Q1 2023 Carnival Corp Earnings Call

March 27, 2023

Revenue costs, adjusted EBITDA and earnings while overcoming over $30 million in headwinds from fuel price and currency since our prior guidance. Thanks.

Thanks to the dedicated efforts of our 160000 amazing team members around the world.

We had sequential improvement in our occupancy gap to 2019 from 19 points in Q4 to 13 points in Q1, an increase in capacity, which is now above 2019 levels.

We anticipate being just seven points or less away from 2019, Occupancies in the second quarter, well on our way to historical Occupancies. This summer.

Equally important we also drove ticket prices higher and continue to throttle back on our opaque channels, while also maintaining outsized onboard revenue growth.

But we have not lost sight of the cost side of the business. We are working hard to mitigate for years of inflation, while still reinvesting in advertising and sales support to build future demand.

We did update our cost guidance, primarily to reflect decisions taken during the quarter that have increased our costs, but will produce greater EBITDA and adjusted free cash flow, which David will elaborate on.

We remain nimble and continue to aggressively seek opportunities to accelerate our path back to strong profitability.

For the year, we're expecting adjusted EBITDA of $4 billion at the midpoint.

GAAP to 2019 as record $5 $5 billion of adjusted EBITDA is being driven primarily by two items.

First is our 2023 occupancy gap to 2019, which we expect to be behind us as we cycle through this year.

As we discussed on the last call. This results primarily from longer duration exotic voyages early in the year that we did not feel given the disparate COVID-19 protocols to land based alternatives were in place during most of the booking window for these voyages as well as close in deployment changes and the slightly delayed but.

<unk> European recovery trajectory.

Second is a drag due to fuel prices and currency changes compared to 2019.

In actuality the strength of our demand generation, resulting in elevated per Dms and our fleet optimization efforts has helped us to mitigate for years of significant cost inflation, which of course will continue to work to offset even further.

On a per <unk> basis, and holding fuel price and currency constant to 2019 levels.

We were roughly 60% back to 2019 EBITDA in our first quarter.

<unk>, then our expectation to be halfway back.

We expect to be two thirds of the way back in our second quarter as we progress back to levels that rival 2019, as we exit the year.

Each point of net yield improvement results in $170 million to the bottom line in 2024.

With our continuing demand generation seeing us close the occupancy gap entirely and allowing us to pull back further opaque channel activity, we are well positioned to continue to drive ticket prices higher.

And more than offset the drag from fuel price and currency over time.

To that end wave season has been phenomenal.

It started early with record Black Friday booking volumes and has continued to build.

We achieved our highest ever quarterly booking volumes in our company's history.

And we actually had our best weekly booking volume for this way the last week in February .

And the good news is that strength in bookings has continued into March supporting our revenue expectations for the remainder of the year of course, we're working very hard to do even better.

In North America, our Carnival brand continues to propel us forward breaking new booking records every single week in January and February .

Booking volumes for our North American brands have been running in excess of record 2019 levels, but the last six months and.

And booking lead times are now back to peak levels.

Demand for our European brands has strengthened more recently and is catching up to the U S market in the recovery cycle.

<unk> trends are improving across all regions as we exit the winter period and home heating concerns date in.

In fact booking volumes reached a record for our European brands as well.

Evidenced strong close in demand and producing a continued lengthening in the booking curve.

As we've previously noted Australia is about a year behind the U S. In terms of the recovery cycle.

And while Asia is still about two years behind we successfully resumed operations there with the ships now in Japan and one in Taiwan, beginning this summer.

Turning to China, the country still is not reopen to international cruise travel, which accounted for $1 million of our guests pre pause and was a significant presence for costa.

To address this we leaned into the mobility of our assets by leveraging our scale as we capitalize on the strength of our brand portfolio, while building alternate deployments for the remaining cost of fleet.

The actions we've taken to rightsize the cost of the brands are working.

Following the transfer of <unk> to our highly successful Carnival cruise line brand the launch of fun. Italian style has received strong support and is already reaching nearly 100% occupancy level for the third quarter.

And with strengthening demand Costa will be able to enter its remaining idle capacity at a faster pace.

Overall with normalized onboard protocols, we are on an even playing field to land based alternatives, enabling us to close the unprecedented and on warranted, 25% to 50% value gap to land based offerings over time.

We are well positioned to capture incremental demand given our high satisfaction and low.

Ration levels.

We're capitalizing on pent up demand for cruise vacations building on our large base of loyal guests as we work to increase awareness and consideration among new to cruise guests.

This has been helped by the ongoing efforts of our travel agent partners, who remain a critical source for new to cruise guests I'm delighted to say that the trade is showing a fantastic rebound in its recovery with us this past quarter with.

All of our brands trade activity exceeding 2019 levels as we support our trade partners with increased training and engagement.

And our investment in advertising and sales support is clearly paying dividends.

For example, we.

We've been upsizing, our U K television presence for piano cruises brand synonymous with cruising in the U K.

Not only is piano cruise has been enjoying a measurable increase in brand awareness as a result.

But the brand has also experienced record bookings over the last three months.

This is not surprising given the high correlation between TV advertising awareness and propensity to book in the U K.

The awareness of piano cruises has been amplified with the unprecedented and well publicized naming rvs in Barbados less than two weeks ago.

The amazing event featured our Fabulous godmother Nicole Scherzinger.

Our topping UK singer Ali Mers and the incomparable Prime Minister of Barbados EMEA Motley.

RVO is taking the brand forward with new guest experiences like the industry's first three D submarine escape room, and it's got over 30 dining and bar outlets.

We have a measured four 5% capacity growth compared to 2019, while still retaining the excitement from 14 newly delivered ships, representing nearly 25% of our capacity.

And importantly, our growth is weighted towards three of our highest returning brands Carnival cruise line, Aida and piano cruises U K following our portfolio and fleet optimization efforts.

As mentioned on previous calls to help support this growth and drive overall revenue generation over time.

Actively been working with each brand on their strategies and Roadmaps to ensure they have clearly identified target markets.

<unk> that is appropriately sized to the market potential.

Demand generation capability to hone in on the target market at the lowest possible acquisition costs and deliver an amazing guest experience onboard to drive net promoter scores and resulting advocacy higher.

These efforts are well underway, we have or in the process of refreshing segmentation research across all major source markets to confirm and resize our target audiences by brands postpone.

Our brands have identified clear Differentiators and we are leveraging these insights to fine tune each brand positioning and marketing efforts to attract new to cruise guests and increase loyalty.

For example, we've developed a new brand affinity partnerships like Porsche Club of America for Princess, which is an efficient way to drive new to cruise demand to a brand that will resonate with its target guests.

We have launched new marketing campaigns across multiple media channels, including new National and Homeport driven regional television in most major markets to increase awareness.

And we've leaned into digital media with emphasis on video for enhanced storytelling. In fact, Aida is new wave campaign better together has had 86 million views on tick tock and counting.

We are redesigning websites to increase online traffic improved conversion and achieve higher pre cruise onboard sales, we're refining our onboard apps to increase communication and engagement as well as capturing incremental onboard revenue.

