Q1 2022 Norwegian Cruise Line Holdings Ltd Earnings Call
Good morning, and welcome to the Norwegian Cruise line Holdings business update and first quarter 2022 earnings Conference call My.
My name is Rob and I'll be your operator.
At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions for the session will follow at that time.
If anyone should require operator assistance during the conference. Please press star zero on your Touchtone telephone.
As a reminder to all participants this call is being recorded.
I would now like to turn the conference over to your host Jessica Chen Vice President of Investor Relations ESG and corporate communications.
Michelle Please proceed.
Thank you Bob and good morning, everyone. Thank you for joining us for our first quarter 2022 earnings and business update call I'm joined today by Frank del Rio President and Chief Executive Officer of Norwegian Cruise line Holdings, and Mark Kempa Executive Vice President and Chief Financial Officer, Frank will begin the call with opening commentary after which mark will follow to discuss.
Our financials before handing the call back to Frank for closing remarks, we will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at Www Dot and CRH LTV Dot com slash investors.
We will also make reference to a slide presentation. During this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days. Following today's call before we begin I would like to cover a few items. Our press release with first quarter 2022 results was issued this morning and is available on our Investor Relations web.
Right.
Call includes forward looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statements contained in our earnings release. Our comments May also reference non-GAAP financial measures a reconciliation to the most directly comparable GAAP financial measure and other associated.
Disclosures are contained in our earnings release and presentation with that I'd like to turn the call over to Frank del Rio Frank.
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 and a great crews come back this past Saturday Norwegian spirit welcome guests for the first time since our fleet wide pausing operations back in March of 2020 and in doing so she became the final ship 28 ship fleet to return to serve.
Making Norwegian cruise line holdings, the first major cruise operator to have all of the ship operating again.
The last two years and certainly the last few months have been challenging to say, the least but with each new challenges that arose to further complicate in already colossal undertaking the team at Norwegian stepped up to the play time and again to demonstrate our extraordinary resilience dedication and passion. So I want to thank each and every team member.
Frost, our organization from shipboard to shore side for all their efforts to reach this point.
Breakthroughs comeback and position our company to thrive in the years to come.
Even more impressive impressive was our team's ability to drive some of the highest guest satisfaction scores ever ticket revenue and onboard spend in our history and this trend has persisted even as we ramp up occupancy hearing 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 ensuring 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 grew into the communities. We visit above all else doing everything possible to create a safe and healthy experience for all stakeholders.
Since launching our great crews come back we have carried over 500000 guests and we continue to experience significantly lowered cohort COVID-19 incidents 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 a willingness to go to great lengths to support them.
I don't think his 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.
Public at large and with our key past guests.
And lastly, we have stood firm on our courted Mark 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 our philosophy.
Pricing will be the primary driver to net yield growth.
As we exit the pandemic and returned to a normalized bookings 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 factors were somewhat tempered our net per diem growth over first quarter of 2019 record pricing was as shown on slide five significant.
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 are pre pandemic track record of stellar net yield outperformance year after year speak for itself.
You can see on slide six in 2019, our net yields were better than our peers by somewhere between 20% to 40%.
This historical outperformance coupled with a 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 brands equity, while driving long term shareholder value.
Taking a step back to serving the broader landscape today, we find ourselves in a much more favorable public health, the regulatory and demand environment than when we last spoke a little over two months ago. We have witnessed a continued relaxation of COVID-19 related protocols across the globe from air travel to concert and other indoor activities and this time around.
The cruise industry as an active participant.
First we are pleased that in late March the CDC entirely remove its travel health notices for crude representing a significant step towards leveling the playing field between crude and our land based counterparts in.
In addition, the CDC continues to modify elements of it voluntary framework for cruise relaxing certain requirements. The most recent of which includes reducing required vaccination threat 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 a travel and leisure sector overall more ports around the world have open to crews and we have seen travel restrictions relax in many areas.
