Q2 2023 Norwegian Cruise Line Holdings Ltd Earnings Call

Speaker 1: Good morning and welcome to the Norwegian Cruise Line Holding second quarter 2023 earnings conference call. My name is Maria and I will be your operator. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions for the session will follow at that time. Okay.

Speaker 1: If anyone should require assistance during the conference, please press star and then zero on your touchtone phone. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John , Vice President of Investor Relations, ESG, and Corporate Communications. Ms. John , please proceed.

Speaker 1: Thank you, Maria, and good morning, everyone. Thank you for joining us for our second quarter 2023 Earnings and Business Update call. I'm joined today by Harry Sommer, President and CEO of Norwegian Cruise Line Holdings, and Mark Kempa, Executive Vice President and Chief Financial Officer.

Speaker 1: As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhltd.com slash investors.

Speaker 1: We will also make reference to a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release with second quarter 2023 results was issued this morning and is available on our Investor Relations website.

Speaker 1: considered in conjunction with the cautionary statement contained in our earnings release.

Speaker 1: Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Harry Sommer. Harry? Well, thank you, Jessica, and good morning, everyone. Thank you all for joining us here today. So today marks exactly one month since I began my new role as President and CEO of Nor-.

Speaker 2: the significant opportunities I see ahead. The responsibility I have to our vast network of stakeholders, including our 40,000 team members worldwide, our guests, our travel advisor partners, suppliers, lenders, shipyards, the over 700 communities we visit, and all of you in the investment community is not something I take lightly.

Speaker 2: Rest assured, my leadership team, the Board of Directors, and I are committed to best positioning Norwegian Cruise Line Holdings for success.

Speaker 2: My focus now is squarely on the future and how we can refine and enhance our strategy to optimize our existing fleet of high quality assets, further differentiate our business model, build resiliency, advance our efforts to drive a positive impact on society and the environment, and ultimately drive more value to our shareholders and broader stakeholders.

Speaker 2: With new leadership not only in my seat, but at all three of our award-winning brands, and most recently for our vessel operation function, there is a palpable feeling of reinvigoration and excitement about the future across the entire company.

Speaker 2: We are approaching every decision with fresh perspective and new energy, challenging the status quo at every level, and encouraging our entire team to think outside of the box and come to the table with new ideas, however big or small. Along with these changes, you can see for yourself in slide 5 that while many of the senior leaders are new to their roles,

Speaker 2: there is still continuity and extensive experience among all of the leaders, allowing for smooth transitions without skipping a beat. Our executive team has an average of over 20 years in the cruise industry, and nearly all has been with NCLH for a decade plus.

Speaker 2: I have the utmost confidence that this team is the right one to take the company to even greater heights.

Speaker 2: As we are fine tuning our longer term strategic vision and priorities, we are also focused on execution today and slide six outlines my near term priorities.

Speaker 2: First, we are focused on capitalizing on the healthy demand environment for groups, which I will talk about in more detail a little later in my commentary. At a high level, this means remaining within a booked position of approximately 60 to 65% on a 12-month forward basis.

Speaker 2: while increasing pricing and maximizing onboard revenue generation.

Speaker 2: After years of experience, we believe this level to be the sweet spot based on our current deployment mix and I am pleased to say we are comfortably in this range today. Our revenue management process is dynamic and we carefully monitor on a granular level how each shift's itinerary and voyage is tracking against its optimal booking curve.

Speaker 2: Adjust marketing spend, promotional construct, and pricing as needed, depending on the market environment to maximize each voyages contribution to the bottom line.

Speaker 2: The next priority is right sizing our cost base through our ongoing margin enhancement initiative. Mark will dive into more detail on the great progress we've already made on this critical effort but I want to emphasize that we have many additional opportunities in the pipeline to do even more and we are not shying away from this challenge.

Speaker 2: The reality is we are operating against a different backdrop today than we were in 2019, requiring an even keener focus on balancing the top line with a cost structure that supports our unique business model and allows us to accelerate our margin recovery and help build resilience to very external and macroeconomic environments.

Speaker 2: We are undertaking this effort with a strategic and data-driven approach that allows us to identify additional opportunities for efficiencies, set, monitor, and maintain accountability against concrete KPIs, and increase agility to adapt quickly as market or consumer preferences evolve.

