed a refinancing and as such, we do have the ability to take out that portion of the debt. As we look forward over the course of the remainder of the year of '24, we do have some notes that are maturing in December $565 million, 3.625% notes which are very cost effective, but we will be looking to address those between now and sometime obviously, well before the end of the year. And then outside of that, a little bit too early for us to be thinking about or giving guidance in terms of what we may or may not take out. But I think the point to be made here really is that we are now starting to actively address the balance sheet and address the leverage. And we've always said this will be a little bit of a chip away each year, and we're happy that coming out of the gate for 2024, we've been able to start that. So we're very excited about that. It's definitely a solid path to -- in our journey.

Steven Wieczynski:

So Harry or Mark, first off, congratulations on the cost improvement. It's been pretty impressive. And as we move through this year and we think about costs then for the out years, I mean, how do you guys think about cost growth or lack of cost growth in those as we move past 2024. I mean, I would assume it's going to be tough to keep cost in that flattish range. So just maybe some color around your long-term cost outlook moving forward would be helpful.

Mark Kempa:

And Steve, to just further highlight what Harry is saying is I want to make it very clear. We've been laser-focused on this. We are looking at all different ways how we can improve and more importantly, improve and get more efficient to leverage our scale. We've said time and again, this is not a onetime exercise. This is what we've actually established a transformation office, which I imagine will become something like a continuous improvement office. But things -- we're setting up performance dashboards. I talked about some of our bunkering strategies. There's a lot of ways where we can improve the overall underlying fundamental cost structure, all without impacting the guest experience. I talked about our fuel, I talked about our bunkering strategy, food waste. Food waste is just a big area that when you start really monitoring the waste side of it, has significant upstream benefits when you think about the waste side of it. So again, we're focused on this. We got the message. We've been taking this serious. And we believe there's multiyear benefits here, but we look forward to certainly sharing more details around that in our May Investor Day.

Harry Sommer:

Yes. So listen, on the NCL brand, we have very robust and sophisticated revenue management systems. And when we see demand as it is today, we take price action or promotional action, which is sort of an opaque way to take price action in order to generate the highest yields for the company, and we're doing that. So nothing has changed in our core philosophy from that perspective. When demand is good, we take advantage of it. And I think it's reflected in our oversized gains for Q1 and our reasonably strong gains for Q2 to Q4, especially on the NCL brand. In Oceania, Regent, I want to be clear, there's something fundamentally wrong with the model at the luxury space. We see demand for luxury being very high. But when you have to take 60 or 70 days out of service on 2 ships out of a regularly small fleet for 2 brands, it does have an outsized impact on the ability to grow yield at those 2 brands. We hope that to be a onetime thing. All the new voyages for Oceania, Regent, with the new deployment already on sale and starting to fill, well albeit because we're filling them closer in it at lower pricing than we normally would have gotten, but it's just limited to those areas. We are very happy with the performance on Oceania and Regent, in the other regions of the world.

Operator:

The next question is coming from Daniel Politzer of Wells Fargo.

Harry Sommer:

Yes, Dan, certainly, when you look at the impact of the Middle East on the O&R brands, it's definitely impacting us more in the second and fourth quarter, as mentioned in our results. So I think as you look across the 3 quarters, as we said in our prepared remarks, you're going to see more of a normalized consistent yield growth. There's always some puts and takes within each quarter, but I wouldn't expect any significant lumpiness necessarily, so to speak, across the remaining 3 quarters.

Harry Sommer:

I think if we told you what level of conservatism we are baking into our guidance, I wouldn't be giving you new guidance. So listen, suffice to say that we are providing the numbers that we're confident in. We have, of course, incredible visibility into future book positions. So I'm not saying there's no upside there, but I certainly wouldn't expect huge upside to the numbers that we've provided. We're going to manage our business to the best of our abilities, and we're providing you numbers that we are confident that we can hit.

James Hardiman:

Thanks for taking my call. So I don't want to belabor the point, but just this sort of this dichotomy between 1Q and the rest of the year on the yield front. Obviously, some of that is just occupancy, right, that catch up. But if I think about, what I get to is being maybe 800 to 900 basis point detail from 1Q to the rest of the year. How much can just be explained by mix, right? I mean you've got the slide that shows Europe going from 0% to 34% and 51%, while the Caribbean is coming down from 58% to 18%. Obviously, Caribbean pricing is a lot more robust than what we're seeing out of Europe. Is there any way to quantify how much of that decel just stems from that? And I guess is there a way to think about sort of how you're seeing like-for-like pricing in North America and Europe as we get past the first quarter and into the rest of the year?

Mark Kempa:

And James, just keep in mind, when you think about 2024, Obviously, we're getting the benefit in Q1 versus Q1 of '23 an outsized growth algo because of the aforementioned factors. But then you roll that forward and you look at Q4 of 2023, where we had roughly 8.5%, 9% yield growth, we're going to be lapping over that in the fourth quarter of this year. So there is a little bit of lapping issues going on. But I think as Harry said, the underlying strength in pricing in the business is looking good across all sectors and all geopolitical areas, I'm sorry, all geographical areas, apart from the Middle Sea and the Red Sea area.

Harry Sommer:

I don't think there's any meaningful difference between the markets, James. I think we're -- again, we're seeing strong pricing for all those markets and other markets. So obviously, you have a total difference in net per diem depending on the area of operation. But in terms of growth, we're not seeing any sort of significant differences between markets.

Operator:

Thank you. The next question is coming from Vince Ciepiel of Cleveland Research.

Mark Kempa:

Yes. Thanks, Vince. While I don't want to give too many details because I think we're going to give some significant visibility at our May Investor Day. But look, the bottom line is really that we have to continue to improve on our pricing. That's key number one. But it all comes down to leveraging our cost base and our unit cost and leveraging that scale. We've made significant progress, what I would say in the last 18 to 20 months when we really first started addressing this back in the second half of 2022. So we're going to continue to look at that. We have to improve. When you think about overall cost from 2019, when we look at it, I think we were somewhere about a 3% CAGR over 2019 through 2024 guidance. So we think we can definitely improve on that. Obviously, there is some incremental drag from fuel given new regulations versus '19 and '24 and so on. But we have to do a better job of leveraging our scale. We're doing that. As I've said, we've been able to confidently mitigate over $100 million of expected inflation in 2024. It's no small feat that I want to reiterate, when we look at our cost base, excluding the dry dock and the reduced capacity days, our cost base is flat, expected to be flat for 2024. So I want to make sure everybody understands that. It doesn't end here. We're looking at everything and we think there's continuous opportunity there. So we're going to chip away at that. And I think in a combination between, again, strong top line growth and moderate cost growth or improvement, we think definitely there's opportunity for significant margin expansion over time.

Vince Ciepiel:

And then maybe one more for thinking about this kind of more normalized yield growth 2Q through 4Q. And maybe walk us through how you envision onboard versus ticket versus occupancy gains kind of contributing to that growth? And if it's equal, if one is a bigger driver? Any additional color there would be helpful.

Harry Sommer:

Donna, I think we have time for one more question, please.

Conor Cunningham:

Maybe if I could just sneak two in. Just on the cost trajectory in 2024. Trying to understand a little bit more. I understand the dry docks and the inflation, but it's -- what's the offset that's happening there? Is marketing spend kind of trending down? And maybe secondly to stick with Mark on that as well. The comments around the balance sheet improvement, the tone is definitely changing. So that's positive. Simple maths as you're going to 6x leverage. Are we going to get back to this 3x to 4x that you did pre-COVID? Just any thoughts there would be helpful.

Mark Kempa:

Conor on leverage. Look, we've said we are very focused on it. And we've said that this will improve significantly over time. We're very excited that we expect our leverage -- current leverage levels at year-end. We expect to at least decrease that by 1.5 turns. And again, that's going to -- that's slowly but surely restoring our balance sheet back to pre-COVID levels. So obviously, that 3% to 4% range is something we're focused on. I would not -- certainly would not expect that to happen in 2024, but we are starting the sequential improvement quarter after quarter. This year, you will see significant improvements in leverage. And we're excited to see that same thing happening over the course of '25 and '26. So we're on the right path.

Operator:

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.

Operator:

Good morning and welcome to the Norwegian Cruise Line Holdings' Third Quarter 2023 Earnings Conference Call. My name is John, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. [Operator Instructions] As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John. Mrs. John, thank you, please proceed.

Harry Sommer:

Well, thank you, Jessica and good morning everyone. Thank you all for joining us today. Before we get into prepared remarks, if you haven't already heard the good news, I'd like to congratulate Jessica on her recent appointment to Chief Strategy Officer for Regent Seven Sea Cruises. I'd also like to welcome Sarah Inman, who recently joined the company, last week, as our new Head of Investor Relations and Corporate Communications. We are very pleased to have Sarah on the team, and I'm sure many of you will have the chance to meet her in the weeks and months ahead. As she ramps up on the company, Jessica will continue to be available in the interim to ensure a smooth transition. Congratulations to Jessica and congratulations to Sarah. Now, in turning to results, I'm pleased to share with you this morning that we achieved strong third quarter results generating record revenue and a meeting or exceeding guidance on all key metrics. I have to attribute this success to the hard work and dedication of our incredible team members both on our ships and our offices worldwide. We also continue to make good progress on both defining our longer term strategic vision and executing on the near-term priorities I shared last quarter, which are shown on Slide 5. First, our team is focused on capitalizing on the strong demand environment for cruise to ensure we stay on our optimal booking curve, while maximizing pricing and onboard revenue generation. On a 12-month forward basis, our book position continues to be at record levels within our optimal ranges and at higher prices. While we are very pleased with our progress so far in building our book for 2024 and beyond, we are also keeping a close eye on the evolving macroeconomics and geopolitical landscape and are ready enable to adapt if needed. The next priority is rightsizing our cost base through our ongoing margin enhancement initiatives. Since we kicked off this initiative last year, we have seen sustained momentum with three consecutive quarters of improvement in our operating cost metrics. And what's even more encouraging is that we have done this without impacting the guest experience, as evidenced by our continued strong guest satisfaction level, continued strong onboard future cruise sales and guest repeat rates and continued high onboard spend. These results have been driven by a palpable change in culture, with team members across the globe, shipboard and shoreside embracing the challenge to find new and innovative ways to accelerate our margin recovery, while still preserving our long-term brand equity. To give you just one example. Last month, we took the time to tour Norwegian Jewel ahead of the scheduled 2025 dry dock. We walked through each planned project while on board, stopping to get real-time guest feedback to help identify the highest value opportunities. The result of this more methodical approach resulted in not just lower cost, but also shortened the expected length of the dry docking self by nine days, which will allow us to return the shift to revenue generating service that much faster. All in all, the changes we made to the dry dock plan are expected to result in over 20% CapEx savings and a few million dollars of incremental revenue versus our original plan. It was a day well spent. While we have less of the lowest hanging fruit still available at this point, several opportunities like this remain untapped. I want to reassure you that we are committed to keeping the same relentless focus, vigilant and balanced approach to identifying, evaluating and executing on opportunities in a methodical manner. This is not a one-off exercise to us, but rather something we are embedding in the DNA of our entire organization. This leads us to our next priority, which is to make strategic and intentional enhancements to our offerings and guest experience. With the continued keen focus on costs, we are still making smart, high-return generating modification and investments in products and service offerings. For example, in the fourth quarter, we are launching Air Choice for Norwegian Cruise Line. This will allow guests to upgrade from our current bundled air offering in which guests are signed flight at the lines discretion and allow them to choose their specific preferred flights for a fee. This is expected to have a dual benefit of improving both guest satisfaction and generating incremental revenue. We are also making disciplined investments in technology for better websites and mobile apps to Universal Starlink High-Speed Internet across our entire fleet by the end of 2024. Our high-value targeted efforts to provide an excellent guest experience have not gone unnoticed. In fact, Norwegian Cruise Line was just named the top net megaship cruise line by Conde Nast Traveler in their 2023 Reader's Choice Awards. Readers voted for their top choices based on several categories, including service, food, accommodations and sustainability and Norwegian Cruise Line 1. So it's clear that our product continues to resonate strongly with our guests. Turning to the fourth priority on the list. After welcoming Oceania Vista in May, in August, we took delivery of the incredible Norwegian Viva, the second ship in the game-changing prima class and we're not done yet. This year is the first year in our history in which we are introducing one ship for each brand, all of which were built with our incredible partners at Fincantieri in Italy. In just a few weeks, I will be heading back to Italy to take delivery of Regent Seven Sea Grandeur, which you can see on Slide 6. Grandeur rounds out the highly successful Explorer class for Regent, taking luxury cruising to another level. The reception for these ships continues to be overwhelmingly positive across the board, whether it's from our valued travel agents, our loyal pass guests or guests trying one of our award-winning brands for the very first time. The disciplined addition of new builds continues to be a key cornerstone of our strategy as they are expected to be meaningful drivers of the company's future earnings growth and margin expansion. Our New built pipeline, which you can see on slide 7, represents a 5% capacity growth CAGR from 2019 to 2028, and we are confident in our ability to absorb this growth profitably. We remain in talks with our shipbuilding partners to embark on a new vision for all three of our brands and plan to continue to add new ships across our brands at the right time and at the right interval. But for now, after the delivery of Grandeur this month, we have no additional ship delivery scheduled until spring of 2025 and in the interim, we expect to benefit from both organic growth as well as the annualization of the 2023 newbuilds next year. The final priority on the list, shown on slide 8, is charting a path to reduce leverage and derisk the balance sheet. While the return to investment grade like financial position will be a multiyear process, we continue to expect a significant organic improvement in our net leverage in the intermediate term, driven by our expected cash flow generation and normal course debt amortization payments. With new leadership and perspectives across our organization, we have embarked on a review of our entire business, taking a fresh look at all aspects of our strategy. We are embracing change while preserving what makes it special, and we are committed to take back a leadership position not just in cruise, but in the broader travel, leisure and hospitality sector. In our view, no idea is too big or too small. We have a full vision for what the future holds for Norwegian, so we're taking the time to be thoughtful and thorough as we identify opportunities to ultimately drive more value for our shareholders. Our goal is to share this plan with all of you sometime in spring of next year, along with associated multiyear financial targets. Now, turning to slide 9. As we focus on closing out the year strong, successfully executing on our near-term priorities and defining our long-term strategic plan and vision for the future, our team is more united to energize now more than ever. In fact, earlier this month, we held our global conference in Miami, the first time in several years that we have brought together leaders across all three of our amazing brands in person. This year's the next gen was all about the future and how we can reach further individually and collectively, to accelerate momentum as we move into 2024 and beyond. It was an opportunity to read the team together to spur innovation and collaboration and ensure that across the organization, we are overline and marching towards the same goals as we strengthen the foundation for sustained profitable growth. This served to further cement my confidence that we are taking the right steps today to best position the company for the future. Now, shifting our discussions to current bookings, demand and pricing trends shown on slide 10. We achieved record revenue of $2.5 billion in the third quarter, an increase of 33% over the same period in 2019. The strong consumer demand environment resulted in load factors of 106% in the third quarter, while growing net per diems by nearly 8%, all while absorbing a 20% growth in capacity. Before we get into operational details, in recent months, we have seen the devastation caused by both the wildfires and Mali and the escalating conflict in Israel. Our thoughts and prayers are with those impacted by these tragic events. Our priority remains the safety, security and well-being of our guests, team members and the communities we visit, and we have mobilized to modify impacted itineraries and help support relief efforts in both regions. Starting with Hawaii, we were uniquely impacted compared to our food peers given our unique year-round inter-island Hawaii offering, the only one in the industry with our US flagged vessel Pride of America. When the wildfires began in August, we quickly modified certain itineraries to avoid straining local resources with the guidance and encouragement of a responsible return from both the Hawaiian Governor Josh Green and the Hawaii Tourism Authority, we resumed our scheduled calls to Kahului, Maui in early September. As it occurred in the past with events of this nature, which received significant attention and media coverage, we did experience a temporary slowdown in close-in bookings for Hawaii ceilings. This impacted not only Pride of America, but also certain sailings on Norwegian Spirit also based in the region for much of the fall, which in total represent approximately 6% of our capacity in the fourth quarter. Demand has steadily improved in recent weeks and while not quite fully recovered yet, it's on the right trajectory and now approaching normalized levels. While we expect some lingering impact in the first quarter, Hawaii only accounts for approximately 4% of capacity in this period, as well as for the full year as Norwegian Spirit repositions outside of the region in December. Turning to Israel. Once the conflict began to escalate, we canceled all calls to Israel for the remainder of the year. We recently made the preemptive decision to cancel calls in Israel in 2024 as well, and our brands are currently working diligently to modify itinerary and communicate these changes to guests. One of the benefits of our industry is that cruise ships are easily movable assets, so we can pivot as needed and still offer incredible itineraries for our guests to enjoy. However, we are seeing both elevated cancellation activity and lower new bookings for this region, primarily for close-in sailings as the conflict is ongoing and still front and center in the consumer psyche. Prior to the conflict, approximately 7% of capacity in the fourth quarter of 2023 and 4% of capacity for the full year 2024 had visits to the broader Middle East region. Breaking 2024 down a bit further, very little capacity is in this region early in the year, only about 1% of capacity in Q1. That said, we are encouraged by the strength in our book position for 2024 and beyond, which on a 12-month forward basis remains in a record position at our optimal levels and at robust pricing levels. Onboard revenue generation, which we view as our single best real-time indicator of consumer confidence also continues to knock it out of the park. During the quarter, gross onboard revenue for Passenger Cruise Day was approximately 30% higher than the comparable 2019 period. This is driven not only by strong demand but also through our multiyear effort to enhance our bundled offerings and pull forward and pre-sell more revenue before a guest ever step foot on the ship, effectively expanding the sales cycle and getting more of the consumers bottle over time. For the third quarter, pre-sold revenue on a per passenger day basis was up over 80% higher than in 2019 with nearly all of our guests purchasing something pre-crews on their own or through our bundled offering. Not only does this lead to higher spend by guests over the course of their entire journey, but it also pulls forward cash inflows for the company. This is one of the reasons why, as you can see on slide 11, our advanced ticket sales balance increased nearly 60% in the third quarter versus 2019, far outstripping capacity growth of 20%. Before I turn the call over to Mark, I'd like to provide an update on our global sustainability program, Sail & Sustain in which slide 12 outlines key accomplishments and milestones. Since we last spoke, we partnered with the Global Maritime Forum to advance our shared mission of driving a positive change for the industry, environment and society. We also joined its flagship initiative, the Getting to Zero Coalition, a powerful alliance with more than 200 organizations within the maritime, energy, infrastructure, and finance sectors committed to supporting the maritime industry in its journey towards full decarbonization by 2050. I'm also proud to share that we were recently recognized by Forbes in its World's Best Employers list for 2023. Our team members are, by far, our most important resource, and we are committed to their continued development and well-being. With that, I'll now turn the call over to Mark for his commentary on our financial results and outlook. Mark?

Harry Sommer:

Well, thank you, Mark. Before turning the call over to Q&A, I'd like to leave you with some key takeaways that you can find on slide 19. First, we are focused on execution of the near-term priorities outlined today. Second, we are committed to defining our vision for the future with the comprehensive strategic review we are currently undertaking. Third, consumer demand for travel and experiences continues to be strong. Despite temporary regional disruptions, we continue to maintain a very strong record 12-month forward book position and at higher prices. Our advanced customer deposits also stand at $3.1 billion, 59% higher than Q3 2019. Fourth, we have seen a fundamental shift in culture at our company as a result of our margin enhancement initiatives. We now have three straight quarters of sequential improvement in our key cost metrics and we will continue to identify and implement additional measures to accelerate our margin recovery, while still delivering the exceptional products and service offerings that our guests desire. Lastly, our liquidity position is very strong, and we are committed to prioritizing restoration of our balance sheet and reducing leverage in the coming years. We've covered a lot today. So I'll conclude our commentary here and open up the call to your questions. Operator?

Jessica John:

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and up-vote questions for management. One of the top-voted questions we received this quarter was how are you navigating heightened geopolitical instability. Harry, do you want to take that one?

Operator:

Thank you, Harry. And our first question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Harry Sommer:

Dan, thanks for the question. Good morning. So listen, I'll take the yield demand question, and I'll let Mark comment on cost guidance for next year. Listen, of course, this is a tragic event hearts go out to the victims in that part of the world. But we're hopeful that this will be a reasonably short-term event. So while we've seen obviously some impact on Q4, we have very little of our inventory there in Q1. In fact, we don't meaningfully get back to the region until Q4 of next year. So far, absent a handful of sailings we have in Q1 and Q2, and it's a very, very small percentage of our overall inventory, or we continue to be very, very well booked. In fact, I was looking at the report this morning. And every month, every individual month next year is looked at a higher rate than the same month was at this time last year for 2023. So we're not going to provide guidance today. We've talked about that a little bit in the script, but demand for next year continues to look well.

Dan Politzer:

Got it. That's helpful. And then just for my follow-up, Harry, your predecessor was pretty adamant about maintaining pricing discipline and avoiding discounting. I mean I guess as you think about next year and all the moving pieces and what seems like a pretty fluid environment and you just added three new ships and you're entering wave season. Is there any change in your approach to pricing? And as you think about the trade-off between loading yields there?

Dan Politzer:

Got it. Thanks so much.

Steve Wieczynski:

Yes, hey guys. Good morning. So, I want to stay on the cost side, if I could, and maybe ask about your margin opportunity moving forward. And maybe just how you balance that margin opportunity versus trying to protect the customer experience on board. And then I guess to follow-up on that, I mean, if you were in to encounter some type of slowdown from a booking or onboard perspective. How do you guys think about the flow through? And maybe what that would look like under a more distressed topline environment?

