Q1 2023 Norwegian Cruise Line Holdings Ltd Earnings Call

Speaker 1: time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions for this section will follow at that time. If anyone should require operator assistance during the conference please press star 0 on your touch tone phone.

Speaker 1: As a reminder to all participants, this conference is being recorded. I would now like to turn the conference over to your host, Jessica John , Vice President of Investor Relations, ESG, and Corporate Communications. Ms. John , please proceed.

Speaker 2: Thank you, Paul, and good morning, everyone. Thank you for joining us for our first quarter 2023 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, Harry Sommer, President and CEO-elect of Norwegian Cruise Line Holdings, and Mark Kempa, Executive Vice President and Chief Financial Officer.

Speaker 2: As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhltd.com slash investors.

Speaker 2: 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'd like to cover a few items. Our press release with first quarter 2023 results was issued this morning and is available on our Investor Relations website.

Speaker 2: This 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 statement contained in our earnings release.

Speaker 2: 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.

Speaker 2: With that, I'd like to turn the call over to Frank Del Rio. Frank?

Speaker 3: Thank you, Jessica, and good morning, everyone. Thank you for joining us.

Speaker 3: Today marks a significant milestone for me as it is my 34th and final earnings call as President and CEO of this incredible company before my upcoming retirement which was announced just over a month ago. immmonth TheID mango generous suddenly

Speaker 3: In 2015, I was given the opportunity to lead Norwegian Cruise Line Holdings into its next chapter, one where we brought together three of the industry's leading brands, Norwegian Cruise Line, Oceana Cruises, and Region 7 Seas Cruises to form the best cruise operator in the industry.

Speaker 3: After eight incredible years, it is now time for me to make way

Speaker 3: for the next generation of leaders who are ready and energized to take this company onto greater heights.

Speaker 3: Before getting to the crux of the call, I want to take a moment to thank all of Norwegian's team members around the globe, Shipboard and Shoreside, who are the backbone of this company and who are the main driver of its success.

Speaker 3: I also want to express my sincere appreciation to our loyal guests, valued travel partners, lenders, shipyards, investors, analysts, and all of our stakeholders for your continued support and partnership over the years.

Speaker 3: I'm incredibly proud of what we have been able to collectively achieve, especially over the past few extremely challenging years, but I know that the best days for this company still lie ahead and I look forward to seeing what you all accomplish together.

Speaker 3: With Terry's summer at the helm, I leave this company the most capable of hands.

Speaker 3: As Slide 5 shows, Harry has a broad range and depth of experience that makes him one of the premier executives in the industry.

Speaker 3: I have worked with Harry in various capacities over the course of three decades.

Speaker 3: and I can assure you that he is a strategic and innovative leader who has the right talent, skill set and energy to lead the company at this pivotal time in its history.

Speaker 3: As a long-standing cruise industry and company veteran, he brings both continuity and a fresh perspective to this seat.

Speaker 3: We have been working together along with our board of directors and the rest of the senior management team for some time now to ensure a seamless transition, and I am confident that NCLH will not skip a beat as we continue to push forward and capitalize on the momentum we are experiencing today.

Speaker 3: Now there are times when fate meets circumstances and this happens to be one of those times as my departure coincides not only with the 20th anniversary of the founding of Oceana Cruises but also the delivery of the seventh ship in the Oceana fleet, the incomparable Vista.

Speaker 3: which you can see details about on slide six.

Speaker 3: With great pride, we took delivery of this amazing ship just last week, bringing NCLH's total fleet to 30 vessels with over 60,000 berths.

Speaker 3: We are heading over to Europe this week where Vista will be Christian and Malta by her godmother, Emmy award winning food personality Giada De Laurentiis.

Speaker 3: At 1,200 guests, Vista is the first of two Alora-class ships for the line, with the second ship named Alora expected in 2025.

Speaker 3: These ships will further elevate and cement Oceana Cruise's leading position in the upper premium cruise base.

Speaker 3: I have to thank our partners at Cancieri once again for bringing our vision to life and delivering a truly magnificent ship.

Speaker 3: What is even more exciting is that Vista is just the first of three new builds that we have in the pipeline this year, with Norwegian Viva and Region 7th Seas Grander joining the fleet later this year.

Speaker 3: New hardware introductions generate excitement from those new to cruise and new to brand, as well as with our loyal PAP guests. So three ships in one year will mean that much more of a halo effect for our company to leverage.

Speaker 3: Given their very efficient financing structures made possible through the unique nature of the industry's interconnected financing ecosystem, new ships are able to contribute immediately and are expected to be meaningful drivers of the company's future earnings growth and margin expansion.

Speaker 3: So now I'll turn the call over to Harry who will be tasked with delivering on the significant potential upside we see ahead to provide an update in the current environment and the key catalyst we have in the horizon. Harry. Harry.

