Q3 2025 Norwegian Cruise Line Holdings Ltd Earnings Call
Speaker #1: Good morning. Welcome to Norwegian Cruise Line Holdings Ltd. 2025 earnings conference call. My name is Sherry, and I will be your operator. At this time, all participants are in a listen-only mode.
Speaker #1: Later, we will conduct a question-and-answer session, and instructions for the session will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone phone.
Speaker #1: As a reminder, all participants—this conference is being recorded. I would now like to turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.
Speaker #2: Thank you, Sherry, and good morning, everyone. Thanks for joining us for our third quarter 2025 earnings 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 #2: As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website. We will be referring to a slide presentation during the call, which can also be found on our website.
Speaker #2: 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.
Speaker #2: Our press release with third quarter 2025 results was issued this morning, and it's also available on our IR website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ material from such statements.
Speaker #2: These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation.
Speaker #2: Unless otherwise noted, all references to 2025 net yield and adjusted net cruise costs, excluding fuel per capacity day, are at a constant currency basis and comparisons are to the same period in 2024.
Speaker #2: With that, I'd like to turn the call over to our CEO, Harry Sommer. Harry?
Speaker #3: Well, thank you, Sarah, and good morning, everyone. Welcome to our third quarter 2025 earnings call. I'll begin my remarks today with a discussion of the third quarter results and what recent booking pace, and we'll then get into some recent highlights on our three brands and strategy.
Speaker #3: I'll then provide some brief comments on how 2026 is shaping up before handing the call over to Mark, who will provide a deeper dive into our financial performance and outlook.
Speaker #3: So, to dive right in, I am pleased to report another record quarter with results that met or exceeded guidance across all metrics. As a result, we are reiterating our full-year adjusted EBITDA guidance and raising our guidance for adjusted EPS.
Speaker #3: Our performance this quarter was driven by solid customer demand, which drove load factors higher, reflecting the continued strength of our brand and the execution of our charting-the-course strategy.
Speaker #3: As previously stated, we remain committed to balancing return on investment with return on experience, delivering exceptional vacations, driving sustainable financial performance, and strengthening our balance sheet.
Speaker #3: Now, delving a bit more into the details of our third quarter results shown on slide four, we achieved another quarter of strong performance and solid execution across the business.
Speaker #3: We met or exceeded guidance we provided in July, and delivered the highest quarterly revenue in our company's history. Load factor finished ahead of expectations at 106.4%, driven by stronger-than-anticipated demand from families, particularly at the NCO brand, resulting in net yield growth of 1.5%.
Speaker #3: Costs were essentially flat year-over-year, which resulted in adjusted EBITDA of approximately $1 billion—a milestone achieved for the first time in the company’s history.
Speaker #3: As a result, our trailing 12-month adjusted operational EBITDA margin reached 36.7%, an improvement of 220 basis points from last year, and another meaningful step towards achieving our charting-the-course margin target.
Speaker #3: Finally, adjusted highlights in this eventful quarter that I would like to share. First, on the financial side, which Mark will cover in more detail, we completed a multi-faceted capital market transaction that, among other benefits, reduced our share outstanding on a fully diluted basis by more than 38 million, or over 7%, materially improving our adjusted EPS.
Speaker #3: EPS came in at $1.20, exceeded guidance by 6 cents. Turning now to recent demand, bookings in the third quarter marked the strongest third-quarter bookings in company history, with bookings up over 20% from last year.
Speaker #3: With this trend continuing On the guest experience side, we introduced several enhancements, including our new tri-branded loyalty and recognition program, which I'll discuss later, and the launch of an enhanced website for the NCO brand.
Speaker #3: The new site is already delivering results, with faster performance, better guest experience, and higher conversion rates, resulting in increased bookings. We have also made it easier for guests to personalize their vacation, with more targeted pre-cruise offerings.
Speaker #3: For example, we are now promoting high-value onboard products, such as Vibe Beach Club passes, drinks and dining packages, streaming Wi-Fi, spa treatments, and shore excursions, through personalized emails and push notifications.
Speaker #3: Pre-cruise sales at our whole-time high levels, which drives higher onboard revenue and higher guest satisfaction and repeat rates. On sustainability front, we recently announced a landmark agreement with Spain's Repsol for supplying renewable marine fuels at the Port of Barcelona.
Speaker #3: This eight-year agreement starts this upcoming European season and is a first-of-its-kind partnership in the industry, underscoring our sail and sustained commitment. This agreement is a great example of cross-industry collaboration that could unlock meaningful progress and secure long-term asset access to renewable marine fuel in Europe.
Speaker #3: Now, I'd like to take a few minutes to discuss the high-level strategies we're executing across our three brands, which are summarized on slide five.
Speaker #3: These strategies are designed to ensure we continue delivering exceptional experiences for our guests, while advancing our charting-the-course targets and creating long-term value for our shareholders.
Speaker #3: At Norwegian Cruise Line, our focus is enhancing the family appeal and experience. At Oceanic Cruises, we're working to firmly position the brand within the luxury sector, and at Region Seven Seas Cruises, we're focused on maintaining its well-earned reputation as the pinnacle of ultra-luxury cruising.
Speaker #3: Moving to slide six, I'll dive into the strategic evolution underway at Norwegian Cruise Line. This is a transformation that has been underway for several months, and is now accelerating with sharpened focus under the brand's new leadership, including a new chief commercial officer and a new chief marketing officer, with a robust search for world-class leader to head the NCO brand well underway.