Speaker 2: I'm pleased to report that we are already seeing a change in the core culture of the company at every level of the organization to emphasize efficiency, cross mindfulness and results without impacting the guest experience. We built significant momentum in recent months with this initiative.

and we look forward to demonstrating continued improvement in the coming quarters. This does help nicely into our next priority, which is to make strategic and intentional modifications to enhance our offerings and better align them to our guests' needs and wants. There's no question that investment in our product and service offerings are critical to keeping our brand, value proposition priv {:.

over the course of their entire cruise journey, starting from the time they book. For example, we are deep in the development of a streamlined booking process at the Norwegian Cruise Line brand, which uses generative AI technology to personalize the experience for guests.

while also simplifying and reducing the number of considerations required to book by orders of magnitude. This, along with several other initiatives underway, should translate to more satisfied guests who spend more on board and return to sail with us more frequently, resulting in a win-win of higher yields and stronger loyalty.

Turning to the fourth priority on the list, the entire team is hard at work preparing for the delivery of Norwegian Viva on Thursday, as well as Regent 7C Grandeur in November , which you can see on slide seven. I just came back from Italy, where I visited the shipyards to check on their progress, and I left even more excited than I was previously to welcome these new additions to the ship.

degree of confidence that they will be an overwhelmingly positive reception to these ships from our guests and travel partners which we are already seeing in their incredible advanced booked position. I'm also pleased that both are on schedule and on time for delivery despite supply chain and other challenges a testament to our great working relationship we have been...

will serve as godfather to Norwegian Viva. The announcement alone generated a reach of over 200 million globally, including new audiences in the targeted Spanish language demographic. The ship will be christened in Miami later this year and homeport in San Juan, Puerto Rico starting in December for a season of Caribbean itineraries.

We also recently announced 17 grandeur's godmother Sarah Fabergé, the great-granddaughter of Peter Carl Fabergé, the legendary artist, jeweler, and creative and entrepreneurial genius behind the world's renowned company that bears his name. This is a natural choice in celebration of Reason's partnership with the United Nations.

with Fabergé. The discipline addition of new builds is a key component to our strategy, and we have said consistently in the past, we welcome new hardware introductions as they not only generate excitement and bring more attention and awareness to our brand, but they are expected to be meaningful drivers of the company's future earnings growth and margin expansion.

As the smallest of the three large public cruise operators, we continue to believe that we have outsized opportunity to grow our footprint and meaningfully drive the bottom line.

Our new build pipeline, which you can see on slide 8, represents approximately 50% capacity growth by 2028 versus 2019, a tagger of approximately 5%. After the delivery of three new builds in 2023, a record for the company, we have no additional shift delivery scheduled until spring of 2025.

In the interim, we expect to benefit from both organic growth as well as the annualization of the 2023 new builds next year.

Given the necessary actions we took to navigate the past few challenging years, our leverage ratios are currently not at optimal levels. Our goal remains to evaluate all options available and then clearly define a multiyear pathway to return to an investment grade like financial position. This won't happen overnight. For more information, visit www.fema.gov

But as you can see on slide 9, the company has successfully reduced leverage in the past and I am confident we will do so again.

the company has successfully reduced leverage in the past and I am confident we will do so again. In the interim term... I'm pathways of 10, four, three, two, run, go, pass, kick, exit, reverse, exit, dare...

Our expected cash flow generation boosted by our robust new build pipeline along with normal course debt installment payments are expected to result in significant organic improvement in our net leisure.

Over the next several months, we are focused on the successful execution of our near-term priorities while fine-tuning the future vision and strategy for the company. With three strong brands, a world-class C, and deaf team in the industry, we are starting from a strong foundation in a position of strength.

And I can say without a doubt that we have a bright future ahead with significant potential to unlock incremental value for our stakeholders.

Shifting our discussion now to our current bookings, demand and pricing trends, we achieved record revenue of $2.2 billion in the second quarter, an increase of 33% over the same period in 2019. We have been able to tap into strong consumer demand environment, achieving the right balance of underlying revenue growth with net per diem supply.

reaching a low factor of 105% in the second quarter in line with guidance, and a long-awaited milestone as we return to normalized levels, which you can see on slide 10.

As previously mentioned and as illustrated on slide 11, several years ago we strategically shifted our deployment to longer, more immersive itineraries at the Norwegian Cruise Line brand and increased our concentration of premium destinations while reducing our Caribbean deployment.

This is designed to attract a higher quality guests and maximize our competitive position. A natural bright product of this new deployment mix is less third and fourth passengers in a cabin, which is what historically pushed passenger occupancy above the 100% mark. As a result, we expect full-year occupancy going forward to be roughly 200 basis points lower than 2.5 miles per hour.

21 days or 20% compared to the same quarter in 2019, meaningfully enhancing our future visibility and reducing our exposure to volatile and less predictable close-in motions.