We are refining our digital performance marketing efforts continuously fine tuning search engine optimization and testing new lead generation approaches with impressive results.

That's just two examples Holland America was recently named to the top 100 fastest growing digital brands and cost is driven and over 40% increase in lead generation in just the last six months.

Our web visits are up 35% over 2019, which is multiples of our measured capacity growth and.

And our guests that are new to brand already reached 90% of 2019 levels in the first quarter. These are testaments to the success of our investments in advertising and sales support and in fact, we're bolstering our sales and service support to address the increased volume and reduce call.

Times, resulting from all of the above.

We are sharpening our revenue management tools to drive incremental revenues through increased bundled package offers.

And new upgrade programs. We're also opening deployments further in advance and testing and learning pricing strategies to support earlier occupancy build and to push the booking curve out further we.

We are actively reducing already low cancellation levels through changes to deposit policies and new fare structures and we are using guest insights and sharing cross brand learnings to aid in everything we do.

We all have a sense of urgency to further our brands' efforts to drive net yield improvement and while it's working we recognize these efforts build over time to.

To aid in these efforts, we also have an opportunity to further leverage and monetize our industry, leading land based assets in the Caribbean and Alaska in.

In the Caribbean, we are building on our strategic advantage with a meaningful expansion of half Moon Cay, which has consistently voted best private island.

And of course, we're also developing our largest Caribbean destination, yet our Grand Bahama Court.

It's being designed to deliver Wow factors tailored to carnival cruise lines guests to drive higher revenue yields and margins. Importantly, this development is strategically located to deliver a wide array of lower fuel consumption itineraries furthering our carbon reduction efforts.

And in Alaska, we Havent unmatched strategic footprint across hotels rail and motor coaches to deliver unique land tea packages of a lifetime as well as the most itineraries by far featuring the iconic Glacier Bay.

Turning to our capital structure, we have completed two more export credits this quarter, bringing the total remaining available to $3.2 billion.

The export credits are not only an attractive way to fund new ships, but they also serve to effectively roll debt that's maturing at attractive rates in.

In fact, the majority of export credits coming due in the next few years will be replaced by new export credits available to be drawn.

As a result, we expect export credits to remain a similar portion of our debt structure at preferential low to mid single digit interest rates.

We also proactively address the renewal of our revolving credit agreement.

The creative forward start revolver allows us to retain the benefit of $2 $9 billion of liquidity until August of 'twenty 'twenty four and provides an 18 month window to build on the current commitment of $2 1 billion had.

Hats off to David and our Treasury team.

We remain disciplined in making capital allocation decisions, including new builds.

We have our lowest order book in decades, which is four ships on order through 2025, and there will be none in 2026.

Plus our second incredible luxury expedition ship for seaborne to be delivered later this year.

Following a strong and prolonged wave season.

Deposits are running up double digits contributing to adjusted free cash flow turning positive this quarter and for the full year.

We are set up for structurally higher growth in customer deposits going forward as we benefit from increasing demand and increases in our bundled package offerings and pre cruise sales.

Well, we'll always look at opportunistic refinancing opportunities.

With adjusted free cash for the year expected to be positive.

Revolver renewal behind us.

More committed export credit financing in hand.

Our reduced capex profile going forward and over $8 billion of liquidity.

We believe we are well positioned to pay down near term debt maturities from excess liquidity and have no intention to issue equity.

And with our industry, leading cost structure, we are well positioned to bring incremental revenue to the bottom line.

We are focused on durable revenue growth margin improvement and driving EBITDA per available birthday fire to propel us on the path to Delevering investment grade credit ratings and increased our Oh I see.

Over time, we expect the enterprise value for our company to shifts from debtholders back toward equity holders I cant and the call without once again, praising our travel agent partners for their unwavering support.

And our team members ship and shore, who work so hard everyday to fulfill our mission of creating unforgettable happiness by providing extraordinary cruise vacations to our guests while honoring the integrity of every osha we sale.

We visit and life, we touch.

Our company is powered by our best in class people, something for which I am incredibly thankful.

With that I'd like to turn the call over to David.

Thank you Josh.

Before I begin. Please note all of my references to take our prices NAV per Dms and adjusting cruise costs without fuel will be on a constant currency unless otherwise stated.

I'll start today with a summary of our 2023 first quarter results.

Then I'll provide a recap of our cumulative book position.

Next I'll give some additional color on our 2023 OEM March guidance and finish up describing our financial position.

And as Josh indicated in the first quarter, we outperformed our guidance on all measures.

In the first quarter, our adjusted EBITDA was $382 million, which was $82 million above the midpoint of our December guidance.

The improvement was driven by two things.

First $82 million of favorability in both improved take the prices as net premiums were up 7.5% and higher occupancy of over 91%.

And second <unk>.

<unk> 8 million of favorability and adjusting cruise costs without fuel due to the timing of expenses between quarters.

Both of which were partially offset by a $31 million unfavorable net impact from higher fuel prices and currency.

I have three additional comments before leaving the first quarter results.

First our onboard and other revenue for the first quarter continued at an elevated pace that is consistent with the back half of 2022, demonstrating continued strength from the consumer as well as the quality of our onboard offering.

However, I want to remind you that during the December conference call I indicated that for 2023 as we have done in the past we changed the bundled package offering to capture incremental revenue streams, and we reevaluated the revenue accounting allocations.

As a result in 2023 more of the revenue will be less in ticket and less allocated to envoy impacting the onboarding either revenue per game comparison to both 2022 and 2019.

Just another reason to answer in a list of reasons why the best way to judge our revenue performance is by reference to our total cruise revenue metrics such as net premiums.

Second.

Occupancy for the first quarter was over 91%, but still a gap to 2019 we.

We expect to continue to close the gap as we progressed through 2023 setting in South Korea improved year over year adjusted EBITDA, starting in first quarter 'twenty 'twenty four driven by higher revenue because of the occupancy improvement.

And third NAPCO games for the first quarter 2023 benefited from brand mixing cabin mix as compared to the remaining three quarters of 2023, which was particularly aided this quarter by the exotic voyages that held down our occupancies, which we discussed on our last conference call.

Turning to our cumulative loss position.

The remainder of 2023, our cumulative advanced bulk position is at higher ticket prices normalize for future cruise credits when compared to strong 2019 pricing with occupancy that is solidly in the higher end of the historical range.

The strong cumulative book position, along with bundled package offerings and strong pre cruise sales has resulted in total customer deposits, achieving a first quarter record of $5 7 billion.

The previous first quarter record of $4 9 billion, a 16% increase.

Next time, we will give some additional color on our 2023 full year March guidance.

We now expect capacity growth for the full year 2023 to be 4.5% when compared to 2019.

With strengthening demand caster wont be able to re enter its remaining idle capacity at a faster pace than originally thought and increasing our capacity growth from December guidance.

Full year 2023 occupancy is expected to be 100% or higher as we close the gap each quarter on occupancy levels as compared to 2019.

On the pricing front, we expect <unk> to be up 3% to 4% of full year 2023 compared to a strong 2019.

Net yields improving every quarter throughout 2023, as compared to 2019 and exceeding 2019 in the fourth quarter.