Speaker #3: As part of this evolution, the brand is executing a focused three-part commercial strategy to drive yields and profitability higher over the next year and into the future.
Speaker #3: First, we're focusing more on families as a core demographic. We're building brand familiarity through our shore cruising sailings, which give guests more guests, particularly families, a chance to experience our amazing product.
Speaker #3: That exposure helps build loyalty and creates a pipeline of repeat guests for the future. Over time, this will increasingly support one of our key priorities: boosting load factors.
Speaker #3: We are working diligently to attract more families to the brand to experience everything Norwegian has to offer, both onboard and at our destinations, particularly our upgraded private island, Great Surf Cay, and through enhanced onboard offerings geared towards families.
Speaker #3: Second, we're strengthening our brand positioning and marketing. To reach the broader family market, NCO is developing a refreshed brand campaign designed to elevate awareness and strengthen emotional connection, which we should launch in early 2026.
Speaker #3: Alongside that, we're optimizing our marketing mix and spend to ensure we're getting the best possible return on every marketing dollar, creating efficiencies throughout 2026.
Speaker #3: Lastly, we're elevating the guest experience. We are pleased to reiterate that our previously announced enhancements at Great Surf Cay are all on track to open around the holidays, including the new multi-ship here welcome center, tram system, and expansive 28,000 square foot heated pool the size of an entire cruise ship, with a swim-up bar, kids' splash zones, five shore club, new dining and beverage outlet, and dozens of new cabanas.
Speaker #3: The upcoming summer 26 launch of the Great Tides Waterpark will mark another milestone moment for the brand. Spanning nearly six acres, the waterpark will feature 19 thrilling water slides, a dynamic river, a huge kids' splash zone, a 10 and 15-foot tall cliff jump, and an innovative jet cart attraction.
Speaker #3: It will be the perfect family-friendly addition to our already exceptional island amenities, which include Silver Cove and exclusive retreat offering magnificent villas and a beach club.
Speaker #3: And that's just the additions at Great Surf Cay. We're also looking ahead to enhancements across other destinations in our portfolio. In addition, we are expanding our kids' and family programming with improved activities and entertainment, ensuring engaging experiences for guests of all ages.
Speaker #3: At the core of this approach is our ambition to be the brand of choice in the contemporary space for both seasoned travelers and premium families, while maximizing profitability.
Speaker #3: Future travel intent, current bookings, guest satisfaction scores, and future onboard cruise sales are all at or near record levels, clear signs that our strategy is working.
Speaker #3: We continue to actively balance between load factor and price, with the goal of optimizing net yield margins and, most importantly, profitability. Now, turning to slide seven, this strategy is already leading to tangible results.
Speaker #3: Our increased Caribbean presence, additional short sailings, which capitalize on demand for closer-to-home family vacations, and continued investment in our private island destinations are already driving higher load factors.
Speaker #3: The fourth quarter marks the first period where we're truly seeing the shift in strategy come to fruition. In Q4 of this year, we will have the highest mix of short sailing since 2019, reflecting our deliberate move to rebalance Norwegian's deployment towards closer-to-home itineraries.
Speaker #3: This approach expands our reach, appealing to a broader mix of guests, particularly premium families and new-to-cruise travelers, while allowing us to better leverage our private island investments.
Speaker #3: In Q4, short sailing capacity is increasing over 80% versus the prior year. And our Caribbean deployment is moving to over 50% of our total capacity.
Speaker #3: As a result, we now expect load factors to improve over 100 basis points year over year to nearly 102%. Now, I know many of you will probably ask why our fourth quarter yield guidance has changed from our prior implied guide to growth of 3.5 to 4%.
Speaker #3: So let me get ahead of that question. As mentioned earlier, we are very focused on load factor and increasing brand visibility through our Caribbean product.
Speaker #3: It has been quite some time since we've had this level of short sailings in our deployment, and demand has exceeded our expectations. In the fourth quarter, our Caribbean short sailings are performing quite well, particularly among our targeted family demographic, driving load factors higher than we had forecasted.
Speaker #3: On our Caribbean sailings, we are seeing more families, which means more children in each cabin. We expect core pricing for the first and seconds to be well up.
Speaker #3: The addition of child as third and fourth in the cabin, however, will naturally dilute blended pricing. The end result remains strong yield growth and strong margin expansion.
Speaker #3: This is an intentional planned trade-off to drive margins and profitability higher in both the short and long term. These early results from our increased short sailing Caribbean deployment are encouraging, and reinforce our confidence in the strategy.
Speaker #3: Now, looking ahead, we expect this dynamic to accelerate in the first quarter of 2026, with load factor projected to be 200 to 300 basis points higher year over year, driven by a meaningful 40% increase in short sailings.
Speaker #3: Additionally, this will coincide with the soft opening of Great Surf Cay's new amenities around the holidays, while the more meaningful enhancements will be coming when Great Tides Waterpark opens later in summer 2026.
Speaker #3: While we return next winter, we'll have the full benefit of the new amenities at Great Surf Cay and the word-of-mouth from thousands and thousands of satisfied guests, which will further strengthen performance.
Speaker #3: Moving on to slide eight, we're confident this positive momentum will continue throughout 2026, with load factors building on 2025 levels and returning to, if not exceeding, 2024 levels, reaching at least 105%.
Speaker #3: This is sustained progress driven by this new deployment strategy. Now, I've spoken a bit about the Norwegian brand, and now I want to turn to our luxury portfolio, Oceanic Cruises and Region 7 Sea Cruises, on slide nine.