Mark Kempa:

Steve, and related to the margin improvement and flow-through, let me highlight what Harry just said on the cost side. We really are changing the DNA of the company. This is not a one-time opportunity. This is a continued culture change. So we want to stress that, and we are committed to it. I think one of the things that sets us apart on in terms of whether if there's a slowdown, what are the opportunities to try and mitigate that. Look, I think, first and foremost, we have perfected -- almost perfected the bundling strategy. And I think that's been a very good tailwind for us. In addition to that, when you think about the onboard spend, we continue to get smarter and we continue to get better at getting more of the customers' wallet over time from the point they enter our ecosystem. And we talked about in our prepared remarks that our pre-cruise revenue sales were up over 80% versus same time in 2019. So I think that is a strategy that we'll continue to fine-tune. We never get it exactly right. but I think that provides us some additional protection, again, to get that wall over a longer period of time. We are very focused on margin improvement. We've said this will be -- in our case, this will be a multiyear effort. We don't see anything structurally in the business that would preclude us from getting back to 2019 margins and better. But given our fleet and our deployment mix, I think it's going to take us a little bit longer on our path to do that, but we are ultra committed to do so.

Harry Sommer:

We don't, Steve, typically comment on a brand-specific basis. I can just reiterate some of the color we gave already. We are in a record booked position for the next 12 months. We're in a record book position for 2024. If you just want to look at that time period and pricing is higher. So I think past that, we're going to take some time over the next few months to develop this long-term strategy, which will impact everything from our choices on deployment, investments, CapEx onboard product. And at the end of the process, we'll be in a good position to give not just guidance for 2024, but clear the clear financial guideposts, if you will, for 2025, 2026 and beyond.

Operator:

[Operator Instructions] The next question comes from the line of Vince Ciepiel with Cleveland Research. Please proceed with your question.

Mark Kempa:

Yeah. Hi, Vince, I think when you think about the occupancy, I think that is still a good way to think about it on a normal annualized basis that it will be down somewhere 200 to 300 points about in the zone of 105 to 106. When you think about Q4, it really is all about occupancy. If you look at our metrics, we were guiding or expecting somewhere about 101 to 102 for the fourth quarter. And right now, we're forecasting roughly 98 and that really is the vast majority related to Israel and the broader Middle East region. We have seen, as we said, an elevated number of cancellations, as well as a lower volume for the close-in sailings, which essentially top off the ship. As well as, as we talked about, we did see some minor hiccups in our late season Asia itineraries, which we believe we fixed from a structural standpoint. But on the pricing side, look, Q4 pricing was strong. We're still expecting to deliver 15% to 16% pricing. So when you think about the change in Q4 revenue, it really is the vast majority on the back of the load, which results in about somewhere in the zone of $40 million to $50 million as a result of these isolated conflicts.

Vince Ciepiel:

Thanks and best of luck.

Operator:

And the next question comes from the line of Robin Farley with UBS. Please proceed.

Robin Farley:

Hi. How are you? I wonder if you could give a little more color. You mentioned some of the product outside of the Middle East and Hawaii having sort of softer close in? You mentioned Asia and maybe other exotics as well. Can you talk a little bit about what you think may be happening there? Because clearly well-understood what's happening with Hawaii and the Middle East, but just a little less clear on what you think may be happening in some of those other destinations?

Robin Farley:

Okay. That's helpful. Thanks. And just if I have a follow-up, if I can. Just circling back to the expense question. Just looking at your exit rate in Q4 expenses being up about 19% versus 2019 levels. And I think your fleet mix is pretty similar to 2019. Are there sort of big expense increases relative to 2019 that are still kind of holding on there? And is there any opportunity to get rid of any of those costs that driving that 19% increase like that would bring the base down outside of sort of normal inflation there? It seems like there may still be some unusual things in that 19% increase. Thanks.

Robin Farley:

Okay. Thanks a lot. I'm at the fleet next time on a full year basis. But, yeah, Q4 certainly, yeah higher luxury. Okay. Thank you. Thanks very much.

Operator:

[Operator Instructions] The next question comes from the line of Brandt Montour with Barclays. Please proceed.

Harry Sommer:

So I think the 4Q situation and -- first, let me start off by saying good morning, Brandt. The 4Q situation was really limited to Q4 and related to the fact that we didn't quite get the booking curve right. I mean ,we do lots of things right. We didn't get this one quite right. But when I look at Q4 of next year and comparing it to Q4 this year, we are significantly booked ahead for Q4 of next year, both for Asia itinerary specifically and in general, across the fleet. And that gives us confidence that this short-term dislocation, as Mark mentioned, has been solved for next year. I'm not as concerned about Q1, because if you remember, our Q1 comp will now be back against 2023. And in 2023, we had all types of issues in Q1 in Asia because of COVID restrictions and the like. So that is one of the meaningful tailwinds going into next year.

Mark Kempa:

Yes, Brent, there is no change in the strategy. Yes, when you look at 2024, we are 36% hedged. And like we've always said, our goal is we'd like to be about 50% hedged going into a year. And we are just very opportunistic on that front. So, when there's dips in the marketplace, we take advantage of that. There was a little bit of a dip yesterday, and we took advantage of some position. So, no fundamental change in strategy just really timing of the market and when we feel there's a good opportunity to place some additional positions on the books.

Operator:

And the next question comes from the line of James Hardiman with Citi. Please proceed.

Harry Sommer:

So, James, let me try to deconstruct because you sort of touched upon a couple of points. I'll start out by saying that this 4% that we talk about for next year is mostly skewed to Q4. So, it's 1% of our capacity in Q1, 1% Q3, 3% in Q2, and 10% in Q4. And because it is skewed so far in the future, we're optimistic that the alternative itineraries that we're going to put in place that would go to other places instead of Israel have a reasonable time to book at normal levels. And just -- there was sort of a half push in their US assets if it's correct to assume that any time we remove this role, we'll replace it with something else. The answer to that question is yes. We are not planning to fully cancel or lay out any of our ships because of this disruption. I think when we think about this a little bit longer term, I think it will be a while before people are comfortable going back to Israel which is why we are canceling all Israel calls in 2024, even if the complex was and we hope it does, a reasonably short amount of time, we are more bullish about the ability to return to places like Egypt and other places in the Middle East. And quite frankly, we don't go to that many places in the Middle East, as part of our – our normal cruise, that it's just normally part of our transitions when ships come and leave Europe at the beginning and end of each season. So that being said, while obviously, it's a little early to tell, and this is somewhat dependent on how long the conflict goes, we're relatively optimistic that the scope and nature of this will not in any way meaningfully impact our 2024 targets.

Operator:

And the next question comes from the line of Conor Cunningham with Melius Research. Please proceed.

Mark Kempa:

Thanks, Conor. Yes, you're absolutely right. We don't take after recent grant during December, we don't take our next delivery until spring time of 2025. So we do have a little bit of opportunity there. But I think when you think about the cost and specifically, your question around marketing, there will be -- we do expect a reduction in that area. I would not classify it as a significant reduction because obviously, you are still selling for new capacity that's coming on in 2025, and you sell that well in advance of the delivery date. But of course, we would expect to find some efficiencies on that front simply as a result of that timing between deliveries.

Conor Cunningham:

Okay.

Operator:

Thank you. And the final question comes from the line of Patrick Scholes with Truist Securities. Please proceed.

Harry Sommer:

Patrick, they are mostly smaller ships, and it's not a meaningful increase in capacity in the overall scheme of things. So the short answer to that question is no, Patrick. We've not seen any change in the trajectory of bookings for either region for Oceania.

Harry Sommer:

At a high level, we have defined optimal as being booked 60% to 65% for voyages departing in the next 12 months. It's not a hard and fast rule. We've also said that we're at a record level you can put those $0.02 together and make whatever extrapolation you like. But it's really much more than that, we like to look at every single voyage where they are in the booking curve. Make sure that we're not managing demand pricing, marking the expense in a way that maximizes our bottom line margins. And that's what we mean by optimal. So there's a macro concept and a granular concept on a voyage basis.

Harry Sommer:

Thank you, Patrick. So, once again, I want to thank everyone for joining us today. We'll be around to answer any questions and you get both Jessica and Sarah today, two for one. So with that, I'd love to wish you a good day. Stay safe and all the best. Thank you.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Second Quarter 2023 Earnings Conference Call. My name is Maria, and I will be your operator. [Operator Instructions]. As a reminder, all participants of this conference is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed.

Harry Sommer:

Well, thank you, Jessica, and good morning, everyone. Thank you all for joining us here today. So today marks exactly 1 month since I began my new role as President and CEO of Norwegian Cruise Line Holdings. I'm humbled and honored to have been trusted to lead this incredible company, and I'm excited about the significant opportunities I see at. The responsibility they have to our best network of stakeholders, including our 40,000 team members worldwide, our guests our travel adviser partners, suppliers, lenders, shipyards, the over 700 communities we visit and all of you in the investment community is not something I take likely. Rest assured, my leadership team, the Board of Directors and I are committed to best positioning Norwegian Cruise Line Holdings for success. My focus now is squarely on the future and how we can refine and enhance our strategy to optimize our existing fleet of high-quality assets, further differentiate our business model, build resiliency, advance our efforts to drive a positive impact on society in the environment and ultimately drive more value to our shareholders and broader stakeholders. With new leadership not only in my seat, but in all 3 of our award-winning brands and most recently for our vessel operation function, there is a possible feeling of reinvigoration and excitement about the future across the entire company. We are approaching every decision with fresh perspective and new energy, challenging the status quo at every level and encouraging our entire team to think outside of the box and come to the table with new ideas, however big or small. Along with these changes, you can see for yourself on Slide 5 that while many of the senior leaders are new to their roles, there is still continuity and extensive experience among all of the leaders allowing for smooth transition without skipping a beat. Our executive team has an average of over 20 years in the cruise industry and nearly all has been with NCLH for a decade plus. I have the unlost confidence that this team is the right one to take the company to even greater heights. As we are fine-tuning our longer-term strategic vision and priorities, we are also focused on execution today, and Slide 6 outlines my near-term priorities. First, we are focused on capitalizing on the healthy demand environment for cruise, which I will talk about in more detail a little later in my commentary. At a high level, this means remaining within a booked position of approximately 60% to 65% on a 12-month forward basis while increasing pricing and maximizing onboard revenue generation. After years of experience, we believe this level will be the sweet spot based on our current deployment mix, and I am pleased to say we are comfortably in this range today. Our revenue management process is dynamic and we carefully monitor on a granular level how each ship itineranvoyage is tracking against its optimal booking curve and adjust marketing spend, promotional construct and pricing as needed depending on the market environment to maximize each voyage's contribution to the bottom line. The next priority is rightsizing our cost base through our ongoing margin enhancement initiatives. Mark will dive into more detail on the great progress we've already made on this critical effort but I want to emphasize that we have many additional opportunities in the pipeline to do even more, and we are not shying away from this challenge. The reality is we are operating against the different backdrop today than we were in 2019 requiring an even keener focus on balancing the top line with the cost structure that supports our unique business model and allows us to accelerate our margin recovery and help build resilience to vary external and macroeconomic environments. We are undertaking this effort with a strategic and data-driven approach that allows us to identify additional opportunities for efficiencies, sets, monitor and maintain accountability against concrete KPIs and increased agility to adapt quickly as market or consumer preferences evolve. I'm pleased to report that we're already seeing a change in the core culture of the company at every level of the organization to emphasize efficiency, cost mindfulness and results without impacting the guest experience. We built significant momentum in recent months with this initiative, and we look forward to demonstrating continued improvement in the coming quarters. This does tells nicely into our next priority, which is to make strategic and intentional modifications to enhance our offerings and better align them to our guests' needs and wants. There is no question that investment in our product and service offerings are critical to keeping our brand value propositions intact. However, we are refocusing the business on making smart investments in areas that generate the highest return and maximize guest satisfaction over the course of their entire cruise journey starting from the time they book. For example, we are deep in the development of a streamlined booking process at the Norwegian Cruise Line brand which uses generative AI technology to personalize the experience for guests, while also simplifying and reducing the number of considerations required to book by orders of magnitude. This, along with several other initiatives underway, should translate to more satisfied guests who spend more on board and return to sale with us more frequently, resulting in a win-win of higher yields and stronger loyalty. Turning to the fourth priority on the list. The entire team is hard at work preparing for the delivery of Norwegian Viva on Thursday as well as Regent Seven Seas Grandeur in November, which you can see on Slide 7. I just came back from Italy where I visited the shipyards to check on their progress and I left even more excited than I was previously to welcome these new additions to our already guest and class slate. Both are sister ships to existing vessels that have been elevated even first so we have a high degree of confidence that there will be an overwhelmingly positive reception the ships from our guests and travel partners, which we are already seeing in their incredible advanced booked position. I'm also pleased that both are on schedule and on time for delivery despite supply chain and other challenges, a testament to our great working relationship we have developed with our partners at Fincantieri. In June, we announced that global Munich sensation in Aladdin music icon, Louis Fonsi, will serve as Godfather to Norwegian Viva. The announcement alone generated a reach of over 200 million globally, including new audiences in the targeted Spanish-language demographic. The ship will be christened in Miami later this year and home port in San Juan, Puerto Rico starting in December for a season of Caribbean itineraries. We also recently announced Seven Seas Grandeur Godmother Sarah Faberge, the great grand order of Peter Carl Faberge, the legendary artist jeweler and created an entrepreneurial genius to find a world renowned company that bears his name. This is a natural choice and celebration of Regions partnership with Faberge. The disciplined addition of new build is a key component to our strategy, and we have said consistently in the past, we welcome new hardware introductions as they not only generate excitement and bring more attention and awareness to our brand but they are expected to be meaningful drivers of the company's future earnings growth and margin expansion. As the smallest of the 3 large public cruise operators, we continue to believe that we have outsized opportunity to grow our footprint and meaningfully drive the bottom line. Our new build pipeline, which you can see on Slide 8, represents approximately 50% capacity growth by 2028 versus 2019, a CAGR of approximately 5%. After the delivery of 3 newbuilds in 2023, a record for the company, we have no additional ship delivery scheduled until spring of '25. In the interim, we expect to benefit from both organic growth as well as the annualization of the 2023 new build next year. And lastly, the final priority on the list, but arguably the most important is starting the path to reduce leverage and derisk the balance sheet. Given the necessary actions we took to navigate the past few challenging years, our leverage ratios are currently not at optimal levels. Our goal remains to evaluate all options available and then clearly define a multiyear pathway to return to an investment-grade like financial position. This only happened overnight, but as you can see on Slide 9, the company has successfully reduced leverage in the past, and I am confident we will do so again. In the interim term, our expected cash flow generation boosted by our robust new build pipeline, along with normal course debt installment payments are expected to result in significant organic improvement in our net leverage. Over the next several months, we are focused on the successful execution of our near-term priorities while fine-tuning the future vision and strategy for the company with 3 strong brands, a world-class C and destiny industry, we are starting from a strong foundation and a position of strength. And I can say without a doubt that we have a bright future ahead with significant potential to unlock incremental value for our stakeholders. Shifting our discussion now to our current bookings demand and pricing trends. We achieved rental revenue of $2.2 billion in the second quarter, an increase of 33% over the same period in 2019. We have been able to tap into strong consumer demand environment, achieving the right balance of underlying revenue growth with net per diems up 6%, while at the same time materially growing our fleet with capacity of 19% for the quarter. We also kept our ships full, reaching a load factor of 105% in the second quarter, in line with guidance and a long awaited milestone as we return to normalized levels, which you can see on Slide 10. As previously mentioned and as illustrated on Slide 11, several years ago, we strategically shifted our deployment to longer, more immersive itineraries at the Norwegian Cruise Line brand and increased our concentration of premium destinations while reducing our Caribbean deployment. This was designed to attract a higher quality guest and maximize our competitive position. A natural bright product of this new deployment mix is left third and fourth passengers in the cabin, which is what historically pushed passenger occupancy above the 100% mark. As a result, we expect full year occupancy going forward to be roughly 200 basis points lower than 2019 levels. This shift also resulted in an elongation of our booking window which was 255 days in the second quarter, an increase of 51 days or 20% compared to the same quarter in 2019 and meaningfully enhancing our future visibility and reducing our exposure to volatile and less predictable cost in bookings. Thinking together, we believe this strategy will drive higher yields, higher guest satisfaction and higher guest repeat rates with longer runway to optimize our pricing and marketing strategy as macro environment evolved over time. Turning to Slide 12. Our cumulative book position for the second half of 2023 remains ahead of 2019's record performance and at higher prices another indication of continued healthy demand environment and the resilience of our target consumer. This strength continues past this year to sailings in 2024 and beyond, which at this point in the booking curve is our primary focus. In fact, over the past 90 days, over 70% of our ticket sales were for 2024 and '25 sailings, considerably higher than in 2019. Onboard revenue generation, our best real-time indicator of how consumers are feeling financially today also continues to perform exceptionally well. During the quarter, gross onboard revenue for passive Cruise Day was approximately 30% higher than the comparable 2019 period. Our efforts to enhance our market-leading bundled offerings and increase quality touch points with our guests starting from the time of booking and continuing throughout their cruise journey are clearly bearing fruit. In fact, presold revenue on a per passenger day basis for the second quarter of 2023 was over 75% higher than in 2019. An important contributor to our onboard revenue strength as these guests tend to spend more overall throughout their journey than guests who do not pre-book onboard activities. Before I turn the call over to Mark, I'd like to provide an update on our global sustainability program, Sail & Sustain, in which Slide 14 outlines key accomplishments and milestones. Since we last spoke, we published our annual Sail & Sustain report and disclosure on World Environmental Day in June. The report provides transparency in our progress and initiatives on top ESG priorities. Some of the highlights this year for more detail on our new climate action strategy and enhanced data and disclosures on community impact, human capital and greenhouse gas emission reported. In addition, we demonstrated progress against several of our environmental goals, including targets to equip our ships with short power capabilities and reduced bunkering of freshwater. I encourage all of you to take some time to explore the report and welcome -- I'm sorry, to explore the report and visit our website for more information. I'm also proud to share that just last week, we announced the winners of our annual Giving Joy recognition program that has been celebrating teachers across North America since 2019 for their hard work and relentless dedication. Each of the 20 winning educators want a free 7-day voyage for 2 and the top 3 grand prize winners were invited to attend the exclusive cresting voyage for Norwegian Depot. This year's content drew support from over 3,400 teachers across the U.S. and Canada and garnered hundreds of thousands of lots. With that, I will now turn the call over to Mark for his commentary on our financial position and outlook. Mark?

Harry Sommer:

Well, thank you, Mark. So before turning it over to Q&A, I'd love to leave you with some key takeaways, which you can also see on Slide 22. First, we are focused on execution of the near-term priorities outlined today, including the delivery of 2 new builds in the coming months, while simultaneously fine-tuning our vision of the future. With new leadership in many functions, including my own, we are approaching this exercise of open minds and a fresh perspective as we work to best position the company for success. Second, our target higher-end demographic continues to be healthy and resilient with strong demand for travel and experiences. This is demonstrated by our strong revenue performance, a record up 33% in the quarter with our strong book position, which when looking over the next 12 months is within our sweet spot range of approximately 60% to 65% booked and at higher prices and advanced customer deposits of $3.5 billion, 52% over Q2 2019. Third, we are demonstrating the results of our margin enhancement initiatives, including through our efforts to maximize revenue, improve efficiencies and right size costs. We now have 2 straight quarters of sequential improvement in our key cost metrics and we'll continue to identify and implement additional measures to accelerate our margin recovery while still delivering the exceptional product and service offerings that our guests desire. Lastly, our liquidity position is solid and we are committed to prioritizing restoration of our balance sheet and reducing leverage in the coming years. We've covered a lot today. So I'll conclude our commentary here and open up the call for your questions.

Jessica John:

Before we get to the questions on the line, we first want to address the top questions from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions for management. One of the top voted questions we received this quarter was, what do you consider the biggest challenge for growth over the next 18 to 24 months? And how do you plan to attack that challenge? Harry, do you want to take that one?

Jessica John:

Operator, we can take the first question from the line now.

Vince Ciepiel:

I wanted to talk about kind of the path for organic price growth. I think that was really helpful the way you broke out 4Q, obviously, anticipated to step up a lot. But even comparisons and new hardware, net per diems up 10% points to sequential acceleration through the course of this year. So curious kind of how you're thinking about that into next year? I know you get a lift from full year contribution of the 2023 deliveries. But how are you feeling on organic price today versus 90 days ago?

Vince Ciepiel:

Great. And then maybe on the cost side, obviously, a lot of effort that is visible based on the guide that looks like net cruise revenue is going to be up $2.5 billion plus this year whereas costs certainly up about $100 million. So it's clear that you guys have been focused. Curious, you mentioned guest satisfaction score remaining strong, kind of along this flex down path. But curious maybe what you're seeing within rebooking behavior as more of that 2024 business is coming on the books? How you're feeling about the guests coming back to you?

Mark Kempa:

And Vince, just to highlight that. I think last quarter, we had mentioned record sales of our Cruise -- next certificates. And again, not just another anecdotal point that consumers on board our ships are enjoying their vacation. They're satisfied with the product. Everything we're doing on the cost reduction front is under the lens of protecting the guest experience and the product. So we monitor that closely. And so far, we are seeing positive reception to everything we're doing.

Robin Farley:

Great. Two questions. One is on the yield side, that 14% growth in Q4. I know you have some shift in your premium luxury brands contributing to that. Can you kind of give us a sense of what the increase would be for saving Norwegian brand? Or just to think about the increase that's embedded in that guidance that outside of those new ship additions, and then my other question is on expense. And I'm sorry if I missed if you said what was the nonrecurring benefit in Q3 there? And then just thinking about Q4. It looks like your footnote is sort of saying you're excluding the cost of new ships in that. And I just wanted to clarify, I feel like you hadn't done that before. I just want to think about comparability to expenses in 2019. So is that new that, that guide excludes the cost of new ships?