Speaker 4: Thank you, Frank. And before I get started, I have to say that I am honored and grateful to be given the opportunity to lead this iconic company.

Speaker 4: Growing up to immigrant working class parents in the Bronx, I could never have dreamed to be at the helm with such a storied brand. But Frank, you took me under your wings early in my career and it taught me so much over the last three decades. I know I speak on behalf of the entire NCLH team want to say thank you, Frank, for your countless contributions.

Speaker 4: not only to our company, but also to the broader cruise industry. I look forward to building on this remarkable legacy and I am committed to doing everything I can to best position this company for continued success.

Speaker 4: Over the next few months, I will be speaking with travel partners, team members, destination representatives, the investment community, and a whole host of constituents while working closely with our executive team to find and to an our planned vision for the future, and I look forward to sharing details with you.

Speaker 4: Shifting our attention to the backdrop that makes me so optimistic for what lies ahead, slide seven outlines our current positioning and the key catalysts we see now and on the horizon. We covered our leadership transition already, which could not have gone smoother, so I will skip ahead to what continues to be a healthy demand environment.

Speaker 4: Our target consumer remains resilient with a persistent desire for travel and experiences.

Speaker 4: Our booking window, which is our best forward looking indicator, remains strong. In fact, we were encouraged to see that even with the banking sector driven financial market volatility in March, we did not experience any unusual booking or cancellation activity across any of our brands.

Speaker 4: Our onboard revenue generation, which is our best real-time indicator of how consumers are feeling financially, is also performing exceptionally well and we are even more pleased with the depth and breadth of the strength across revenue streams, ships and regions.

Speaker 4: During the quarter, gross on-board revenue for passenger cruise day was nearly 30% higher than the comparable 2019 period. This is driven in part by our focus on attracting the best guests and enhancing our market-leading bundled offering.

Speaker 4: We are also increasing quality touch points with our guests, starting with the time of looking to capture even more revenue and prepayment prior to cruise.

Speaker 4: Our pre-sold revenue on a per passenger day basis for the first quarter of 2023 is approximately double the level in 2019, an important contributor to our onboard revenue strength, as guests who make pre-cruise purchases tend to spend significantly more than guests who do not pre-book onboard activities.

Speaker 4: Turning to our next catalyst, we continue to take strategic actions across our business to improve operating efficiencies and right size our cost base to rebuild and enhance margins.

Speaker 4: The results of this initiative are ready to get into bare fruit, as demonstrated by our first quarter adjusted net cruise cost excluding fuel per capacity day, which was not only 14% below the run rate in the second half of 2022, but also outperformed our guidance by $4. The results of this initiative are ready to get into bare fruit, as demonstrated by our first quarter adjusted net cruise cost including fuel per capacity day, which was not only 14% below the run rate in the second half of 2022, but also outperformed our guidance

Speaker 4: as certain savings were realized earlier than anticipated. We expect this metric to continue to show modest sequential improvement in each quarter for the remainder of 2023 as seen on slide 8.

Speaker 4: I want to stress that we recognize and acknowledge, while this is a great start, we still have more work to do. This initiative is very much ongoing and will continue to be a top priority under my leadership. We are committed to identifying and evaluating incremental opportunities across every area of the business to help accelerate our margin recovery. This does not mean, however, that we will not continue to invest in our product or service law.

Speaker 4: internet system in a phased manner across our fleet. This is a strategic and cost-effective initiative to help address the consistent pain point we hear from guests regarding the reliability and speed of internet connectivity at sea. This is one example of our focus on finding the right balance, which is critical to keeping our brand's value proposition.

Speaker 4: Google Pipeline, shown on slide 9, which Frank already touched on briefly. Capacity growth in 2023 is expected to be just shy of 20% compared to 2019 as we add over 5,000 births to our world-class fleet. And as we look out over the next five years, this increases to approximately 50% growth versus 2019.

Speaker 4: All three of our brands are well-placed to properly absorb this elevated capacity growth, given our relative size and under penetration in many markets around the world.

Speaker 4: We are focused on better leveraging our scale as we embark on this period of transformational growth and translating the capacity growth into outside benefits to both the top and bottom line.

Speaker 4: This makes for an attractive entry point for investors as the newville pipeline adds significant potential future earnings power compared to today's levels. When combined with our ongoing efforts to maximize profitability on our existing fleet, including by delivering consistent year-over-year modern yield growth, we view this as the winning formula.

Speaker 4: Shifting our discussion now to our booking demand and pricing trends, you can see on slide 10, we reached low factors of 101.5% in the first quarter, exceeding our guidance and breaking triple digit levels for the first time in three years, with some voyages exceeding occupancy about 115%.

Speaker 4: level as a result of our strategic shift to longer, more immersive activities at the Norwegian Cruise Line Grand, naturally resulting in less thirds and forth, which is what historically pushes passenger occupancy above a hundred percent mark, all while enhancing margin over time.