Speaker #3: The opportunity we're seeing in luxury cruising has never been stronger. Global luxury spending continues to expand, with experiences ranking as the fastest-growing segment in 2024.
Speaker #3: Both Oceania and Region are perfectly positioned to capture this demand. Oceania delivers luxury by choice, offering guests elevated personalized experiences with exceptional culinary offerings, while Region is the pinnacle of the ultra-luxury all-inclusive luxury segment.
Speaker #3: To fully capitalize on this opportunity, we brought back Jason Montagu earlier this year to lead both brands and drive the next phase of growth.
Speaker #3: Turning to slide 10, you can see the tangible progress already underway. The first thing Jason did was optimize the organization, ensuring we had the right leadership structure and the right people in the right roles to support long-term growth.
Speaker #3: Next, he's been deeply engaged in our fleet management program, including our pipeline of six luxury ships, overseeing the design and launch of Oceania Aurora, and Region 7 Seas Prestige, both of which will set new standards for design, experience, and efficiency.
Speaker #3: He has also been very focused on elevating our existing fleet and 7 Seas Mariner is the latest example of that commitment. The ship entered dry dock just yesterday, where we're undertaking a full transformation, refreshing suites, reimagining public spaces, and introducing an enhanced pool grill featuring a new wood-fired pizzeria concept for relaxed, al fresco dining.
Speaker #3: 7 Seas Voyager will be undergoing a similar revitalization when she enters dry dock next year. Coupled with our three new vessels and the upcoming Prestige delivery in 2026, we truly will have the world's most luxurious fleet.
Speaker #3: Finally, Jason's been laser-focused on enhancing brand positioning and marketing across both brands, ensuring that Oceania is fully recognized in the luxury space, while Region maintains its place as the pinnacle of ultra-luxury cruising.
Speaker #3: We know we have two extraordinary luxury products; now it's about telling these brand stories more powerfully and consistently in the market. I want to take a moment to recognize Jason and the entire luxury team; they're doing an outstanding job executing on this strategy, elevating both Region and Oceania, and positioning our luxury portfolio as a key growth driver for 2026 and beyond.
Speaker #3: Finally, moving to our loyalty program in slide 11, I'm thrilled to share how we're taking guest recognition to the next level. We recently launched our new loyalty status honoring program, allowing members of Latitude Rewards, Oceania Club, and the 7 Seas Society to have their tier status honored across all three of our award-winning brands.
Speaker #3: Our guests will now be able to enjoy the loyalty perks they've earned, no matter which of our brands they choose to sell. It's a major step forward that makes it easier than ever to explore the world within our NCLH family.
Speaker #3: This change will also encourage our top guests to try our other brands. It's really about deepening our connection with our most loyal guests, rewarding their commitment, and giving them even more ways to vacation better and experience more.
Speaker #3: And while it's early, the preliminary results of this program have well exceeded our expectations, proving again the power of our brands. With that, I am happy to turn the call over to Mark.
Speaker #2: Thank you, Harry, and good morning, everyone. Let me start with our third-quarter results, highlighted on slide 12. We delivered another strong quarter, exceeding or meeting guidance across all metrics.
Speaker #2: Occupancy came in at 106.4%, nearly 100 basis points above guidance, driven by strong family demand, across all itineraries. Net yields grew 1.5%, in line with guidance, fueled by strong pricing growth of over 3%.
Speaker #2: On the cost side, adjusted net cruise cost ex fuel was down a tenth of a point, coming in slightly better than expected, as our cost control efforts continue to bear fruit.
Speaker #2: As a result of better-than-expected fuel consumption, adjusted EBITDA for the quarter was $1,019, above our guidance of $1,015. Adjusted net income came in at $596 million.
Speaker #2: Adjusted EPS came in six cents ahead of guidance at $1.20. Overall, this was a solid quarter, consistent with our expectations. Moving on to fourth quarter and full-year guidance, on slide 13, we expect occupancy to be approximately 101.9% in the quarter, roughly 100 basis points above the prior year, and our previous implied guidance.
We're carrying this culture of cost discipline into 2026.
And we have full line of sight to achieving at least another 100 million in savings next year.
Keeping our unit cost growth well, below the rate of inflation while continuing to deliver an exceptional guest experience.
These cost savings have been a major driver of our continued margin expansion as you can see on slide 15.
Our adjusted operational IBA margin has increased by roughly 600 basis points since year end 2023.
And we remain on track to reach approximately 37% by the end of this year.
Looking ahead to 2026.
We expect this positive momentum to continue supported by our proven algorithm of low to mid single digit, yield growth and sub inflationary cost growth.
The Strategic initiatives Harry outlined earlier are Central to this plan from bringing more families to the Norwegian brand and increasing load factor to refreshing our brand and marketing.
And the launching of new amenities at Great sterup K this year around the holidays and the new water park next year.
At the same time, our luxury Brands continue to benefit from strong demand Trends and their truly best-in-class offerings.
Oceanian is building momentum. As we position it squarely in the luxury space.
And reagent Remains the clear leader in Ultra Luxury, cruising delivering an unmatched product and service experience.
I'm confident that all of these efforts driving both the top and bottom line will enable us to further expand margins and a pre and Achieve our approximately 39% Target next year.
Turning to slide 16, you can see our debt maturity profile, which has been extended and strengthened following our recent Capital markets activity.
In September, we successfully completed a series of straight strategic transactions, that significantly enhance our financial flexibility.