Taken together, we believe this strategy will drive higher yields, higher guest satisfaction, and higher guest repeat rates with longer runways to optimize our pricing and marketing strategy as macro environment evolves over time.

our best real-time indicator of how consumers are feeling financially today also continues to perform exceptionally well. During the quarter, gross onboard revenue for passenger cruise day was approximately 30% higher than the comparable 2019 period. Our efforts to enhance our market-leading bundled offerings and increase quality touch points

and SaaS De-Aligned Disclosure on World Environmental Day in June . The report provides transparency in our progress and initiatives on top ESG priorities. Some of the highlights this year include more detail on our new Climate Action Strategy and enhanced data and disclosures on community impact, human capital, and greenhouse gas emission reporting.

Thank you, Harry, and good morning, everyone. My commentary today will focus on our second quarter of 2023 financial results, 2023 guidance in our financial position. Unless otherwise noted, my commentary on net per DM, net yield, and adjusted net cruise cost, excluding fuel per capacity day metrics, are on a constant currency basis, and comparisons are to the same period in 2019. Slide 15 highlights our second quarter results, in which we are very pleased to report that we met or exceeded guidance for all key metrics. The organization ?????.

Results were strong with revenue performance up 33% and net per diem increasing approximately six and a half percent. Surpassing the high end of guidance while net yield was in line with guidance at 2.9%. Keep in mind that comparisons to 2019 include certain premium price Baltic.

excluding fuel per capacity day came in below our guidance at $156 in the quarter, demonstrating further improvement from the prior quarter and the high watermark seen in the second half of 2022. The reduction in cost this quarter was primarily driven by lower food costs and crew optimization efforts.

as we continue to realize the benefits of cost savings initiatives identified and implemented during the first phase of this initiative.

I will note that across all three brands, our guest satisfaction scores remain strong, reflecting our continued focus on cost rationalization without impacting the guest experience. Adjusted EBITDA was approximately 30 million higher than our guidance at approximately 515 million.

since 2019, as well as the first time that our quarterly adjusted EBITDA exceeded the same quarter in 2019.

Shifting our attention to guidance, our outlook for the third quarter can be found on slide 16. We are projecting net per diem growth of approximately 7 to 8 percent, and net yield growth of approximately 2.25 to 3.25 percent.

Similar to the second quarter, the loss of certain premium-priced Baltic itineraries will continue to impact the comparison versus 2019.

In the fourth quarter, pricing and yield are both expected to exhibit mid-teens growth compared to 2019. There are several other factors contributing to the exceptionally strong growth we are expecting for the fourth quarter, which include more luxury and upper premium capacity operating with the new region and Oceana ships.

as well as a favorable comp from the rapid exit from Cuba in 2019 and the close-in resale of those sailings. Adjusting for these factors, net per diem growth is still expected to be up approximately 10%.

which reflects our organic pricing power and strong consumer demand that Harry referred to, as well as the benefit of our shift to premium deployments with extended Alaska and Europe seasons this year. Given that we already have a substantial booked position and our pace of bookings is on track with our optimal booking curves, we will continue to look at our options for the next few days.

This gives us confidence in our ability to deliver on this top-line outlook for the fourth quarter.

Adjusted net cruise cost excluding fuel per capacity day is expected to be approximately $152 in the third quarter.

which includes approximately $3 of certain non-recurring benefits realized in the quarter.

Looking ahead, there are also one-time expenses associated with new capacity additions in the fourth quarter.

Adjusting for these items, this metric is expected to slightly decrease quarter over quarter, which is noted on slide 17.

Taking all of this into account, adjusted eBITF for the third quarter is expected to be approximately $730 million, and adjusted EPS is expected to be approximately $0.70 on a projected diluted share count of approximately 510 million shares.

Keep in mind that we have our four outstanding exchangeable notes, which will cause variability in the diluted weighted average shares outstanding used to calculate EPS when we follow the if converted method. This video is not meant to jumped off the shark Cumming in videos and API ConfTes basically

It is also important to note that despite our ability to settle our two 2027 exchangeable notes in cash rather than in shares

These notes would still be included in our diluted weighted average shares outstanding for GAAP reporting purposes if they are diluted in the quarter.

We've included an additional slide in our earnings deck page to slide 24 with more information to help with modeling. We've included an additional slide in our earnings deck page to slide 24 with more information to help with modeling.

Now shifting our focus to our outlook for the full year 2023, we are raising the floor of our adjusted EBITDA guidance to a range of $1.85 billion to $1.95 billion, despite approximately $30 million of headwinds from higher interest and fuel expense in the back half of the year.