Operator:

Our next question comes from Patrick Scholes with Truist Securities.

Harry Sommer:

Patrick, it's a good question. I believe it's fully sustainable. We don't necessarily see this huge revenge travel being a huge club nor the levels that we are going at today, diminishing. My best proxy is the Norwegian Cruise Line brand because it's our largest brand and when we look at bookings for this year, every month, it's been a record month in terms of new booking volume. January was the best January in the history of a company, February to February, cleared through July, which just ended yesterday, which was the best dividend in the history of the company. And in fact, our second best booking month of the year, which is a little bit odd because usually July and August is a little bit slower due to action, and the like. Onboard pet similarly, every month continues to be good. We're not seeing any weakness. We're not seeing any denigration of trends. There's nothing super unusual that we're doing in bundling today compared to '19. We continue to refine our processes and make the marketing and product proposition a little bit better each quarter than the quarter before. But I don't anticipate any huge changes for '24 either. I think the numbers you see today are the numbers that we would expect to improve ongoing into '24.

Charles Scholes:

Okay. Just a quick follow-up question, Mark, you had noted in the earnings release about $500 million released from the credit card reserves. Is there any money left still to go with that? Or was that $500 million the last slug of that?

Operator:

Our next question comes from Steve Wieczynski with Stifel.

Mark Kempa:

Steve, it's a good question. I don't look at this as a huge material change in our cost structure. It will be a modest tailwinds having 2% less guests on the ship and the 2% less guests that we have are primarily young children, which aren't particularly expensive. This really isn't about our cost structure. This is really about yield and EBITDA where we believe being in more premium itineraries that are booked further in vans, giving us a much longer booking curve and a more stable and predictable demand profile, which allows us to manage demand, manage our marketing a little bit more effectively and not rely so much on close-in, unstable and unpredictable demand is really a key to our success. I think both Mark and I commented on the higher rebooking rates, the higher BNS ticket sales, the higher revenue, the higher booking window, all of these positives which seem to endorse our strategy, which I think we'll see the full benefit of in 2024 as we then will have gone through a full year cost structure. So I mean, listen, bottom line is we're committed to getting back to the EBITDA margins that we saw back in '19 over time. It's going to take us a little time to get there, but we're looking at the trends, and we see a path towards that and we think this premium deployment, which we already started shifting to in '18, '19 will be a vehicle that will allow us to continue on that path. And I'll remind you, we have always had industry-leading yields and we continue to have industry-leading yields far above the competitive set, and we believe that this deployment strategy will allow us to continue with that.

Mark Kempa:

Yes. Look, Steve, obviously, as we're looking to 2024, we're still early in the -- we're in the planning process. And as I said, I think we're probably halfway through the baseball game, so to speak, in terms of initiatives. So we fully anticipate that we're going to improve on that. One note, as I did say in my prepared remarks is we have to keep in mind that there is going to be some dry dock pressure in 2024 when you compare that to '23. But excluding that, I would venture to say that we're going to continue to see improvement in our core fundamental cost structure. So we're working hard. Hopefully, we've demonstrated and given you confidence that quarter-over-quarter, we sequentially continue to improve. We think there's more -- we think there's more to go after, and we're going after it. We're going to do it in a methodical manner, but protecting that guest experience. So stay tuned for the next few quarters to come, and I think we'll continue to show improvement.

Brandt Montour:

So I'm just curious if you could comment on the last 3 months of just fundamental demand strength on the booking side. We've heard from peers that demand has accelerated over those last 3 months. Harry, you just called out in May, June, July being each successively record booking months. But yield guidance for the year was left unchanged. And so I guess the question is, is that a function of guidance 3 months ago just already sort of betting on that acceleration coming? Or did slight flight prices in Europe take a bite out of 3Q? I think we talked about that last quarter or anything else that you might want to highlight?

Mark Kempa:

So Brandt, I would not take it as any sort of sign of deceleration in demand. It's just simply a function of our itineraries, we're more fully booked than we ever have been, and there's just not a lot left to sell, so which is a good thing. That gives us more stability and predictability over our numbers. So if anything, that said, there's always -- as we talked about, the consumer is strong onboard revenue trends continue to do well. So I think if there's going to be any room for upside, it's going to be on continued strength of the consumer spend on board.

Mark Kempa:

I think, Brandt, this is really the first quarter or the second quarter where marketing spend was sort of normal, where we were able to judge each of the individual projects that we do in marketing and see normal ROI, normal returns, normal gets demand. But of course, we weren't just waiting through the last couple of quarters to refine our marketing machine. We've gone all in with marketing analytics. We've done some work with AI, machine learning, all those terms to really refine our individual marketing efforts and what we spend in each individual channel. The best example I can give you on the NCL brand, our spend today on a booking basis, it's similar to what we were doing in '19, but we're generating nearly double the lease right, which is sort of a customer that raises their hand. We think that's fantastic. Conversion rates continue well, which is one of the things that's leading to these record bookings. And as long as we continue refining our analytics around marketing, we're happy with the spend levels.

James Hardiman:

So on the net per diem side, good performance in the second quarter, maybe a little surprised that, that didn't flow through to the full year guide. And I can certainly appreciate more often than not, if it's onboard spend that's driving that for diem, it's hard to sort of assume -- you have less visibility as we think about the back half of the year. Is that ultimately what happened in Q2 or how should we think about sort of the lack of flow through to the full year?

James Hardiman:

Got it. That's helpful. And then a separate question. I mean, we started to see refinancing activity pick up, maybe a more full corporate debt environment. What are you seeing there? Is there an opportunity for you guys to do some transaction whether it be a focus on lowering interest rates, extending maturities. I guess if so, what instruments are sort of low-hanging fruit for you guys? I guess, more broadly, I mean, as you think about deleveraging, it seems like the messaging has been more about increasing EBITDA than actually reducing debt. This current environment maybe changed any of that calculation?

Harry Sommer:

And James, I'll just take this opportunity to reiterate a comment that Mark made in his prepared remarks that we have paid down $1.4 billion of debt in the first half of the year which we're super excited about.

Operator:

Our next question comes from Conor Cunningham with Melius Research.

Harry Sommer:

Well, I think Conor, it's a little bit of both, right? With new leadership team, we have to set a culture that's going to work for us in the mid- to long term. And I'm really excited that the entire leadership group, both the new members and the existing ones are embracing. But if I was to sum it up in one sentence, we're looking to build a culture where we're firmly focused on margin enhancements that we discussed while at the same time delivering exceptional guest experience. And it's really a fine line to walk -- I mean you can cut costs and have a worse guest experience. That's not what we're looking to do. Maybe in the past, we were a little bit overly focused on the guest experience without the cost side of it. The question is, how do we balance both of it. And I have to say, I'm excited. Mark and I have both talked about the reduction, the sequential improvement in our underlying core plus over all 4 quarters of this year, while at the same time our guest satisfaction continues to do very well. Our first guest repeat rate is at record levels, really good guest satisfaction scores, advanced bookings through the root. So this formula seems to be working well. To do this right, it has to take more than one quarter because we're not looking to do anything drastic. We're looking to do this a little bit at a time and make sure that we monitor it closely, and that's what we're going to continue to do. Thank you, Conor. So with that, Maria, we have time for one last question. So please call it out.

Daniel Politzer:

Just a quick question, Harry. It feels like there's been a tangible shift more to focus on the cost side than the yield side. Maybe that's just reflected in current numbers versus how you're looking at things. But I guess as you think about 2024, 2025 and as you think about also long-term targets, is this an accurate depiction? And could we maybe get long-term targets from you as you kind of settle into the role later this year or possibly early 2024?

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings First Quarter 2023 Earnings Conference Call. My name is Paul and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions for the session will follow at that time. [Operator Instructions] As a reminder to all participants, this conference is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed.

Frank Del Rio:

Thank you, Jessica, and good morning, everyone. Thank you for joining us. Today marks a significant milestone for me as it is my 34th and final earnings call as President and CEO of this incredible company before my upcoming retirement, which was announced just over a month ago. In 2015, I was given the opportunity to lead Norwegian Cruise Line Holdings into its next chapter, one where we brought together three of the industry's leading brands

Mark Kempa:

Thank you, Harry, and good morning, everyone. Before I dive into the financial results and outlook, I want to also thank Frank for all that he has done to propel this company forward as well as his outstanding leadership. I look forward to continuing to partner with Harry in his new role as we work to capitalize on the momentum we are experiencing in order to maximize value for all of our stakeholders. My commentary today will focus on our first quarter 2023 financial results, 2023 guidance and the progress on our financial recovery. Unless otherwise noted, my commentary on net per diem, net yield and adjusted net cruise cost excluding fuel per capacity day metrics is on a constant currency basis. Slide 13 highlights our first quarter results, in which we are pleased to report that we met or exceeded guidance for all key metrics. Focusing on the top-line, total revenue per passenger cruise day in the quarter was up approximately 18% versus 2019. Net per diems increased approximately 7.7%, achieving the high end of guidance, while net yield of 3.6% with a healthy beat versus our expectations, as load factor of 101.5% came in well ahead of projections. With significantly higher participation as a result of enhancements to our bundled offerings today when compared to '19, the accounting allocation between ticket and onboard revenue has also changed, which can skew the comparison. Therefore, we focus on total net per diem and net yield as a better holistic representation of our pricing power. Turning to costs. Adjusted net cruise cost excluding fuel per capacity day averaged $161 in the quarter, better than expected and approximately 14% lower than the run rate in the second half of 2022. This reflects the rapid execution of cost saving initiatives identified and implemented last year, some of which were realized earlier than anticipated. This includes improvements in areas such as supply chain initiatives, back office optimization, as well as crew costs and travel expenses. Adjusted EBITDA was nearly $40 million higher than our guidance and approximately $234 million in the quarter. In addition, adjusted EPS loss of $0.30, also beat our guidance. Shifting our attention to guidance. Our outlook for the second quarter can be found on Slide 14. As we have stated previously, the second quarter will complete our occupancy ramp up. In addition, comparisons to 2019 includes certain premium-priced Baltic and Cuba voyages in that year, which we did not operate in 2023. As a result, growth is in line with our expectations with net per diem increasing approximately 5.50% to 6.25% and net yield expected to increase approximately 2.50% to 3.25%. Pricing and yield are both expected to increase in the second half of the year, with the fourth quarter exhibiting the strongest growth versus 2019. This is driven by our organic pricing power and, in part, by a favorable comp as the second half of 2019 included various headwinds like the rapid exit from Cuba and the close and resale of those sailings. Fourth quarter is also expected to benefit from our strategic shift to premium deployments with extended Alaska and European seasons this year, as well as a mix shift with more capacity operating for our Regent and Oceania brands. Given our robust book position for the second half of 2023, which is ahead of 2019, we have good visibility into the balance of the year, which gives us confidence that we can achieve the sequential improvement and year-over-year growth. Adjusted net cruise cost excluding fuel per capacity day is expected to be approximately $159 in the second quarter, a further improvement versus the prior quarter, as additional savings initiatives are realized. We continue to expect modest sequential improvement each quarter in 2023, as occupancy increases and as a result of initiatives which have already been identified and implemented. This should result in a lower run rate cost level exiting 2023 than our full year reported results. Taking all of this into account, adjusted EBITDA for the second quarter is expected to be approximately $485 million, which is roughly the same level as EBITDA in the same quarter of 2019, another stepping stone to closing the gap versus pre-pandemic levels. I'm also pleased to report that we expect to achieve another significant milestone in the quarter with adjusted EPS turning positive for the first time since the pandemic at approximately $0.25 per share. Now shifting our focus to our outlook for the full year 2023. Adjusted EBITDA is still expected to be in the range of $1.8 billion to $1.95 billion, with the high end of our targeted range representing record adjusted EBITDA for the company. This is expected to translate to adjusted EPS of approximately $0.75 or $0.05 above our prior guidance, reflecting the first quarter outperformance, partially offset by higher anticipated fuel costs and FX for the remainder of the year. Taking a closer look at the components of the full year outlook, net per diem growth of approximately 9% to 10.5% as compared to 2019, and net yield growth guidance of approximately 5% to 6.5% are unchanged versus our prior guidance. Moving on to costs, adjusted net cruise cost excluding fuel per capacity day is expected to average approximately $159 for the full year, slightly better than our prior guidance and reflecting lower-than-expected costs in the first quarter. This represents a 15% decrease as compared to the average of $187 in the second half of 2022. As Harry noted, we continue to evaluate all opportunities to accelerate revenue and improve operating efficiencies, and are taking deliberate actions to improve our margins, while maintaining the exceptional guest experience and superior service levels our brands are known for. We look forward to continuing to demonstrate this improvement over the coming quarters. Turning our attention to the balance sheet. Slide 15 provides our debt maturity profile, which includes approximately $800 million of scheduled debt service for the remainder of the year, the vast majority of which is related to our export credit agency-backed ship financing. We've talked previously about the actions taken earlier this year to address a large portion of our 2024 maturities, so I won't go into further details today, but a summary is provided on Slide 16 for your reference. Since we last spoke, we also signed agreements to increase our ECA-backed commitments by approximately €1.7 billion. This was primarily to finance improvements and modifications to newbuilds currently on order across our three brands. This includes the previously communicated changes to the last four Prima Class ships to make them up to 20% larger than the first-generation ships, as well as the addition of the Methanol-Ready configuration to the last two ships to increase optionality and help future-proof these long-life assets and reach our decarbonization goals. The financing also covers owner supplies associated with preparing certain newbuild center service as well as related financing premiums. While we originally plan to fund this with our organic cash flow generation when the ships were originally ordered, given the very efficient and supportive financing we received from export credit agencies and the continued uncertainty in the macro and financial markets, we felt financing this was a prudent action to minimize cash outflows for the next few years. Turning to liquidity. Our overall liquidity position remained strong at approximately $1.9 billion, as outlined on Slide 17. This consists of approximately $700 million of cash and cash equivalents, nearly $600 million of availability under our revolver and our $650 million undrawn commitment. This does not include the separate $300 million undrawn backstop commitment, which enhances our future liquidity but is not currently available to drop. I want to reiterate our commitment and relentless focus on delivering value for all of our key stakeholders. We will continually evaluate options to accelerate our recovery, while maintaining adequate financial flexibility to adapt to different macroeconomic backdrops. Overall, we feel optimistic about the direction of our business and we believe we are taking the right steps today to create a more nimble and resilient organization for the future. With that, I'll turn it back to Frank for closing comments.

Operator:

Thank you, Frank. [Operator Instructions]

Harry Sommer:

Sure, yes. Happy to, and that's a great question. We touched on this already in our prepared remarks, but we are laser focused on delivering our '23 guidance and financial goals. One of the drivers of growth this year is going to be our robust newbuild platform with us taking delivery of three new and I might be biased, but I'm going to add absolutely magnificent ships this year, including the incredible Vista, which start sailing tomorrow. Those ships along with some of our other recent additions translate to a nearly 20% growth in capacity when compared to 2019. So that's expected to provide a meaningful boost to our current and future earnings power. We're also hard at work at our ongoing margin enhancement initiative and our continuing to identify new and innovative ways to get more efficient while also delivering best-in-class product and service offerings for our guests. We're pleased with the results so far, but we're not stopping there and we'll continue to leave no stone unturned. And lastly, we're going to continue to capitalize on the robust consumer demand we're experiencing, which is translating into our record book position and strong pricing, including very robust onboard revenue generation. So, we feel good about our position over the next year and we're going to do everything in our power to deliver on all our goals.

Operator:

Thank you. Our first question is from Dan Politzer with Wells Fargo. Please proceed with your question.

Mark Kempa:

Yes, good morning, Dan. This is Mark. So, first and foremost, there is no change. Q2 -- both Q2 pricing and yields are exactly in line with where we thought they were going to be. Of course, as your occupancy ramps up, you do see a little bit less of pricing power on your [lower meta] (ph) i.e., inside cabins. But overall our NPDs remain very healthy and strong. And then secondly, I think the other piece to look at is when you do the comparison versus a very strong second quarter 2019, we're comping over some difficult comps with Cuba that we had back in 2019 as well as the full benefit of Baltic itinerary. So, while on the surface, it may appear that there is -- it is a bit softer than Q1, I assure you it is exactly where we expect it to be. And as I said in my prepared remarks, the second half of 2023 is expected and continue -- and we continue to expect very strong pricing and yield growth.

Mark Kempa:

Yes, sure. So, let's address the cost side first. So, we did overachieve in Q1. And as I had communicated, we had communicated on our last call, we were steadfastly going into a lot of our onboard -- our margin enhancement initiatives. And we simply executed some of those initiatives quicker than we had anticipated. So, while we did get a benefit in Q1, it doesn't necessarily translate to a benefit in the outer quarters simply because we already had that baked into our guidance. That said, we have not stopped, and we continue to look at opportunities to improve our cost structure. So -- but it's a bit early for us to give additional color on that. All I can tell you is that we are razor focused on that. And I think we will continue to have a sequential improvement quarter-over-quarter, and I think I'm very confident. I think quite a bit of you were nervous last quarter whether or not we could achieve our cost savings, and I think we've demonstrated that in Q1. We've demonstrated that in our full year updated guidance, and we will continue to push hard on that.

Steve Wieczynski:

Hey, guys, good morning. Harry, welcome. Frank, thank you for your service. Good luck in retirement. Hope you take up some golf now. So, I'm going to kind of ask Dan's question maybe a little bit differently. But if -- Mark, if we look at Slide 13, I mean look you basically destroyed every guidance target that you laid out back in February for the first quarter. So, we think about that beat and the fact that you didn't really flow that through, that full beat through to your full year EBITDA guidance And look, I understand there's a fuel headwind there, but I guess what I'm just getting at here is if your customer base stays pretty much status quo from here, it would seem to us it would be tough not to get to the high end of your full year guidance and maybe even exceed that top end of your guidance. So, what am I missing there, Mark?

Steve Wieczynski:

Okay, got you. Thanks for that, Mark. And then, Mark, probably for you as well. If we go back to your initial guidance back in February, you noted that you turned the year. I think it was around 62% booked, which was in your historical range. And now as we've eventually exited wave, can you maybe help us think about where you are booked now for '23 and then maybe also kind of give us a look at '24? And if you don't want to give exact numbers, I understand that, but maybe some qualitative commentary would be helpful there.

Steve Wieczynski:

Okay, great. Thanks, Harry. Thanks, Mark. Thanks, Frank.

Vince Ciepiel:

Thanks for taking my question. I wanted to dig a little bit more into the regional setup. Can you discuss what you're seeing? I think first half of the year you weighed a little heavier at Caribbean. How pricing and close-in demand is looking for the region? And now that you've kind of moved through waves and have more of Alaska and Europe for this summer filled out, kind of talk about how you're feeling about pricing for the summer?

Vince Ciepiel:

Great. Thanks. And any color just on the cadence of bookings that you've seen year-to-date maybe relative to pre-COVID levels? I think that there was kind of the wave of pent-up demand following some change in COVID restrictions at the mid to late part of last year. Obviously, it sounds like wave has been healthy. But would you say things are stable, accelerating or decelerating kind of on a core basis when you adjust for those factors?

Vince Ciepiel:

Great. Thank you.

Brandt Montour:

Hey, good morning, everybody, and congratulations to both Frank and Harry. So, first question is on the cost side. Mark, you sort of gave us a quick update and sort of sequential improvement on a dollar basis throughout the year. And I'm just trying to -- and obviously, if we try and back into what's implied for the full year, it would seem like it's very modest improvement, almost flattish from a pretty high level. And I'm just trying to reconcile that with the seasonality that we used to see in your business with the 3Q costs usually being pretty elevated given more exotic itineraries. Can you kind of help us understand why that's different now?

Brandt Montour:

Great. Thanks for that. And then just as a follow-up. Great to hear that you guys are happy with your book for the all important sort of summer in the Mediterranean. I'm just curious if flight prices broadly is acting as a headwind, and if you think about your book or your strategy this year for the summer, is it bundle -- is flight prices being bundled in for the consumer? Is that sort of more -- is that more of a factor now than it was in '19? And how should we think about that?

Harry Sommer:

I just want to add to Mark's comment that our guests have to fly to get to a cruise. And there's two choices, they either make their own air arrangements or they make their air arrangements through us. And of course, as we buy air tickets for over 1 million guests a year, we have some really good systems and efficiencies to leverage the best prices out there. We use all types of tools in terms of automation, even AI to predict when the best time to book a flight is. And with those tools, we think bundling actually provides us in this uncertain future environment, a competitive advantage. So something that absolutely it impacts us. But if we do it right, we can turn it to our benefit.

Operator:

Thank you. Our next question is from Conor Cunningham with Melius Research. Please proceed with your question.

Mark Kempa:

Yes. So, regarding our second half NPDs, yes, I think we labeled that on our slide, we're expecting roughly 11% or 12%, if I recall correctly. And number one, that's on the back of very strong just good old-fashioned core growth. It's also on the back of bringing on some of our premium brand vessels. But more importantly, when you look at the comparisons in the back half of 2019, we're rolling over much easier comparisons, the inverse of what's happening in the first half versus 2019. Again, we had to rapidly exit Cuba in, I believe, June or July of 2019. And we had to sell those voyages close in for very efficient pricing. And then, of course, as you look at the brand mix, that's also a tailwind. But also in Q4, where we expect quite a substantial amount of our pricing power, we are actually in the Alaska season longer this year as well as in the European season longer this year. And I think it's somewhere in the neighborhood of we have 3% more deployment in Q4 of Alaska and I believe 7% deployment -- more deployment in Europe for Q4. So, when you combine all those factors together, that's what gives good -- great confidence in where our pricing is. And I think the tail end of your question was whether or not we're booked there currently, look, we're -- our book position, Harry touched on it earlier, we're exactly where we need to be to hit our goals and our guidance. So, I won't give too much color on that, but other than we're exactly in a position we need -- where we need to be.