And while there are still regions, where discussions to reopen to crews are ongoing particularly certain countries in Asia. The good news is that we do not have ship sailing in those regions until fourth quarter, giving us additional time to monitor the situation plan for various outcomes and we are ready to adapt as needed.
And lastly, we are seeing an explosive showing by consumers, particularly American consumers consumer spending is strong snapping back and even exceeding where we left off in 2019.
Gone are the days with our family budget was going to anti bacterial wipes hand, sanitizer delivery app stationary bikes and streaming services consumers today are spending to catch up on over two years of mis experiences.
One example of this that we see every day is hotel ADR as an airline fares, which are at or near record levels.
And now with a full fleet back up and running and our industry's overwhelming advantage and 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 as you can see on slide seven.
First and foremost we continue to hope for a peaceful resolution, which minimises 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 I, providing logistical communication and mental health support to affected team members.
In addition, we also provided a sizable donation to save the children with Ukraine crisis relief fund and invited partners, including guest travel partners and team members to contribute as well.
Prior to the complex approximately 10% of our annual capacity across our three brands was scheduled to sail in the Baltic region with approximately 5% calling on St. Petersburg, Russia.
We subsequently cancels or modified approximately 60 sailings, which included all call supports 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 sell alternate itineraries.
<unk> Marina Regent seven seas, Mariner will remain in Europe , selling British aisles, and northern European itineraries, respectively. Meanwhile, Norwegian getaway was redeployed to port Canaveral to take advantage of pent up close and domestic demand, which despite the condensed booking window has already meaningfully exceeded our occupancy expectation.
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And in a preemptive measure our three brands will pause all calls to Russia from their 2023 and 2020 for 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 eight we shipped today's discussions to our broader booking and demand trends overall.
Overall, we continue to experienced sequentially, improving underlying demand and robust pricing for all future periods.
The omicron surge in December and January did indeed impact net bookings momentum with the vast majority of cancellations concentrated for closer in sailings.
The tide began to turn in mid January when net booking volumes began to show week over week improvement.
As booking regain momentum we experienced another temporary setback with the emergence of the Russia, Ukraine conflict.
This impact was also short lift and was mainly concentrated to 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 levels and currently at levels approaching the pace needed to consistently sale at historical pre pandemic load factors.
As a result of the impacts from omicron in 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 improved sequentially with book position in the fourth quarter remaining in line with 2019.
More importantly, cumulative full year 2023 booked 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 and drove 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, we will no longer be a headwind in 2023.
FCC's must be applied this tailings through year end 2022.
As the booking environment improves we will continue our strategic marketing efforts 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 clearer.
2022 is no doubt a transition year, but as I look towards 2023 I'm excited by the full potential of the future holds we're still operating in an uncertain environment and if we've learned anything is returning to normal sequels, certainly not happen overnight and possibly not without additional bumps in there.
But with each passing day I'm increasingly confident that we are reaching the milestones needed to propel us forward in this recovery.
We're 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.
From where we sit today and without another black Swan event. The railing. Our plans there is a reasonable and clear path to reach record net yields and record adjusted EBITDA levels in 2023 Booth.
Boosted by the introduction of four new ships across our three brands over the next 18 months.
Goal, our entire team is focused on achieving.
As just mentioned are key components of its 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 nine.
After a record sales at <unk> in May of 2021, her booking volumes continued to be stellar and her pricing significantly outpacing our past new ship launches and.
In March we announced that pop icon, Katy Perry will service the godmother to cleanup and will be the headline entertainers at her Christian ceremony in Reykjavik Iceland.
This announcement garnered significant media coverage further building on the excitement surrounding premium 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 additions of Norwegian veeva.
Oceana cruises Vista, and regent, seven seas grand or to our fleet.
These new hardware introductions are a 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 halo effect and the rest of our fleet.
Let's 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 will turn the call over to Mark Campbell for his commentary on our financial positions Mark.