This is expected to translate to adjusted EPS of approximately 80 cents or 5 cents above our prior guidance reflecting the second quarter outperformance.

As you can see on slide 18, since we first guided for the year in February , we have increased our adjusted EPS guidance by 10 cents, or 14% on strong results in the underlying business, which overcame headwinds from higher fuel FX and interest rates.

Excluding these headwinds, adjusted EPS growth versus initial guidance would have been approximately 20 percentage points higher.

Taking a closer look at the components of the full year outlook, our healthy net per diem growth of approximately 9 to 10 and a half percent as compared to 2019, and net yield growth guidance of approximately 5 to 6 and a half percent are unchanged versus our prior guidance with capacity of 18%.

Turning to cost, adjusted net cruise cost excluding fuel purse capacity today is expected to average approximately $156 for the full year, better than the prior guidance of $159, reflecting lower than expected costs in the second quarter.

As we have previously mentioned, when comparing this metric to 2019, please note that we do not have the benefit from the disposal of older, less efficient tonnage that some of our peers have, and we have also added capacity at our high-end Oceana and Regent brands, which, while accretive to margins, do have higher operating costs.

Another thing to keep in mind is that the timing of expenses such as dry docks

can cause variability in this metrics when comparing different periods.

For example, in 2023, we have limited dry ducts as we took the opportunity during the pandemic to optimize the schedule while ships were already out of service.

As Harry noted earlier, this improvement is the result of the deliberate actions we have taken to enhance margins and right-size our cost base.

To further supplement our internal efforts, which have been in full force since we kicked off this initiative last fall, we have also more recently engaged a third-party consultant to benchmark best practices across sectors and identify incremental areas of opportunity.

Our entire team is working around the clock to find ways to accelerate our margin recovery, and we are leaving no stone unturned in the process.

Today, the savings we have identified in the broad-based have been broad-based, touching every aspect of the business.

with the largest buckets consisting of fuel, food, and consumables and marketing, as shown on slide 19.

To give you an example of one of the initiatives we are undertaking, we are optimizing crew movements and reducing ship crew transfers, which we expect to result in multi-million dollars savings.

To put this into context, each year we have approximately 90,000 crew movements.

including 6,000 or so between ships. This is just one example, but it demonstrates how incremental changes can add up to a larger impact on the bottom line.

We recognize that we still have more work to do and we are committed to doing so in a way that preserves the exceptional guest experience and superior service levels that our target higher end guests expect from our brands, all while setting us up well for continued margin improvement in the next few years.

Turning our attention to the balance sheet in our debt maturity profile on slide 20, in the first half of the year we generated over $1.5 billion of cash flow from operations.

including over 1 billion in the second quarter.

This allowed us to repay approximately $1.4 billion of debt, including the full pay down of our $875 million revolving credit facility. In addition, we have approximately $475 million of scheduled debt payments for the back half of the year, the vast majority of which are related to our export credit agency backed ship financing.

As we have previously stated, we intend to refinance our operating credit facility in the normal course of business before year end.

As mentioned earlier, we expect our net leverage to improve significantly, driven by our organic cash flow generation and payment of scheduled debt installments.

Excluding debt associated with ships on order for future delivery, trailing 12 months net leverage is expected to meaningfully reduce versus current elevated levels dropping below six times over the course of the first half of 2024.

This does not adjust for ships that were delivered in 2023, which would have the full debt load in the numerator without a full year of contribution included in an adjusted EBITDA. Turning to liquidity, our overall liquidity position remains strong at approximately 2.4 billion at quarter end.

as outlined on slide 21. This consists of approximately 900 million of cash and cash equivalents, 875 million under our revolver, and a 650 million undrawn commitment.

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

During the quarter, we received approximately $500 million of cash collateral back from a credit card processor.

This collateral release not only provided a meaningful increase to liquidity, but was also a very strong signal that our external partners have increased confidence in our financial position and future outlook.

Overall, I feel the same optimism about the direction of our business.

I want to echo Harry's comments that our entire management team is reinvigorated and focused on delivering on our business and strategic goals while also pursuing all opportunities to maximize value creation and create a more nimble and resilient organization for the future.

to identify and implement additional measures to accelerate our margin recovery while still delivering the exceptional product and service offerings that are against desire. Lastly, our liquidity position is solid and we are committed to prioritizing restoration of our balance sheet and reducing leverage in the coming years.

We've covered a lot today, so I'll conclude our commentary here and open up the call for your questions. Thank you Harry. If you have a question at this time, please press the star then 1 key on your touchtone telephone.