As I previously mentioned net premiums for our first quarter 2023 benefited from brand mix and cabin mix as compared to the remaining three quarters of 2023.

Our net premiums for the second quarter and implied guidance for the second half of 2023 reflect the changing brand nexsan cabin mix throughout the year.

During 2023, our European brands expect them onboard and other revenue premiums to be up significantly versus 2019 as they were in 2022 and has been the case with our North American brands.

As I previously pointed out the absolute onboard spending on our European brands, and so less than that on our North American brands.

Our Europe team, bringing guests tend to drink a little bit more like Campbell a lot less.

As the European brands catch up on occupancy with our North American brands during the second and third quarters.

Until their ships driving adjusted EBITDA higher.

They will make up a larger percentage of the total.

Changing the per passenger average and when they are historically lower onboard revenue pre games, we will no longer benefit from brand mix.

In addition, as we continue to close the gap to 2019 occupancy many of the remaining cabins left to be filled or inside cabinets. As we sell are increasingly shrinking remaining anything towards driving adjusted EBITDA higher.

We'll fill the last of our inside cabins lowering our average net premiums.

Now turning to costs.

The base of our industry, leading cost structure adjusted cruise costs without fuel per <unk> for the full year 2023 versus 2019 are now expected to be up eight and a half 295%.

This is approximately one point higher than our December guidance.

All the right reasons driving adjusted EBITDA higher.

First.

With record booking levels on both sides of the Atlantic during the first quarter, we increased the occupancy levels on which our December cost guidance was based.

Driving food costs and certain other operating expenses higher but also driving adjusted EBITDA higher.

Next we reevaluated and increased our customer service.

Staffing levels and associated costs around the globe.

Higher booking levels are occurring sooner than we previously thought.

Third with strengthening demand we made the strategic decision for a cost center reenter into service since remaining idle capacity, which means additional restart expenses in 2023, but again this won't drive adjusted EBITDA higher for.

The opportunistic sale and charter back of seaborne Odyssey earlier. This month, we will reduce depreciation expense, but the resulting charter hire expense trying suggested cruise costs higher we will record a U S. GAAP gain on the sale, but the gain will be excluded from adjusted cruise costs.

And finally fifth we see opportunities to set ourselves up for an even more successful 2024 and beyond by firms that tweaking up advertising expense later in 2023.

Again, and I must sound like a broken record.

This will drive adjusted cruise costs higher.

Also drive adjusted EBITDA higher.

As Josh said, we remain nimble and continue to aggressively seek opportunities to accelerate our path back to strong profitability.

The details of depreciation and amortization interest expense and fuel expense can be found in the business update press release, we issued earlier. This morning in the section titled guidance. So I will not take the time to walk you through the numbers.

However, I would like to thank our treasury team for the great job managing our debt portfolio with 75% of our debt, having fixed interest rates, which is significantly higher than year end 2021, when it was 58% protecting us in what has been a rising rate environment.

Furthermore, for those of you modeling our fuel expense. Please note that we expect and as you know to represent around 40% of our fuel consumption for 2023 with the percentage slightly higher during the first half of the year.

Putting all these factors together, we expect $3 9 billion to $4 1 billion of adjusted EBITDA for the full year 2023.

And now I will finish up describing our financial position.

I am smiling when I report that adjusted free cash flow turned positive in the first quarter of 2023, and we expect adjusted free cash flow to be positive for the full year 2023.

I feel great as I report that we are beyond the peak of our total debt.

Total debt peaked at over $35 billion in the first quarter of 2023, when we drew on the export credit for piano cruises Avia at the time of delivery.

We believe with over $8 billion of liquidity, we are well positioned to pay down near term debt maturities of $1 8 billion for the remainder of 2023 from excess liquidity and by year end, we expect our total debt to be down to approximately $33 $5 billion.

In addition, our debt maturity towers have been well managed through 2024, which has two and a half billion of debt maturities next year.

And looking forward I expect substantial increases in adjusted free cash flow in 2024 and beyond through durable revenue growth and gross margin improvement to drive down our debt balances on a path back to investment grade and as a result, we have no intention to issue equity.

Before I turn the call over to the operator, let me remind you to visit our website or our first quarter business update release and presentation.

Now operator, let's open up the call for questions.

Thank you if you would like to register a question. Please press the one followed by the four on your telephone he will hear a sweetened prompt technology request. If your question has been answered and you would like to withdraw your registration. Please press one three.

Our first question comes from the line of Patrick shows, which was securities. Please go ahead.

Hi, good morning, everyone.

I'm wondering a couple of questions for you.

First off you talked about.

Only having I would say less desirable cabins left to sell.

Is that.

You know play out and sort of.

How youre booking volumes trended during the quarter and how it related to pricing did you see any you know at the beginning of the quarter say December and January you know stronger volumes, but then you're sold out.

And then.

Lower volumes later on but maybe higher pricing as people symptom.

Shifting to longer a C European vacation or Alaska cruises and any any shift in that thank you. That's my first question go ahead.

Hey, Patrick so as Josh no nothing nothing discernible I mean, the fact of the volumes in the business over the entire wave period, we're just.

Wave after wave unintended a strength.

And so we didn't see anything noticeable David just to be clear mentioned, the fact that it's not only in size left it's just that's the majority of what we've got left I mean, when you're getting down to less than seven points in Q2, and then finally catching up to historical over the summer I mean, we're talking about just just just filling things out on the IMS. So we feel real.

Good about the fact that we're over 70% booked for the remainder of the year we're.

We're tracking well and wave is contingent.

And by the way I wouldn't call them less desirable.

Definitely.

And people have a great time and those cabinets.

Okay. Okay.

I will I won't argue argue with that.

My My next question, if you talk about trends in our book correct.

Certainly from my conversations with the trade, we hear that especially on the shorter.

Less expensive cruises.

Noticeable share and book direct can you comment on that at all thank you.

So overall, what we've said and it's going to be consistent as you know our direct business held up well and we've really been working hard to help the traded get back up to what we know that they can achieve and the fact is as you heard me say in my prepared remarks, many of our brands exceeded 2019 levels.

With the trade and overall, we're well on our way to getting to those levels. So we feel.

Fantastic about the performance that they've made to date and we expect that momentum just like our own to to continue and we do think that all the work we've been doing on the revenue generation isn't just for ourselves it's really in partnership with the trade and helps the trade because of the more awareness we have the more folks that get interested and the more they can help.

Bring ultimately to our brands.

Okay. Thank you very much.

Patrick.

Next question from the line of Steve Kuczynski with Stifel. Please go ahead.

Hey, guys good morning.

So Josh or David just wanted to ask about the full year EBITDA guidance you provided this morning, and you know if we look at what you did in EBITDA in the first quarter.

It exceeded your midpoint by let's call it about 30% and that's you know that's a pretty significant fuel and FX headwinds so.

If we look at what you're guiding for the second quarter.

You're essentially guiding to a little less and then let's call. It 3 billion in EBITDA for the second half of the year and I guess the question is that that just seems incredibly incredibly conservative given what youre seeing from a demand perspective spending perspective wherever whenever you want to look at it. So have you taken the view that the consumer slowed some in the second half of the year and if I just add a little differently.