We refinance, the majority of our 2027 exchangeable notes.
Extending our maturity profile and reducing our shares outstanding on a fully diluted basis by approximately 38 million shares.
All while remaining essentially net leverage neutral.
In addition, we refinanced approximately 2 billion of debt including the replacement of about 1.8 billion of secured debt to unsecured.
Secured notes from our capital structure.
These actions underscore our continued focus on optimizing our balance sheet.
Improving collateral utilization, and positioning the company for sustainable long-term growth.
Turning to net, leverage on slide 17. I want to emphasize that reducing leverage remains our top Financial priority.
In the third quarter, net leverage increased slightly from the second quarter to 5.4 times from 5.3.
This modest uptick reflects the delivery of ocean, Allura, where we took on the associated debt but have not yet annualized, the IBA contribution from the ship.
We now expect to end the year at approximately 5.3 times.
And excluding the impact of non-cash Foreign Exchange revaluation on our Euro denominated debt related to Norwegian aqua and Allura and oceanana Lura. Our leverage would end the year at approximately 5.2 times.
In a year when we've taken delivery of 2 new vessels keeping leverage. Flat is a notable accomplishment and positions us well to achieve our 2026 Target of reaching the mid 4 times range.
Wrapping up our solid performance so far this year and the ongoing benefits from our cost initiatives, reflect meaningful progress on our top Financial priorities.
Deleveraging expanding margins and fortifying the balance sheet.
I'll hand the call back over to Harry to close out the call.
Well, thank you, Mark.
Now, uh, looking at slide 18, I'd like to once again, highlight this to give you the progress, we're making towards our key charting the course Financial targets. By year. End 2025, we expect adjusted operational in March and to expand by more than 600 basis points. Versus 2023, adjusted EPS to grow nearly 3-fold. Net leverage to decline by 2 full turns and adjusted roic to continue. Its upward trajectory. I'm incredibly proud of what we've accomplished so far in 2025. Looking at 2026 is shaping up to be another outstanding year with capacity, set to grow approximately 7% as Norwegian Luna and 7 Seas Prestige, join the fleet who expect to see continued strength, across all 3 Brands and Norwegian. We anticipate even more families selling with us further lifting load factor and driving margin expansion. Our strong capacity growth combined with low to mid single-digit, yield gains, and some inflationary cost growth is expected to
Drive meaningful margin expansion and continued deleveraging in 2026. I'm confident in our trajectory and excited about what lies ahead.
Year ahead will bring.
As we continue charting our course to our sustainable long-term value creation.
With that, I'll hand the call back to Sherry to begin the question and answer session.
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad, a confirmation TOA. Indicate. Your line is in the question queue. You may press star 2. If you would like to remove your question from the queue, and for participant, choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Brand Montour with Barclays. Please proceed.
Good morning, everybody. And thanks for taking my question. Um, so, you know, heard loud and clear, um, you know, 26, uh, high level targets or or reiterated here, but guys, you know, with the um, a little bit of pressure from mixing the fourth quarter, based on the shift to families, as well, as it looks like incremental confidence in the occupancy. Lift for next year. Can you give us some sort of additional insights into how uh, that makes shift would affect yields? Uh, for next year all else equal.
Yeah, hi, good morning Brandt, it's Mark. So you know, first and foremost, uh our our job is to maximize yield margins and of course earnings growth
And I think, uh, that we've been telegraphing consistent with our strategy, uh, we aim to grow yields next year in the low to mid-single digits.
Uh, again, this is in line with our strategy, and we're executing as planned.
Thanks for that Mark. That's really helpful color. A second question I have, um, would be on the bookings commentary. You said, bookings are up, uh, 20%, maybe clarify if that was in the quarter or the, or the month, I think it was the quarter, but either way, and and I don't think that was adjusted for capacity growth, but either way, that's still a really strong figure. Could you kind of square that with the with the, um, commentary and the release that you're still within the optimal range? I would think that this would sort of push you up toward. Well, at least would push you up within that range. Um, but also, you know, the mix is is going more Caribbean. You would that's more more shorter in. So um, you know, again all else equal I would think that you're moving away from from longer lead time, bookings. And it would be something. That would be a counter Force there. So maybe Square those. Sorry that's a lot. But could you square those things and and what what you're kind of seeing with that, um with that bookings? Uh, what's driving? That book acceleration. Thanks.
Sure, Brent. So, uh, just just to there's a lot there. I'll try to cover as much as it as I can, or at least as I can remember. Uh, so for first off bookings, were up 20%, uh, that was for the entire quarter, not for a specific month. And then I also mentioned that that, um, increase, uh, went into October as well. So both for the quarter, the third quarter, and for the month of October and I'll just provide further color that it applied to all 3 Brands NCL oceanen and region all for that growth. So the the
The growth was broad-based. And of course, while those Shannon region, don't play much in the Caribbean, the growth on the ocean and region have nothing to do with the grid, but more about the progress that the brand is making, um, from the consumer demand perspective. So on on, on NCL, yes, there there are some unique Tailwind if you will, on bookings, you mentioned capacity. Uh, there's also a shift to Shorter cruises which would require us to have more bookings, but fundamentally we are just seeing a stronger consumer in this Q3 than we saw in last Q's rate.
Thank you.
Our next question is from Liza with Goldman Sachs please proceed.