Harry Sommer:

So, in terms of 2024, I'll take the second part of your question first, listen, I think there's still a little rebuilding that can be done in Q1. So, I think Q2 to Q4 basically represents what we're going to see in future periods as well. But Q1 finished up at 101.5%, we can do better than that going forward when we have the more advanced lead time we need to book some of our exotic itineraries and also have the fully overhang of the difficult years that we've talked about beforehand. In terms of this gap of 3%, does that reflect what we're going forward? Pretty much close to that after the Q1 commentary I gave you already. We think this shift to premium itineraries, primarily Europe and Alaska, but a little bit in Asia as well, allows us to get the type of customer that we need to get to support our revenue goals and our revenue growth for the future.

Operator:

Thank you. Our next question is from Stephen Grambling with Morgan Stanley. Please proceed with your question.

Harry Sommer:

I just want to comment that when Frank goes on cruises in retirement, he doesn't pay, so he won't be activity to that world cruise number you saw earlier. So, I'll turn it over to Mark to talk about financial ramifications.

Stephen Grambling:

Got it. That's helpful. And then changing gears a little bit, can you just remind us of how much of your new ship spend is already financed and locked in as we think about rates? And have you seen any impact to export credit rates given the broader credit crunch?

Stephen Grambling:

That's great. Thank you so much.

Robin Farley:

Great. Thanks. And congratulations to Frank and Harry to both of you with the changes. I had a question. If we could circle back just for a moment to the occupancy in Q2. A quarter ago you talked about it returning to historic occupancy levels. And you're talking today about some of the shoulder period itineraries are being expanded. And so, was the change since reported was it just sort of a decision to say, "Hey, we're happy with the pricing that we're getting and so we're going to -- occupancy may not be coming in exactly what we thought, but it makes more sense to hold price for those," or just trying to think about -- because I think the itineraries themselves didn't change since you last reported. So just kind of wondering if it was -- what it was in the yield management that approach had changed. And then my other question is just on the €1.7 billion in additional ECA financing, I know the €1.2 billion are for those ships that are a couple of years out. Is the additional €500 million, is that for 2023 specifically or is that spread out over different years?

Mark Kempa:

Yes. And Robin, just to add to that, we did try to communicate last quarter and over the course of many investor meetings that when we said historical occupancies, we didn't say that they were going to be exactly the same. We said we expected them to be within a couple of points, especially on the overall year run rate. So, I just want to point out that that's not necessarily a change from last quarter. In terms of the export credit agency financing, yes, so we obtained financing for €1.7 billion. And in our last earnings release, we had called out that we had increased our contractual commitments by €1.2 billion. And the differential simply is that, as I said in my prepared remarks, we've now included certain things, financing for owner supply and other related items that are required as part of the ship delivery. And the thought process there was it is very efficient and very extremely beneficial financing. So, in order to preserve cash for the long term at very -- and given the very efficient rates, we simply decided to finance more. So does not represent a further €0.5 billion increase in the overall ship cost, it is simply a different mechanism for financing some of the existing costs that were already expected. And I think that's why when you look at our capital commitments on our newbuilds for the next three years, it's actually decreased overall in terms of cash out of the system.

Mark Kempa:

It's really spread out over the course of the next three to five -- it's spread out I don't want to say ratably, but relatively ratably across all of the remaining newbuilds, excluding Norwegian Viva and Vista, which we just took delivery of, of course.

Frank Del Rio:

Paul, I think we have time for one more question.

Patrick Scholes:

Great. Thank you. Frank, well, congratulations on absolutely an amazing career. And Harry, welcome to the hot seat, as they say. My questions are for Mark. The last time we spoke regarding the debt maturity, the intention was to use cash flow from operations this year to pay off the ECA -- the existing ECA loans. And then secondly, if I have my notes correctly for the $1.4 billion loan, it's going to be either pushed out or amend and extended. Is that still the intention? And did I get that correct? Thank you.

Patrick Scholes:

Okay. Thank you. And then just a related follow-up question. Mark, over the past year, you've given some longer-term net debt to EBITDA target ratios for various years. Are you still -- do you see yourself still on track to hit those targets? Thank you.

Patrick Scholes:

Okay. Great. Thank you.

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is John, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. [Operator Instructions] And as a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Thank you, Ms. John. Please proceed.

Frank Del Rio:

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. 2022 was a year like no other in our company's 56-year history. As we successfully concluded our great cruise come back, with the last vessel in our fleet reentering service midway through the year. Our team continually push forward to this challenging transition year, achieving several significant milestones on our road to recovery and preparing for the next chapter of our storied brands. With our full fleet back to the high seas, we significantly ramped up occupancy levels carrying nearly 1.7 million guests welcomed our newest ship, Norwegian Prima to our world-class fleet, reached several critical financial inflection points, maintained our industry-leading pricing and perhaps more telling, ended the year in a record booked position for 2023 and at record prices. These accomplishments are even more impressive when considering they were achieved against the backdrop of lingering COVID-19 impacts as well as ongoing macroeconomic and geopolitical uncertainty. I want to take the opportunity to once again thank our entire team, both shore-side and shipboard for their hard work, dedication and tenacity, which has propelled us forward as we strive to be the vacation of choice for everyone around the world. I'm incredibly proud, honored and inspired to work alongside each and every one of you. And I also want to express our sincere thanks to our loyal guests, value travel partners, lenders, shipyards, investors and all of our stakeholders for their continued support and partnership. Shifting our attention to what is certainly a bright future for our company, let's turn to slide six, which outlines our current positioning and the key catalysts we have on the horizon. First, we are encouraged to see that our target consumer, which tends to skew more upmarket in the broader cruise industry, continues to be financially healthy and resilient and is prioritizing consumption of experiences over the purchase of physical goods. We've talked previously about the two high-level indicators we carefully monitor to evaluate the willingness of consumers to spend on cruise travel. The first being the length of the booking curve, which is a forward-looking indicator and the second one being onboard revenue, a real-time indicator of a consumer's actual spending, both of which continue to hold strong with no signs of fading. In fact, the booking window in the fourth quarter was well elongated compared to the same quarter in 2019. Onboard revenue also continues to be a bright spot with gross onboard revenue per passenger cruise day in the quarter, approximately 25% higher than the comparable 2019 period. The bottom-line is our target consumer continues to be willing to spend on travel and experiences now and in the future. This gives us confidence that not only is the incredible value proposition for cruising resonating with consumers, but the unique and compelling offerings of our three brands are also appealing to their respective markets. Second, we are taking actions across our business to align with our strategic priorities and strengthen the foundation for sustained profitable growth. This includes a broad and ongoing initiative we began in the fourth quarter to improve operating efficiencies and to right-size our cost base so that we can rebuild and enhance our margins. You may ask why start this initiative now? While the past few years have been unlike anything we could have imagined. First, we were focused on taking the necessary measures to withstand a prolonged and unprecedented period of disruption by minimizing cash burn, raising capital, enhancing our health and safety programs to adapt to a rapidly evolving public health environment and advocating for the industry to restart cruise operations. We then shifted our focus to relaunching our operations while providing our discerning guests the same unparalleled vacation experience they expect from our leading brands. We also took this unique opportunity to raise the bar on pricing for the long-term. Now that our phased occupancy ramp is nearly complete, and our loyal guests know that cruising in our brands is back and even better than before, we are squarely focused on how to maximize profitability as we embark on a period of transformational growth. Every aspect of our business is being evaluated through the lens of how we can realize our full value potential for all stakeholders. We are exploring further opportunities, first and foremost, to reduce our cost profile and to maximize revenue generation. You've likely seen some of the actions we've already taken to improve our cost structure, including normalization of marketing spend, corporate overhead reductions, itinerary optimization, supply chain initiatives and thoughtful rationalization of product delivery. We will continue to leave no stone on turn as we identify and evaluate incremental opportunities. And of course, we will not lose sight of our guests, the very heart of our business, and we will continue to prioritize delivering an exceptional guest experience and superior service levels. The last catalyst I want to touch on is our industry-leading newbuild pipeline. This year, for the first time in our history, we are gearing up to deliver one newbuild for each of our brands, as shown on slide seven, adding over 5,000 additional berths to our fleet including an over 20% increase in our upscale berths. On a capacity day basis, this will result in approximately 19% growth in 2023 compared to 2019. As you can see on slide eight, we have made some modifications to our newbuild pipeline primarily related to the last two shifts in the Prima Class. These ships have been lengthened in part to accommodate the future use of alternative fuels. We now expect gross tonnage for the third and fourth Prima Class to be approximately 10% larger and the fifth and sixth Pima Class ships to be approximately 20% larger than Norwegian, Prima and Viva. As a result, delivery days have shifted a bit, and we now expect one larger Prima Class ship to be delivered each year from 2025 to 2028. We remain confident in our ability to profitably absorb this capacity with continued consumer demand for travel, our expansion into the many unserved and underserved markets around the world that our brands have not yet tapped into, and on the broader industry's vast under-penetration particularly when compared to land-based vacation alternatives. Shifting our discussion now to our booking, demand and pricing trends. As you can see on slide nine, in the fourth quarter, our load factor reached 87%, in line with guidance. This is approximately 20% below the comparable 2019 quarter, yet demonstrates another sequential improvement in closing the occupancy gap versus 2019. This ramp is continuing through the first quarter of 2023 as we have already achieved 100% occupancy in the quarter, leading to a return to historical levels beginning in the second quarter of 2023 and beyond. In terms of pricing, slide 10, illustrates another strong result in the pricing front with our net per DM growth in the fourth quarter of 2022, up approximately 14% on an as reported basis and up 15% in constant currency over 2019. Turning to slide 11, at year end, our cumulative book position for 2023 was within our optimal range of approximately 60% to 65%. We continue to believe this is our sweet spot as it strikes the delicate balance of encouraging guests to book early while also optimizing pricing. Full year 2023 book position is now ahead of 2019's record performance and at higher prices. Since we last spoke in November, we have been pleased to see positive booking momentum continue, including a very strong wave season that likely started two months earlier than usual. In fact, November was a record-breaking month for Norwegian Cruise Line as they celebrate a record day, record week and record month of sales boosted by Black Friday and Cyber Monday holiday push. Subsequently, in January, a strong start to traditional wave led the line of setting another record booking month. Our Regent brand also experienced a similar positive reception to it 2023 wave offer launch, which resulted in a record launch day with net booking volume nearly four times last year's wave launch and 2019 pre-pandemic levels. Our current cumulative book position and the strong demand dynamics that we continue to experience across our brands gives us further confidence that we can achieve our 2023 guidance, which Mark will discuss shortly in more detail. I'll be back with closing comments a little later. But for now, I'll turn the call over to Mark for his commentary on our financial position and outlook. Mark?

Frank Del Rio:

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which slide 19 outlines, a few key highlights. Since we last spoke, we have made meaningful progress to advance our commitment to pursue net zero greenhouse gas emissions. We successfully completed the testing of biodiesel fuel blends on three additional ships in our fleet, a promising potential lever to help reduce emissions on our existing fleet. In addition, we recently modified our contracts to the final two PRIMA Class Ships for Norwegian Cruise Line scheduled for delivery in 2027 and 2028 to reconfigure these ships to accommodate green methanol and as an alternative fuel source in the future. While additional modifications will be needed in the future to fully enable the use of dual fuel, both methanol and diesel, this action reinforces our commitment to decarbonization and represents an important and exciting step forward in our pursuit of net zero. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on slide 20. First, we believe we are well positioned in the current economic environment and our target upmarket consumer remains resilient. This is especially true for the all-import North American consumer from we enjoy an outsized benefit, given our strategic sourcing mix and focus on global versus national brands. Second, booking momentum is positive, buoyed by a strong start to the year with wave season, and we are pleased with our book position and pricing for 2023. Third, we are focused on strengthening the foundation for sustained profitable growth, and we will continue to take strategic measures to best position the company for its next era. And lastly, our cash generation engine continues to rev up which, along with our transformational new build pipeline provides a path to meet our liquidity needs and to restore our balance sheet in the coming years. We've covered quite a bit today, so I'll conclude our commentary here and open up the call for your questions. Operator?

Jessica John:

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions from management. The top question this quarter was what are our plans to bring in new customers and also reward brand loyalists to entice them to cruise. Frank, do you want to take that one?

Operator:

Thank you, Frank. Our first question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Mark Kempa:

Hi, good morning Dan. Well, first and foremost, the discussion of issuing equity is a Board decision. So, I will leave it there, but what I can tell you is that, that has not been in discussion in any of our Board meetings. We've said time and time and again, we do not believe that it is prudent to issue more equity to de-lever the company. As we look forward and we look at our balance sheet, we have said that our internal goal here is we want to turn the year with a 5x handle. And for clarification, that does include an adjustment for the newbuilds that we take delivery of in this year since we do not have the full earnings potential. But that's what the company has rallied around, and that's what we're focused on. We've said before, it's not an easy task, but we're rallying against that, and that's what we're using as our stake in the sand. So, there's a lot of opportunity ahead in the industry and especially for our company for the year. We are in a dynamic environment, all signs that we see are looking good, and that's evidenced by our pricing power and our Q4 results as well as our guidance for the year. But nevertheless, there is some unknowns out there. So, we're feeling pretty good right now. We continue on our path of hitting our guidance that we've just issued and we feel good about our overall liquidity and balance sheet position where it stands today, but there's a lot of work to do.

Mark Kempa:

Great, that's a lot to unpack there. So, let me start with the EBITDA per capacity day. Look, this is going to take time, right? If we look at where this industry was not so long ago, we -- it was only last May of 2022 where we started operating all of our vessels. So, we are progressing. We are hitting our milestones that we've laid out for several quarters now. It is a progression. Bookings are doing well. Onboard revenue spend is trending well, but it will take time. It's not an overnight process. And so, as we think about that, part of that is enhancing our revenue, enhancing margins, obviously, and right-sizing our cost base. We've said that our strategy coming out of the pandemic was we wanted to reset the bar on pricing. We believe we've done that, which we believe will be a longer term benefit for all our constituents and now we are squarely focused on right-sizing our cost base. As we look to the future, we're on a period of transformational growth. We have almost 50% growth between now and 2028, with our scheduled pipeline of deliveries. So, we have to do better, and we are going to do better on leveraging our scale, and that's what we're focused on. So, it's going to come from a lot of different places. But we focused on the topline. Now, we're squarely focused on the cost, and that's going to translate to improved margins, which again will then translate ultimately into achieving that pre-pandemic EBITDA per capacity day.

Steve Wieczynski:

Yes. Hey guys. Good morning. I want to ask, Frank, this is probably for you. I want to ask about how you guys think about cutting costs versus balancing the customer experience? And I guess, what I'm getting at is, we've read out there, you guys have taken some action on board, whether that's cutting things like entertainment or servicing cabins, things like that, which I assume is being done to reduce costs. But do you worry about the customer experience that starts to be impacted and you eventually start to hurt the long-term perception of your product? Just trying to figure out how you balance those two things.

Mark Kempa:

Steve, I think, the other way to think about it is, we're simply aligning ourselves to what others in the hospitality sector have done as well. So, this is nothing new. I think customers in today's society are used to getting a different level of service. We're not degrading the product. We're squarely focused on making sure that the guest experience is wholly intact, but we're going to align ourselves to what is the new normal for the hospitality sector. I think, it's the right thing to do.

Mark Kempa:

Well, Steve, you're taking a big chance asking me an accounting question, but I think I'm going to go for it. Look, absolutely, when we increase the service fees, it does get rolled up as part of our gross revenue, but there's also a cost to that. And there's obviously some direct cost to that, but there's also the employment costs, which go against that, which hit in our net cruise cost. So, service fees, again, the vast majority of that, all goes to our dedicated crew and employees who are working on the ship, but there is a revenue component to it and there is a cost component to it. But, again, that's something that's been consistent for us over the years. No change in the accounting or no change in the comparability.

Operator:

And the next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.

Mark Kempa:

Yes, certainly. So, on the cost, as I said in my prepared remarks, Q1 will be the highest cost quarter. And then as we look forward sequentially, we expect those costs to decrease each quarter as some of our initiatives gain hold and take place. And I think the way to think about it is as you look toward the back half of 2023, that's going to be a little bit more representative of what our exit rate would be as well on a go-forward basis. There is one thing I want to remind you as well as we are taking on a more -- we have a more pronounced mix effect with the operating capacity that we're bringing online as well. As you guys know, we are bringing on an Oceania class vessel in May of this year and a Regent vessel at the tail end of the year. Those, by default, have a much higher operating cost than the NCLH average. So, there is some impact in that overall cost guidance as a result of the mix. So, keep that in mind. And then when you think about the overall buckets on the cost, it's everything you can think of. We've said before, we spent a lot on marketing in 2022 going after the customer, creating that demand, elevating pricing. We believe we've been successful there. So, we're going to scale start scaling that back. But it's everyday things -- everything we do on our corporate side, on our ship side, whether it's optimizing our supply chain initiatives, optimizing our itineraries so that we're getting the best fuel consumption. There is no silver bullet in this industry, but it's a lot of little things that can add up and that's what we're squarely focused on going forward.

Frank Del Rio:

Yes, this is Frank. We simply don't see any weakness. As I mentioned in my prepared remarks, we've seen very, very strong record -- new record booking levels dating back to November. And it's our view that as long as consumers have a job and the labor markets remain strong, that they'll continue spending on the things they normally spend their money on, including vacations. So, we simply don't see a weakening consumer. If you look at our forward bookings, each quarter in 2023 is better booked than the comparable quarter in 2019. And even if you start looking into 2024, it's never too early to talk about next year. 2024 bookings are running ahead at higher prices than they were at the same time in 2019 for 2020, which before the pandemic. So, we simply haven't seen any indication that the consumer is shying away from taking cruise vacations, at least not with our three brands.

Operator:

And the next question comes from the line of Patrick Scholes with Truist Securities.

Frank Del Rio:

Good morning.

Patrick Scholes:

Going back to some comments from last -- I believe last summer and last fall, you had talked about expectations or you seem pretty confident in record EBITDA for this year. However, when I look at the range, certainly at the midpoint and below, if I'm comparing apples-to-apples would not imply a record EBITDA. And then additionally, it looks like if I'm getting this correctly, your expectation since last earnings for bookings are now ahead, I think previously it was in line. What's changed in how you think about hitting that record EBITDA target as it relates to the guided range? And I hope that makes sense, what I just asked.

Patrick Scholes:

Okay. I just have a couple of, hopefully, quick follow-up questions. Can you just explain again why you dipped into the Apollo financing? It sounded like last summer or last fall, that would not have been the intention at that time, but that's changed. Can you just review with us the rationale there?

Patrick Scholes:

Okay. And then last one, this question actually might save Mark, you and Jessica a number of callbacks later. Just I do see your share count is going up for the full year to $460 million. Is -- I assume that's from the convert or exchangeable notes converting sometime in the year. Can you just remind us, which -- I think it's the May 2024 and August 2025 and how many if that's correct? And what -- how many shares are added from each of those, if those are the correct ones and roughly at what quarter might you expect that to occur?

Patrick Scholes:

Thank you. I'll check out the slide deck on that. Thank you.

Fred Wightman:

Hey guys. Thanks for the question. Can you just touch on the plans or changes to the premium class? It sounds like those are going to be a little bit bigger than the first few iterations. I know that you guys were excited about offering a smaller ship size initially when that was introduced. So, what exactly changed? Was it the cost, the guest experience, something else?

Fred Wightman:

Makes sense. And then just on the marketing spend that you guys had talked about for a while in the back half 2022, could you maybe give some qualitative feedback on whether that met your expectations? Did you get the pricing benefit that you had expected? Was the consumer feedback in line with sort of what you were hoping for when you earmark that spend or not?

Harry Sommer:

And this is Harry again. It's not just a theoretical comment. When we look at in the metric that Frank described, marketing costs divided by capacity days sold, which I think is the right metric for marketing, we've seen decreases, material decreases in Q4 versus Q3. So, we're already starting to realize that. But as Frank mentioned, we have more capacity days to sell with three new ships coming across the brands this year.

Operator:

And our next question comes from the line of James Hardiman with Citi. Please proceed with your question.

Mark Kempa:

James, it's Mark. So, look, I wouldn't classify anything as a deceleration. And I think when you look at our yield growth for the full year, you were spot on 9% to 10.5% pretty strong number given the value proposition of where the cruise industry vis-à-vis the broader vacation market. But when you look at Q1, you go from Q4 to Q1, it's really a mix impact of where our fleet is operating. We have a much higher weighting of exotic itineraries in Q1, which were slightly impacted on the slower restart or the slower opening of the world. So, whether it was cruises in Japan or Australia or that area of the world, there was a little bit more hurdles than we anticipated getting those back to operation, and there was a little more hesitation on the consumer. So Q1 was really just impacted by that. I would characterize it as the last normalization quarter, so to speak. But when you look beyond that and you look at our implied guidance for the remaining three quarters, I think you're seeing very strong growth there of 9% to 10% based on our guidance. So, we're feeling good where the pricing is today.

Mark Kempa:

Yes, it was very slight, James. And it was really just truing up some of our year-end accruals and making sure that going into the year, we were fully stock, so to speak, to ensure that we had no lagging issues affecting our 2023 performance. So, nothing material. It was just all items on the margin.

Operator:

And our next question comes from the line of Paul Golding with Macquarie. Please proceed with your question.

Mark Kempa:

Yes, certainly. So, I think when we look at the year overall, we do have more -- we are leading to a more exotic deployment mix. But that's not really concerning to us, because as we cycle through Q1 and we look toward the latter part of third quarter and fourth quarter, we see accelerating demand for those products. We do have more European capacity this year. We have slightly less Caribbean capacity and more Alaska capacity. So overall, we are trending to a, again, a bit more exotic or longer itinerary based deployments, but that's shaping up well for us, absent this what we would call a one-time Q1 anomaly with the overall restart.