Is it safe to assume that the consumer does stay kind of where they are right now there should be some some pretty good upside to your guidance range and look I understand that you know David.

David called out some change there and brand mix 'em cabin mix, but I'm, just trying to figure out what that impact could be thanks.

Yeah Yeah.

When we set our guidance based on.

A lot of variables right some of the things like I mentioned already we know we're already 70% booked when we get to pull forward a good amount of our onboard spend which has been an active initiative as you know.

We gave a range to some extent.

There are some things that you know.

Can move little bits and pieces here and there or overall just like the first quarter, we are working incredibly hard to beat our own expectations.

And so we'll continue to do that we have not seen.

Klein in consumer activity and Thats with respect to both the booking pace and onboard spending level. So despite the fact that there is some volatility out there it hasn't yet.

If it ever does it has not shown up in our business and we want to maintain that and hopefully can lead to even stronger EBITDA as we work our way through the year.

Okay Gotcha, and then Josh you know you've made it very clear in the press release that.

Do you believe the company is now in a very solid liquidity position and the use of equity won't be needed moving forward. So you've sat in your seat now for not a year, but let's call. It over six months have you given any thought as to a timeline now is to win Carnival Corporation could return to that important <unk>.

Great status.

Our goal is certainly to get there on you know I'm a former treasurer. So that's quite important for all of us.

The trajectory is going to be driven by significant free cash flow over time, we are working on longer term views of the world.

Our first quarter, we just gave our full year outlook. So give me give me a little more time, and we'll certainly start talking about longer term targets and initiatives going forward.

Remember that getting back to investment grade is twofold, it's both improving EBITDA and paying down debt and so as Josh mentioned in his prepared remarks.

In 2024, we do expect to see considerably improved adjusted EBITDA as a result of the occupancy and with the lower Capex and only for ships on order and number 2026, we do expect to be able to accelerate the pay down debt.

Okay got you thanks, Josh Thanks, David.

Thanks Neil.

Our next question from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning, Thanks for taking my call. So.

I'm going to ask one of the previous questions a different way.

Obviously, theres a lot of mix.

Affecting premiums over the course of the year.

Is there any way to sort of tease out in the mix in the in the inner cabin impact I guess I'm just trying to figure out.

If like for like per Dms, or getting better or getting worse right. Obviously throughout the rest of the consumer space. You know investors are bracing for it but a deceleration in pricing power as we work our way through the year I'm I'm, obviously, the service space with a very different spot given where we've been maybe any way to think about sort of.

Like for like pricing and what that tells us about the consumer.

Sure.

So thanks for the question James like for like pricing is up so we're very very happy as David said I wish I had said it was a really good line, they're not undesirable cabins are very desirable up and down our fleet and our portfolio of based on what particular guests are looking for and they are paying more for it and spending more on board and you got to remember.

<unk>.

And I've I've.

Been here for a long time and I remember I remember hearing this for the last 20 years.

Good times and bad our business model holds up very well and the reason why it holds up so well in a recession. If one comes is because we are an incredible value to land.

Anywhere from 25% to 50% lower than the land based equivalent and so when people are looking to figure out how do I make my dollar go further we can provide better value for their money for their vacation, which is still incredibly important even more so now than it used to be in the past that people will not give up so we feel very good about our.

Our position.

Only thing I can add to that is I did say in my prepared remarks that we did expect the fourth quarter yields to be up compared to 2019 and that is sort of an indication of the higher pricing that we're expecting and by the time, we get to fourth quarter a lot of the mix issues that we were talking.

That have disappeared pretty much all of them all of them.

Got it makes sense and then maybe on the cost side.

Excuse me.

So.

I think costs were up.

Roughly 6% in the first quarter.

Constant currency kind of have to 11, 5% in the second quarter. It seems like there were there was some moving around of cost within those numbers, but then eight five to nine and a half of the year, so presumably the back half of the year.

Those numbers are coming down I guess I'm, just trying to think about.

Sort of an exit rate.

You said, you're still going to be spending on advertising.

Later in the year, but it ultimately is there an opportunity for net cruise costs come down in 24 versus 23 or should I think about more of a normalized growth rate because as we move beyond sort of the base level of 2023.

Sure. So you know to start with you mentioned the first to the second quarter and it did go up quite a bit but there were really two things that drove that.

Remember, we increased occupancy from the first quarter to the second you're talking about a seven percentage point increase in occupancy and so I'm very happy that was a couple of points of the difference. The other was Drydock, which was also worth two points because of the number of dry docks between the quarters so far.

More of the of the five point differential is just those two items into its also timing of R&M expenses, but as we've said many times before a judge us on cost for the full year and not any particular quarter and we gave you our guidance for the full year, but we will work hard as we always do.

And to do better than that and and that's a fairly reasonable run rate to think about going forward. One thing I just wanted to clarify because you know we're still in a little bit of a bizarre.

Comparisons structure that we're operating under this year, so when you're talking about this year and then exit rates you got to remember we're talking about 2023 versus 2019, which is a four year gap in the comparison when we talk about what is 24 look like which we're not talking about yet remember that's 24 versus <unk> 23.

So that picture will look very very different from the environment that we're describing to give a better sense of how we're doing versus the last normalized year of the industry in which was 2019.

Got it very helpful. Thanks, guys.

Sure.

Next question from the line of Fred <unk>.

Weichman with Wolfe Research. Please go ahead.

Hey, guys. Thanks for the question I wanted to follow up on the European consumer specifically I know you sort of talked broadly.

About the North American consumer, but if we just look at the booking curve, which is trailing North America. I think you guys also made some comments about bookings picking up there recently and then just piece that altogether with the cost of fleet coming back into service a little bit sooner can you sort of help us bridge the gap for all that and maybe where the European consumer is specifically.

Yes. It is.

All good news from our perspective, all of our brands over and over in UK and Europe are experiencing strong demand there.

We've continued to outperform expectations on the closer in environment that they have been operating under.

As we said the good news is despite the fact that they are generating even more close in demand and normal they've also managed to extend their booking window over this period and so what that tells you is not only are they getting demand for the the short term, but they are also beginning to normalize and you think about making their their holiday choice.

As well in advance and so.

Pretty much across the board, we're really where we are being.

Being supported by strong consumer sentiment in Europe for our European brands.

Perfect and then just on the ship pipeline zero shifts for twenty-six that's consistent with what you guys had talked about previously but I think there was also in the past to comment about expecting one or two ship deliveries annually for several years beyond that is that still sort of the cadence implant.

It will certainly be that's certainly the plan one or two whether that starts in 2027 or it starts. After 2027 is still a question mark.

No.

We're very much focused if you think about the the pipeline over the next four plus years, it's the lowest it's ever been and it will continue to dwindle down as we get our way through the year.

Great. Thank you.

Next question from the line of Robin Farley with UBS. Please go ahead.

Great. Thanks, just wanted to clarify your comment on that.

Yield outlook.

You talked about Q4 yields would be above 2019 levels.