Hi there. Thanks for taking the question. Uh, appreciate what you've said about the kind of dilution from families, totally get that. Um, but at the same time that has been a lot of focus on the Caribbean and whether there is kind of more of of a promotional environment there with so much kind of competition, everybody kind of moving their ships there. Uh, so curious what you're seeing and whether that has kind of impacted you at all, or are you expected to going forward?
Um, so Lizzie, uh, good morning and, um, and, and thanks for the question. We're not really seeing anything unusual in the promotional landscape at least within the competitive set that we play in. Uh, what we're seeing this year is, is normal from both of price and promotional perspective, uh, you know, which is 1 of the reasons that it will allow us to have this 3 and a half to 4% yield increase in Q4 that we've uh that we've discussed. Uh um so
No, nothing unusual.
Okay, got it. And then, um, I guess, thinking about longer term, you know, your Caribbean capacity is growing, what is the kind of strategy to kind of absorb that capacity in the Caribbean? I know you've got the G GSC development, uh, but I'm curious if you feel like there's a need to kind of push marketing or, you know, how we should think about costs from that, that those kind of Private Island investments, just anything like that, that we should consider, uh, as we move to 2026.
So, so listen, I I think it's starts with consumer Demand, right? And our goal is to create both a brand construct um and specific marketing vehicles that will appeal to the demographics that we think would find the grid need of interest. Uh, you know, we've talked about the, the shift in both our branding and our marketing Communications, in my prepared remarks. So I won't repeat them again here. Uh, but between the new CMO, and the new Chief commercial officer that we on board over the last few months, we're definitely making progress along those fronts. I think things like the build out of GSC is absolutely going to help. You know, I, I'll mention that, uh, about a third of our guests next year, on the NCL brand will visit GSC? It'll be our most, uh, what's the word I'm looking for? The the destination. We go to the most of any destination in the world. So clearly our investments, there are important. I think, I mentioned that everything that we're hoping to uh to launch over the holiday period which is just about a month away um, is on track. I just personally visited the island about a week ago and
The thousands, the tens of thousands of guests that will be visiting. Uh, at least the initial set of amenities that come online in the holiday period, we expect to have to get pretty good word of mouth. I want to address the second question, you asked about marketing. So we have increased marketing spend this year. I, I I want to give the the analysts comfort that that this flat cost you over year, was not at the expense of cutting marketing. Uh, if anything we we've increased marketing by well over the 75 basis points that are overall cost structure increase. And we we were able to save money through efficiencies elsewhere to fund that. And and we plan to continue spending our marketing. You know, marketing is an important part of driving consumer demand. Um, we we think we're spending about the right amount now, you know, relative to our Revenue generation and our goals for next year and we will continue to spend at these levels into next year. Um, while having strong cost control throughout the p&l, which will enable us to continue the the, the tremendous
Margin expansion. The 600 basis points we've seen over the last year and additional 200 basis points that we're planning to do. Margin expenses. Next year will all be possible, um, even with this increased marketing spend,
Thank you.
Our next question is from Steve wisinski. With stifel please proceed.
Yeah. Hey guys, good morning. Um, okay. Mark you, you'll probably hate this question, but I if we think about next year, you you basically just said, you expect to grow yields kind of in that low to mid single digit range. And uh, you know, if I look at slide 14 and I get my, you know, I get my handy dandy ruler out to kind of gauge, you know, where costs are projected based on that bar chart. Um they look like they're going to be higher but not anything you know, anything crazy. So if we put all that together you know it seems like there would be maybe a good bit of upside to your charting the course EPS targets. You know, I would say especially now also including your recent Capital Market transactions. So not sure what you can say or or not say about that. But any comments there would be super helpful.
Hi, good morning Steve. So first, I I I love all questions from you. Uh, second. Yes. When you get your ruler out on that chart of, you know, I want to reiterate to the to the broader broader uh, uh, constituency that, uh, our Target as we've been been, maintaining, is to deliver sub inflationary or better unit cost growth and we've been very successful at doing that now, for 2 years in a row and we certainly maintain and have a clear line of sight on that for 20, uh, 2026. Uh, look, I think when it comes to the charting of the course targets as, as you've heard today, we, we are reiterating our confidence and hitting those targets.
Uh, we are executing on our strategy. Uh, of course, it's early in the year, uh, we do have a lot more Caribbean, uh, sailings so bookings are naturally a little bit closer in, but everything we're seeing today, uh, indicates that we're well on our way. So, uh, we have confidence on our path, we have confidence in executing our strategy, and that's what we're maintaining. And we'll continue to deliver on that path.
Okay, gotcha, thanks for that Mark. And then second question if we, if we think about the, the fourth quarter yield guide, um, you know, Harry and Mark, you kind of, obviously you called out the, the yield headwind from adding the, you know, the thirds, and the fourths and the the higher, uh, load factors. But did you guys, embed, um, any impact from things, like obviously, we've seen an uptick in weather in the fourth quarter or things like the government shutdown. Just just trying to to figure out, you know, maybe what that, like for like yield would look, like, excluding the, the load Factor lift.
The 4%, um, yield growth on on a year-over-year basis is strong. Uh, and we're very happy with it. If, if you're asking, whether they were were modest impacts by the government shutdown hard, not to believe that that's a, a modest headwind to the business. I, I wouldn't necessarily say the weather was, was a big deal. It was actually a relatively, uh, uh, modest hurricane season, uh, as
Go. We only had an impact to a handful of Bermuda cruises and, and 1 or 2 now, to Jamaica. None of which had to be canceled. Just rerouted, um, um, but maybe on the government shutdown a little bit, but but the macro environment continues to be strong, kind of to continues to grow and employment rates continue to be low. Uh, you know, the things that we measure Cruise intent, you know, future Cruise sales on board the ship are all at or near record levels. So uh we we're pleased and of course, you know, the proofs in the pudding. You know, I I I've gone out not just for Q3 but for the actual month of October the month of just ended that bookings, were up over 20% year-over-year. Across all 3 Brands. We we think that's a pretty good setup. Uh, um.