Frank Del Rio:

Okay. We have time for one more question, operator.

Robin Farley:

Great. Thank you. I have two expense questions. One is you talked about how the exit rate by Q4 for expense would look a little bit more normalized. With the full year kind of up 18% and Q1 up 22%, does that imply the exit rate sort of going forward would still be in kind of the low to mid-teens increase versus 2019? Is that kind of what we should think of as sort of a normalized run rate for you? And then my other expense question is on the $1.3 billion in higher newbuild CapEx. And I know you talked about upsizing a number of the Prima ships and adding some alternative fuel to two of them. It seems like maybe there are some other things contributing to that $1.3 billion than just those additional bursts and alternative fuel just based on the numbers, it seems like there may be other things in the higher new build CapEx number? Thanks.

Robin Farley:

Great. Thanks very much.

Operator:

And this concludes today's conference call. You may now disconnect your lines. Thank you, and have a great day.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Third Quarter 2022 Earnings Conference Call. My name is Maria, and I'll be your operator today. [Operator Instructions] As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President, Investor Relations of ESG and Corporate Communications. Ms. John, please proceed.

Frank Del Rio:

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. I am pleased to report that we reached another significant achievement on our road to recovery this quarter, with a generation of positive adjusted EBITDA for the first time since the pandemic began. We have been clear about our intentional and methodical return to service strategy, consistently meeting or even exceeding the operational and financial milestones we have guided to. I am encouraged by our progress as each quarter has seen substantial sequential improvement in load factor with the shortfall gap continuing to narrow versus pre-pandemic levels, while our industry-leading pricing continues to hold strong. And while we are always looking for ways to capitalize on opportunities to accelerate our recovery, I want to reiterate that our primary focus continues to be maximizing profitability for 2023 and beyond in a sustainable banner by prioritizing our long-term brand equity and protecting our industry-leading pricing. While the macroeconomic environment heading into 2023 remains more uncertain than usual, we see several tailwinds and catalysts to sustain our current positive trajectory as outlined on Slide 5. First, the public health regulatory COVID-related protocols continue to improve. In the past 30 to 45 days alone, key countries like Canada, Bermuda, Greece and all of South America have removed COVID testing requirements for entry and many countries in Asia have begun reopening the cruise. These developments have paved the way for us to relax our own COVID-19 protocols, allowing us to reach a wider cruising population as well as adding greater variety to high-yielding itineraries as more ports around the world become accessible to cruising. With the public health environment improving, in September, our 3 brands removed mandatory vaccination requirements. And just last month, Norwegian Cruise Line took another significant step forward with the elimination of all COVID-19-related guest protocols. That means no more vaccination, testing or masking requirements on any of the lines 18 ships, except in the very few areas around the world would still have specific COVID rules. This is a long-awaited alignment of protocols to the rest of the travel lesion hospitality industries, which reduces friction, eliminates the #1 reason for not booking a cruise and meaningfully enhances the cruise experience for our guests. Our sales safe program was always designed to evolve and the improvement in the public health environment along with the near elimination of intrusive protocols to remain in place allow us to uphold our #1 priority of protecting the health, safety and well-being of our guests, crew and the communities we visit. Second, while there are heightened concerns surrounding an economic slowdown in the broader marketplace, the primary target cohort of our 3 brands, which is more upmarket and affluent than that of the cruise industry as a whole continues to demonstrate its willingness to spend on travel and experiences. In fact, you may have heard commentary from credit card issuers this earnings season about continued strong spend on travel and experiences, especially by those in higher-income categories, reinforcing the continued strength and resilience of demand for cruising, particularly among Americans. Within the cruise industry, we believe our company is well positioned to outperform if indeed the macroeconomic environment weakens. First, and as Slide 6 illustrates our dominance in the upscale space, which we participate not only through our ocean and region brands, but also with our exclusive high-end ship-within-a-ship concept on Norwegian with the Haven is significant. And while this cohort is not totally immune to economic downturns, it has been very resilient historically. In addition, Slide 6 also demonstrates our favorable guest demographic mix which skews towards the higher end of the income spectrum as each of our brands operate at the top of their respective industry categories. The vast majority of our guests have a net worth of 250,000 plus. Again, a more resilient cohort in the event of an economic downturn particularly if the job market remains strong and the equity markets stabilize. With over 85% of our guest sourcing coming from North America, we will also benefit in the near term given our relatively low exposure to European sourcing, where the economic environment is already challenged. Long term, this bodes well for our business as North Americans have historically been the guests who booked the earliest, garner the highest ticket price and spend the most on board. Taken together, these factors contribute to our strong book position despite current microeconomic worries and a turbulent geopolitical environment. Last quarter, we spoke about the 2 indicators in our business that we typically monitor to evaluate the extent and willingness of consumers to spend on cruise travel. The first being the booking window, which provides a peak into the consumer's psyche about the future; and the second being our onboard revenue generation, which is our best real-time now indicator. Both of these indicators continue to meet or exceed our expectations. In fact, our onboard revenue generation continues to break records as onboard revenue per passenger cruise day was approximately 30% higher than the comparable 2019 period. In addition, our booking window in the third quarter was approximately 245 days, nearly 10% ahead of the same quarter in 2019. This is important because an elongated booking window is preferable as it provides better visibility, which allows us to increase prices sooner while moderating marketing expense. The last catalyst I want to touch on is our industry-leading new build pipeline outlined on Slide 7, which we expect will enhance our brand’s profile and product offerings and most importantly, drive significant revenue, adjusted EBITDA, adjusted earnings per share and cash flow growth. Turning to Slide 8. In August, we celebrated the christening of our newest ship, Norwegian Prima in Reykjavik, Iceland, the first major cruise ship christening in this historic seafaring locale. Prima has been incredibly well received with extremely positive feedback from the guests, travel partners, media and the investment community who have participated in the ship sailings so far. The addition of Prima in her upcoming 5 sister ships, along with Oceania Cruises’ new generation Vista Class Ships and Regent Seven Seas Splendor will without a doubt, reinforce the positioning of our brands as the leaders in providing upscale experiences in each of the major cruise categories. Looking ahead to 2023, we have 3 new builds, 1 for each brand entering the fleet with over 5,000 additional births. These new ships are expected to attract new-to-brand guests, create excitement for our loyal pass guests and contribute significantly to top and bottom line financial results. With the relatively small size of our current 29 ship fleet, we are confident that we can absorb this capacity growth. Not only do we have many unserved and underserved markets around the world, but we also continue to believe that the cruise industry at large is vastly underpenetrated, especially when measured against other land-based vacation alternatives. To put this point into perspective, as you can see on Slide 9, which we provided at our investor event last month, the total number of state rooms aboard our 29 ships across our 3 brands is less than 1/4 the total number of hotel rooms in Orlando, Florida alone, just 1 city and 1 single country. And even if you look at the entire cruise industry, there are fewer state rooms in the global cruise fleet of over 250 ships than there are hotel rooms in the top 3 U.S. cities for hotel capacity, which is Orlando, Las Vegas and Chicago. So the opportunity to grow demand is significant. And when you couple that with the supply side of the equation where we have a high degree of visibility and a limited pipeline of new ships due to shipyard constraints, the industry and Norwegian Cruise Line Holdings in particular, have a strong foundation for continued growth. Shifting our discussions now to our bookings, demand and pricing trends. As you can see on Slide 10, in the third quarter, our load factor was approximately 82%, in line with our guidance and demonstrating continued and substantial improvement over the prior quarter of 65%. We expect load factors to continue improving sequentially to the mid- to high 80% range in the fourth quarter, despite the fourth quarter historically being a seasonally lower occupancy quarter than the third quarter. And looking at our quarterly load factor in terms of the gap with 2019, third quarter occupancy was approximately 30% below the comparable 2019 period and we expect continued sequential improvement in closing this gap to about 20% during the fourth quarter. The steady occupancy ramp-up is expected to continue until we reach historical 100% plus levels beginning in the second quarter of 2023. In terms of pricing, as you can see on Slide 11, our net per diem price growth in the third quarter of when compared to the third quarter of 2019 was up approximately 5%. This is particularly impressive when considering the hit pricing took with the absence of premium-priced Baltic itineraries in the quarter due to the Russia Ukraine conflict. These strong results demonstrate the effectiveness of our strategy of holding firm on our core to go market strategy of market-to-fill versus discount-to-fill and maintaining price integrity by emphasizing high-value over low price, which you can see on Slide 12. I've said this before, and I will reiterate again today, given its high importance that we strongly believe that this strategy is the optimal path to continually deliver high-quality and sustainable profitability once we return to a fully normalized post-pandemic environment, which again, we expect will be in the early second quarter of 2023. Turning to Slide 13. As expected, our fourth quarter 2022 booked position remains below that of 2019. That said, pricing continues to be significantly higher when compared to 2019 even when taking into consideration the dilutive effect of future cruise credit. Dilution from future cruise credits will not carry forward into 2023 as the bonus or value-add portion of certificates issued during the pandemic will expire at year-end. Focusing in on 2023, our full year book position is equal to 2019's record performance and our ongoing net booking pace is at the level needed to sail full beginning in the second quarter of 2023. We believe our cumulative book position is at the optimal level when balancing our desire to encourage guests to book early in order to be approximately 65% booked by year-end for the following year, while also maximizing our industry-leading pricing so as not to leave yield on the table. This volume versus price dynamic is a delicate balance that we have fine-tuned over the years using historical itinerary specific data and our sophisticated revenue management system and is key to our success. Pricing is also significantly higher for 2023 versus the comparable 2019 period with strength seen across all 3 brands. As we have said previously, pricing naturally will level off as we fill out our book for 2023, but we continue to expect to achieve record pricing for full year 2023. As we look to the future, our entire team is mobilized, energized and ready to flawlessly execute, our eyes are wide open, and we are preparing for multiple scenarios given the current height uncertainty in the macroeconomic environment, and we are ready to adapt and pivot if needed. Our company and our industry has demonstrated its resilience time and again in the past. And I'm confident that if necessary, we will do so again. We are also encouraged by the relaxation of protocols in the regulatory and public health environment, which paved the way for us to return to normal operations, and we are excited to welcome the 8 additional ships to our fleet we have on order through 2027. We will continue to be disciplined and strategic as we work to set our company up for long-term success and to maximize value for all stakeholders. I'll be back with closing comments a little later. But for now, I'll turn the call over to Mark for his commentary on our financial position. Mark?

Frank Del Rio:

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which Slide 23 outlines key accomplishments and milestones. Since we last spoke, we continue to advance our commitment to pursue net 0 greenhouse gas emissions. We successfully completed the testing of a biodiesel fuel blend on Regen’s Seven Seas Splendor founder in October, and we announced the signing of a Memorandum of Understanding with MAN Energy Solutions to conduct a feasibility study and retrofitting an existing engine to operate with dual fuels, diesel and methanol. We will continue to evaluate a variety of alternative fuels and share learnings with other companies as we collectively try to find a viable long-term solution. In September, after Hurricane Ian had a devastating impact to our neighbors in Southwest Florida, we responded as quickly and as generously as we could and donated $100,000 to the American Red Cross to assist in emergency relief efforts. We also committed to matching donations from team members, business partners, travel agents and concerned guests and others in our network up to an additional $100,000. And before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 24. First, we believe we are very well positioned in the current economic environment given NCLH's unique drivers, which have allowed us to excel financially in the past and will continue to do so in the future. Second, we are hitting our targets and reaching key milestones in our path back to normalcy. We are focused on laying the foundation for long-term sustainable profitability for 2023 and beyond. Third, our target upmarket consumer continues to hold strong, which is reflected in our excellent book position and significantly higher pricing for '23 and as well as our impressive onboard revenue performance. And lastly, our cash generation engine has wrapped up, which, along with our new build pipeline provides a clear path for return to meaningful profitability and a deleveraging of our balance sheet in the coming years. We've covered a lot today, so I'll conclude right now with our commentary and open the call for your questions. Operator?

Jessica John:

Before we get to the questions on the line, we first want to address a top question from our new online shareholder Q&A platform, which provides all of our investors another avenue to submit and up vote questions for management. Several of the top questions we received this quarter were centered around the same key theme, which was our comfort around our current financial position and liquidity, particularly if we face an economic slowdown or recession. Mark, do you want to answer that one?

Operator:

Our first question from the line comes from Patrick Scholes with Truist Securities.

Frank Del Rio:

Patrick, it's Frank. A couple of reasons. Number one, the travel agency community is not fully yet back to pre-pandemic levels, at least not for the cruise space. Because while we were out and remember, we were out nearly 500 days, travel agents had to continue making a living, and they made a living by selling more land resorts, more land vacations than they ever had before and they're still doing it. So we have to find a way to draw them back to the cruise industry and away from the land vacations, which is our #1 competitor anyway as opposed to other cruise brands. And we think this is a way to do it. We actually did an experiment over the summer using a relatively good-sized sample. And we found that travel agents who were paid commissions on these non-commissionable fares increased their business with us significantly such that the revenue that they generated over a long period of time, more than offset the increase in commission expense. So we think this is an ROI type of move. In many ways, I hope the competition does match this because I think it will be great overall for the travel agency community, which we all rely on. And at the end of the day, it's not about so much about commission savings, it's all about generating additional revenue and filling the vessels that are coming online for us and for the rest of the industry. So I know if no company has ever made their mark by saving and saving and saving, you make your mark on the top line. And this is what this -- that's what this move is meant to do to generate more revenue. And your second question, Patrick?

Mark Kempa :

Patrick, this is Mark. I touched on that last quarter. So if you recall, as part of our overall Free at Sea and part of our broader bundling package we introduced a significantly new air program. So we started to see some of the cost of that flowing through in the second quarter. And then, of course, if you look at the third quarter, that's where most of our ships are often the more premium and exotic itinerary. So you do see a higher cost of air component within that. That said, on a net-net basis, it does drive better overall net revenue per diems, and that's certainly evidenced by our performance in the last 2 to 3 quarters.

Robin Farley :

Great. I wonder if you could sort of put a range for us around when you talk about price being up significantly for 2023 to get a sense of what range that may be? I know you had given a range with Q2 results and indicated that, that would come down as load moved up. But wondering if you'd sort of give a similar ballpark.

Robin Farley:

That's great. And just as a follow-up, just to clarify on your comments about the expense -- the net cruise costs for 2023. You said it would normalize in 2023. Will that be as soon as Q1? In other words, is this extremely elevated cost here in -- is it just a Q4 thing or is it going to take you a couple of quarters to normalize? Just trying to clarify what sort of in 2020, is it by 2023 at some point during 2023?

Robin Farley:

Just to make sure I understand, when you're saying down mid-single digit, is that year-over-year, are you saying then sort of relative to '19 that the cost could still be up like 20% or 30%? I'm trying to do the math on the slide here, so maybe --

Operator:

Our next question comes from Steve Wieczynski with Stifel.

Mark Kempa :

Steve, that's a lot to unpack there, but I'll start with, first and foremost, yes, we think about it every day in terms of where this business is going and the opportunity and how do we get back to pre-pandemic levels. As we stated 30 days ago in our investor event, we are charting a path back to success. And first and foremost, that means rightsizing the business, getting the business back to full operating capacity, which is just around the corner. That's going to result in significant cash flow, and that results in delevering and derisking the balance sheet. So that is what the entire management team as well as our Board is focused on. I've said that before, I said that in 30 days ago, I'm telling you again today. We need to delever this company. We've done it before. We've taken the company down from 9, 10x levered to where we were in the end of '19 at low 3s going into the 2. So as we look forward, and if I have a crystal ball, as I said at the investor event is we want to turn -- we want to finish FY '23 with a 5-point X handle in leverage. And then our goal in 24 is a 4x handle and then 3x handle. So we obviously have a path of how we can do that. We need to continue to execute. We need a relatively stable environment, but signs are looking good. We're getting where we need to be. Our strategy is working. Will there be bumps in the road? Yes, there's going to be bumps in the road, but we've proven time and again that we can get past that. What was the last part of your question now?

Mark Kempa :

Yes. Sorry about that. Yes, you're absolutely right. So Look, as we said in our earnings release, we do have a slight delay with the LEO 3 and 4 class vessels. And that is strictly 100% as a result of shipyard delays from supply chain constraints. I think on average -- those ships are being delayed on average by about 4 to 5 months each vessel. So that just really just simply pushes some of your CapEx from '24 to '25 and so forth. So a little bit of an opportunity. Certainly, not a huge shift, but given where the world is today, we think that's okay. And that's going to further help us when we think about next year of having -- over the next couple of years, having slightly better lower CapEx that should provide more cash to the business.

Frank Del Rio:

No, I think it will be an extraordinary wave season. It's already started, 10 days doesn't make a trend necessarily. But the last 10 days, the Norwegian brand had its best 10-day streak ever, ever. And I think that's going to carry on throughout the fourth quarter and into wave. Wave is -- it is a consumer event, but travel agents get behind it. And travel agents haven't had a wave in 3 years, and they're excited. And when I see travel agent is excited, I can't help but join them. So I really think that the next 4 months, 5 months into the end of March, which is typically the end of the wave season are going to be exceptionally strong booking periods.

Dan Politzer:

So Mark, I just wanted to follow up in terms of the spend cadence. I know you mentioned down mid-single digits versus that second half run rate for net cruise costs in 2022. But as we think about for 2023 and I guess the cadence over the course of the year, it sounds like it's going to be certainly front-end weighted. Is that mostly the elevated marketing cost? And then as you kind of exit 2023, how should we think about the net cruise costs?

Dan Politzer:

Got it. And just for my follow-up. In terms of 2023, you gave your deployment mix, which I think was pretty helpful. So as we think about pricing and the top line, to what extent do you attribute that --the pricing tracking higher to this more attractive or optimized itinerary of mix with less Caribbean, more Europe, more Alaska and Asia Pac versus 2019? Or is this more your market to fill strategy and kind of just holding the line on pricing?

Operator:

Our next question comes from Vince Ciepiel with Cleveland Research Company.

Frank Del Rio:

That's our secret sauce, Vince, if I tell you, everyone will do it. But I will tell you that there are just dozens, dozens of either underpenetrated or places that we simply don't go because we don't have enough vessels. Just in the U.S., there are cities in the U.S. that are historically very strong source markets that we don't have a vessel, either seasonally or at least -- or year round. And we think that with new vessels coming online, we'll be able to do that. Alaska, where we've made huge investments in land-based infrastructures and ports, we're still underpenetrated. The Norwegian brand, for example, only has 4 vessels there. Oceania and Regent only one each. Our competitors have multiples of that. And the reason for that is, is that we need to be in other places. So we see Alaska, we see Europe as growth markets. We believe South America is becoming very, very interesting, greater demand for South American ports. Asia has taken a backseat over the last couple of years because of the COVID situation there. But I got to tell you, Japan is red hot for us. Australia is red hot. And so I'm excited about the possibility of going to new places with new ships and continuing to just feed the beast of high-yielding itineraries. You've heard me say before, Vince, itineraries is the #1 driver of yield. And we think that we do itineraries better than most, and we'll continue to do so.

Mark Kempa :

Vince, absolutely not. We've talked about this before. And I'm not going to sit here and tell you today that there is not near-term pressure on margins. We've said there is. We acknowledge that, I'd be a fool not to say that. But I think when you look out over the course of the next year or 2 and you look at where the business is going and where the costs will settle, right? This hyperinflationary environment cannot last forever. And we are taking actions internally as well to ensure that we're rightsizing all of the cost of the business. But more importantly, we believe the operating leverage of this industry and more particularly our company is intact. Is it going to be there in the next quarter or 2, I think that's going to be a challenge. But when you look over the next 1 to 2 years, certainly, we believe this industry gets back to pre-COVID margin levels and plus. But as I said in my remarks, it is not going to be an overnight flip of the switch. So it's going to take some time. But without a doubt, this industry, we believe, is intact from a margin perspective.

Operator:

Our next question comes from James Hardiman with Citi.

Mark Kempa :

Vince, it's Mark. So you're absolutely right. When you look at the last 2 to 3 quarters, the differential between gross to net has been about anywhere from 8 to 9 points, I think, when you look at the second and third quarter. So if you look at where our implied guidance is for Q4 and you do the math, you're probably going to get to a spread of about 7 points. So our best view of everything we can see, given the bundling, getting back to normalized load factor levels and full ships, it's probably going to be somewhere in the zone of that 7 to 8-point differential on a run rate basis. Now could it be higher or lower in a particular quarter, it may be a point or 2. But I think generally speaking, we're looking at somewhere around that 7-point differential.

Frank Del Rio:

Yes, James, it would have looked a lot better. If you look back at all the major changes that took place starting in early June when the U.S. government no longer required people to test to get back into the country. That was a huge one. It was only 4 or 5 months ago, I think we all want to put COVID so far behind us that we forget some of these major milestones that occurred just very recently. Then of course, the CDC dropping their protocols and allowing us to do what we're doing now, that all has contributed to less friction with consumers, bringing travel agents back to the fold, so to speak. And so that's why I'm so excited about this upcoming wave period because it doesn't have all the burdens that the last 2 or 3 had. But specifically to your question about Q3 pricing and Ukraine, look, if you had asked me what is the single city in the world, port in the world that you cannot live without, I'd tell you it's St. Petersburg, and we lost it. Very, very high yields, incredible shore excursion sales. So onboard revenue was just higher than any other itineraries that I can think of, relatively long season. You can get to St. Pete in the Baltic in mid-May and you can leave in mid-September. So it's a real blow. It's a real blow. And so by -- we kept most of the ships there, although 1 vessel came out of the Baltic, and we send it to the Caribbean, which is about as extreme from one to the other that you can think of. So it did affect load factors and no question, it affected pricing. And the impact on EBITDA has to be in the tens of millions of dollars.