Thank you Frank and good morning, everyone before I begin my commentary on our financial results and outlook I would like to take a moment to express my sincere thanks to our truly top notch team for the successful execution of our return to service plan their hard work collaboration and innovative spirit are unmatched.
And their efforts have been critical to getting us to this significant milestone with all ships now officially back to revenue service.
Turning to the first quarter results strong ticket pricing and onboard revenue spend drove positive contribution from the fleet that operated in in the quarter. Despite headwinds headwinds we faced from the omicron variant.
During the quarter, we canceled approximately 60 sailings due to omicron related operational disruptions from additional travel restrictions increased health and safety protocols and port closures.
This impact coupled with our focus on maintaining price integrity for the long term resulted in slightly lower than anticipated load factors in the quarter. However, pricing remained robust in the quarter and onboard spend per person per day continues to be up meaningfully versus record 2019 levels.
Looking ahead load factors are also improving sequentially each month, and we expect second quarter load factors to come in at approximately 65%.
This will continue to build throughout the year and we expect to reach historical load factor levels in the first half of 2023 and at record pricing.
<unk> consistent with our go to market strategy and protecting the long term pricing strength of our brands.
In addition, we are experiencing an uptick in bookings for closer in sailings, which not only helped organically boost near term load factors, but more importantly are a positive indicator that consumer confidence is building as these bookings are typically within the cancellation penalty period.
Turning to our financial performance Slide 10 lays out our expectations for upcoming key financial milestones in March we reached a significant inflection point in our financial recovery with operating cash flow turning slightly positive for the month.
<unk> of our previous projections, which we expect will continue throughout the second quarter.
This momentum should continue to gain steam as we progress through the year with both positive operating cash flow and positive adjusted EBITDA expected for the second half of 2022.
This sets us up nicely to achieve our goal of record net yields and record adjusted EBITDA for full year 2023.
Moving to slide 11, our cash balance for the quarter increased by approximately $390 million on a net basis to $2 1 billion.
This reflects $1 1 billion of cash burn associated with operations, including interest and capital expenditures, partially offset by nearly $600 million of advanced ticket sale collections and other working capital changes.
Our cash balance at the end of the quarter was also boosted by an incremental $925 million associated with the balance sheet optimization transactions, we executed in February .
Our overall liquidity remains strong standing at $3 1 billion at the end of the first quarter, which positions us well to manage the resumption of debt amortization and newbuild related payments, which were deferred during the pandemic the former of which resumed beginning last month.
With all ships now sailing in the cash generation increasing month after month, our current trajectory would indicate that we are confident we can fund our operations organically.
A key component of this cash generation is our advanced ticket sales build which continues to accelerate.
As you can see on slide 13, total Acs balance stood at $2 2 billion as of the end of the first quarter.
<unk> over $400 million versus the prior quarter on a gross basis Acs build increased by 60% to $1 1 billion in the quarter, surpassing the 1 billion Mark for the first time since the start of the pandemic and approaching pre pandemic levels. This is another positive in this indication.
Later, demonstrating strong consumer demands for our brands.
Turning to cash burn our monthly burn in the quarter was approximately $375 million better than our guidance of $390 million. Despite some cost pressures from inflation and global supply chain constraints.
This cash burn figure does not include cash inflows associated with current or future bookings nor contributions from ships that have already resumed service.
Moving to the balance sheet as part of our financial recovery plan as shown on slide 14.
Our team is focused day in day out on finding and seizing opportunities to optimize our balance sheet and maximize value for our shareholders. During the quarter. We raised approximately $2 1 billion through a series of debt transactions proceeds from these transactions were used to redeem the remaining outstanding balances of the high.
<unk> 12, and a quarter senior notes through 2024, and the tenant a quarter senior secured notes due 2026, which we incurred out of necessity at the peak of the pandemic.
The remaining proceeds of approximately $925 million will be used to make principal and interest payments on scheduled debt amortization due in the short term.