In order to get as many people through the queue, please let me hear time to one question. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

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.

One of the top voted questions we received this quarter was, what do you consider the biggest challenge for growth over the next 18 to 24 months? And how do you plan to attack that challenge? Harry, do you want to take that one? Sure, Jessica, I'm happy to, and that's really a great question. I wouldn't say there are big challenges for growth. But anything, what we have is a huge opportunity.

This growth allows us to take more guests to more destinations and offer them more varied experiences while contributing to the top and bottom line right off the bat. In addition, with no scheduled shift deliveries in 2024, we have ample opportunity to digest its capacity in high prices.

while preparing for new capacity entering our fleet in 2025. So to me, it's not about challenges of growth, it's optimizing the opportunity we have for our new capacity and doing what we have consistently done in the past, which is translate that to outside impact to our bottom line.

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

Okay, thank you. Our first question from the line comes from Vincent Kertil with Cleveland Research Company. Please proceed with that question.

Great, thanks. I wanted to talk about kind of the path for organic price growth. I think that was really helpful the way you broke out 4Q. Obviously anticipated to step up a lot, but even X comparisons and new hardware, Net Perdium is up 10%. So thanks for listening.

points to sequential acceleration through the course of this year. So, curious kind of how you're thinking about that into next year. I know you get lift from full year contribution of the 2023 deliveries, but how are you feeling on organic price today versus 90 days ago?

Sure, I'm happy to take that one. Thanks for the question. I think I can sort of break this up into three periods, Q4, 2024, and 2025 and beyond. You know, Q4 still has some comparable distinctions between this year and the past, but we are super excited that we're going to see an 18% net per diem growth in 23, 3...

When we turn to 2024, we get to a more normalized environment, but we still have some tailwinds when we compare 24 to 23 because in Q1 of 2023, we weren't 100% back up for service. So I think we can expect some outside growth in 24 relative to 23. On a more long term basis.

with moderate and disciplined capacity growth, strong cost control, while maintaining high gift satisfaction, all leading to the type of oversized visit and early growth you saw during our run from 14 to 19. So I think once we get back to 25, that's exactly the path we'll be on again.

Great, great thanks. And then maybe on the cost side, obviously a lot of effort that is visible based on the guy that looks like net Cruz revenue is going to be up 2 and a half billion plus this year. Whereas costs are only up about a 100Million. So it's clear that you guys have.

down path, but curious maybe what you're seeing within read booking behavior as more of that 2024 business is coming on the books. How are you feeling about the guests coming back to you?

So, great question. I think there were two parts, so I'll try to address both of them. You know, on the close side, we are really excited about the efforts that we make. And you continue to see these sequential modest improvements in cost, Q1, Q2, Q3, and Q4. And it was just like the fact that inflation is still out there, from the fact that we continue to reduce our cost structure each quarter, it's not just a reduction in the base, but also...

cost reduction strategy if I was to use a baseball analogy, and we still believe there are more efforts ahead. We have not baked in anything that we haven't found yet. Our guidance numbers only include what we've identified and what we firmly are able to implement, but we hope to be able to deliver a little bit more in the future.

In terms of the guest rebooking behavior, we're simply put, we're at record levels. Across all three of our brands, we are seeing, the one measure that's most relevant internally is we take a look at first time gap.

And how and when and how much or what percentage of them I should say rebooked, you know, within the first year or two of coming back. And the guests coming off the shifts in 23 are rebooking at record levels compared to, you know, 18, 19 and the further bacteria. So, so far the formula seems to be working quite well.

And Vince, just to highlight that, I think last quarter we had mentioned record sales of our crew's next certificates. And again, that's just another anecdotal point that consumers on board our ships are enjoying their vacation, they're satisfied with the product. Everything we're doing on the cost reduction front.

is under the lens of protecting the guest experience and the product. So we monitor that closely and so far we are seeing positive reception to everything we're doing.

Appreciate all that detail. Thanks.

Our next question comes from Robin Farley with UBS. Please proceed with your question.

Great. Two questions. One is on the yield side, that 14% growth in Q4. I know you have some shifts in your premium and luxury brands contributing to that. Can you kind of give us a sense of what the increase would be for Save and Norwegian brand? Or just to think about...

the increase that embedded in that guidance that, you know, outside of those new ship additions. And then my other question was on expense. And I'm sorry if I missed if you said what was the non-recurring benefit in Q3 there? And then just thinking about...