Suggesting that Q3 would not be I think you said that occupancy will be back to full by Q3, and I think you said elsewhere that for Dan.

Each quarter would be higher than 2019 so.

It seems like that should get to yield above 2019 levels. In Q3, if you could just clarify that theres, maybe a piece there in that sector.

It was.

We didn't give guidance for each and every quarter I was trying to just.

Indicate the fourth quarter fourth quarter for this specific reason.

That we talked about before in terms of with all of the mix issues. We have I wanted everybody to fully understand that pricing was up on a like for like basis, and I'd, rather not sit here and give guidance for each quarter.

But basically.

Okay.

We said that what you had indicated and and we'll work hard to do better than that.

Okay, great. Thank you I understand youre not guiding for Q3, but youre definitely not saying it can't be Abbas.

Yield in 19 right behind it okay.

Thank you.

Then.

Just wanted to when you talked about.

Price being higher.

And the release of <unk> expression that Justin.

Or FCC discounts.

Elsewhere, you said pricing for gains will be up 3% to 4% for 22 versus <unk> 19.

When you say that pricing will be up adjusted for FCC are you, suggesting that if you include the FCC discounts.

Yes.

Would that be above 19, because I would think that FCC discount would only be a percentage point or so.

So I'm, just wondering why you're sort of calling out that.

It is higher if you adjust for that.

In other words.

Yeah.

No problem, Robert just to be clear, we're projecting that <unk> up 3% to 4% for the year and thats inclusive of FCC drag so without that drag would be even higher.

And on the booking trends.

It would be up either way, we just we've been calling that out every quarter.

Can we have for the last couple of years. So I guess, we continue to call it out but.

But it would be up either way.

And it is.

Greg is that right thinking that would only be about a person from under 1% range or one 1% on total net yields for the year, a little bit higher in the first half and a little bit lower in the second half.

Okay, Great and then by next year by 24 is it fair to assume that there wouldn't be any FCC sector. After 28 less than a 10th of a point it's minimal.

Okay perfect. Thank you a few leftover.

Okay, great. Thanks, very much thanks.

Thanks, Rob.

Next question from the line of Ben Chaiken with Credit Suisse. Please go ahead.

Hey, good morning, Thanks for taking my question.

On the last couple of calls and this one.

Talking about higher advertising expense are you a bit of ballpark either in net cruise cost basis points or absolute dollars.

What the incremental spend is and then as it is at the right run rate or does it normalize in future and I've got one quick follow up.

Yes, so the knick on a net cruise cost basis, it's about versus 2019, a point and a half.

Hum net cruise cost increase.

And as far as the run rates.

Yeah.

So we're up a point and a half.

Which means we're still spending less.

And then others in the cruise space on a per <unk> basis.

We are we're very pleased with the results because by very nature, we can throttle up and throttle back.

We can literally take it quarter by quarter and work with the brands to understand what's working and what's not some things frankly didn't work as well as we had hoped and so the brands are stopped doing it and they're leaning into other things so it'll be it'll be pretty fluid as well it should be but what I can tell you. If you take a step back and you think about the results that we've experienced.

<unk> really over the last six months, an accentuated over the last quarter.

We think that that's a <unk>.

Significant tailwind for what the brands have been able to achieve.

Understood. Thank you and then on the last call you provided a fuel FX.

Impact for <unk> relative to <unk> 19, you said it was $1 50, I think subsequent to that kind of up to $1 81.

What does it look like for <unk> at the moment and then any color on <unk>.

<unk>.

So.

Let me get the detailed numbers for your you're talking about versus 2019.

Yeah on the last call you mentioned that.

You mentioned on the <unk> call for <unk>, you said there'd be $150 million headwind.

Relative to <unk> 19 for FX and fuel yeah. Okay.

What does that look like for <unk> at the moment and then any color on <unk> would be very helpful as well.

So Q2 would be about <unk>.

$75 million of fuel and currency headwinds.

I don't have Q3, and four but I can give you the full year.

Let's see for the full year.

Fuel and currency.

Uh huh.

Let's see $430 million call it.

Thank you.

Our next question from the line of Brent <unk> with Barclays. Please go ahead.

Hey, good morning, everybody. Thanks for taking my question.

Starting with yields.

The fleet overhaul that you guys did and during the pandemic hypothetically would have a large positive mixed impact for net yields now versus 19.

It's a little hard to see that in your guidance, but theres plenty of residual drag in 'twenty three and obviously much of the book was put in place before the advertising push right and last year. So I guess when you when you adjust out all of the drags that you have this year and maybe take out Australia, and Asia and Eastern Europe .

Are you seeing do you feel like Youre seeing a tailwind a material tailwind from that overhaul.

So the answer is yes, we do.

And one of the difficulties of looking at a four year period and trying to piece together everything.

That builds up to where we are I mean, there's a lot that's happened over a four year period do you think about I mean, you just say exclude Asia and exclude Australia has restarted and then exclude Saint Petersburg, and which was seven 5% of our business in 2000 22019 Q3.

There's quite a lot that we have.

Have overcome.

In order to be able to deliver higher per dms as we get to close the gap. So.

We can probably.

Banter, you and I see you enough, we can banter about all the bits and pieces that go in different directions, but I think we've tried to boil it down to what we think are the real drivers of the business.

Okay. Thanks for that and then maybe just a follow up to Ben's question.

Im looking at EBITDA per <unk> ex fuel and FX notice that Josh your commentary about exiting the year rivaling for 2019 was that commentary was essentially unchanged from three months ago, but again three months ago was before this record wave season. So I guess the question is do you feel any.

About that comment three months later.

You bet I do.

So we're working hard we outperformed in the first quarter, we're expecting 50, and we got to 60.

About two thirds forecasted for the second quarter on that basis.

We're just we're everybody is working incredibly hard to make that come to fruition as quickly as we can.

Thanks, so much everyone.

Next question from the line of Assia Georgieva with Infiniti Research. Please go ahead.

Good morning, congratulations on the very.

Very good results for Q1.

Just I had a question kind of longer term question again in terms of new builds given the fact that its usually takes three to four years.

From the point when we put in the order.

Yeah.

Are you thinking of and again with the treasury background are being more conservative.

How are you thinking of continuing to sort of reduce the rate of new build growth the capacity growth or.

Can we see acceleration once we get to investment grade.

We tried to I think give that philosophy by using our one to one to two ships a year. Once we start ordering again and so by its very nature that that will be a lower capacity.

Rate of increase than we've experienced for a very very long time I feel.

With four ships on order plus a small expedition ship in that through 2025, we know we're not getting anything for 'twenty six 'twenty seven to push we will see it.

It's us up incredibly well to be able to generate free cash flow pay down debt.

As David mentioned, our EBITDA increases get back to three five times debt to EBITDA.

And be much better positioned to be making newbuild decisions frankly for the future.

Okay that makes perfect sense.

I believe that in the past we are looking to maybe one or two ships.

<unk> pro brand as opposed to point the entity.

And I know that that would've been a much higher growth rate, we were probably somewhere between three and five ships a year depending on the.

Pending underground remember we have nine brands. So so we've got.

Plenty to diversify our newbuild growth strategy over time.