Paul Golding:

I wanted to ask a bit of a follow-on question with Europe. Given the protracted geopolitical issues, I'm looking at the deployment mix for '23. It looks like Europe is up in terms of plan for '23 deployment mix versus '19. So I just wanted to get a sense of the demand picture for presumably the North American cruiser. Is that still strong for Europe despite the geopolitics. And is that a tailwind that we should see also given the 85% North American sourcing comment from prior?

Paul Golding:

And then maybe staying on the topic of Eastern Europe, I was wondering if there's been any change to the positive side in terms of cost with respect to your onboard labor costs due to the issues in Europe? Are you seeing any benefits there? And maybe more structurally short side, even though I know it's a smaller piece. Any change in the structural labor cost picture there in general?

Operator:

Our next question is from Ivan Feinseth with Tigress.

Frank Del Rio:

Thank you, Ivan.

Frank Del Rio:

We're seeing it in experiences. So our casino is doing really, really well. We're going to give Vegas a run for their money. People are enjoying the destinations. We have industry-leading itinerary. So show excursion business is up. Our cuisine is second to none, and people are enjoying cuisines. But even our spa, our spa is doing very, very well. And so I'm happy for the folks over at One World Spa.

Mark Kempa :

Yes, Ivan. We continue to see that. Certain categories are trending down and they're starting to get into their historical averages. We're not -- certainly not where we would like them to be or need them to be, but we are seeing continued momentum in there. But I wish it was quicker, but we're at the mercy of the rest of the world. But again, we're seeing positive momentum on that front.

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Second Quarter 2022 Earnings Conference Call. My name is Darryl, and I will be your operator. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed.

Frank Del Rio:

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. Over the past several quarters, we have reached many pivotal milestones as we continue the steady march of our post-pandemic recovery. On our last call, we had just welcomed the last ship in our fleet back to service, becoming the first major cruise operator to be fully operational. This quarter, we are pleased to report that we have reached another key milestone with operating cash flow turning positive for the second quarter. While our focus is on our profitable future, when I take a moment to reflect on the tremendous progress we have made since launching our great cruise come back just over a year ago, I can't help but be immensely proud of the entire team in Norwegian for rising to the occasion time and again and delivering impressive results. Working well alongside us has been the travel agent community who more than anyone can appreciate the challenges that we as an industry have overcome, and more importantly, can also see the tremendous opportunities that lie ahead. We thank them for their unyielding support throughout this journey. We have been disciplined and methodical in our ramp-up and have maintained a clear and consistent mindset focused on our go-to-market strategy of market-to-fill and emphasizing value over price by continuing to expand and refine our bundling strategy. Our guiding principle has been a focus on the long-term profitability of the Company, particularly for 2023 and beyond, by protecting our long-term brand equity and building on our industry-leading pricing. This means making intentional tactical sacrifices in the short term in favor of long-term sustainable results. With this ethos at the forefront of our business plan, we also continue to be opportunistic, exploring all options to accelerate our recovery. As I serve in the current landscape, I see several tailwinds and catalysts for our company which are outlined on slide 4. First, since we last spoke, we have seen further improvement in the public health and regulatory environment, which has allowed us to relax COVID-related protocols and align us more to the rest of the hospitality industry. Last month, the CDC discontinued its voluntary COVID-19 program for cruise ships. This was a strong signal of confidence by the CDC that the industry's COVID-19 mitigation and management plans are robust and effective. This very positive development has paved the way for us to begin removing barriers for our guests. We're committed by local regulations, bringing us not quite an equal footing with land-based vacation and leisure alternatives, but significantly closer. Just yesterday, we announced a number of changes to our own health and safety protocols, which are effective September 3rd, and as always, are subject to local regulations. We will no longer have a mandatory vaccination requirement in any of our ships, and have relaxed testing protocols, regardless of sailing length. To put it simply, vaccinated individuals, including those embarking on NCLH ship from U.S. ports will no longer have any pre-cruise related protocols, and those who are unvaccinated or choose not to provide proof of vaccination will be required to test negative within 72 hours prior to embarkation. In addition, all guests 11 years old and younger will be exempt from vaccination and testing requirements of any kind. There remain a few jurisdictions with strict requirements, including Canada, Greece and Bermuda where we will continue to comply with local mandates. These modifications or protocols are meaningful and give us additional flexibility to reach a wider cruising population, reduce friction and travel-related hassles for our guests and bring greater variety to our itineraries. In fact, yesterday's announcement was an instant catalyst, resulting in one of our top three best booking days of the year. Our top priority remains the health, safety and well-being of our guests, crew and communities we visit. And this commitment too is unwavering even as we are evolving our SailSAFE protocols to adapt to the changing public health environment. Across the globe, we continue to see the easing of travel restrictions and reopening of ports to cruise, bringing us closer to a normal operating environment. One significant example of this easing is the lifting in June of the onerous one-day testing requirement to enter the U.S. While the decision was too late to have a meaningful impact on ship sailing in a second, and to a lesser degree, third quarters of this year, the change resulted in an immediate and sustained boost in booking volumes for future periods in the weeks following the announcement. Second, and despite recession and economic slowdown fears abounding in the broad marketplace, we continue to see a strong upmarket consumer, with booking trends continuing to show steady improvement week-over-week, which I will touch on in more detail later in the call. But at a high level, to evaluate the extent and willingness of consumers to spend on cruise travel, we typically monitor two key indicators. First is the booking window, which provides a peek into the consumer psyche about the future, given that cruise is a long lead time and relatively high ticket purchase. To be clear, we have not seen any cracks emerge in the dynamics of the booking window. And it remains both within historical range and our own expectations. Second is our onboard revenue generation, which is a real-time now indicator of how our guests are feeling about their financial situation right now and while onboard our ships. Onboard revenue generation has continued to be impressive, even as we continue to ramp up occupancy carrying more guests across all ships and cabin classes. In the second quarter, onboard revenue per passenger cruise day was approximately 30% higher than during the comparable 2019 period. We continue to focus on enhancing our market-leading bundled offerings and increasing quality touch points with our guests starting from the time of booking to capture even more revenue pre-cruise, allowing guests to arrive on board with an ever fresher wallet, which ultimately results in higher overall spend. In fact, our pre-cruise revenue on a per passenger day basis for second quarter '22 is up over 50% versus 2019 levels. At a high level, guests who make pre-cruise purchases tend to spend approximately double that of guests who do not pre-book onboard activities. And while the broader economy has experienced a pullback in consumer spending for physical goods, we continue to see strong propensity for spending on travel and experiences, particularly from the affluent consumer. Hotel average daily rates and airline fares remain at or near record levels, with occupancies reaching pandemic peaks. Consumers want a vacation even during economic downturns. And we believe cruises are much better positioned than land-based alternatives to capture the strong demand given our unmatched value proposition. While consumer appetite for experiences bodes well for the entire cruise industry, we believe our company in particular is best positioned to outperform in this environment. Our three brands focus on providing upscale experiences relative to their respective industry categories, and therefore, skewed towards the higher-end consumer, which while not immune have proven more resilient than other cohorts in previous downturns. And all indications are that the intent to travel for this demographic has not abated. The last and arguably most exciting catalyst I want to touch on is our attractive pipeline of new builds, outlined on slide 5, which will greatly enhance our already world-class fleet and drive significant contributions to the top and bottom line. I just came back from Italy last week where we took delivery of Norwegian Prima, the first of six next-generation Norwegian Cruise Line ships, bringing our total fleet to 29 vessels with approximately 62,000 berths. We are excited to celebrate her christening ceremony later this month in Reykjavik, Iceland. And I encourage all of you to experience her firsthand as she is truly incredible. In fact, our shipbuilding partner, Fincantieri, have said Prima is the clients’ most demanding and most complex vessel they have ever built. The Prima class marks an evolution for Norwegian Cruise Line as every aspect of the design and guest experience has been elevated. Last week, we also celebrated the float out of Norwegian Viva, the second vessel in this groundbreaking new class, which is expected to debut in summer of 2023, as seen on slide 6. The Prima class will further differentiate Norwegian Cruise Line compared to our cruise peers and reinforce the positioning of our brands as the leaders in providing upscale experiences in each of the major cruise categories. In addition to the new Norwegian vessels, we are also gearing up for the delivery of Oceania Vista in spring of '23 and Regent Seven Seas Grandeur later that year. These new additions will further add to our dominance in the flourishing upper premium and luxury segments. I often get asked whether we are confident that we can profitably absorb the capacity growth we are expecting for the next few years. And the answer is a resounding yes. Given our relatively small base of only 29 ships, we still have many unserved and underserved markets around the world. We are continually innovating and enhancing our product offerings through our new builds and refurbishment upgrades to our existing fleet and making enhancements to our bundle offering to provide even more value and attract even more high-paying guests to our brands. I can't emphasize this enough. So, I will show you once again on slide 7 how we've proven our ability over the years to absorb capacity and deliver outsized revenue, adjusted EBITDA and operating cash flow contributions relative to our capacity growth, and we fully expect to continue this trend. Turning now to our booking, demand and pricing trends summarized on slide 8. We continue to see sequential improvement as we remain disciplined and focused on laying the foundation for a record 2023 and beyond. In the second quarter, our load factor was approximately 65%, in line with our expectations and a significant improvement versus the prior quarter of 48%. We expect load factors to increase to the low 80% range in the third quarter, with July already coming in at 85%. This steady sequential ramp is expected to continue until we reach historical 100%-plus levels beginning for the second quarter of 2023. In terms of pricing, as you can see on slide 9, our net per diem growth in the first half of 2022 over the first half of 2019 pricing was significant at 18%. These results are consistent with our strategy of holding firm on our go-to-market strategy, outlined on slide 10, of market-to-fill versus discount-to-fill and maintaining pricing integrity by emphasizing high value over low price. We absolutely believe this is the optimal path to continually deliver high-quality and sustainable profitability once we return to a fully normalized environment post pandemic. As expected, our second half 2022 book position remains below an extraordinarily strong 2019, driven primarily by the lasting impacts of Omicron and the Russia-Ukraine conflict. That said, pricing for the second half of 2022 continues to be higher when compared to 2019, even when taking into consideration the dilutive effect of future cruise credits and the impact of premium priced Baltic itineraries from the Ukraine conflict, which is primarily concentrated in the third quarter. As we move beyond this transition year and focus on 2023, our full year book position is in line with 2019's record performance. And our booking pace in recent weeks has reached the level needed to consistently sail full. Pricing is also significantly higher for 2023. And while we typically would not provide this level of detail, our performance in this area is so extraordinary that I just had to share it with you this one time. Pricing for 2023 is currently running in excess of 20% -- 20% above 2019's record pricing and is higher by double digits across all three brands. And while pricing will naturally tend to level off as we continue to build our book for 2023, it is nevertheless a testament that our steadfast strategy of focusing on long-term price increases over short-term load factors is indeed working as intended. Another onetime proof point that I will provide is ticket sales already on the books for 2023 sailings. When compared to the same time in 2018 for 2019 sailings and taking into account capacity growth of approximately 20%, 2023 sales are a whopping 40% higher. In addition, the quality and stickiness of our ticket sales for '23 sailings is also expected to improve, as a significantly higher proportion of bookings, 4 times the level seen in 2019, include air travel booked through our own air programs, which in the past has proven to be indeed stickier. Another positive indicator demonstrating strong consumer demand is our advance ticket sales build. As you can see on slide 11, our advance ticket sales balance stood at $2.5 billion as of the end of the second quarter, up over $300 million versus the prior quarter, despite approximately $1 billion of revenue recognized. This represents an all-time record high ATS balance for the Company. On a gross basis, advance ticket sales build increased by over 40% to $1.5 billion in the quarter, the highest level in three years. In addition, approximately $1.5 billion of the total ATS balance at quarter-end is associated with bookings that are already within the final payment window, and therefore, subject to cancellation penalties. The bottom line is that our entire team is more energized now than ever before. We are striving to reach our goal of record net yields and record adjusted EBITDA in 2023, welcoming 8 additional ships to our fleet through 2027 after Prima this year and leveraging all opportunities to maximize value for our stakeholders. This will not be an easy feat, especially as we continue to navigate an uncertain macroeconomic, but an increasingly encouraging public health and regulatory environment. We are prepared for all scenarios. And I'm confident that we are taking the right steps today to set us up for future success. I'll be back with closing comments a little later. But for now, I'll turn the call over to Mark for his commentary on our financial position. Mark?

Frank Del Rio:

Thank you, Mark. And before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which slide 18 outlines key accomplishments and milestones. Since we last spoke, we published our second annual comprehensive ESG report and SASB aligned disclosure on World Oceans Day in June. The report highlights our progress and commitments on our top ESG priorities. As we strive to provide critical transparency to our stakeholders this year, we focused on expanding and improving the data disclosed in our report, including expanding Scope 3 greenhouse gas emissions reporting, providing climate risk and resiliency data through our TCFD assessment, and strengthening human capital disclosure, including with data related to diversity as well as training and development. We also increased the scope of our third-party assurance to include many of these new data points. Earlier this year, we also announced that we are pursuing net zero greenhouse gas emissions by 2050. This ambition spans our entire operation and value chain as we aim to bring all of our key partners along with us on this important journey. As we have said previously, a key driver to achieve our net zero ambition is the development of alternative fuels along with the associated critical infrastructure at destinations globally to support the creation, distribution, storage and usage of these fuels. Methanol is one of the fuels we are actively exploring. And we recently joined the Methanol Institute to collaborate, share and adapt solutions alongside the institute's members of methanol producers, distributors and technology providers. We will continue to evaluate a variety of alternative fuels and share learnings with other companies as we collectively try to find a viable long-term solution. And before I turn the call over to Q&A, I'd like to leave you with some key takeaways that you can find on slide 19. First, we continue to execute on our return-to-service plan and are achieving key milestones as a return-to-normalcy. The improving public health and regulatory environment, including our recent relaxation of testing and vaccination protocols, are a tailwind. And our entire team is focused on setting the stage for long-term sustainable profitability in '23 and beyond. Second, we are seeing a strong consumer with a healthy desire to spend on travel and experiences, particularly in the upscale demographics our brands target. This strength is demonstrated by our improving booking trends, robust pricing and strong onboard revenue generation. Lastly, we are excited for the transformational and highly profitable growth we have in store over the next five years as we welcome eight additional ships to our fleet after Norwegian Prima. We've covered a lot today, so I'll conclude our commentary here and open up the call for your questions. Operator?

Dan Politzer:

So, you guys certainly had some positive commentary on 2023. I think, Frank, you gave the first time -- the sales are pacing 40% higher than this time historically. I'm just trying to bridge to 2023 EBITDA, which you said is going to be a record. Does that assume pricing is going to continue to accelerate, or is that more of a function of cruise costs moderating from that second half pace which you guys have set?

Mark Kempa:

And Dan, just to highlight, further to what Frank's saying, it's not only the top line growth and the profitability of the new ships we have coming on line. We are focused on costs. Obviously, 2022 has been a very lumpy year. It will continue to be a bit lumpy for the second half given where our load factors are expected to be. You have to remember that a lot of our costs are fixed in nature. So when you look at it on a unit basis, yes, they are a little bit higher in the second half in -- for 2022. But again, we expect normalization of that as we go into 2023. And we've stated very clearly, we are spending dollars on demand-generating initiatives, i.e., marketing, building a very strong 2023 book across the board. So we're making the investment today. We're not chasing the incremental load factor for next quarter. We are focused on a very profitable, high-yielding, lower cost 2023, which we believe will result in a record EBITDA year next year.

Frank Del Rio:

Yes. Look, Alaska is very, very strong. Our Caribbean product is also selling well. We took a large vessel out of the Baltic very last minute reposition to Port Everglades, which she's doing very, very well. Bermuda is doing great. Europe isn't doing all that back considering what's going on over there with the Ukraine conflict. We are leaning more on European stores business, which typically underperforms in terms of both ticket price and onboard revenue. And still, overall, our yields are better in Q3. So, I think we're going through, like Mark mentioned, some lumpiness. We've had protocol situations that are improving. The elimination of the testing requirement to get back into the country was huge. Americans simply didn't want to take the chance to be stuck in Europe should they contact COVID. That's had an impact over the short, medium term. Remember, one of the wonderful things about the cruise industry is you have great visibility because of the booking curve, people book way in advance. So, when these things occur, it impact the short term, which is why we simply don't want to chase short-term occupancy at the expense of long-term pricing. Pricing has a long tail. The occupancy, the load factor of any given sailing, once it's -- that sailing is finished, it's finished. It has no impact on the long run or no cumulative impact. But pricing does. So for us, it's incredibly important, especially since we target that high-quality, high-paying consumer to maintain pricing discipline, as you can see, across the board to be up in pricing, 20% for 2023 is truly extraordinary.

Brandt Montour:

So maybe just on the back of that, and apologies for the -- to the near-term question. I feel like I'm splitting hairs a little bit here. But when I look in your deck now versus last quarter, it looks like the back half in terms of when you sort of were looking for positive adjusted EBITDA may have down shifted a little bit. And I think maybe you just covered it, Frank, in talking about not giving up occupancy for price. But I want to know if there was anything else in there that you just weren't really expecting three months ago that maybe impacted that. .

Brandt Montour:

Thanks for that, Frank. We don't like instant mashed potatoes either. And maybe just a quick modeling question on -- from -- in terms of gross revenue, you gave us a little bit of guidance for the 3Q. And I was just curious if you could just walk us through that to sort of net revenue per PCD. And the only reason I bring that up is because it looks like the commission and transportation line in the 2Q was a little bit elevated. I don't know if that was a higher flight costs that you guys are passing through or whatnot. But maybe you can unpack that a little bit for us.

Operator:

Our next question is coming from the line of Steve Wieczynski with Stifel.

Frank Del Rio:

Good morning, Steve, there was a lot there in your question, so I'll try to remember it all and remind me if I miss something. You can't be ahead significantly forever, because at some point, the time lines converge. So, we're very, very pleased where we are today for 2023 in terms of cumulative book position. As the calendar goes forward and we get closer to '23, I would expect us to stay more or less where we are today. Because if you recall, back in 2018, I think it was this very call in early August, where I said we had now reached the optimal balance between advanced bookings and pricing. If you book too fast, you leave money on the table. If you book too slow, you'll pay the price later by having to discount to fill, and we don't want to go there. So, we're very happy with the pace that we're at. We don't want to accelerate it much more than we have. We're instead focusing on price. We think that the tailwinds that I described so far this morning is going to help. But we don't want to be ahead any more than we are today because we had reached that point in '18 where we thought we were optimum, and we want to maintain it. It all had to do with the booking curve and different itineraries. So, I'm pleased where we are today. Not looking to push load factors, to accelerate load factors, although, again, I do believe that two or three tailwinds that we discussed this morning are going to have a natural tailwind to bookings. Did I miss one of your questions, Steve?

Mark Kempa:

Hi, Steve. Yes. So look, based on everything we see today, and I'll repeat it again, we believe we can meet all of our liquidity needs organically. What you've seen from some of the competitors and more recently was really around refinancings of more near-term maturities. And specifically, what I called out in my prepared remarks is that was something we were focused on over the course of the pandemic. So, as you look at our maturity power and if you put aside the -- our normal operating facilities, our revolver and our term loan A, which we plan to amend and extend by the end of this year, we have a very clean path during our recovery. So, with that, we still have debt capacity should we need to go to the markets. We have no plans on raising liquidity via equity. We've said that before. We've diluted our shareholders enough through this pandemic. So, we feel good where we are, and we'll continue to watch that. But more importantly, we have a relatively clean path going forward. So, we feel good today.

Patrick Scholes:

With your pricing strategy, and I completely understand the rationale for that, but I wonder how much does the current staffing market play into perhaps giving up some occupancy but holding pricing. And I relate this to some news that just came out with Diamond Princess canceling some itineraries due to not enough staffing. So again, how much does possible issues with staffing play into the strategy? And also maybe just some -- if you could give us just an update on the general staffing environment for you folks?

Operator:

Our next questions come from the line of Vince Ciepiel with Cleveland Research.

Mark Kempa:

Good morning, Vince. So, the short answer to your question is no. While we are seeing some near-term headwinds with the cost pressures like every other business is seeing, longer term, we still believe that we have a very strong operating leverage. And the simplest example of that is it's almost a 2 for 1 relationship. Every point of yield is generally 2 times the point of cost in terms of monetary value. So, we still believe that to be intact as we look out into 2023. Obviously, it's very early to give any sort of concrete guidance around that. But apart from taking -- when we look at 2022, and internally, we try to normalize what the cost structure is, you have to remember that we have the full burden of cost today, yet we don't have the full complement of passengers on board. We're doing that purposely. So when you look at the metrics, like I said earlier, it's lumpy. But, as you look into '23 and then beyond, that operating leverage is fully intact, setting aside fuel, which we think we've mitigated reasonably with our hedge program. But we think there's a very, very real near-term path to getting back to historical margins. We just have to be able to operate consistently, operate our vessels at historical load factors, which we said we expect to be doing for second quarter of 2023. And I think you're going to start to see the normalcy appear very quickly.

Frank Del Rio:

There's a lot there as well, Vince. Look, historically, the booking curve at the age level, knowing that each brand has a slightly different nuances, it's about 7 months. And today, it's slightly more elongated than that, I would say, closer to 9 months, primarily because of our focus on 2023 bookings versus 2022. If you gave me a choice of selling a cabin or a booking for a '22 departure versus a '23 departure, I'll take a '23 departure. So, our marketing is all geared towards 2023. We'll take '22 bookings, of course. But we're not pushing it. And certainly, we're not discounting to attract that kind of business. We believe investors are focused on '23 and beyond and not necessarily '22. So for us, '22 is a transition year. We're very pleased that we got the entire fleet operating. We're very pleased we took delivery of Prima. We're very pleased that we've now turned cash positive. But in terms of pedal to the metal focus, getting back to normal on margin, on yields, on EBITDA, on profitability, it's all about 2023 and beyond.