Speaker 4: Curie's the Slide 11, after a very strong weight season, our cumulative book position for the balance of 2023 remains ahead of 2019's record performance and at higher prices. Demand and pricing continues to be strong, not only for 2023, but also as we look further out the sailing in 2024 and beyond. To give you an example, bookings for Regents 2020-26 World Cruise.

Speaker 4: where nearly 70% higher than its 2022 world cruise, which was the last world cruise launch pre-pandemic at an average price point of over $230,000 per suite. Another strong indicator that our product continues to resonate with our guests is the performance of NCL's pre-next program, an onboard program in which we sell non-refundable future cruiser.

Speaker 4: which Mark will touch on in more detail momentarily. Before I turn the call over, I'd like to provide an update on our decarbonization efforts as part of our global sustainability program, Salem Sustain, something that I am very passionate about and committed to advancing. As shown in slide 12, coinciding with Earth Day last week, we announced new short and near-term greenhouse gas emission

Speaker 4: impact of our fuel consumption.

Speaker 4: As we execute on this plan, we expect to see a dual benefit of not only initial reductions, but also cost savings from reduced fuel consumption. We also revamped our Climate Action Strategy, which is now centered on three key pillars, efficiency, innovation, and collaboration. We are implementing solutions for efficiency today.

Speaker 4: innovating for future solutions, including with our investments to modify two of our future new builds to create methanol-ready configurations, and are committed to collaborating with our stakeholders and partners along the way.

Speaker 4: With that, I will now turn the call over to Mark for his commentary on our financial position in Outlook. Thank you very much.

Speaker 5: Thank you Harry and good morning everyone. Before I dive into the financial results and outlook, I want to also thank Frank for all that he has done to propel this company forward as well as his outstanding leadership.

Speaker 5: I look forward to continuing to partner with Harry in his new role as we work to capitalize on the momentum we are experiencing in order to maximize value for all of our stakeholders. My commentary today will focus on our first quarter 2023 financial results, 2023 guidance, and the progress on our financial recovery.

Speaker 5: Unless otherwise noted, my commentary on net per diem, net yield and adjusted net cruise cost excluding fuel per capacity day metrics is on a constant currency basis.

Speaker 5: Slide 13 highlights our first quarter results in which we are pleased to report that we met or exceeded guidance for all key metrics.

Speaker 5: Focusing on the top line, total revenue per passenger cruise day in the quarter was up approximately 18% versus 2019.

Speaker 5: Net per DMs increased approximately 7.7% achieving the high end of guidance, while net yield of 3.6% with a healthy beat versus our expectations as low factor of 101.5% came in well ahead of projections.

Speaker 5: With significantly higher participation as a result of enhancements to our bundled offerings today, when compared to 19, the accounting allocation between ticket and onboard revenue has also changed, which can skew the comparison.

Speaker 5: Therefore, we focus on total net per diem and net yield as a better holistic representation of our pricing power.

Speaker 5: Turning to costs, adjusted net cruise costs, excluding fuel per capacity day, averaged $161 in the quarter, better than expected and approximately 14% lower than the run rate in the second half of 2022.

Speaker 5: This reflects the rapid execution of cost savings initiatives identified and implemented last year.

Speaker 5: some of which were realized earlier than anticipated.

Speaker 5: This includes improvements in areas such as supply chain initiatives, back office optimization, as well as crew costs and travel expenses. Adjust the EBITDA was nearly $40 million higher than our guidance, and approximately $234 million in the quarter.

Speaker 5: In addition, adjust the DPS loss of 30 cents also beat our guidance.

Speaker 5: Shifting our attention to guidance, our outlook for the second quarter can be found on slide 14. As we have stated previously, the second quarter will complete our occupancy ramp up.

Speaker 5: In addition, comparisons to 2019 include certain premium price Baltic and Cuba voyages in that year which we did not operate in 2023.

Speaker 5: As a result, growth is in line with our expectations with net per diem increasing approximately 5.5 to 6.25 percent.

Speaker 5: and net yield expected to increase approximately 2.5 to 3.25 percent.

Speaker 5: Pricing and yield are both expected to increase in the second half of the year, with the fourth quarter exhibiting the strongest growth versus 2019.

Speaker 5: This is driven by our organic pricing power and in part by a favorable comp as the second half of 2019 included various headwinds like the rapid exit from Cuba and the close and resale of those sailings.

Speaker 5: Fourth quarter is also expected to benefit from our strategic shift to premium deployments with extended Alaska and European seasons this year, as well as a mixed shift with more capacity operating for our Regent and Oceana brands. In our robust book position for the second half of 2023, we are looking at the

Speaker 5: which is ahead of 2019.

Speaker 5: We have good visibility into the balance of the year, which gives us confidence that we can achieve this sequential improvement in year-over-year growth.

Speaker 5: Adjusted net cruise cost excluding fuel per capacity day is expected to be approximately $159 in the second quarter.