Okay. Thank you so much Josh I appreciate it sure. Thank you.

Next question from the line of Stephen Grambling with Morgan Stanley . Please go ahead.

Hi, Thanks, just thinking about the ship pipeline you talked about the gross adds but the other side of the equation is any attrition or are we now in the normal retirement cycle for the fleet, where we should more or less expect maybe one or two per year or did you pull forward some retirements that could actually be lower going forward.

Yes, we definitely pulled forward some some ships.

Could have been done at AR.

At a later time, so not anticipating anything of significance over the next couple of years and then we'll probably pick back up the cadence that you were talking about over over time.

But nothing nothing imminent.

That's helpful. And then you talked about a few of the non ship related projects scramble harm our private island et cetera can you talk a bit more about how.

How those could potentially impact yields and how the investments may compare to what you've done in the past.

Yeah, well I mean.

As a starting point, we have a phenomenal footprint in the Caribbean I think I've mentioned in my prepared remarks Hoffman fee being pretty much a jewel of the Caribbean and the Bahamas.

With with the ability for us to generate more differentiated experiences through Grand tour.

That will absolutely help the carnival cruise lines brand not only on the yield side.

But also on the cost side, we're talking about being able to put another incredibly attractive destination in a very short distance from South, Florida East coast of the United States, which which helps us tremendously.

Cost side on our carbon footprint side, and what we're doing on half Moon Cay by adding appear that will open up a lot more opportunity for us to bring bigger ships to that island more guests a better guest experience and more opportunities to generate not only enhanced ticket pricing because of that but also onboard.

Onboard spend in the form of spending on board our destinations.

Great. Thanks, so much.

Thank you.

Next question from the line of Chris Lewis.

Lewis with <unk>. Please go ahead.

Good morning, Thanks for taking my question, Josh you spent a lot of time going through these various revenue and market marketing initiatives in your prepared remarks could you help frame or give some color as we think about the guide here for EBITDA for the full year, how we should.

Perhaps we could put those in buckets.

How we should think about incremental revenue for these initiatives here versus.

Any any cost.

Fishing sea related efforts net of what's as you said likely to be elevated.

<unk> costs for the mid term thank you.

So.

I'm going to try to answer your question.

Some of the things that the brands have been working on.

What we've seen is a fairly immediate in year benefit right the ability for us to be better at our.

Search engine optimization driving more people to be looking for us to begin with.

We can measure those things and we can see we can see results. There are other things that we're doing specifically.

Specifically with respect to introducing fair types that.

Brands have never had before some brands doing nonrefundable deposit fares that have never done that we can we can we can weigh that up in year pretty quickly. There are other things that are going to be having impacts not just for this year, but frankly on a much longer term basis as well primarily around how we're managing our booking curve and being able.

To extend that out further being able to be better differentiated in the market driving more demand over time so.

Candidly I'm not I'm not sure I'm answering your question, but I don't think it's so easy to try to fit into a particular buckets of EBITDA, particularly for this year. If that's what you were looking for is the only thing I do want to add is.

There are a lot of them.

Different efforts efficiency efforts going on all around the company, we did build all of that into our cost guidance remember the cost numbers as Josh pointed out are over a four year period. This is in comparison to 2019. So there hasnt been a lot of inflation during that four years. So we have built a lot of.

Efficiencies as well and taking a step back from advertising, but just the concept of how are we looking at our business. Overall, we've tried to stress throughout we are starting with an industry leading cost structure and we certainly want to maintain that we're always looking from an operational standpoint, how can we do better how can we improve.

And we're doing things like benchmarking the same class of shifts across multiple brands. We're looking at ways to further leverage our spend through our global sourcing initiatives that's ongoing.

We'll continue some of which the benefit.

No we're seeing already some of which will will factor in as we make our way through 2023 and really start benefiting in 2024.

Okay. Thank you and a follow up a little bit of a.

Uh huh.

Tougher or more direct question. If you will sort of your capacity guide is up about a point and a half from December .

The cost guide is up and there is there is some confusion around here around your brand in.

Cabin mix, if you will and I think part of the reason.

If we look at January into mid February around some of the enthusiasm Susie azzam around the stock was.

At that time that 3% or.

Sort of a typical capacity guide for carnival and belief that.

That would help us sort of accelerate here.

Margin recovery, So what would you say in response.

This is a question I've gone today that sort of carnival.

Liquidity I would say for the first half at least risk here is off the table, but what would you say in response to that.

With the guidance update today that carnival is not.

Going to revert back to its sort of.

Old playbook, if you will and what I mean by that is really just some of the numbers here, where we have the four five.

We're mid single digit capacity growth in the higher cost guide and then concerned around.

The pricing integrity here. Thank you.

Sure. So just to be clear the only difference in our capacity from what we were saying.

Last quarter till now is because of the strength in demand that we're seeing for the Costa brand because of what we've been doing we have the opportunity to introduce.

Ship earlier than we expected, which is going to actually help liquidity, because it's going to drive EBITDA.

So we feel very very good about that decision, we actually have a track record of doing real well on the cost side. So I think if we can maintain.

That type of discipline them, then we will be well served.

Everything else that we talked about in the last quarter still holds.

More enthusiastic now given the fact that we just had record breaking wave.

Brands are more certain in their plans and we're pushing forward.

And I would like to add on the cost the.

The majority of the increase was associated with higher occupancy and remember we put together our <unk>.

Forecast back last November .

We give guidance we have our earnings call in December very early in the month and so that was our forecast that we had put together prior to black Friday, cyber Monday and all of the <unk>.

Record bookings that we saw throughout December January and February .

So when you've got extra occupancy onboard the ship your costs are going to go up on a unit basis, a little bit because remember the <unk> don't change or the denominator doesn't change. So it's all very good news driving adjusted EBITDA higher driving liquidity improved liquidity and.

So we are far more confident than we are today than we were back in December as Josh indicated before.

Okay. Thank you.

I think this has to be the last question.

Operator.

Yes.

Yes, one more question, we'll take one more.

Last question from the line of Paul Golding with Macquarie Capital. Please go ahead.

Yes. Thanks, so much I wanted to ask around other ship operating and from a dry dock perspective is there a potential quantification of this for US in terms of what's left I think a lot of us were under the impression that through Covid.

Warm and cold lay up a lot of this had been worked through and I recognize that this is for.

A reinstatement of the ship, but is there a way to quantify that and then <unk>.

Secondly on marketing anything we should think about on cadence not necessarily total spend but cadence relative to the.

Offset in Australia, and Asia restarts as we look at the next year year unchanged. Thanks, so much.

And so as far as Drydocks concerned yes, there were a lot of ships that went into dry dock last year, but keep in mind.

Pending on the ship.

Depending on the age of the ship either ships have to go into dry dock. Once every five years, where twice every at every five years. So it's.

There are lots of differences.

And we're always going to have dry docks every year. They do vary and we tried to given indication.

<unk>.

2022 was an unusually high year because of the restart, but we do expect that Drydocks. This year and every year thereafter on a regular basis as we go forward.