Okay, thanks guys. Really appreciate it.
Our next question is from Robin Farley with UBS, please proceed.
Robin check and see if your line is muted.
Okay, I think we lost Robin, so are we?
Our next question will now be from Matthew bus with JP Morgan, please proceed.
Great, thanks. Um, so hairy, maybe 2-part question. If you could, elaborate on the progression of booking trends that you saw through the third quarter and into October. And then if you parse through the mix impact that you cited in the Caribbean, could you speak to underlying pricing Trends across? Itineraries that you're seeing across both family and luxury?
well, it's a, um,
I don't think there's been a material change. You know, if you're asking whether we saw an acceleration, July August, September October, they were all 4 of them were good months. I wouldn't necessarily say that 1 of them stood up or that things have decelerated in any way. Maybe a, a modest acceleration coming into October, but but nothing that material All 4 months were very good months for us. And on the pricing side, I'd make a similar comment. There's nothing that stands out if you will. I think across the board, we've seen strength, you know. I I just want to Echo, Mark's comments, you know on on pricing. You just have to think about in seal a little bit different.
We're seeing good pricing increases on the 1st and 2nd in the cabin, you know, as we as we increase third and fourth, that naturally is a modest uh headwind to overall average price but still a benefit to yield margin and profitability. So I just want to emphasize that point. Uh, but but across the board, nothing that stands out 1 Way Or Another. We're seeing good strength everywhere.
And then maybe Mark is a follow-up. Could you help break down the drivers of load factors in 2026? Uh, they are expecting to exceed 2024 um, what you're embedding for the Caribbean relative to opportunity. You see year-over-year in Europe.
Look, uh, thanks, Matt. I I think it's it's a couple things obviously, you know, when we look at 26, you know, we've said we've clearly stated today that we expect to be at least at 1 105% or better, that's clearly. Uh, clearly being driven by The increased family Dynamic, which we have been very clear that we, uh, we continue to go after. So I think you I think you'll see some significant uh, Tailwind uh, in the force first quarter, where we called out at least, the 2 to 300 basis, point Improvement. And then I think as we transition into the latter part of the year, when GFC launch comes online fully, you're going to, you're going to start to see that accelerate in the latter part of Q3 and Q4 of next year that combined with, uh, I I think some some uh, further opportunity in Q3, uh, you know, all should contribute to a, to a healthy increase in low.
Factor you over year. We've, uh, We've we've said, we've committed. We want to want to get back to the historical, note factors and better, we're doing that, not only organically, but by expanding our segment into the premium families and we're starting to see evidence of that and I just want to provide just a little bit more color because while while the Caribbean is certainly the headline of the story for Q4 and q1. When you go into the rest of the year there, there there there are a few other modest Tailwind that will be helping us. You know, on the NCL brand, we shifted from longer European itineraries to Shorter European itineraries, you know, primarily 7 nights in the med which should allow for a slightly larger Family Market as well, which is consistent, of course, with the brand strategy. Uh, and and we're also focused on if if you will minimizing the number of single cabins that that that we take across all 3 Brands, not just friends sale, but for Roshan and Regent, uh, um, I I think, you know, 20 um6 will certainly be a year where the entire cycle of the booking.
Curve, what was booked under, what we considered to be good, booking conditions and I think we're just going to we're looking for, you know, modest.
Um, benefits in every single aspect of the business. So, again, while the Caribbean is, is certainly the headline for Q4 and q1 and is not the only initiative, we're working on to improve, um, uh, occupancy load factor for next year.
It's a great color. Best of luck.
Thank you. Thank you.
Our next question is from Connor Cunningham with Melius research please proceed.
Too. Um can you just talk about the ramp around great startup K as the as the all the all the new Investments start to come online in general? Thank you.
Yeah. Look
You're you're absolutely right what we look at the second half.
Uh, as we bring on GFC fully, uh, we absolutely believe that's going to be a tailwind. And as a reminder, we uh, in our last call prepared remarks, in our last call, I think we had said that GFC was going to be, at least the 200 next year, uh, in part and a, and a, and a full point on 2027 recall that, uh, although we're, we're we're, we're passing about a third of our overall systemwide customers through the island next year. By the time, the water park gets on about 2/3 of that base, will have already gone through the island. So we're not getting the full benefit in 2026, but we will certainly start to see that ramp up in in the latter half. Um, you know, I think when, uh, when when, when you look, you know, when you think about great, stir k and, and the announcements, about about the new amenities, in the park, we have certainly seen and uh, seen uh, heightened level of interest from the consumer. Uh, we've seen more website, bookings, more intent to travel. I think that in part is, is why we've
Seen the 20% bookings increases. Well, so it's creating excitement that said, you know, we view what's happening in. Uh, the latter part of December as the first soft opening certainly. We're opening great amenities with uh, 1 of the largest pools. In fact, I think it's about a about as large as a, uh, entire cruise ship if I recall correctly. So, uh, we're getting buzzed. We're getting, uh, momentum. And I think, as Harry said, as we start to see more Award of mouth on that to the latter, latter part of this year into early next year, I think we're going to continue to see uh, strength and momentum, build out of that.