These transactions extended our debt maturity profile and released certain collateral and guarantees.
The combined benefit of these transactions coupled with those completed late last year as laid out on slide 15 reduced our annual cash interest expense by approximately $75 million.
As I've touched on in the last few quarters consistent with what all other industries are also experiencing inflation and global supply chain constraints continue to put upward pressure on our cost.
Fuel prices have risen significantly accelerated by the ongoing geopolitical unrest, while we are not immune to the spike in pricing our hedge program as shown on slide 24 provides partial protection.
On the labor front, we remain relatively better positioned than our land based peers due to our long term employment agreements, which provide for stable wage inflation and predictability in our operating cost structure.
We've also provided incremental guidance on key certain metrics like depreciation and amortization interest fuel consumptions and capital expenditures all of which can be found on slide 25.
Looking ahead, we are gearing up to deliver on our attractive Newbuild program.
This transformational growth is an underappreciated cornerstone of our Companys investment thesis compared to 2019. The addition to our fleet of nine new ships through 2027% results in a 50% capacity growth versus 2019 as shown on.
<unk> 16.
This also reflects the additions of both Norwegian encore in late 2019, and regent seven seas splendor in early 2020.
These new ships are expected to be topline and margin accretive with very efficient financing structures, resulting in an expected immediate boost to our profitability as.
As we have showed you in the past slide 22 demonstrates how this management team has time and again generate generated outsize returns on incremental capacity.
And we fully expect to continue in the future.
Another area, where we can drive additional value for our stakeholders is our multi year strategy to capture additional share of the leisure wallet.
Cruise vacations continue to offer a uniquely unique an incredible compelling value proposition for consumers versus land based vacation alternatives in the past we have said that a cruise typically offers at least 20% to 30% better value than a similar land based alternative with the current inflow.
Sherri backdrop that gap has widened making our value proposition, even more compelling today than ever before without the same labor pressures on many of our land based peers are facing we can also provide a consistent and exceptional level of service to our guests as evidenced by our high guest satisfaction score.
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These factors combined present, another opportunity for us to both drive additional demand and increased prices.
Stepping back and looking at the bigger long term picture I am optimistic not only because of the progress we have made so far in our recovery, but also by our future prospects.
Each new milestone we reach is another stepping stone as we push forward in our recovery process and as I touched on we have several significant catalysts to generate value beyond simply targeting a return to our pre pandemic performance.
We are focused on controlling what we can control and finding new and innovative ways, however, bigger small to improve each day.
I am confident that our strong culture of operational and financial excellence and discipline, which served us well in the past and through the challenges of the pandemic will serve us even more in the future.
With that I'll turn the call back to Frank for closing comments.
Thank you very much mark.
Before we wrap up our prepared remarks. This morning, I would like to provide an update on our global sustainability program sale and sustain and with 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 2050.
This ambition stands 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 are also committed to develop short and near term greenhouse gas reduction targets. These new commitments broaden and strengthen our existing a 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.
Third implementing a carbon offset program, we will continue to monitor and invest in opportunities to reduce emissions, including and beyond our fleet working closely with our vendor partners to accelerate de carbonization effort are.
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 field and to accelerate the use of short power while in port.
We will continue to partner and research to identify appropriate alternative fuel sources that can also be sufficiently scale.
For example, we are currently actively engaging with partners, including shipyards engine manufacturers and classification societies and 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 TC SD 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 and our top.
Risks under different hypothetical 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 am pleased to report that I signed the CEO action pledge for diversity and inclusion in March further expanding our commitment to fostering an inclusive workforce.
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 pleased to have our full fleet back in operation. So we can now singularly focused on wrapping up occupancies in a discipline 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 and learning how to adapt and live with the virus, allowing us to accelerate our return to normalcy.
We are encouraged by the improving booking trends and robust pricing, we are experiencing which lay a strong foundation for the second half of 'twenty, two and 'twenty 2023, we will lean our fundamental go to market strategy of market to fill in order to set the stage now for high quality sustainable.