And as far as the cadence on the restart is concerned on the advertising front, it's pretty consistent quarter over quarter for the rest of the year things do slide from quarter to quarter, but nothing I think is worth worth pointing out and our plans might change as Josh indicated before so it's very hard to give that level of <unk>.

Detailed guidance.

So with that.

Ill say, thanks, everybody for joining and talk to next quarter. Thank you.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.

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Good morning, this is Josh Weinstein.

Welcome to our first quarter 2023 business update conference call.

I'm joined today by our Chairman Micky Arison, our Chief Financial Officer, David Bernstein, and our senior Vice President of Investor Relations Beth Roberts.

Before I begin please note that some of our remarks on this call will be forward looking therefore, I must refer you to the cautionary statement in today's press release.

Consistent with our last business update we remain on an upward trajectory as we further closed the gap to 2019.

We are still experiencing a record wave season, which started early gain strength and is extended later into the year.

We expect these favorable trends to continue based on the traction we're making through our ongoing efforts to drive demand globally in.

In the first quarter, we outperformed our guidance on all measures revenue costs, adjusted EBITDA and earnings while overcoming over $30 million in headwinds from fuel price and currency since our prior guidance. Thanks to the dedicated efforts of our 160000.

Phasing team members around the world.

We had sequential improvement in our occupancy gap to 2019 from 19 points in Q4 to 13 points in Q1.

An increasing capacity, which is now above 2019 levels.

We anticipate being just seven points or less away from 2019, Occupancies in the second quarter, well on our way to historical Occupancies. This summer.

Equally important we also drove ticket prices higher and continue to throttle back on our opaque channel while also maintaining outsized onboard revenue growth.

But we have not lost sight of the cost side of the business.

We are working hard to mitigate for years of inflation, while still reinvesting in advertising and sales support to build future demands.

We remain nimble and continue to aggressively seek opportunities to accelerate our path back to strong profitability.

For the year, we're expecting adjusted EBITDA of $4 billion at the midpoint.

The gap to 2019 as record $5 $5 billion of adjusted EBITDA is being driven primarily by two items first is our 2023 occupancy gap to 2019, which we expect to be behind us as we cycle through this year.

As well as close in deployment changes and the slightly delayed but improving European recovery trajectory.

Second is a drag due to fuel prices and currency changes compared to 2019.

In actuality the strength of our demand generation, resulting in elevated for Dms and our fleet optimization efforts has helped us to mitigate for years of significant cost inflation, which of course will continue to work to offset even further.

On a per <unk> basis, and holding fuel price and currency constant to 2019 levels, we were roughly 60% back to 2019 EBITDA in our first quarter.

Better than our expectation to be halfway back.

We expect to be two thirds of the way back in our second quarter as we progress back to levels that rival 2019, as we exit the year.

Each point of net yield improvement results in $170 million to the bottom line in 2024.

More than offset the drag from fuel price and currency over time.

To that end wave season has been phenomenal.

It started early with record Black Friday booking volumes and has continued to build.

We achieved our highest ever quarterly booking volumes in our company's history.

And we actually had our best weekly booking volume for this wave the last week in February .

And the good news is that strength in bookings has continued into March supporting our revenue expectations for the remainder of the year of course, we're working very hard to do even better.

In North America, our Carnival brand continues to propel us forward breaking new booking records every single week in January and February .

Booking volumes for our North American brands have been running in excess of record 2019 levels for the last six months and.

And booking lead times are now back to peak levels.

Demand for our European brands has strengthened more recently and is catching up to the U S market in the recovery cycle.

<unk> trends are improving across all regions as we exit the winter period and home heating concerns date in.

In fact booking volumes reached a record for our European brands as well.

Evidenced strong close in demand and producing a continued lengthening in the booking curve.

As we previously noted Australia is about a year behind the U S. In terms of the recovery cycle.

And while Asia is still about two years behind we successfully resumed operations there with the ships now in Japan and one in Taiwan, beginning this summer.

Turning to China. The country is still is not reopen to international cruise travel, which accounted for $1 million of our guests pre pause and was a significant presence for costa.

The actions we've taken to rightsize the cost of brands are working.

Following the transfer of <unk> to our highly successful Carnival cruise line brand.

Launch of fun Italian style has received strong support and is already reaching nearly 100% occupancy level for the third quarter.

And with strengthening demand Costa will be able to enter its remaining idle capacity at a faster pace.

Overall with normalized onboard protocols, we are on an even playing field to land based alternatives, enabling us to close the unprecedented and warranted, 25% to 50% value gap to land based offerings over time.

We are well positioned to capture incremental demand given our high satisfaction and low penetration levels.

We're capitalizing on pent up demand for cruise vacations building on our large base of loyal guests as we work to increase awareness and consideration among new to cruise guests.

This has been helped by the ongoing efforts of our travel agent partners, who remain a critical source for new to cruise guests I am delighted to say that the trade is showing a fantastic rebound in its recovery with us this past quarter with several of our brands trade activity exceeding 2019 levels as.

We support our trade partners with increased training and engagement and.

Our investment in advertising and sales support is clearly paying dividends.

For example, we've been upsizing, our UK television presence for piano cruises brand synonymous with cruising in the UK.

Not only is piano cruise has been enjoying a measurable increase in brand awareness as a result, but the brand has also experienced record bookings over the last three months.

This is not surprising given the high correlation between TV advertising awareness and propensity to book in the U K.

The awareness of piano cruises has been amplified with the unprecedented and well publicized naming RVO in Barbados less than two weeks ago.

The amazing event featured our Fabulous godmother Nicole Scherzinger.

Chart, topping UK singer Ali Mers and the incomparable Prime Minister of Barbados EMEA Notley.

Our Villa is taking the brand forward with new guest experiences like the industry's first <unk> submarine escape room, and it's got over 30 dining and bar outlets.

We have a measured four 5% capacity growth compared to 2019, while still retaining the excitement from 14 newly delivered ships, representing nearly 25% of our capacity.

And importantly, our growth is weighted towards three of our highest returning brands Carnival cruise line, Aida and piano cruises U K following our portfolio and fleet optimization efforts.

As mentioned on previous calls to help support this growth and drive overall revenue generation over time.

Have actively been working with each brand on their strategies and roadmaps to ensure they have clearly identified target markets.

<unk> that is appropriately sized to the market potential.

These efforts are well underway, we have or in the process of refreshing segmentation research across all major source markets to confirm and resize our target audiences by brands postpone.

Our brands have identified clear Differentiators and we are leveraging these insights to fine tune each brand positioning and marketing efforts to attract new to cruise guests and increase loyalty.

We have launched new marketing campaigns across multiple media channels, including new National and Homeport driven regional television in most major markets to increase awareness.

And we've leaned into digital media with emphasis on video for enhanced storytelling in fact, I E. There's new wave campaign better together has had 86 million views on tick tock and counting.

We are redesigning websites to increase online traffic improved conversion and achieve higher pre cruise onboard sales, we are refining our onboard apps to increase communication and engagement as well as capturing incremental onboard revenue.

We are refining our digital performance marketing efforts continuously fine tuning search engine optimization and testing new lead generation approaches with impressive results.