Okay. And then maybe I can ask a question on the cost side of the mixed Dynamic. So it seems like uh, that as occupancy moves up, you get economies of scale. I mean, that naturally makes sense to me. But like are you seeing the cost offset that you would expect because at the end of the day I think you're you're really got, you're you're out there your whole thought process is around the spread between unit costs and and net yield. So just are you seeing the cost? You know uh offset as as yields are kind of partially but there's a modest headwind from from the ship the next Dynamic. Thank you.
Yeah, Conor
continue to see margin expansion.
You know, we've expanded margin, uh, this year, by more than 150 basis points or 200 points over 600 basis points in 2023. Um, that's in part 2, almost everything we're doing. It's not only the mix, the, the better, more efficient closer to home. Itineraries. But more importantly, it's also the, uh, the muscle and the scale that we continue to get that. We've been demonstrating over the last 2 years. So I think when you put all that together, we continue to flex that muscle, we continue to improve. And of course, in part to some of that is the mix, but that uh, that's starting to come into play now. When you look at the last 18 to 24 months that has not been a mix issue, that just means we've simply been better at delivering a better unit cost overall systemwide. So we certainly are seeing, uh, the, the fruits of that. It's, it's, we're bearing fruit and we expect to continue to see that into 2026 and Beyond. And and I just want to emphasize not not cost at the extensive product, Our Guest satisfaction scores and our future on board. Bookings continue at record levels that it is
super critical to get that message across.
Okay, cool. Thank you.
As a reminder, this is star 1 on your telephone keypad if you would like to ask a question. Our next question is from been taken with Miss Zhou Securities, please proceed.
morning been
Hey, good morning. Um maybe you this the first question is, uh, maybe a 3-part or maybe remind us or refresh us. You mentioned 26 costs or sub installation. What are I guess part 1, what are some of the specific opportunities? You see next year? You know, remember, at 1 point during the investor day, you went through a couple kind of like critical examples. I'm not sure if there's anything you can share. Uh, next year. Part 2 is higher Caribbean, exposure and net benefit to cost, or how should we think about it. And then part 3, how should we think about the impact of occupancy as there? Should be around. I think it's like 200 250 basis points of growth. I guess. Mechanically, is there any rule of thumb you have on the translation between occupancy to net cruise cost?
Over time that flywheel starts to, uh, starts to turn and we find more efficiencies across the board. So, it's we're focused on everything, but again, we've been doing this in a very disciplined and methodical manner. I think, uh, when you said when you talked about Caribbean, uh, capacity in. Is that is, is that a Tailwind to cost? Um, you know, absolutely stay on closer to home, uh, sailing closer to home.
It gives you some benefits in terms of the the ability to deliver the product and
At a, at a better scale on any better unit cost. But uh again that's all just part of the, the broader mix.
And I think, uh, on the last part in terms of the occupancy. I, you know, when we think about increased, oh, occupancy, from thirds, and fourths, that's typically children, or some or, or the teenage set, there's very little marginal cost related to that. Uh, obviously that brings in a higher Revenue, but I think even when you look at our third quarter, where our increased where our oxygen increased by a point fourth quarter, our occupi occupancies increasing by a point. We're not seeing any significant shifts in the cost basis for that. So I think that's just another benefit and overall Tailwind as we bring more of that third and fourth guest to our mix will continue to uh to improve on our overall unit cost.
Okay, got that very helpful and then just for 26, a quick 1 obviously capacity. Growth is, is higher in in 26 and 25. Is there anything abnormal on the DNA side specific to the island Investments? We should consider. Thanks. No, I think uh, I I, you know, I think when you look at DNA and I think when you look at historically whether you're doing it on a grocery or or or a net, percentage of Revenue, I think it's going to be pretty consistent. Uh, we've been very clear that our investments in uh, in Greater K, generally have been modest. Uh, you know, the largest investment obviously is the peer where, uh, you know, that was around 150 million plus. And I think that gets depreciated, probably over at least 30 to 40 years. I don't have the exact number on, so I don't think you would expect to see any sort of uptick in DNA. As a result of the island Investments. I will remind you. We do take on, uh, we do have 7% capacity growth next year, so we will be taking on 2 new ships, Luna and March April. And then, uh, prestige in the latter part of December.
Of 26.
Our next question is from Vince. CTO, with Cleveland research, please proceed.
Thanks. Um, I wanted to dig into the yield setup a little bit more for next year and, um, there's been a lot of helpful commentary so far, but I guess I wanted to take it in Parts. Um, you know, first I imagine you have close to half of next year booked, uh, a good amount of the first half like the core trend line that you're seeing in, like, for like, um, you know, any way to describe it and then the the second part, there's obviously some moving pieces. Um, you already laid out GSC should be a creative, which is great and helpful. But, but the 2 other ones I just wanted to clarify, uh, the First new hardware like creative dilutive or, or probably somewhat neutral. And then finally, um, you know, this, this shift to the Caribbean, a lot of, you know, helpful commentary on, um, you know, occupancy should benefit, maybe some cosmetic dilutive impact to PDM. For the end of the day, like, does this shift to the Caribbean, uh, a Tailwind a headwind or neutral to yield in in 26, as as you sit here today, thanks.