Q4, it looks like your footnote is sort of saying you're excluding the cost of new ships in that and I just I Just wanted to clarify. I feel like you hadn't done that before it I just want to think about comparability to you know expenses in 2019 So is that new that that guide excludes the cost of new ships? Thanks. Hi. Good morning, Robin Thanks for the question. So in Q4 when we talk about our pricing

as the favorable year-over-year comps, that 18% would translate to about 10% of your organic fleet. So very, very strong growth, consistent with what we've seen over the last two to three quarters. So we're very, very pleased with that. In terms of Q3, the one-time non-recurring benefit.

We highlighted that because we didn't want to take artificial credit, so to speak, for our cost reduction initiatives. And that was simply a benefit that we received as a result of some port volume commitments, accruals that we had during the course of COVID. We were able to negotiate with the various ports around the world to reduce that. So, we were able to make sure that we were able to get the best out of the world. And that was a benefit that we received as a result of some port volume commitments. And that was simply a benefit that we received as a result of some port volume commitments.

We didn't want to take credit for that because it's a one-time non-recurring so we called that out. And then in Q4 again trying to be ultra-transparent on the surface it would appear that our net cruise cost picks up slightly by one dollar but if you really look at look at that and you exclude the one-time startup operating costs for both

Viva and Grandeur which come on in the fourth quarter. And you really right size that to a normal run rate that is actually reduced by a dollar or two. So again, what we're trying to do is show that we have sequential improvement in our core fundamental operating costs. And you're seeing that over the course of all four quarters in the year.

Okay, great. Thank you. Our next question comes from Patrick Scholes with Truist Securities. Please proceed with your question.

Great. Good morning, Harry and Mark.

First question.

concerns the onboard and other line item. You know, how much as we think about

for next year and perhaps 2025. You've certainly seen outside growth in this line item.

How much do you think of that is really sustainable and how much might be from revenge travel and maybe some of that growth also might be from bundling or accounting changes. So, how should we think about sustainability of that going forward?

Patrick, it's a good question. I believe it's fully sustainable. We don't necessarily see this huge revenge travel being a huge plus, nor the levels that we are going at today diminishing. My best proxy is the Norwegian Cruise Line brand because it's our largest...

February was the best January in their history. A company February is the best February . Clear through July , which just ended yesterday, which was the best July in the history of the company. In fact, our second best booking month of the year, which is a little bit odd, because usually July and August is a little bit slower due to the occasion of people being on.

Super unusual that we're doing in bundling today compared to 19. We continue to refine our processes and make the marketing and product proposition a little bit better each quarter than the quarter before, but I don't anticipate any huge changes for 24 either. We continue to refine our processes and make the marketing and product proposition a little bit better each quarter than the quarter before.

So I think the numbers you see today are the numbers that we would expect to improve on going into 24. And Patrick, to further highlight on that is, you know, we've talked about, you know, we have, we have more touch points with the consumer well prior to the consumer ever stepping on board ship, on board the vessel. So we're getting more share of the wallet from the consumer ahead of that. And I think one of our staff that we talked about,

our pre-booked revenue was up by almost 70% versus 2019. So again, it's a longer, elongated sales cycle that just helps build that overall onboard revenue product. So we are not seeing any signs of any consumer deterioration. In fact, we continue to see strength on that, and we're very happy with that. We continue to see.

I expect that to be strong. Okay, good to hear. Just a quick follow-up question, Mark. You had noted in the earnings release about $500 million released from the credit card reserves. Is there any

money left still to go with that or was that 500 the last slug of that? Yeah we're very happy with that so with that that essentially we have zero collateral with any of our our reserve holders as of as of the quarter end so

That was a not only a significant boost to our liquidity profile long-term, but more importantly, as I said in my prepared remarks, is that it demonstrates confidence in the business from a completely external partner who has no stake in the game, other than their inherent risk on advanced ticket sales.

Again, we see that as a big demonstration of competence in the business and where the trajectory of the business is going.

Okay, thank you. Our next question comes from Steve Wazinski with STIFO. Please proceed with your question.

Hey guys, good morning.

So, you know if we think about your load factors moving forward, which Mark you mentioned will be about 200 basis points lower than you know, where 2019 levels were You know, that's because a longer itineraries and whatnot. Just you know, just wondering how

these lower load factors impacts or potentially impacts your cost structure moving forward. And to add on to that market, because we're thinking about you guys exiting the year in that low, it's called 150s range in terms of cost per APCD. Is there any way to help us think about as well, you know, where you might be able to get that number two, you know, over time?

Steve, it's a good question. I don't look at this as a huge material change in our cost structure. It'll be a modest tailwind having 2% less guests on the ship, and the 2% less guests that we have are primarily young children which aren't particularly expensive.