Speaker 5: a further improvement versus the prior quarter as additional savings initiatives are realized.

Speaker 5: We continue to expect modest sequential improvement each quarter in 2023 as occupancy increases and as a result of initiatives which have already been identified and implemented.

Speaker 5: This should result in a lower run rate cost level exiting 2023 than our full year reported results.

Speaker 5: Taking all of this into account, adjusted EBITDA for the second quarter is expected to be approximately $485 million, which is roughly the same level as EBITDA in the same quarter of 2019.

Speaker 5: Another stepping stone to closing the gap versus pre-pandemic levels.

Speaker 5: I am also pleased to report that we expect to achieve another significant milestone in the quarter, with adjusted EPS turning positive for the first time since the pandemic at approximately 25 cents per share.

Speaker 5: Now shifting our focus to our outlook for the full year 2023. Adjusted EBITDA is still expected to be in the range of $1.8 to $1.95 billion, with the high end of our targeted range representing record adjusted EBITDA for the company.

Speaker 5: This is expected to translate to adjusted EPS of approximately 75 cents or 5 cents above our prior guidance, reflecting the first quarter outperformance partially offset by higher anticipated fuel costs, NFx, for the remainder of the year.

Speaker 5: Taking a closer look at the components of the full year outlook, net per diem growth of approximately 9 to 10.5% as compared to 2019, and net yield growth guidance of approximately 5 to 6.5% are unchanged versus our prior guidance.

Speaker 5: Moving on to costs, adjusted net cruise cost excluding fuel per capacity day is expected to average approximately $159 for the full year, slightly better than our prior guidance, and reflecting lower than expected cost in the first quarter. This represents a 15% decrease in total revenue.

Speaker 5: as compared to the average of $187 in the second half of 2022.

Speaker 5: As Harry noted, we continue to evaluate all opportunities to accelerate revenue and improve operating efficiencies and are taking deliberate actions to improve our margins while maintaining the exceptional guest experience and superior service levels our brands are known for. We look forward to continuing to demonstrate this improvement.

Speaker 5: over the coming quarters.

Speaker 5: Turning our attention to the balance sheet, slide 15 provides our debt maturity profile, which includes approximately $800 million of scheduled debt service for the remainder of the year.

Speaker 5: the vast majority of which is related to our export credit agency backed ship financing. We've talked previously about the actions taken earlier this year to address a large portion of our 2024 maturities, so I won't go into further details today, but a summary is provided on slide 16 for your reference.

Speaker 5: Since we last spoke, we also signed agreements to increase our ECA backed commitments by approximately 1.7 billion Euro. This was primarily to finance improvements and modifications to new builds currently on order across our three brands. This includes the previously communicated changes to the last four Prima class ships, and the new new and updated new builds.

Speaker 5: to make them up to 20% larger than the first generation ships.

Speaker 5: as well as the addition of the methanol-ready configuration to the last two ships to increase optionality and help future-proof these long-life assets and reach our decarbonization goals.

Speaker 5: The financing also covers odor supplies associated with preparing certain new builds, stands, or service.

Speaker 5: The financing also covers older supplies associated with preparing certain new builds, stands or service, as well as related financing premiums.

Speaker 5: While we originally planned to fund this with our organic cash flow generation when the ships were originally ordered,

Speaker 5: Given the very efficient and supportive financing we receive from export credit agencies,

Speaker 5: and the continued uncertainty in the macro and financial markets, we felt financing this was a prudent action to minimize cash outflows for the next few years.

Speaker 5: Turning to liquidity, our overall liquidity position remains strong at approximately 1.9 billion as outlined on slide 17.

Speaker 5: This consists of approximately $700 million of cash and cash equivalents, nearly $600 million of availability under our revolver, and our $650 million undrawn commitment.

Speaker 5: This does not include the separate 300 million undrawn backstop commitment, which enhances our future liquidity but is not currently available to draw.

Speaker 5: I want to reiterate our commitment and relentless focus on delivering value for all of our key stakeholders.

Speaker 5: We will continually evaluate options to accelerate our recovery while maintaining adequate financial flexibility to adapt to different macroeconomic backdrops.

Speaker 5: Overall, we feel optimistic about the direction of our business and we believe we are taking the right steps today to create a more nimble and resilient organization for the future.

Speaker 5: With that, I'll turn it back to Frank for closing comments. Thank you, Mark.

Speaker 3: Before turning the call over to Q&A, I'd like to leave you with some key takeaway which you can find on slide 18. First, we continue to see healthy and resilient demand from our target markets who remain willing and eager to spend on cruise vacation travel.

Speaker 3: Our brands continue to resonate with consumers as demonstrated by our book position and pricing for the remainder of 23.

Speaker 3: Our record book position also gives us high visibility into the back half of the year and beyond. Second, we are already starting to see the benefits of our margin enhancement efforts and will continue to take strategic measures to best position the company for its next chapter while ensuring that we keep the secret sauce that makes our brand so special fully intact.