Robin Farley:

Most of my questions have been addressed already. Just one on -- so much of your maturities in the next 18 months look like they're ECA-related. And I wonder if you could talk about the potential there for those to be extended or pushed back in some way without you having to go to the capital markets and borrow for that. Thanks.

Robin Farley:

Okay. No. Great. That's helpful. Thank you. And then just one clarification as a follow-up. You talked about onboard revenue being 30% higher, I think, it was compared to Q2 '19, which is a remarkable increase. Can you talk about how that's bundling? Do you have a higher percent of bundling in than you did in Q2, or kind of what adjustment is in there for the fact that -- some of that, I guess, is like in ticket price that you kind of allocate to onboard revenue for accounting purposes versus -- or is that 30% increase just purely what is spent once people get on board? Thanks.

Operator:

Our next question comes from the line of Jamie Katz with Morningstar.

Frank Del Rio:

Yes. We're not going to share with you our marketing plans for wave. I do believe that this coming Q1 will be the first true wave since 2020, which was cut short by the beginning of the pandemic. In terms of sourcing, look, we prefer an American consumer onboard all our vessels regardless of where the itinerary is operating. Americans book earlier, book a higher cabin category, and as Mark mentioned, spend more money on board. And that is still our basic go-to-market strategy. But for European sailings, partly because of the hesitancy by many Americans to travel to Europe until the mandate to test negative to come back to the U.S. is lifted, we leaned a little heavier on our European sourcing. Our European sales and marketing team did a fantastic job of accelerating demand from European marketplaces. But pricing suffered a bit. And in spite of that overall pricing suffering a bit, we still posted higher pricing in Q2, expect higher pricing in Q3 going forward. So, I think overall, the European consumer has improved a bit or we've done a better job of sourcing those high-quality consumers out of Europe like we do in the States. But make no mistake, we rely on the American consumer perhaps more so than others, because at the end of the day, we think they're the most resilient, certainly the wealthiest, understand our product best, and we'll continue to do that.

Frank Del Rio:

Okay. Well, as always, thank you so much for your time this morning and for your support. The entire team here at Norwegian Cruise Line Holdings will be available today to answer any of your questions. Have a great day, and stay safe, everyone.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and First Quarter 2022 Earnings Conference Call. My name is Rob and I'll be your operator. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. . I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed.

Frank Del Rio:

Thank you, Jessica and good morning everyone and thank you for joining us today. In the last few days, our company marked a significant milestone if not the most significant milestone thus far in our great come cruise back. This past Saturday Norwegian Spirit welcomed guests for the first time since our fleet wide pause in operations Back in March of 2020. And in doing so, she became the final ship in our 28 ship fleet to return to service making Norwegian Cruise Line Holdings the first major cruise operator to have all its ships operating again. The last two years and certainly the last few months have been challenging to say the least. But with each new challenge that arose to further complicate an already colossal undertaking, the team at Norwegian stepped up to the plate time and again to demonstrate our extraordinary resilience, dedication and passion. So I want to thank each and every team member across our organization from shipboard to shore side for all their efforts to reach this point in our Great Cruise Comeback and position our company to thrive in the years to come. Even more impressive was our team's ability to drive some of the high guest satisfaction scores ever, ticket revenue and onboard spend in our history, and this trend has persisted, even as we ramp up occupancy having more guests across all brands, all Itinerary and in all cabin classes. We have reached this milestone with a clear, consistent and focused strategy throughout our relaunch. And showing that we do not prioritize short-term gains at the expense of jeopardizing our long-term brand equity and industry leading pricing in the process. First, we have prioritized the health, safety and well-being of our guests, crew and the communities we visit above all else, doing everything possible to create a safe and healthy experience for all stakeholders. Since launching our Great Cruise Comeback, we have carried over 500,000 guests, and we continue to experience significantly lower COVID incident rate aboard our ships, as compared to the population at large, indicating that our health and safety protocols are indeed working as designed. Second and throughout the pandemic, we provided steadfast support both to our guests and travel partners focusing on doing the right thing and demonstrating our willingness to go to great lengths to support them. And I don't think this commitment has gone unnoticed. I firmly believe that as we exit the pandemic, our three brands will be in better standing than ever before with these key partners, the travel public at large and with our key past guests. And lastly we have stood firm on our go-to-market strategy of marketing to fill and maintaining price integrity by emphasizing value over price. You have heard me say time and time again that we will not sacrifice our industry-leading pricing to temporarily bolster our load factors and I continue to stand behind that philosophy. Pricing will be the primary driver to net yield growth, as we exit the pandemic and return to a normalized booking performance, this outperformance will be key. And given that consistent net yield growth is the single most important factor in maximizing high quality and sustainable profitability, this is an area where we will not compromise our efforts. So while our first quarter load factor was somewhat tempered, our net per diem growth over first quarter of 2019 record pricing was, as shown on Slide 5, significant, a trade-off and an outcome that is much more meaningful for the company's long-term success. Now, you don't have to take my word for it, our pre-pandemic track record of stellar net yield outperformance year-after-year speaks for itself. As you can see on Slide 6 in 2019, our net yields were better than our peers by somewhere between 20% to 40%. This historical outperformance coupled with the strong pricing we are experiencing for all future periods are evidence that our strategy is a superior one and the best way to protect our brand equity, while driving long-term shareholder value. Taking a step back to survey the broader landscape, today we find ourselves in a much more favorable public health regulatory and demand environment than when we last spoke a little over two months ago. We have witnessed a continued relaxation of COVID-related protocols across the globe from air travel to concert and other indoor activities and this time around the cruise industry is an active participant. First, we are pleased that in late March, the CDC entirely removed its travel Health notices for cruise, representing a significant step towards leveling the playing field between cruise and our land-based counterparts. In addition the CDC continues to modify elements of its voluntary framework for cruise, relaxing certain requirements, the most recent of which includes reducing required vaccination threshold from 95% to 90%, which further opens up the important family market to cruising. Second, as I mentioned earlier, we have seen an acceleration in the reopening of society to pre-pandemic normalcy, which bodes well for travel and leisure sector overall. More ports around the world have opened to cruise and we have seen travel restrictions relapse in many areas. And while there are still regions where discussions to reopen to Cruise are ongoing, particularly certain countries in Asia, the good news is that we do not have ship sailing in those regions, until the fourth quarter, giving us additional time to monitor the situation, plan for various outcomes and be ready to adapt as needed. And lastly, we are seeing an explosive showing by consumers, particularly American consumers. Consumer spend is strong, snapping back and even exceeding where we left off in 2019. Gone are the days where the family budget was going to anti-bacterial wipes, hand sanitizer, delivery app, and streaming services. Consumers today are spending to catch up on over two years of missed experiences. One example of this that we see every day is hotel ADRs and airlines fares, which are at or near record levels. And now with our full fleet back up and running and our industry's overwhelming advantage in its value proposition over land-based options, we along with the entire cruise industry are well-positioned to capitalize on this pent-up demand. While the public health environment improved over the course of the quarter, the start of the Russia Ukraine conflict did cause additional disruptions across the world and to our business and you can see on Slide 7. First and foremost, we continue to hope for a peaceful resolution, which minimizes further impact for those in the region. Our motto is family first, and as such, we have focused on assisting our impacted shipboard and shore side team members as best we can. We have activated our crew relief fund and are providing logistical, communication and mental health support to affected team members. In addition, we also provided a sizable donations to Save the Children of Ukraine crisis relief fund and invited partners, including guests travel partners and team members to contribute as well. Prior to the conflict approximately 10% of our annual capacity across our three brands was scheduled to sail in the Baltic region with approximately 5% calling on Saint Petersburg, Russia. We subsequently canceled or modified approximately 60 sailings which included all calls to ports in Russia for 2022. And in a move that demonstrates, one of the unique strength of our industry, we quickly redeployed three ships scheduled to operate in the region to sail alternate itinerary. Oceania Marina, Regent Seven Seas Mariner will remain in Europe sailing British Isles and Northern European itineraries respectively. Meanwhile, Norwegian Getaway was redeployed to Port Canaveral to take advantage of pent-up close-in domestic demand which despite the condensed booking window has already meaningfully exceeded our occupancy expectations. And in a preemptive measure our three brands will pause all calls to Russia from the 2023 and 2024 itineraries. While this is not an ideal scenario, we are once again demonstrating our ability to pivot as needed in response to exogenous events. Now turning to Slide 8, we shift today's discussions to our broader booking and demand trends. Overall, we continue to experience sequentially improving underlying demand and robust pricing for all future periods. The Omicron surge in December and January did indeed impact net booking momentum with the vast majority of cancellations concentrated for close-in sailings. The tide began to turn in mid-January when net booking volumes began to show week-over-week improvement. As booking regained momentum, we experienced another temporary setback with the emergence of the Russian Ukraine conflict. This impact was also short-lift and was mainly concentrated in the Baltic region with some leakage to surrounding Mediterranean sailing, with cancellations returning to pre-conflict levels by the end of the first quarter. Overall net booking volumes have continued to improve sequentially, returning to and recently surpassing pre-Omicron level and currently at levels approaching that pace needed to consistently sail at historical pre-pandemic load factors. As a result of the impact from Omicron and the Russia Ukraine conflict, second half 2022 book position is now below an extraordinarily strong 2019. As we look further out in the year, the picture improves sequentially with book position in the fourth quarter remaining in line with 2019. More importantly cumulative full year 2023 book position is ahead of 2019 and ahead of pre-pandemic 2020 at a comparable point in the booking curve. On the all-important pricing front, as mentioned earlier, our go-to-market strategy of marketing to fill, versus discounting to fill and emphasizing value over price is paying off in droves, with pricing meaningfully higher for all future periods when compared to the comparable pre-pandemic periods. This holds true even when including the dilutive impact of future cruise credits in 2022, which as a reminder will no longer be a headwind in 2023 as FCCs must be applied to sailings through year-end 2022. As the booking environment improves, we will continue our strategic marketing effort in order to further stoke demand to obtain quality, high price, and high value bookings. With each month that goes by our recovery trajectory becomes a little clear. 2022 is no doubt a transition year. But as I look towards 2023, I'm excited by the full potential that future holds. We are still operating in an uncertain environment and if we've learned anything in today's return to normalcy will certainly not happen overnight and possibly not without additional bumps in the road. But with each passing day I'm increasingly confident that we are reaching the milestones needed to propel us forward in this recovery. We are doing everything in our control to position us for sustained long-term success and we are laying the foundation needed to set the company up for an extremely strong year in 2023 and beyond. But where we sit today, and without another Black Swan event derailing our plans there is a reasonable and clear path to reach record net yields and record adjusted EBITDA levels in 2023. Boosted by the introduction of four new ships across our three brands over the next 18 months, our goal, our entire team is focused on achieving. As just mentioned, the key components of the future success will be our industry leading growth profile with nine new ships coming online across our three brands through 2027. The first of these ships Norwegian Prima will join our fleet in just a few short months as you can see on Slide 9. After her record sales debut in May of 2021, her booking volumes continued to be stellar and her pricing significantly outpacing our past new ship launches. In March, we announced that pop icon, Katy Perry will serve as the godmother to Prima and will be the headline entertainer at her christening ceremony in Reykjavik, Iceland. This announcement garnered significant media coverage further building on the excitement surrounding Prima and allowing us to reach a new to cruise audience. As we look to next year 2023 will be the first year that each of our brands will be welcoming new capacity, the additions of Norwegian Viva, Oceania Cruises Vista and Regent Seven Seas Grandeur to our fleet. These new hardware introductions are meaningful driver not only in net yield growth and overall profitability but also in attracting new guests to our brands and reigniting loyal past guests to enjoy new and elevated experiences. They also have historically had a significant a halo effect in the rest of our fleet. Needless to say I'm ready and eager to begin welcoming these additional premium capacity to our fleet, which we expect will be meaningful contributors to our top and bottom line financial results. I'll be back with closing comments a little later, but for now, I'll turn the call over to Mark Kempa for his commentary on our financial positions. Mark?

Frank Del Rio:

Thank you very much, Mark. Before we wrap up our prepared remarks this morning, I'd like to provide an update on our global sustainability program, Sail & Sustain. And as Slide 17 outlines key accomplishments and milestones. We have made several significant advances since our last earnings call. First, we announced last month that we are pursuing net zero greenhouse gas emissions by 2050s. This ambition spans our entire operation and value chain as we aim to bring all of our key partners along with us on this important journey. To support our path to net zero we have also committed to develop short and near term greenhouse gas reduction targets. These new commitments broaden and strengthen our existing and continually evolving climate action strategy, which is centered around three key focus areas. First, reducing our carbon intensity. Second, investing in technology and exploring alternative fuels. And third, implementing a carbon offset program. We will continue to monitor investing opportunities to reduce emissions including and beyond our fleet, working closely with our vendor partners to accelerate decarbonization efforts. A key driver to achieve our net zero ambition is the development of alternative fuels along with the associated critical infrastructure at destinations globally to support the usage of these fields and to accelerate the use of shore power while in ports. We will continue to partner and research to identify appropriate alternative fuel sources that can also be sufficiently scaled. For example, we are currently actively engaging with partners, including shipyards, engine manufacturers and classification society in exploring paths for the development of additional technology including potential Hybrid Engine solutions and safe and effective methanol engine retrofits. Second, last month, we published our first task force on climate related financial disclosures or TCFD Report. As part of this process, we engaged teams across the organization to conduct an extensive climate risk screening, identifying priority climate related risks, followed by a scenario analysis on our top risks under different hypotheticals climate scenarios. We are focused on improving resiliency and the result of this assessment will assist us in further integrating climate related risks into our long-term strategy and decision-making processes. Lastly, I'm pleased to report that I signed the CEO Action Pledge for Diversity Inclusion in March, further expanding our commitment to fostering an inclusive workforce where diverse backgrounds are represented, engaged and empowered to generate and execute on innovative ideas. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 18. First, we are incredibly be pleased to have our full fleet back in operation, so we can now singularly focus on ramping up occupancies in a disciplined and brand accretive manner with the goal of reaching record net yields and record adjusted EBITDA for full year 2023. The public health and regulatory environment has improved and I am encouraged by the current trajectory and the overall progress we have made as a society in learning how to adapt and live with the virus, allowing us to accelerate our return to normalcy. Second, we are encouraged by the improving booking trends and robust pricing we are experiencing, which lay a strong foundation for second half of '22 and 2023. We will lean our fundamental go-to-market strategy of market to fill in order to set the stage now for a high-quality sustainable long-term profitability and free cash flow generation. And lastly, we will continue to execute on our medium and long-term recovery plan and to capitalize on our attractive growth profile over the coming years. As you can see, we've covered a lot today. So I'll conclude our commentary here and open up the call all your question. Rob, please open up the line.

Steve Wieczynski:

Yeah, hey guys, good morning. So Frank and Mark, want to ask about your ability to take price moving forward. One of the questions we get a lot from investors is the long-term pricing power of your company and the industry in general. And you guys obviously have remained underpriced relative to a lot of other vacation alternatives. And the fear is with disruptions like you're seeing with Russia, Ukraine having to redeploy those assets elsewhere, coupled with a decent amount of new supply those types of factors might keep your pricing ability more in check. So just trying to understand how you how you think about price ability or price action ability and how you going to combat those fears that are out there?

Mark Kempa:

And Steve, to add to what Frank is saying, we can't overlook as we talk about the value proposition of Cruise. We've always said that Cruise is underpriced versus our true competitors, which are land-based vacations. And as you've seen consumers more and more willing to pay higher pricing for land based alternatives, that is additional demand and additional pricing that we can go after. And we expect to go after. We'll continue to chase that and that's an opportunity for the industry as a whole. If you look, go back and look at 2008 and 2009, what happened in pricing after the last recession, pricing rebounded quickly and I think we were the first in the industry. A couple of our brands never lost pricing power and our largest brand at the time was the first to rebound. So we're set up well. We think there is continued opportunity down the line. Consumers are willing to pay for value and cruise offers a compelling value.

Mark Kempa:

Steve, I'll take that. So, first and foremost, let's remember we have a few inflection points that we just hit as a company. Our positive cash flow from operations turned in March. We expect that to continue in the second quarter and throughout the rest of the year. As I showed in our slide, we expect free cash flow to turn positive in the fourth quarter. So all that plays in well, when we look at our liquidity position. We turned the quarter with around $3.1 billion. And as I talked about not only turning the corner on cash flow, but our advanced ticket sales engine is roaring. And so when you look at that and are we're pretty confident in our ability to fund our operations organically. When you look at the bigger picture against the economic backdrop, of whether it's inflation or recession talk, as you think about the cruise industry and our company as a whole, against an inflationary backdrop, we're relatively better positioned than many of our land-based competitors due to the fixed-cost nature of our business. So that gives us an advantage. And again I'll go back to what I said in the beginning of your question that combined with the value proposition of cruise, consumers look for that. So we feel like we're in a great position going forward.

Operator:

Our next question is from the line of Vince Ciepiel with Cleveland Research. Please proceed with your question.

Frank Del Rio:

Yeah, good morning, Vince, it's Frank. Look, it all starts with record pricing. Today, we said that our 2023 book position meaningfully ahead of what we were last year. Pricing meaningfully ahead of where we are last year. We can hold meaning no more Black Swan events. We think that there will be margin expansion led not only by the pricing we're seeing. But by the introduction of four new ships. We were in a way lucky that we didn't take delivery of any new ships during the pandemic, but over the next 18 months, we take delivery of four. And so we think like we've seen historically, new ship introductions are real tailwind to net yield growth to profitability, the topline revenue. Inflation is an ugly word, but there is a pretty side, which is pricing power. And you've heard Mark's statements this morning along with mine, that we do have pricing power, not only in absolute terms but in relative terms compared to land-based resorts and other vacation options. So we think that in the absence of more Black Swan events, and we've had more Black Swan events in the last two years, than I think we've had in the prior 20. 2023, indeed, it could be the record year that we're seeing unfolding before us.

Steve Wieczynski:

That's helpful. And curious I wanted to dig into the customer mix a little bit. I think there was a comment in the slide deck about loyalty guests driving a good portion of occupancy, but curious how do you have seen new cruise bookings transition in the last 60 days and if there's been any catch-up there?

Steve Wieczynski:

Great, thank you.

Stephen Grambling:

Hi, thanks. Outside of the start-up costs, is there any way you can frame the impact of COVID related costs this year to sustain, whether it's social distancing testing, et cetera, and what you would look for to start easing some of these maybe as we get out to 2023?

Stephen Grambling:

And then maybe to harp on your answer to the questions on record net yields. I think some of the skeptics have been concerned that this bullish outlook six months out has been kind of success successively always six months out each quarter for about a year. So I guess what do you feel has changed this quarter to give greater confidence in those trends finally materializing.

Mark Kempa:

But let's balance that Steve with the fact that we did turn cash flow positive in March. We are confident we are going to be cash flow positive in the second quarter. It's been over 2.5 years as a company since we've been able to say that, and that's going to translate into EBITDA and then ultimately profitability. So the tide is turning and the future looks bright. So those are key milestones that we should not discount. I want to highlight that pretty strongly today.

Frank Del Rio:

Well, I think, I think we in our commentary, I talked about that and we are seeing close in demand, which is good. And it's close and demand that's showing that consumers have confidence, they are booking within the cancellation period. We had not seen that during the pandemic. So we've been seeing that over the last few months, which is a good sign. We're still seeing strong demand for the longer term as well, but again that's a sign of confidence that consumers are willing to go and they're confident that the voyage is going to sail and there's proper protocols in place. So it's actually a very good sign in relation to where -- as we exit the pandemic.

Operator:

Our next question comes from the line of Patrick Scholes with Truist Securities.

Frank Del Rio:

No. Patrick, that's not correct. We have -- we had reduced from 100% to 95% when the CDC allowed it, and now we are at least for the Oceania -- at least our Norwegian brand, which is the family brand in our company, we're going to be allowing 90% of the folks to be vaccinated, 10% not. That opens up the family market in a big way, just in time for the summer season.

Frank Del Rio:

Thanks.

Robin Farley:

Great, thanks. A bunch of my questions have already been answered. I guess one thing, you were talking about the second half, the strength in bookings meaningfully ahead. I think you mentioned that still includes itineraries going to Asia. And just wondering how -- sort of based on how things are now if it continued and those markets didn't open up to cruising. When would you make those changes? Just thinking about sort of when your bookings maybe sort of past the point of having any more disruptions for the year? How far in advance, anything Q4 going to Asia, would you make those changes? Thanks.

Robin Farley:

Okay, that's great. Thank you. And maybe just a last follow-up, just going back to the close in booking question. I don't know if there's anything that you can share that you can kind of quantify with the close in, in another words like what percent of bookings are for departures in the next six weeks or anything like that. Just to see that, because it seems like that's the piece right that -- obviously that with the disruptions earlier this year, all the cruise lines have got lost a little bit of ground in terms of the recovery. And is there a way to quantify anything with a close in bookings, because that's sort of you -- as we head into the peak summer season, way to think about what strength may not be showing up in your numbers yet, but is there?

Robin Farley:

Okay, that's great. Thanks very much.

Dan Politzer:

Hey, good morning everyone and thanks for taking my questions. You guys have typically have higher pricing than peers and certainly that's the case today. I mean to what extent do you think that your pricing power right now is a reflection of maybe a skew to the higher end consumer and what have you seen kind of across your database and the different brands, in terms of booking and pricing strength?

Dan Politzer:

Got it. And then in terms of just markets. I mean is it safe to assume it's your North American markets that are really driving that pricing power, or are you seeing any stabilization for outbound in Europe?