So this really isn't about our cost structure, this is really about yield and EBITDA where we believe being in more premium itineraries that are booked further in advance, giving us a much longer booking curve and a more stable and predictable demand profile which allows us to manage demand, manage our marketing a little bit more effectively.

I think both Mark and I commented on the higher rebooking rates, the higher VINs ticket sales, the higher revenue, the higher booking window, all of these positives, which seem to endorse our strategy, which I think we'll see the full benefit of in 2024 as we then will have gone through a full year of club structure.

So I mean, listen, bottom line is we're committed to getting back to the, the margins that we saw back in 19 over time. It's going to take us a little time to get there, but we're, we're, we're, we're looking at the trends and we see a path towards that. And we think this Freeman deployment, which we already started shifting to in 18, 19 will be a vehicle that will.

to have industry leading yields far above the competitive set and we believe that this deployment strategy will allow us to continue with that.

Mark, I just want to add the question I was going to ask before to you. Again, as you think about you guys being in that low 150 range in terms of cost, is there any way to help us think about where you could get that number over time? Not looking for guidance or anything.

We're in the planning process. And as I said, I think we're probably halfway through the baseball game, so to speak, in terms of initiatives. So we fully anticipate that we're gonna improve on that. One note, as I did say in my prepared remarks, is we have to keep in mind that there is going to be some dry dock pressure in 2024.

when you compare that to 23. But excluding that, I would venture to say that we're gonna continue to see improvement in our core fundamental cost structure. So we're working hard. Hopefully we've demonstrated and given you confidence that quarter over quarter, we sequentially continue to improve. We think there's more to go after and we're going after it.

We're going to do it in a methodical manner, but protecting that guest experience. So, you know, stay tuned for the next few quarters to come and I think we'll continue to show improvement.

guest experience. So you know stay tuned for the next few quarters to come and I think we'll continue to show improvement.

Thanks guys, appreciate it. Our next question comes from Brant Montour with Barclays. Please proceed with your question.

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

So I'm just curious if you could comment on the last three months of just fundamental demand strength on the booking side. We've heard from peers that demand has accelerated over those last three months.

hire you just called out May, June , July being each successively record booking months but but yield guidance for the year you know was was left unchanged and so I guess the question is is that a function of guidance three months ago just already sort of betting on that acceleration coming or did flight price flight prices in Europe take a bite out of 3Q I think we talked about that last quarter

today and over the last quarter is primarily focused on 2024. I think we mentioned in our commentary but if we did and I'll mention it now that over the last 13 weeks over 70% of our new booked revenue was for 24 and 25 departures. So you know in that respect this acceleration demands

the year and they're coming to fruition just as we expected but these records are really helping to confirm up the 24-book position. I mean this record book is a booking window of 255 days which is 51 days ahead of where we are in 19 is a huge number for the company and again really gives us confidence for 2024 and beyond.

So, Brent, I would not take it as any sort of sign of deceleration and demand. It's just simply a function of our itineraries. We're more fully booked than we ever have been and there's just not a lot left to sell, so which is a good thing. That gives us more stability and predictability over our numbers. So, if anything, that said, there's always, as we talked about, the concern.

of the consumer spend on board.

That's really helpful. Okay. And then just a quick follow up on that. And I remember pre COVID, Mark, specifically, you know, you guys could get really great returns on incremental marketing dollars. And that was part of the strategy back then.

Now in a world where you guys are, I think, trying to be a little bit, I guess, smarter you call it on your marketing dollar spend. And Harry, what you think about this, just as you tinker with that sort of algorithm or equation with marketing spend, what are you learning about that process? Are you happy with…

I think, France, this is really the first quarter, or maybe the second quarter, where marketing spend was sort of normal, where we were able to judge each of these visual projects that we do in marketing and see normal ROI, normal returns, normal get demand. But of course, we weren't just waiting for these last couple of quarters to refine our marketing machine.

You know, we've gone all in with marketing analytics, we've done some work with AI, machine learning, you know, all those terms to really refine our individual marketing efforts and the what we spend in each individual channel. So the best example I can give you on the HCL brand...

sort of a customer that raises their hand. We think that's fantastic. Conversion rates continue well, which is one of the things that's leading to these record bookings. And as long as we continue refining our analytics around marketing, we're happy with the spend levels.

That's a great color. Thanks, everyone. Our next question comes from James Hardyman with Citi. Please proceed with your question.

Hey, good morning. Thanks for taking my call.