Speaker 3: Third, we are excited to deliver on our industry-leading growth profile, which we are confident we can profitably absorb, providing a meaningful boost to our future earnings power.

Speaker 3: And lastly, we feel comfortable with our liquidity position and are committed to prioritizing restoration of our balance sheet in the coming years.

Speaker 3: We've covered a lot today, so I'll conclude our commentary here and open up the call for your questions. And we'll now startleneaking restaurants.

Speaker 1: Operator. Thank you. Thank you, Frank. If you have a question at this time, please press star one on your touch tone phone. In order to get 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 on your telephone keypad.

Speaker 2: Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions for management. The top voted question we received this quarter was, what are the three main action points the company will take to ensure growth in the year ahead?

Speaker 4: Harry, do you want to take that one? Sure, Jessica, happy to, and that's a great question. You know, we touched on this already in our prepared remarks, but we are laser focused on delivering our 23 guidance and financial goals. One of the drivers of growth this year is going to be our robust new bill platform with us taking delivery of three new, and I might be biased, but I'm going to be biased.

Speaker 4: meaningful boost to our current and future earnings power. We're also hard at work at our ongoing margin enhancement initiative and are continuing to identify new and innovative ways to get more efficient while also delivering best in class product and service offerings for our guests.

Speaker 4: We're pleased with the results so far, but we're not stopping there and will continue to leave no stone unturned. And lastly, we're going to continue to capitalize on the robust consumer demand we're experiencing, which is translating into our record book position and strong pricing, including very robust onboard revenue generation.

Speaker 4: So, we feel good about our positioning over the next year, and we're going to do everything in our power to deliver on all our goals.

Speaker 4: So we feel good about our position over the next year, and we're going to do everything in our power to deliver on all our goals. Okay operator, we can take the questions from the line now.

Speaker 1: Thank you. Our first question is from Dan Pollitzer with Wells Fargo. Please proceed with your question.

Speaker 6: Hey, good morning everyone and Frank, congrats on a storied career and wish you all the best luck in your future endeavors. Harry, congrats on a new role and look forward to know you better.

Speaker 6: First question on the second quarter, the yields. I mean, I think they were a little bit lower than we were expecting. So just any more detail there between maybe the gross and the net, was there any noise in the quarter on the Free at Sea program? Also, I guess that would relate to the first quarter. Just trying to zoom in a little bit on first quarter versus second quarter and the change there. Thanks.

Speaker 5: Yeah, good morning Dan, this is Mark. First and foremost, there is no change. Q2 pricing and yields are exactly in line with where we thought they were going to be. Of course, as your occupancy ramps up.

Speaker 5: you do see a little bit less of pricing power on your Loa Meta, i.e. inside cabins. But overall, our NPDs remain very healthy and strong. And then secondly, I think the other piece to look at is when you do the comparison versus a very strong second quarter 2019.

Speaker 5: We're comping over some difficult comps with Cuba that we had back in 2019, as well as the full benefit of Baltic itinerary. So, while on the surface, it may appear that it is a bit softer than Q1, I assure you it is exactly where we expect it to be. And as I said in my prepared remarks, the second half of 2023, we're going to have a lot of

Speaker 6: is expected and we continue to expect very strong pricing and yield growth. Got it. And then on the cost side, the cost guidance, obviously the first quarter was better. I guess to what extent should we accept that to continue to step down throughout the year, and how much is your guidance reflecting some conservatism there? I know that was a big part of the…

Speaker 5: And we simply executed some of those initiatives quicker than we had anticipated. So while we did get a benefit in Q1, it doesn't necessarily translate to a benefit in the outer quarters, simply because we already had that baked into our guidance.

Speaker 5: That said, we have not stopped and we continue to look at opportunities to improve our cost structure. So, but it's a bit early for us to give additional color on that. All I can tell you is that we are razor focused on that. And I think we will continue to have sequential improvement quarter over quarter.

Speaker 5: And I think I'm very confident. I think quite a bit of you were nervous last quarter whether or not we could achieve our cost savings. And I think we've demonstrated that in Q1. We've demonstrated that in our full year updated guidance. And we will continue to push hard on that. Thank you. Next question is for

Speaker 7: a little bit differently. But if, you know, Mark, if we look at slide 13, I mean, look, you basically destroyed every guidance target that you laid out back in February for the first quarter. So, you know, we think about that beat and the fact that you didn't really flow that through that full beat through, you know, to your full year EBITDA guidance. And look, you know, I understand there's a fuel headwind there, but I guess, you know, what I'm just.

Speaker 5: First of all, I appreciate the adjective you used of destroyed our guidance, but I would like to say we healthily beat our guidance. Look, Steve, I think first and foremost, we have to look at the underlying fundamentals of the business. We have to look at the underlying fundamentals of the business.