That's just two examples Holland America was recently named to the top 100 fastest growing digital brands and cost is driven and over 40% increase in lead generation in just the last six months.

Our web visits are up 35% over 2019, which is multiples of our measured capacity growth.

And our guests that are new to brand already reached 90% of 2019 levels in the first quarter. These are testaments to the success of our investments in advertising and sales support.

And in fact, we're bolstering our sales and service support to address the increased volume and reduced call times, resulting from all of the above.

We are sharpening our revenue management tools to drive incremental revenues through increased bundled package offers and new upgrade programs. We're also opening deployments further in advance and testing and learning pricing strategies to support earlier occupancy build and to push the booking curve.

Further.

We are actively reducing already low cancellation levels through changes to deposit policies and new fare structures and we are using guest insights and sharing cross brand learnings.

Aid in everything we do.

We all have a sense of urgency to further our brands' efforts to drive net yield improvement and while it's working we recognize these efforts build over time to <unk>.

And these efforts we also have an opportunity to further leverage and monetize our industry, leading land based assets in the Caribbean and Alaska.

In the Caribbean, we are building on our strategic advantage with a meaningful expansion of half Moon Cay, which has consistently voted best private island.

And of course, we're also developing our largest Caribbean destination, yet our Grand Bahama Port.

And in Alaska, we Havent unmatched strategic footprint across hotels rail and motor coaches to deliver unique land packages over lifetime as well as the most itineraries by far featuring the iconic Glacier Bay.

Turning to our capital structure, we have completed two more export credits this quarter, bringing the total remaining available to $3 $2 billion.

The export credits are not only an attractive way to fund new ships, but they also serve to effectively roll debt thats maturing at attractive rates in.

In fact, the majority of export credits coming due in the next few years will be replaced by new export credits available to be drawn.

As a result, we expect export credits to remain a similar portion of our debt structure at preferential low to mid single digit interest rates.

We also proactively address the renewal of our revolving credit agreement the.

The creative forward start revolver allows us to retain the benefit of $2 $9 billion of liquidity until August of 2024 and provides an 18 month window to build on the current commitment of $2 1 billion.

Hats off to David and our Treasury team.

We remain disciplined in making capital allocation decisions, including new builds.

We have our lowest order book in decades, which is four ships on order through 2025, and there will be none in 2026.

Plus our second incredible luxury expedition ship for seaborne to be delivered later this year.

Following a strong and prolonged wave season.

Deposits are running up double digits contributing to adjusted free cash flow turning positive this quarter and for the full year.

We are setup for structurally higher growth in customer deposits going forward as we benefit from increasing demand and increases in our bundled package offerings.

<unk> pre cruise sales.

Well, we'll always look at opportunistic refinancing opportunities.

With adjusted free cash for the year expected to be positive.

Revolver renewal behind us.

More committed export credit financing in hand.

Our reduced capex profile going forward and over $8 billion of liquidity.

We believe we are well positioned to pay down near term debt maturities from excess liquidity and have no intention to issue equity.

And with our industry, leading cost structure, we are well positioned to bring incremental revenue to the bottom line.

We are focused on durable revenue growth margin improvement and driving EBITDA per available birthday fire to propel us on the path to Delevering investment grade credit ratings and increased ROIC.

Over time, we expect the enterprise value for our company. It just shifts from debtholders back toward equity holders I can't end the call without once again, praising our travel agent partners for their unwavering support.

And our team members ship insurer, who work so hard every day to fulfill our mission of creating unforgettable happiness by providing extraordinary cruise vacations to our guests while honoring the integrity of every osha we sale.

We visit and life, we touch.

Our company is powered by our best in class people, something for which I am incredibly thankful.

With that I'd like to turn the call over to David.

Thank you Josh.

Before I begin. Please note all of my references to take our prices net premiums and adjusted cruise costs without fuel will be in constant currency unless otherwise stated.

I'll start today with a summary of our 2023 first quarter results.

Then I'll provide a recap of our cumulative booked position.

Next I will give some additional color on our 2023 OEM March guidance and finish up describing our financial position.

And as Josh indicated in the first quarter, we outperformed our guidance on all measures.

For the first quarter, our adjusted EBITDA was $382 million, which was $82 million above the midpoint of our December guidance.

The improvement was driven by Tuesday.

First $82 million of favorability in both improved take your prices as net premiums were up 7% and 5% and higher occupancy of over 91%.

And second <unk>.

<unk> 8 million of favorability and adjusting cruise costs without fuel due to the timing of expenses between quarters.

Most of which were partially offset by a $31 million unfavorable net impact from higher fuel prices and currency.

I have three additional comments before leaving the first quarter results.

First our onboard and other revenue for the first quarter continued at an elevated pace that is consistent with the back half of 2022, demonstrating continued strength in the consumer as well as the quality of our onboard offering.

However, I wanted to remind you that during the December conference call I indicated that for 2023 as we have done in the past we changed a bundled package your offering to capture incremental revenue streams, and we reevaluated the revenue accounting allocations.

As a result in 2023 more of the revenue will be less in ticket and less allocated to envoy impacting the onboard and other revenue per diem comparisons to both 2022 and 2019.

Just another reason to add to the list of reasons why the best way to judge our revenue performance is by reference to our total cruise revenue metrics such as net premiums.

Second.

Occupancy for the first quarter was over 91%, but still a gap to 2019.

We expect to continue to close the gap as we progress through 2023, setting us up for improved year over year adjusted EBITDA, starting in first quarter 2024, driven by higher revenue because of the occupancy improvement.

And third <unk> for the first quarter 2023 benefited from brand mixing cabin mix as compared to the remaining three quarters of 2023, which was particularly aided this quarter by the exotic voyages that held down our occupancies, which we discussed on our last conference call.

Turning to our cumulative book position for.

For the remainder of 2023, our cumulative advance book position is it higher ticket prices normalize for future cruise credits when compared to strong 2019 pricing with both occupancy that is solidly in the higher end of the historical range.

The strong cumulative book position, along with bundled package offerings and strong pre cruise sales has resulted in total customer deposits achieving a first quarter record of $5 7 billion, surpassing the previous first quarter record of $4 9 billion, a 16% increase.

Next time, we will give some additional color on our 2023 full year March guidance.

We now expect capacity growth for the full year 2023 to be four 5% when compared to 2019.

With strengthening demand Costa will be able to re enter its remaining idle capacity at a faster pace than originally thought increasing our capacity growth from December guidance.

Full year 2023 occupancy is expected to be 100% or higher as we close the gap each quarter on occupancy levels as compared to 2019.

On the pricing front, we expect <unk> to be up 3% to 4% of full year 2023, compared to a strong 2019 with net yields improving every quarter throughout 2023 as compared to 2019 and exceeding 2019 in the fourth quarter.

As I previously mentioned net <unk> for first quarter 2023 benefited from brand mix and cabin mix as compared to the remaining three quarters of 2023.

Our net <unk> for the second quarter and implied guidance for the second half of 2023 reflect the changing brand nexsan cabin mix throughout the year.

During 2023, our European brands expect them onboard and other revenue of <unk> to be up significantly.

Q1 2023 Carnival Corp Earnings Call

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