On the net per diem side, good performance in the second quarter. Maybe a little surprise that that didn't flow through to the full year guide and I can certainly appreciate, you know, more often than not, if it's onboard spend that's driving that per diem, it's hard to sort of

you have less visibility as we think about the back half of the year. That ultimately would happen in 2Q, or how should we think about the lack of flow through to the full year? Well, James, I think our pricing continues to be very strong. I think out of the gate we set very high levels.

Again, I wouldn't read into anything whether or not that's, you know, if there's any deceleration, there is flow through. And the fact that we're still guiding, you know, reiterating 9 to 10.5% growth. So very strong. We don't have a lot of inventory left to sell, which is by design.

So I think it's really going to be on the back of, you know, what, what does the onboard spend level do? And as we've touched on here and several times before, it continues to be very strong. But while we have good visibility on that, there is always some variability on that. So remains to be seen. And but everything we're seeing is we're, we're seeing.

Got it. That's helpful. And then separate question. We started to see refinancing activity pick up, maybe a more favorable corporate debt environment. What are you seeing there? Is there an opportunity for you guys to do some transaction?

whether it be to focus on lowering interest rates, extending maturities. I guess if so, what instruments are sort of low-hanging fruit for you guys? More broadly, if you think about deleveraging, it seems like the messaging has been more about increasing EBITDA than actually reducing debt.

which is our term loan A and our revolver. Beyond that, our next big slug of debt is it comes due in December of 2024. We have three and five eighths notes out that are out there. And we'll look over the course of the next 12 months what to do with that. But as the cash machine continues to ramp up, as advanced ticket sales continue to ramp up, as EBITDA and margin continues to improve, that is the number one thing we're focused on is de-levering in order to help de-risk the stock. So we're focused on that. We've done this before. It's gonna take a little bit of time. But I think there's more to see over the course of the next 12 to 18 months.

And James, I'll just take this opportunity to reiterate a comment that Mark made in his prepared remarks, that we have paid down $1.4 billion of debt in the first half of the year, which we're super excited about. Got it. That's really helpful. Thanks, Mark. Thanks, Harry and Harry. Congratulations on the new role and good luck.

opportunity to reiterate a comment that Mark made in his prepared remarks that we have paid down 1.4 billion dollars of debt in the first half of the year, which we're super excited about. Got it. That's really helpful. Thanks, Mark. Thanks, Harry and Harry. Congratulations on the new role and good luck.

Why do you need it now? And what's the biggest pressing thing that you want to achieve with it? Or is that more of a con just around just a refreshing? Well, I think, Connor, it's a little bit of both, right? With new leadership team, we have to set a culture that's gonna work for us in the mid to long term. And I'm really excited that the entire leadership group, both the new members and the existing ones are embracing. But if I was to sum it up in one sentence, we're looking to build a culture where we're firmly focused on margin enhancements that we've discussed, while at the same time delivering the exceptional guest experience. And it's really a fine line to walk. I mean, you can cut go up.

a little bit at a time and make sure that we monitor it closely and that's what we're going to continue to do. Thank you, Connor. Thank you, Connor. So with that, Maria, we have time for one last question. So please call it out. beerservice.org

Okay, our next question comes from Dan Pollitzer with Wells Fargo. Please proceed with that question.

Hey, good morning everyone and thanks for hitting me in. Just a quick question Harry, it feels like there's been a tangible shift more to focus on the cost side than the yield side. Maybe that's just reflected in current numbers versus how you're looking at things. But I guess as you think about 2024, 2025 and as you think about also long-term targets, what will that impact yourGl slaveopot his

Is this an accurate depiction and could we maybe get long-term targets from you as you kind of settle into this role later this year or possibly early 2024? So Dan, great question. So first off, we are absolutely focused on yield and cost, right? Because ultimately margin is a combination of those two numbers.

I think I discussed in one of the earlier questions that we think we can do an outside job in 2024 and yield growth somewhat because of the tailwinds we saw out of Q4 in 23 when we weren't fully back up to operation, but also because of all the healthy consumer demand metrics that we're seeing over the last few months that we believe will continue into the future. And on a long term basis, we are committed to loading mid...

In terms of long-term targets, we think about it a lot, but I've been on the job now for 30 days, so a little bit early for me to go all in. I've been spending a lot of time on our ships, with our operations folks, with our employees, with our travel agency community, with our customers, spending some time with the investment community as well. We believe by early...

you know, margin, yield, and cost components of the business going forward.

Got it. Thanks a lot.

Okay, so once again, I wanna thank everyone for joining us today. We'll be around to answer any questions you may have. Have a great day, stay safe and all the best. Bye now.

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