so, um,
Try to get through all 3 Parts if I remember everything, Vince. And by the way, good morning. Thanks for joining us today, so you are right. We are, we are about half half booked for next year, that's about where we would be at the cycle at this time. Um, when you ask about core Trends, you know we we have come up with our algorithm that on this type of measured capacity growth, we're looking for low to mid single digit yield growth and I believe that our book position right now
This when you say a a Tailwind or headwind to yield, I I I'll I'll make the question a bit broader. We've viewed as a Tailwind to margin which is more important to us than a Tailwind to yield. So so yes we we believe Caribbean are good yielding cruises. But the more important thing is that we can deliver Caribbean at a higher margin than we can deliver. Some of the Exotic itineraries in places like Africa, and South America, and Asia that, these ships have replaced, especially the shorter 3 and 4 day cruises,
It's it's really helpful overview there and then and then maybe 1 final 1, just as you shift more Caribbean, the business, probably books, a little bit closer in, I would imagine. And when you watch that trend line and close in bookings, over the last 60 90 days. Um, how would you characterize it?
So yeah, yes. These these Caribbean cruises both in general and certainly the 3 and 4 day cruises do look closer in and and I think that was 1 of the factors why we've seen record bookings in Q3 in October, clearly, not the only Factor but 1 of the factors I I'd say the bookings have been nothing short of incredible. I I mean, you know, the the demand we're seeing for close in up until the week of sailing even has been unprecedented from at least recent history. So we're very very pleased with the strength of their cons, the consumer and their ability to book across the entire length of the booking curve including up to the day before Cruise.
Great. Thank you.
Our next question is from Patrick Schultz with truist Securities. Please proceed
I good morning everyone. Um, 2 questions. Um, 1 can you give us update on uh, the progress of finding a new brand president and then secondly can you talk a little bit about uh the changes in uh selling strategy with the oceanana brand specifically uh recent on bundling. Thank you.
Yes. Um, thank you Patrick and
Listen on, on the brand President, we are conducting an extensive search. We have been very pleased with the caliber of world class Talent. We've been able to attract for the search. I I'll say we're, we're pretty deep into it. Uh uh now no announcement today or probably the next week or 2, but but I hope we're going to be able to see someone uh, soon. The most important thing for us is to attract a world-class leader that can continue on with the brand promise. As we've been evolving, it certainly over the last few quarters, uh, on top of the other wonderful Talent we have with our new CMO, new Chief commercial officer, new head of technology and other, uh, excellent internal and external candidates that we've brought into the brand to evolve and make things make NCL even greater in the future in terms of the promo strategy for oceanana it. It was a relative. I I saw a lot of write ups on it but honestly it was a relatively modest ch
Change. You know, we've run a series let's I'll call them of different promotions over the last year and we've gotten very good data on what it is that customers, um, value and are willing to pay for which is 1 of the core strategies to provide guests with things, they value and are willing to pay for. So the promotion we allow aligned with on oceanana, not really different that much in nature to what we've been doing recently. But really allows us to optimize the uh, uh, the construct for our guests and maximize yields and margins.
I will say I I've been incredibly pleased both with the level of bookings and the consistency we've been seeing on oceanana. I mean it's it's become almost like clockwork that in the region brand in terms of their their their weekly bookings and revenue. So I I I find that as encouraging as anything else
Thank you.
Our next question.
Is from Andrew Doria with Bank of America, please proceed.
Hi, good morning everyone. Um, maybe Harry thinking about these brand changes a little bit more strategically, you know, when you think about, you know, how do you think about the, the timeline for repositioning these Brands? I guess, you know, I think about particularly for, for Norwegian, you know, how long do you think it takes to change that, you know, the way you described it, the brand familiarity with, with families, you know, how long until you reach your targeted run rate.
Uh, I I think I mentioned in my prepared remarks that we're going to be launching some new brand campaigns in q1, that will certainly help us along, you know, clearly the ship to families. Uh uh and the Reliance or or the focus, I should say on GSC, has already come forward as witnessed by our our Q4 in 26 occupancy. So it's ready to be getting to take. Hold my my guess is on NCL by the middle of next year. I think we would have reached the relative Runway consistent with when the second set of amenities open up on GSC. So, I, I think that puts us in a very good position for Q3 and Q4, although to be clear, we're happy with q1 and Q2 as well.
Got it. Okay, that that's helpful. And last 1 for me just you know Mark on the balance sheet, you obviously completed a very opportunistic you know refund in the quarter. Um when you look out across your cap structure today I guess what are your priorities? Um right now. Thank you.
Yeah. Good morning. Andrew uh, you know first and foremost, what we've been what we've said is uh is is reducing leverages our number 1 priority. Uh and uh we continue to uh to look for ways to do that. Of course, uh, margin expansion is the number 1 driver of that which results in significant free cash flow and we continue to to, uh, see that expect to see that to ramp up over the course of the next 2, 24 months. So, uh, of course, as we look at, uh, the remainder of, uh, of of our capital structure in terms of what's left on the debt side, we're always looking to be opportunistic and we'll continue to do so.
And uh, we'll continue to strategically make uh, opportunistic trades where it makes sense and improves our overall uh, structure and ratings.
All right, so with that, I want to uh, thank everyone for, uh, today's earning call for those of you listening. For those of you who participated particularly pleased with our record earnings, our record Revenue our record ibida. Our record future book position in terms of new bookings and all the other wonderful Tailwind that we uh, that the brand is uh is undertaking. We look forward to sharing the journey ahead with all of you. Thank you all very, very much have a great day.
Thank you, this will conclude today's conference. You may disconnect at this time and thank you for your participation.