Speaker 5: Our NPD and yields continue to be strong, continue to be in line with our expectations. The consumer is still strong. The consumer is buying cruise tickets. The consumer is spending more on board. The consumer is pre-buying more before they get on board.

Speaker 5: And we're very pleased with that. So, but you know, if you just took Q1 in isolation and you said, okay, we beat the quarter by 15 cents.

Speaker 5: and you look at the rest of the year, almost half of that is being eroded by fuel and FX headwinds.

Speaker 5: So the remainder of it we are carrying through. So while we're not ready to necessarily change the rest of our guidance metrics, I think we're trending well and we're trending healthy and I think our guidance reflects that. So we said last quarter that we wanted to be prudent in terms of our guidance. We want to deliver and hopefully beat.

We'll continue down that path, but things are looking very, very healthy from our perspective in terms of the overall consumer demand for cruise. Okay, gotcha. Thanks for that, Mark. Then, Mark, probably for you as well, if we go back to your initial guidance back in February , you noted that you turned the year, I think it was around 62% booked, which was in your historical range. Now, as we've essentially exited wave, can you maybe help us think about where you are booked now?

12 months. You know I think that range applies to the end of wave as well that we like to be between 60 to 50 to 65 percent booked for the following 12 months at the end of wave and I can say that we are hardly within that range pretty much exactly where we want to be so we were very happy with the way wave turned out

And our book position both on the basis of itself and compared to 2019 is doing very well.

Thanks, Harry. Thanks, Mark. Thanks, Frank. Thank you. Our next question is from Ben Cipio with Cleveland Research Company. I appreciate your question. Thanks for taking my question. I wanted to dig a little bit more into the regional setup. Can you discuss what you're seeing? I think the first half of the year, you weighed a little heavier Caribbean.

how pricing and closing demand is looking for the region. And now that you've kind of moved through waves and have more of Alaska and Europe for this summer filled out, kind of talk about how you're feeling about pricing for the summer.

Sure, Vince. Terry, I'll take that one too. Listen, we were very pleased with the results in Q1. We're trying with our new premium itineraries to be booked a little further in advance so that close in bookings does not represent such as large a percentage of overall business as it used to.

That being said, we were very pleasantly surprised with close-in demand for Caribbean and Q1. Of course, Caribbean doesn't matter all that much for us in Q2 and beyond as we shift our deployment to Europe and Alaska. It's a little less close-in demand there as we are booked further in advance, but we're happy with both occupancy and price, especially for the key summer period.

Great, thanks. And any color, just on the cadence of bookings that you've seen year to date, maybe relative to pre-COVID levels, I think that there was kind of the wave of pent-up demand following some change in COVID restrictions.

at the mid to late part of last year. Obviously, it sounds like waves has been healthy, but would you say things are stable, accelerating, or decelerating kind of on a core basis when you adjust for those factors?

Listen, we have about a 20% increase in capacity for 2023 versus 2019, so of course our bookings need to be 20% higher. And we've absolutely seen or exceeded those levels during Q1 booking period compared to Q1 of 2019. So I think the best indicator for us is our advanced...

passenger ticket sale revenue on our balance sheet is up I think 60% compared to the end of Q1 to 19, which I think gives you a very robust indicator of how our book position looks.

On our balance sheet it's up I think 60% compared to the end of Q1 to 19, which I think gives you a very robust indicator of how our book position looks. Great. Thank you.

Thank you. Our next question is from Brant Monmore with Mark, please proceed with your question. Hey, good morning everybody and congratulations to both Frank and Harry. So the first question is on the cost side. Mark, you sort of gave us a quick update and sort of

sequential improvement on a dollar basis throughout the year. And I'm just trying to re- and obviously if we try and back into what's implied for the full year it's you know it would seem like it's very modest improvement almost almost flattish from a pretty high level. And I'm just trying to reconcile that with the seasonality that we used to see in your business.

with the 3Q costs usually being pretty elevated given more exotic itineraries. Can you kind of help us understand why that's different now? Yeah, Brent, good morning. So I think what you think about is look at our new-build deliveries that we're taking this year as well. So we are taking deliveries of ships obviously now in the second quarter.

I wouldn't skew too much that the premium itineraries are going to be a big driver of costs. Overall, our cost levels tend to remain the same. It's really around our promotions and advertising variable costs that would have any sort of influence. So, look, I think bottom line, we continue to sequentially improve our cost structure.

to the best of our ability.

Thanks for that. Just as a follow-up, great to hear that you guys are happy with your book for the all-important sort of summer in the Mediterranean. I'm just curious if flight prices broadly is acting as a headwind, and if you think about your... If you radically dosn't the cover for myforeign headwind show. I'm also someone who's got used toMonday night.

book or your strategy this year for summer, is it, is bundle, is flight flight prices being bundled in for the consumer? Is that sort of more, is that more of a factor now than it was in 19? And how should we think about that? Yeah, I, you know, Brent, I think you, you, you've hit it, right? We've all experienced, whether it's traveling for business or, or, or consumers traveling, flight prices are elevated.