Long term profitability and free cash flow generation and.
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.
You can see we've covered a lot today, so I'll conclude our commentary here and open up the call for your questions.
Rob Please open up the line.
Thank you Frank if you have a question at this time. Please press star one on your Touchtone telephone in order to give as many people through the queue. Please limit your time to one question.
If your question has been answered or you wish to remove yourself from the queue. Please press star two.
Our first question comes from Steve <unk>.
<unk> with Stifel. Please proceed with your questions.
Yeah, Hey, guys good morning.
So frankly, mark wanted to ask about your ability to take price moving forward one of the questions. We got.
Lots of investors is the long term pricing power.
Of your company and the industry in general.
You guys. Obviously, you have remaining under price relative to a lot of other things.
<unk> alternatives and the fear is with disruptions like Youre seeing with Russia, Ukraine redeploy those assets elsewhere, coupled with it.
At decent amount of new supply.
Those those types of factors might keep your pricing ability born sucks. So just just trying to understand how you how are you.
Think about price ability or price action ability and how youre kind of combat those those fears that are out there.
Thanks, Steve, but I think it's a great question, especially because we rely on pricing to two pro forma as well as we do both topline and Bottomline and one of the drivers of that future.
Pricing outperformance is going to be the nine new vessels coming online we have the.
Most growth coming online percentage wise I think it's Mark mentioned, 50% and 23 over 2019, and as you know new vessels, especially the new generation of <unk>.
Norwegian vessels, the new generation of.
The oceana vessels and the last of the region vessels, they're all incredibly productive in terms of being able to raise prices.
No question that the conflict in the Ukraine does have a adapting effect on pricing St. Petersburg, Russia was a star port, we probably won't be going there anytime soon but.
But coupled with the new vessels coming online you know our of our history I think it's one of the slides of our history of outperforming the industry in net yield growth year after year after year.
Go to market strategy of market to fill as opposed to discount to fill it is not a slogan. It's something we do every day, we take it very seriously being the smallest of the three big cruise companies.
We don't have the scale to control cost as well as some others might we win our game based on our ability to drive top line revenue and the key to driving top line revenue as pricing and.
So we have the best and brightest in our company focused on that in and we believe that we'll be able to continue to outperform in that area for years to come and Steve to add to what Frank saying, we can't overlook.
As we talk about the value proposition of crews. We have always said that cruise is under price 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 will continue to chase that and Thats, 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.
All 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's continued opportunity down the line consumers are willing to pay for value and cruise offers a compelling value.
That's great color. Thanks. Thanks, Thank you both.
Second question probably.
A bigger picture question, it's something I've asked some of your peers as well, but it's probably relevant to what's going on right now would be the equity markets.
Clearly there is a fear out there in the U S that was heading into some type of corruption or recession or whatever you want to look at it and just want to understand how you guys think you are positioned at this point both from a what we call kind of a financial and liquidity position as well as your business in general and maybe help us think about how you guys.
We have performed in the past during tougher economic economic times.
If you see any scenario in which you would need to.
Raise additional liquidity thank you.
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 free.
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 slides, we expect free cash flow to turn positive in the fourth quarter. So all of that plays in well when we look at our liquidity position, we turned the quarter.
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.
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.
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 at the beginning of your question that combined with the value proposition.
Cruise consumers look for that so we feel like we're in a great position going forward.
Okay, great. Thanks, guys really appreciate it.
Our next question is from the line of Vince <unk> with Cleveland Research. Please proceed with your question.
Great. Thanks helpful comments there.
Interesting call on the 23 net yield I think you had also mentioned a record year for EBITDA and I'm sure that unit growth part of that but I wanted to get your perspective on profitability within that.
Obviously, there's been inflation across the business.
A lot of companies are dealing with this now but you guys have made some efficiency improvements through COVID-19 rolling out additional capacity to leverage some land base fixed costs. So curious kind of how youre thinking about margins into next year in light of those moving pieces.