Operator:

Thank you. That question will come from the line of James Hardiman with Citi.

Frank Del Rio:

Yes, Sean. So look, we continue to see strength in both ticket and onboard revenue. As we've talked about in our last few calls, the strength of the consumer is resonating well on the ships. Obviously if you look at our financials and realize we do have our bundling strategy which sort of it somewhat artificially inflates our onboard revenue by a couple of percentage point, nothing major. So even if you isolate that out, the onboard revenue performance is just strong. But more importantly, it starts with the ticket. It starts with getting that right customer that high quality customer booking far out in advance. Those are the customers we target. We get a -- we offer them a significant value, and that in turn they spend on board. So it's coming across in all areas. And that's what we're glad to see that. That's what we want to see. That's what we're targeting. That's what's behind our go-to-market strategy. So it's not just one or the other, it's a combined effort.

Frank Del Rio:

I think it's going to be in early -- in the first half of 2023, like we said, we continue to build. Q2, we expect is going to be in the 65% range. Obviously when you look at the third and fourth quarter that's going to continue to build. But we're going to maintain our price discipline, our pricing integrity. We are not going to chase short term load and damage the brand for the long term, we do not believe that's not our strategy, and that is not the right strategy for our company. So we will maintain that price discipline. We expect over the first half of 2023, we're going to be back at those 105, 110 load factors that we're used to seeing, but more importantly at high pricing.

Jessica John:

Before we go we'd like to remind everyone that our Annual General Meeting is coming up on June 16th. This year we have a number of very important proposals on the ballot. We are extremely appreciative of the support we received from our shareholders during this extraordinary time, and we are asking for our shareholder's continued support. On behalf of every shareholder account that votes we will make a $1 charitable donation to American Cancer Society, up to $100,000. Please vote and support our Board's recommendations for our Annual General Meeting proposals, so that we can continue to deliver on our mission to provide exceptional vacation experiences delivered by passionate team members committed to world class hospitality and innovation. Thanks everyone for your time and support. As always, we will be available to answer your questions. Have a great day.

Operator:

Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Fourth Quarter Full Year 2021 Earnings Conference Call. My name is Maria, and I'll be the operator today. . I would now like to turn the conference over to your host, Mark Kempa. Mr. Kempa, please proceed.

Frank Del Rio:

Thank you, Mark, and good morning, everyone, and thank you for joining us today. And as always, I hope that all of you as well as your loved ones remain healthy and safe. Before going into my main commentary, I'd like to address the recent geopolitical issue, which escalated last night. The tense situation in Ukraine is regrettable. And our hopes are that the conflict ends quickly with minimal impact to the safety and welfare of those in the region. We are following the situation carefully as it impacts our voyages in the area. We have no vessels in the region until late May. And we will be updating guests on our plans and about affected itineraries as needed. We have quite a bit to share with you today, ranging from our resumption of operations to the impacts of the Omicron surge to recent developments with the CDC. We'll also cover the booking and pricing landscape in our plans for the return to service of the balance of our fleet. So let's get started. It seems like just yesterday that we launched our Great Cruise Comeback in late July of '21 after 500 days of no cruise operations. In the 5 months that followed through the end of 2021, we safely carried over 230,000 happy guests around the globe, everywhere from Europe to Alaska and points in between, delivering the unique and upscale vacation experiences that only our three award-winning brands can provide. This is evidenced by our brands having achieved the highest customer satisfaction scores in our history and a reflection of the deep commitment from our crew members, who are as energized as ever to be back in the high seas serving our guests. In addition, onboard spend by guests during the quarter continued to exceed all expectations and reached all-time highs. And we delivered these unparalleled vacation experiences in the safest manner possible with protocols that are unmatched by any other area of the hospitality sector. I'll repeat once again that our #1 priority is and always will be the health and safety of our guests, crew and the communities we serve. And that commitment has never been more evident than in a month since our return to service. With over 230,000 guests sailing on our vessels in 2021, our COVID positivity rate was miniscule and certainly a fraction of what has been the case in the population at large. Our science-backed protocols, centered on vaccination and preboarding testing, provide a safe vacation experience that is not duplicated anywhere in the world. Today, and because of the rapid decrease in prevalence and in severity, the prospective view of the pandemic is rapidly changing across the globe. Municipalities, cities, states, countries, schools, institutions of all kinds and private businesses alike are all moderating protocols as the public health environment improves. In the past, protocols were usually pared back slowly and only when cases had receded. But we have seen many instances, Denmark and Iceland being one of the best and most recent examples, where protocols and restrictions have been moderated despite high or even increasing caseloads. This latest normal now takes into account the diminished severity of the virus and balances the extent of necessary protocols with the need to resume daily life. The confidence for society to take these actions is mainly due to the availability and widespread uptake of vaccines, new therapeutics and broad immunity. And an NCL cruise ship is one of the few places in the world where you can be assured that at least 95% of the people around you are fully vaccinated. And we're pleased to report that the rapidly improving public health environment has allowed us also to follow the easing of COVID-related protocols occurring in broader society. You can see on the return-to-service plan on Slide 4, a new phase, returning to normal, that reflects those changes and advances. Our brands recently announced that effective March 1, masking for guests across our fleet will be optional while taking into account local guidelines, if any. Also, beginning March 1 and in conjunction with the new CDC guidelines, which I'll discuss in a moment, the Norwegian brand will begin allowing all guests under the age of 12 to sail on an ship fleet-wide. These two steps greatly expand the addressable market for our largest and most family-oriented brand by allowing families to travel together regardless of age and without the mandate of wearing a mask. This announcement was scheduled to provide plenty of time and opportunity for families to plan their summer vacations with us. And all this comes at a time when last week, we had the lowest number of positive pre-embarkation cases per 1,000 guests by far since launching service last July during the Delta surge. Recently, we were happy to see significant regulatory progress being made as we received clarification from the CDC on updated protocols for sailing originating from the U.S. ports. Back in January, our three brands were the first in the industry to opt into the CDC's voluntary COVID-19 program for cruise ships operating in U.S. waters. When our brands first opted in, the program had not yet been finalized. However, last week, as protocols to the program were confirmed, our brands reaffirmed their commitment made in March and mid-January of opting into the program, demonstrating once again our industry-leading and unwavering dedication to health and safety with protocols that appropriately reflects the public health environment. The program our brands have opted into calls for at least 95% of vaccine-eligible guests and crew be vaccinated. Given the differences in demographics of our brands, a vaccination requirement will differ somewhat with Norwegian requiring guests aged 12 and over to be fully vaccinated while Oceania and Regent will continue to require all passengers to be fully vaccinated. Regardless, we will continue to require that 100% of crew across our fleet be fully vaccinated and are working towards having all crew members boosted by April 1. The new updated protocols also allow for mask wearing to be optional as is the case with more and more societal activities. All the industry has ever asked is to be treated the same as other areas of society. The CDC's new voluntary program is a positive step in that direction, which we expect will lead to further easing of protocols as the pandemic continues its retreat. In the meantime, we will continue to maintain best-in-class protocols centered on vaccinations and testing for the health and safety of all onboard and to offer guests the safest vacation experience possible. The resumption of service across our fleet was not without its challenges. As difficult an endeavor as it was to pause and find safe haven for our entire fleet back in the spring of 2020, it is even a greater feat to smoothly bring back the fleet into operation and to deliver the world-class level of hospitality and service our brands are known for. I want to thank team members across our organization, from shipboard to shoreside, for the hard work, dedication and passion they displayed in returning our fleet to service. I also want to thank our loyal past and new-to-brand guests for entrusting us with what, for many, has been their first taste of travel since the pandemic began 2 years ago. And a special and heartfelt thanks to the travel agency community, who have weathered the pandemic like no other. We stuck together through the industry's toughest times and are now reengaged to bring us all back stronger than ever. And finally, a thanks to our shareholders, lenders, shipyard partners and the broader financial community for your support and confidence in our company, supporting our growth story and the opportunities that lie ahead. The story of the past quarter was obviously all about the Omicron wave. Unfortunately, Omicron did not pick the best of times to make its appearance. Just as we were experiencing a solid rebound in bookings during October and November after the Delta wave began to wane and buoyed by a very successful Black Friday and Cyber Monday promotions, the impact of Omicron began to appear in early December. First, a Norwegian vessel, whose itinerary featured multiple calls to South African port, had its operations paused as Omicron quickly spread there and additional travel restrictions were imposed. Canceling targeted sailings on certain vessels operating in the Caribbean and South America during the quarter also became necessary as an addition to travel restrictions, ports began implementing difficult, sometimes onerous requirements for docking. Concurrently, booking volumes slowed and cancellation of existing bookings increased. While Omicron did impact our business in the near term, primarily for close-in sailings in the first and second quarters, it did provide the opportunity to once again demonstrate our resilience as a company and as an industry. Our ethos throughout the pandemic has emphasized being nimble and ready to adapt. Our management team has maneuvered to what no other industry has ever had to do and has done a remarkable job doing so. The silver lining to this pandemic is that it has brought our team even closer together and fortified the strong collaborative culture we already enjoyed and that we truly believe is one of our competitive advantages. As we return to normalcy, that positive culture will only grow stronger. Now for some good news. The impact of Omicron are waning week-by-week. While the short term has been impacted, the following points illustrate the strong underlying consumer demand that gives us confidence about the trajectory of our business in the future. First, of the guest cancellations that occurred during December and the January period, the majority were for sailings in the first and second quarters of 2022, demonstrating sustained consumer confidence in sailings further out. Second, beginning in mid-January, net booking volumes began improving and continue to do so and accelerate sequentially week-over-week. Third, booked position for each quarter in 2022 when compared to 2019 sequentially improved over the prior quarter. Fourth, despite the erosion in booked position due to the Delta and Omicron surges, as of today, second half 2022 booked position is in line with what was an extraordinarily strong 2019, while 2023, compared to pre-pandemic 2020, is in an even better position, in fact, a record booked position. Fifth, again, as of today, pricing for 2022 and 2023 sailings remained higher for the full year versus 2019 and pre-pandemic 2020, respectively, even when including the diluted effect of future cruise credits. Our core go-to-market principle of marketing to fill versus discount to fill is performing like a champ as we have not and will not chase short-term occupancy by sacrificing price, which only results in long-term and perhaps even permanent damage to brand equity as we have seen over the years in other situations. Sixth, despite sailing cancellations and slight changes in our return-to-service plans due to Omicron, all of our vessels are expected to sail by early May and in time for the peak summer season. And lastly, we are seeing our largest and most important distribution channels coming back to full strength. Every day, we are seeing more and more business being booked by our travel partners in a shift which bodes well for the industry as the vibrant travel agent community is vital and amplifies the reach of our message to consumers, which translates into more and better bookings. I want everyone to recall that in the past, our industry was accustomed to successfully managing through bumps in the road. Whenever there was a natural or geopolitical or some other black swan-type event that impacted bookings, you could almost count like clockwork that after 8 to 10 weeks of quiet, booking patterns would rebound. We've seen this pattern occur twice already during the pandemic, once last spring after the initial variant ceded and vaccinations became prevalent and most recently, last fall, right after the Delta surge began to wane. With the public still a bit shellshocked by the sudden emergency -- emergence and equally dramatic decline of Omicron, what our business needs now is a few weeks of quiet with no new variants or surges for confidence to return and momentum to take hold. Our experts in the SailSAFE Global Health and Wellness Council, headed by Dr. Scott Gottlieb, believe we're at that point right now. So while Omicron did indeed have an immediate but short-term impact on our business, it was an impact that simply shifted expectations and the timing of our recovery by about 3 months. That shift in timing is coinciding with the shift in societal attitudes that I mentioned earlier from avoiding the virus at all cost to living with it. It's something we really didn't see after the Delta wave but is gaining more and more momentum post Omicron. We are seeing more and more living of life. And we once again began hearing the term revenge travel being batted about. These shifts bode well for our company as vacationers look to once again explore the world but to do so in a safe manner. I'll be back shortly with closing comments. But for now, I'll turn the call over to Mark for his commentary and the progress of our financial action plan. Mark?

Frank Del Rio:

Thank you, Mark. And before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which Slide 14 outlines key accomplishments and milestones. We are committed to driving a positive impact on society and the environment through the advancement of this program. And we reached several important milestones this past year, including releasing our first ESG report announcing our long-term climate action strategy and goal to reach carbon neutrality. We also made several advances since just our last earnings call. We took the opportunity during the voyage suspension period to accelerate installation of exhaust gas cleaning systems or scrubbers nearly 2 years ahead of schedule. We successfully completed our nearly $200 million multiyear investment that covered 13 ships, representing approximately 70% of our operational capacity with these state-of-the-art systems, which improved our environmental footprint by significantly reducing emissions, including sulfur oxides and improving air quality. In fact, ships equipped with this technology can reduce SOx emissions by up to 98%, allowing the ships to operate these systems within compliance in expanded areas throughout the world. Investments in technology such as scrubbers are an integral part of our climate action strategy. We were also proud to be recognized as a leader in sustainable cruise terminal construction as we were the first in the world to receive the LEED Gold New Construction certification for our flagship terminal at PortMiami. The team designed our 188,000-square foot terminal, which welcomed guests for the first time last year, with innovation and sustainability at the forefront, creating a platform that optimizes the terminal's energy performance, indoor air quality, water efficiency, utilization of local materials and resources and much more. And we will continue to innovate towards our sustainability commitment, including further investment at our PortMiami terminal, where we are partnering with Miami-Dade County to add short power capabilities by fall of 2023. We know that initiatives such as these are important in supporting our goals. And our Board of Directors recognizes that ESG is a critical driver in achieving our corporate goals and long-term success. And for this reason, our Compensation Committee included an ESG metric in our annual short-term incentive plan for the first time. This metric involves the company making sufficient progress in setting greenhouse gas emission reduction targets during 2022 as determined by the Technology, Environmental, Safety and Security, or TESS, Committee of the Board of Directors. Our Board believes that this step towards shared accountability across the organization reinforces our commitment and ultimate goal of reaching carbon neutrality. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 15. First, we remain focused on our voyage resumption plan with 85% of our fleet operational at the end of the quarter and the full fleet ready for the important peak summer season in May. Despite the impacts of Delta and Omicron, we are pleased with our cumulative booked position for 2022 and 2023 and the strong corresponding pricing that comes with it. And lastly, our priority remains to execute on our medium- and long-term financial recovery plans and to capitalize on our attractive growth profile over the coming years. We've covered quite a bit today in what has been an incredibly busy quarter and year. So I'll conclude our commentary now and open up the call for your questions. Operator?

Steven Wieczynski:

So Frank and Mark, I guess, if I look at your daily -- your per diems, they were up, if my math is correct, somewhere around 20% relative to the fourth quarter of 2019. And if I compare those to some of your competitors, which again I might -- I know it's not directly apples-to-apples. But your competitors seem to be more in that low to mid-single-digit range. So I guess, the question is what drove those per diems so much higher, not only over 2019 but also versus your competitors as well?

Steven Wieczynski:

Okay. Got you. And then second question, I'm going to ask this in a way, I hope isn't offensive or get you in trouble. But honestly, I think if we look at some of the changes the CDC has made relative to the cruise industry versus other forms of travel, I mean, to us, they honestly still seem somewhat archaic and outdated relative to what you guys are already doing from a protocol perspective. So the question is, I guess, why did you guys opt in to this program as it still seems somewhat outdated? Or is there a confirmation from them that you guys are on the right path and they're essentially going to leave you guys alone moving forward?

Operator:

Our next question is from Stephen Grambling with Goldman Sachs.

Frank Del Rio:

Look, I think that it's too soon to know exactly. I think we're moving in the right direction with COVID overall. We've had to endure two surges, Delta and Omicron, back-to-back. That certainly shook the confidence of society as a whole. If you recall last June, when the vaccines were readily available and the case count was really dropping, business was booming. I remember calling my brand presidents into a meeting and asking them to raise prices, stop marketing, do whatever they've got to do to slow down the sales volume because we were going to end up the year without having an inventory to sell. And then Delta came along. And just when we were getting out of Delta, Omicron came along. But as we said in our prepared remarks, Steve, the back half of '22, in spite of Delta and Omicron, is in line with the record year of 2019 and 2023 is meaningfully ahead both in price and in load factor. So we believe that -- if you believe that the Omicron is the last major surge that's going to cause upheaval in everyday life, then that healing period that I referred to has begun. And I suspect that unless there is another surge -- and by the way, the experts that we talk to, including Dr. Scott Gottlieb, the former FDA commissioner, doesn't believe that there will be another major surge. There will be variants. There will be mutations. But quite frankly, they will be more endemic than they are pandemic. And so I believe that 2023, based on the numbers that I have in the books right now, both load factor and pricing and further based on the assumption that we will not see another major Delta or Omicron-type surge, 2023 can get the industry and certainly our company back to pre-pandemic levels.

Frank Del Rio:

Yes. Look, as you've heard me say many, many times, the #1 driver of yield is itineraries. And we strive every day to position our 28 vessels, soon to be 29, in the highest and best use for them. And so constantly, year-after-year, we lead the industry in ticket yields and onboard revenue yields and in total yields. And we think that will continue. In the back half of '22 compared to 2019, for example, we will have Encore for the entire year compared to 1 month in 2019. We'll have Regent Splendor for the full year versus 0 months in 2019. And we will have the new Norwegian Prima for about 5 months in 20 -- back half of '22 compared to 0. So those three vessels, all very high-yielding, as Mark mentioned, improvements to margin, will continue to give us the ability to drive higher and higher industry record yields. And in terms of Australia and in Asia, in general, as you know, those are the last geographic areas to come online after the pandemic. We believe that they will be online. Certainly, I believe Australia and New Zealand will be, I'm not sure about China. China, quite frankly, is an insignificant area for us. But we are hopeful that the likes of Thailand and Singapore and Vietnam do reopen in time for the winter '22/'23 season. So we still have 9, 10 months to go before that season begins. Hopefully, as the pandemic winds down and finds its way through that Asian geographic area, that those countries and those ports will reopen to us.

Operator:

Our next question comes from James Hardiman with Citigroup.

Mark Kempa:

Sure. This is Mark. So look, we're thinking about that every day, like any business, and as I said in my prepared remarks, we, too, have pressures like the rest of the world. That also comes along -- comes together with stronger top line. But this is a relatively fixed cost business. So we're lucky that we're afforded some protection on that front. That said, as we look as a comparable base back to 2019 and you think about it on a per unit cost basis, we do have more efficient capacity coming on. We do have more growth. So that's going to give us some opportunity there. To the extent some of that is offset by continued inflationary pressures, that remains to be seen. We have started -- we were -- prior to today or yesterday, we were starting to see some settling on the cost side. So we'll have to see how this recent geopolitical event impacts that. But all else equal, we should be gaining efficiencies. That said, keep in mind, we have not gotten rid of any of our older vessels during the pandemic. We have a relatively young fleet. And at this time, we have no plans to shed any of that capacity. So we won't have that optical benefit, so to speak, versus some of our competitors. And I highlight the word optical on that front, so -- but again, we've always run a lean company. We will get scale as we continue to bring -- to grow and bring on efficient capacity. And it's in our DNA to look at every cost, every line item and drive efficiencies where we can.

Frank Del Rio:

Well, as I mentioned earlier, the phenomena that you mentioned is not new in Q4. It's something that we've been able to achieve year after year after year. We lead the industry in yields, ticket yield, onboard revenue yield and we continue to do so, primarily because of our go-to-market strategy, where we believe in marketing to stimulate demand. We believe in the product, you pay for what you get for. And we have three industry-leading brands, the highest luxury brand in Regent, the highest-yielding premium brand in Oceania and what we believe to be the highest contemporary yielding brand in Norwegian. So we're just going to continue doing what we always do because it's a winning strategy.

Operator:

Our next question is from Fred Wightman with Wolfe Research.

Mark Kempa:

Sure, Fred. So when we look at -- obviously, we're talking about the Baltic region, more specifically, St. Petersburg. As we look, we have roughly about 5% of our total capacity that calls on St. Petersburg over this course of the summer season. And that's heavily weighted more towards our Norwegian brand than Oceania or Regent. But it's -- all in all, it's about 50 sailings. And we are looking at alternative ports as we speak. I mean, this is something we've been thinking about. And worst-case scenario, if we're not able to call on St. Petersburg or the surrounding areas, there's plenty of other ports in the -- in that Scandinavian region that we have the ability to call on. So not a huge impact, obviously a bit disappointing because that is a premier port, but there's other viable, very attractive ports that are available.

Mark Kempa:

Yes. Look, I think it's way too early. I mean, we definitely did not see anything as of close of business yesterday. And this morning, I haven't received -- we haven't received any red flags. But like anything, you'll probably see a little bit of slowdown here and there around margin. That's normal. But it's definitely too early to indicate if there's going to be any longer-term effects. Europe is a big continent, too. So this is affecting a very small portion of Europe. And there's a lot of other areas that we can operate in, especially the Med, where we have a significant capacity as well.

Vince Ciepiel:

Could you talk a little bit more about brand performance, maybe what you're seeing luxury high-end versus contemporary, anything, differences in booking patterns? And then your recent change that, I think, goes in effect March 1 regarding age under 12 allowed to be unvaccinated, I think that's a change from previously being 100% vaccinated. And on the contemporary brand, curious how that change is being received, if that's generating any new interest. Any thoughts there?

Vince Ciepiel:

Great. And then I had a follow-up question on costs, specifically fuel. You talked earlier about installing more scrubbers. And I'm thinking back to pre-COVID times and with IMO 2020, the thought that the percentage of fuel that was MGO that you burn would have to step up, I think, it was to like 60% or something like that, which was pretty high. Now that you've kind of digested some of these changes, installed more scrubbers, what percent of fuel in 2022 do you think will be MGO?