And of course with our bundling strategy that we've embarked on, you know, over the last few years and that's really taking full throttle in 2023, that does have some headwinds to our overall net yield. And that simply is a matter of, you know, when we sell the ticket to the consumer, we sell the air at what we believe are going to be the best projected prices. And our consumers are booking very far out in advance, which is a good thing.

So there's always going to be some puts and takes until when you actually purchase the flight where you may have some variability in there. But overall we believe that our air strategy is the right thing to do given our strategic itinerary deployment and there's always going to be some variability in there, but nothing that overly concerns us. You know, I just want to add to Mark's point.

prices out there. You know, we use all types of tools in terms of automation, even AI to predict when the best time to book a flight is. And with those tools, we think bundling actually provides us in this uncertain future environment a competitive advantage. So something that absolutely it impacts us, but if we if we do it right, we can turn it to our benefit.

That's great color. Thanks so much. Thank you. Our next question is from Connor Cunningham with Malleus Research. Please proceed with your question.

Hi everyone, thank you for the time. Congrats Frank and Harry. Just on the second half, Net Per Diem, it's implied a decent step up in the second half. Just trying to get comfortable with how you get there. So are you basically booked above that right now and then as you get closer in?

the trends kind of soften a little bit. And just any color on how you're expecting onboard trends in the second half would be helpful. Thank you. Yeah, so regarding our second half NPDs, I think we labeled that on our slide. We're expecting roughly 11 or 12% if I recall correctly. And number one, that's on the back of a very strong, just good old fashioned core growth. It's also on the back of bringing on some of our premium brand best.

sell those voyages close in for, you know, very efficient pricing. And then of course as you look at the brand mix, that's also a tailwind. But also in Q4, where we expect quite a substantial amount of our pricing power, we are actually in the Alaska season longer this year.

as well as in the European season longer this year. And I think it's somewhere in the neighborhood of we have 3% more deployment in Q4 of Alaska and I believe 7% more deployment in Europe for Q4. So when you combine all those factors together, that's what gives us great confidence in where our pricing is. And I think the tail end of your question was whether or not we're booked there currently.

Look, we're in our book position. Harry touched on it earlier. We're exactly where we need to be to hit our goals and our guidance. So I won't give too much color on that, but other than we're exactly in the position we need where we need to be. Okay, that's helpful. Amen.

On the shift to longer cruises and more immersive cruises, the three-point gap in overall occupancy, is that basically reflective of that change in the second quarter? And then I'm just trying to figure out the limits to a rebuild in occupancy in the 2024, assuming no change to your footprint overall. Thank you.

So in terms of 2024, I'll take the second part of your question first. Listen, I think there's still a little rebuilding that can be done in Q1. So I think Q2 to Q4 basically represents what we're going to see in future periods as well. But you know Q1 finished up at 101 and a half. We can do better than that going forward when we have the more advanced lead time we need to build some of our exotic itineraries and also have the fully over the overhang of the difficult years that we talked about beforehand.

In terms of this gap of 3%, does that reflect what we're going forward? Pretty much close to that after the Q1 commentary I gave you already. We think this shift to premium itineraries, primarily Europe and Alaska, but a little bit in Asia as well, allows us to get the type of customer.

that we need to get to support our revenue goals and our revenue growth for the future. Great, thank you. Thank you, our next question is from Steven Gremlin with Morgan Sandlin. Please proceed with your question. Morning, thanks. Harry, congrats on the new role and Frank, best wishes in retirement. I have a sneaking suspicion you were a contributor to the stellar booking and pricing on the around the world sailing. Following up on the strategic shift the longer more immersive.

Hi Steve, so I would actually rephrase that as financial benefits. Obviously while there is a slight impact to load factor, the whole reason we're going to more longer premium itinerary destinations is number one, to get a better guest.

to get higher pricing and to maximize the value that we're getting out of each of our assets. So while there's always a, you know, both sides of the coin, overall the economics on going to those itineraries obviously favors the company or we would not be doing that. But so I wouldn't get caught up too much on the on the slight impact to occupancy.