Good morning, Vince it's Frank.
Look it all starts with.
Record pricing.
Today, we've said that our 2023.
Booked position meaningfully ahead of where 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 we were in a way lucky that we didnt 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 it's an ugly word, but its theres, a pretty sight to it which is pricing power and you have heard market 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 then.
And I think we've had in the prior 20.
2023, indeed could.
Could be the record year that were seeing unfolding before us.
And Vince.
Not only not only unit growth as we said in 2023, and we effectively have a 20% capacity growth over 19.
We're going to drive the top line, but on the cost side you have to remember that if you look at our cost we're not immune to inflation, but about 25% to 30% of our cost basket is exposed to that hyperinflation. So to speak that's a lot less than many of many of our comparable type of.
Leisure industry, so to speak so we have some protection against that backdrop.
We're going to continue to push on price, we continue to gain scale as we grow and all of that's going to reduce our <unk>.
<unk>.
Expansion of margin and increased profitability.
That's helpful and.
I'm curious I wanted to dig into the customer mix a little bit I think there was a comment in the slide deck loyalty guests driving a good portion of occupancy but curious.
How <unk> seen new to cruise bookings transition in the last.
60 days and if theres been any catch up there.
Early in the pandemic recovery there was an overwhelming.
Skewed towards past guests booking there were the most comfortable with with cruising most comfortable with particular, Brian what we have seen really since the beginning of the year is a return to normal.
Breakout between past guests booking with us new to brand.
Guests booking with us and new to cruise booking with us. So I think from that perspective, we've either reached or about to reach the normal.
The breakout of the different groups.
Groups of passengers, which is good to see man cruise line Cam can't live with past guests alone. So it's good to see the return of.
New to cruise in new to brand to us.
Great. Thank you.
Next question is from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.
Hi, Thanks outside of the startup cost 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 forward to start easing. Some of these maybe if you can get out to 2023.
Yes, Steve I think outside of testing.
We've effectively stopped for social distancing.
With the reduced regulations that were issued by the CDC recently.
We're now going to be taking back some cabins overtime that we had to put aside for quarantine or for isolation. So that produces additional opportunities theres going to be certain staff areas that we can reduce so I think as we cycle through the second quarter and probably somewhat into the third quarter youre going to start to see some of those kind of.
What we will classify as pandemic specific related costs go away I don't foresee any major.
Major cost components going forward from 2023 onward, as a result of the pandemic just.
Some things on the margin, but nothing significant.
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.
Well the the reason why.
The phenomenon that you just described was occurred because we keep having these black swan events.
First it was Delta then it was omicron and then there was.
Ukraine, Russia situation and so we have temporary to all our remarks by saying as long as there are no additional black Swan event.
We're seeing fantastic pricing strength it is meaningful over what our record 2019 pricing was.
And therefore again in.
In the absence of anything new.
This will hold in the past that Hasnt held.
Because of these black Swan events, so promising no more black Swan events, Steve and I will promise you record net yields.
But let's balance that 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.
It's been over two and a half years as a company since we've been able to say that and that's going to translate into 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 I want to highlight that pretty strongly today.
On that point.
Close in booking trends, then flipped as well it seems like it has from your commentary I think because that's what people have been concerned by that you'd get to the close in and maybe theres just been some some impacted people's willingness to get on cruises get on the ships. So has that flipped where you'd say definitively no there's been no.
Inherent damage to the consumers' behavior, you're getting on the ships so that close in booking in new to cruise well I think I think we in our commentary.
<unk> talked about that and we are seeing close in demand, which is good and it's close in demand that 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 for the longer term as well, but again thats a sign of confidence that consumers are willing to go in and they're confident that the voyage is going to sale them and there is proper protocols in place. So it's actually a very good sign in relation to where as we exit the pandemic.
Awesome. Thanks, so much.