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

So all of our new build orders, I'll remind everybody that we do not execute any new build orders without committed financing. That is just a complete no-no in our organization, so we have very efficient fixed rate financing for all of our new builds.

that are on schedule to delivery through 2028 at an average rate of anywhere from two to 2 1 1 2%. There is no opportunity for the export credit agencies to change those rates. As I said, those are fixed. So we have very efficient financing going forward. And I see no risk around that because there's just simply not an opportunity.

for the institutions to do that. That's great. Thanks so much. Thank you. Our next question is from Robin Farley with UBS. Please proceed with your question.

institutions to do that. That's great. Thanks so much. Thank you. Our next question is from Robin Farley with UBS. Please proceed with your question. Great. Thanks and congratulations.

and Harry to both of you with the changes. I had a question, if we could circle back just for a moment to the occupancy in Q2. A quarter ago, you talked about it returning to historic occupancy levels. And you're talking today about some of the homeless units have countries that cannot move, especially those in lower Ramona region. How would you compare back to other countries given the gap between?

you know, the shoulder period itineraries are being expanded. And so with the change less reported, was it just sort of a decision to say, hey, we're happy with the pricing that we're getting, and so we're going to be occupancy may not be coming in exactly what we thought, but it makes more sense to hold price for those. Or just trying to think about because I

1.2 billion for those ships that are a couple years out. Is the additional 500 million euro, is that for 2023 specifically, or is that spread out over different years? All right, so Robin, this is Harry. I'll take the first half, and I'll let Mark discuss the ECA financing. Listen, in Q2, and in all future quarters...

occupancy as a function of what we talked before, having less third and fourth guests on board. But as Mark just discussed, we believe over time this actually is going to be IBITDA and margin accretive. So we're very happy with that strategy. Yeah. And Robin, just to just to add to that.

You know, we did try to communicate last quarter and over the course of many investor meetings that when we said historical occupancies, we didn't say that they were going to be exactly the same. We said we expected them to be within a couple points, especially on the overall year run rate. So I just want to point out that that's not necessarily a change from last quarter. In terms of the export credit agency financing, we're going to be looking at the

Yes, so we we obtained financing work for 1.7 billion euro and in our last earnings release we had we had called out that we had increased our contractual commitment by 1.2 billion euro and the differential simply is is that as I said in my prepared remarks.

We've now included certain things financing for owner supply and other related items that are required as part of the ship delivery. And the thought process there was it is very efficient and very extremely beneficial financing. So in order to preserve cash for the long term at very and given the very efficient rates.

we simply decided to finance more. So does not represent a further half a billion increase in the overall ship costs. It is simply a different mechanism for financing some of the existing costs that were already expected. And I think that's why when you look at our capital commitments on our new builds for the next three years, it's actually decreased overall in terms of cash out of the system.

decided to finance more. So it does not represent a further half a billion increase in the overall ship costs. It is simply a different mechanism for financing some of the existing costs that were already expected. And I think that's why when you look at our capital commitments on our new builds for the next three years, it's actually decreased overall in terms of cash out of the system. So it's definitely favorable terms.

and the fact that they're willing to finance that additional 500 million euro, absolutely a positive. I was just wondering though if that 500 million was for 2023 or is that for the later deliveries that the 1.2 billion applies to or is it spread out over a number of deliveries between now and then? It's really spread out over the course of the next three if it's spread out, I don't want to say radably but.

relatively ratably across all of the remaining new builds, excluding Norwegian Viva and Vista, which we just took delivery of, of course. Okay, great. Thank you. Paul, I think we have time for one more question.

Thank you. Our next question is from Patrick Schulz with Truist Security. Please proceed with your question. Great. Thank you. Frank, well, congratulations on an absolutely amazing career. Harry, welcome to the hot seat, as they say.

My questions are for Mark. The last time we spoke, regarding the debt maturity, the intention was to use cash flow from operations this year to pay off the existing ECA loans. And then secondly, the last time we spoke, regarding the debt maturity, the last time

if I have my notes correctly for the 1.4 billion term loan it's going to be either pushed out or amended and extended. Is that still the intention and did I get that correct? Thank you.

Hi Patrick, good morning. Yeah, so definitely we are planning, you know, we are funding all of our existing debt maturities this year from cash on hand and organic cash flow. So you're spot on there. And then the 1.4 billion of term loan and revolver that was extended.

to January 2025. We will address that, start addressing that later this year and whether or not we refinance that on a more holistic approach or we do another amend and extend. Obviously we'll look at what the markets are doing, what the environment looks like, but we'll do the most, obviously the most.

to EBITDA target ratios for various years. Do you see yourself still on track to hit those targets? Thank you.

Yeah, Patrick, we're firing on all cylinders as I said, you know internally our target is to turn 2023 you know with a very high five-handle on a pro forma run rate leverage basis now That's not a necessarily easy task, but that's one of the things we're marching to as a management team

There is never a guarantee but that is what we are rallying around. We hope to deliver on that and we are feeling good with what the outlook looks like today.

Okay, great. Thank you. Well, ladies and gentlemen, once again, I want to thank everyone on this call, whether you're a travel partner, a vendor, a lender, or an analyst. You've supported us. You've challenged us. And most of all, you've made us better.

Personally, I couldn't have asked for a more fulfilling and more successful career in this incredible industry, and everyone here contributed to that. Now, for one last time, thank you for your interest and your support. I have full confidence in the management team and their ability to take this company onto its next level.

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