Our next question comes from the line of Patrick <unk> with <unk> Securities.
Hi, good morning, everyone.
A question for you.
The CDC last week lowering.
The requirement for vaccination, 95%, 90% does that change at all how you folks think about your requirement and correct me if I'm wrong I believe youre still at.
100% vaccination requirement. Thank you.
No Patrick that's not correct we have.
We had reduced.
From a 100% to 95% when the CDC allowed it and now we are at least for the.
Norwegian brand, which is the family Brian in our in.
Our company.
We are going to be allowing 90% of the folks to be vaccinated.
10% not that.
That opens up the family market in a big way just in time for the summer season.
Okay. Okay. Thank you for the clarification.
That was all the questions. Thank you.
Okay.
Our next question comes from the line of Province, Farley with UBS. Please proceed with your question.
Great. Thanks, a bunch of my questions have already been answered I guess.
One thing when you're talking about the second half the strength in bookings meaningfully ahead.
I think you mentioned that still includes.
Terry's going to Asia, and just wondering how you sort of based on how things are now continue then in those markets didn't open up too crazy.
When would.
When would you make those changes just thinking about sort of when youre bookings may be.
Past the point of having any more disruptions for the year how far in advance.
Thank you for calling to Asia would you make those changes.
Yes, Asia is really bookings strong for us and at very very high prices, but there is that risk.
Robin and so we will likely take some chips off the board and.
In the coming weeks two to balance that risk reward.
Likely at the Norwegian brand, which has more flexibility in where it can achieve.
<unk>.
Good pricing and accelerate.
The bookings much faster and Oceania region can't because of the longer booking curve there.
The good news is that just today, we heard from the minister of Tourism in New Zealand that they expect.
New Zealand to open up <unk>.
Then October to cruising that opens up that hole.
Australia Asia area for US Australia, New Zealand.
The Haiti.
And and we hear good good commentary coming out of some Asian countries, Some Asian ports, not China, and we're not we're not very big in China. As you know so we are we're hopeful but there is a risk there no question, but we are hopeful that the.
It will reopen I know South America, which also caused some issues this past winter.
It looks like it's going to be opened Argentina has announced her guar has announced Chile has announced so.
Again, the world is reopening, perhaps a different pace, but it is reopening and that.
That's good news for us.
Okay. That's great. Thank you and maybe just as a last follow up just going back to the close in booking question I don't know if theres anything you can share that you can kind of quantify.
With the with the close in another words what percent of bookings are for departures over the next six weeks or anything like that just to see that because it seems like that piece right.
Obviously.
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 the close in bookings because that's.
Is there anything as we head into the.
Peak summer season, a way to think about what strength may not be showing up in your numbers, yet, but it's there.
Robert I'm not going to give you a number per se, but I will tell you that.
Close in bookings defined as booking for the next 60 days.
Our running significantly higher than history now part of that is because historically they are typically has very little inventory to sell inside 60 days and that's not necessarily the case today, but it is strong.
Much stronger than quite frankly than we anticipated two or three months ago.
And it's another another positive green shoot as Mark mentioned, when we got to get momentum back and I'll take momentum any way I can get it that means bookings are strong for the next.
Close in that's a start.
Just just last week.
The Oceania brand introduced late 'twenty three all of 'twenty four departures that had one of its top three booking days in history. So we're seeing people booking way into the future.
And now we're seeing.
Very very strong bookings very close in and so in time.
There is a gap between the long and the relatively short it's going to be start it's going to start to fill in and again another green shoot.
As the summer rolls around top.
Prime Prime cruising season.
It's going to continue to get better so again I preface it no more black Swan event, the industry is going to progressively get stronger better go going back to normalcy, reaching the normal high occupancies that we've always enjoyed.
Okay, that's great thanks very much.
As a reminder to ask a question today you May press Star one.
We ask you please limit yourself to one question to allow as many as possible to ask questions.
The next question comes from the line of Dan Policy with Wells Fargo. Please proceed with your question.
Hey, good morning, everyone and thanks for taking my questions.
You guys have typically have higher pricing than peers and certainly.
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.
What are you seeing kind of across your across your database.
The different brands in terms of booking and pricing strength.
I think we're seeing pricing strength I know were seeing pricing strength across.
All three brands.
Certainly the upscale brands are doing terrific because of the nature of their itineraries or customer base. They are they are booking curve is always further out than the closer in Norwegian brand and that is certainly playing out again for the back half of 'twenty two 'twenty three I just mentioned.
One of the upscale brands, just announced 24 itineraries and had.
Near record days, one of the top three days in the company's history.
So we're not seeing any.
Any isolation of one brand versus another in terms of pricing pricing is strong across the board.
And that's very encouraging for us partly it's because our all three of our brands have the same go to market strategy, where we focus on marketing.
The value proposition over pricing.
<unk>.
One brand does one thing and one another brand as another we.
We.
We harmonize that and curated in and Thats why we have such a strong historical.
Performance and year over year yield growth and have the highest yields in the industry by a very wide margin.
Got it and then in terms of just market 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 or outbound in Europe .
No I think Europe is has come back very very nicely I was just talking to one of our brand presidents. This morning. He tells me that.
European sourced business is.
As strongly and you can't believe how strong it is especially.
Europe UK is doing well.
Australia is still lagging a bit that country has been closed for a while but again these are all green shoots.
We're we're waking up to bear.
It's been 26 months.
Since we were shutdown on March 10th it took US 26 months to get our fleet back operating at full strength.
And so it's going to take some time to get all the pieces right to get.
To get.
Consumers thinking in the right direction getting the ports to open around the world and it all starts with a moderation of Covid and I think we've seen that even when there are spikes here and there society is learning to live with with Covid.
And we have to do that it's not going away no.
No vaccine is going to make it disappear. It is now one of the many.
<unk> Corona viruses that affect our lives every day and I'm glad to see that we're all learning to live with it.
But learnings take a while and so that's what we're seeing we're seeing green shoots we're not 100% back to where we need to be but certainly we are approaching the levels we need to.
Sale full to generate.
Our highest net yields in the company's history, the highest EBITDA in the company's history in the coming quarters.
With that we have one more question time for one more question and then we'll we'll conclude today.
Presentation.
That question will come from the line of James Hardiman with Citi.
Hi, This is Sean Wagner on for James.
Within that 28% total premium growth versus 2019 is there any kind of.
Color you can give on the click it onto these in onboard spend in the quarter on sort of how they treat.
Trended sequentially as maybe.
Kind of comparable ship basis is because more ships have gotten under the water ships are getting kind of closer to normal occupancy.
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.
<unk>.
We get a hike we offer them a.
Significant value and then in turn they spend onboard so it's coming across in all areas and that's where we.
We're glad to see that that's what you want to see Thats, what were targeting thats whats behind our go to market strategy. So it's not just one or the other it's a combined effort.
Okay.
That's very helpful and just real quick.
You mentioned in the slide deck.
Returning to historical load factors in 2023 is there any specific time, you expect to kind of get through maybe normalized historical occupancy levels.
I think what's going to be an 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 short term load and damage the brand for the long term, we do not believe that is not our strategy and that is not the right strategy for our company. So we will maintain that price discipline, we expect in the 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.
Perfect. Thank you very much guys.
Before we go we'd like to remind everyone that our annual general meeting is coming up on June <unk>. This year, we have a number of very important proposals on the ballot. We are extremely appreciative of the support we've received from our shareholders. During this extraordinary time and we are asking for our shareholders continued support on behalf of every shareholder account that.
We will make a $1 charitable donation to the American cancer Society up to $100000. Please vote in 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 our passionate team members committed to world class hospitality and innovation.
Thanks, everyone for your time and support as always we'll be available to answer your questions have a great day.
This concludes today's conference call you may now disconnect.