Josh Weinstein opened the Second Quarter 2023 Earnings Call, and the company had many milestones to celebrate such as net yield surpassing 2019 strong levels, operating income, cash from operations, and adjusted free cash flow all being positive, and bookings and customer deposits reaching all-time highs. They experienced a wave season with strong demand, which led to outperformance in revenue, adjusted EBITDA, and the bottom line. Net yields in constant currency turned positive in the second quarter, and they raised their expectation for net per diems in the second half while maintaining occupancy expectations. This is supporting their guidance of higher net yields in the second half of 2023 over 2019 in constant currency.

This paragraph discusses the revenue growth that the company has experienced, which is expected to bring $275 million to the bottom line for the year. Booking volumes have reached an all-time high, both in North America and Europe, and the customer deposits are at an all-time high of $7.2 billion. This has allowed the company to strategically build a strong base of revenue for 2024.

Customer deposits and onboard revenues have grown significantly this quarter, with over 50% of the next 12 months booked and over one-third of onboard revenues booked in advance. The company has also seen a significant increase in new to cruise and new to brand guests, as well as increased natural search performance and lead generation efforts. To accommodate this success, the company has increased its sales and sales support staff by over 50%, and the trade is also rebounding with sales volumes up 45% year-over-year.

The company is planning to increase their advertising investments to demonstrate their progress towards profitability and rebuilding their financial fortress. This includes reducing their carbon intensity by more than 20%, increasing their adjusted EBITDA per ALBD by 50% compared to their 2023 guidance, and increasing their adjusted ROIC to 12%, more than doubling 2023 levels.

The company is aiming to deliver outsized returns with low capacity growth and pay down debt to achieve investment grade leverage metrics. To support this growth, the company is actively working with each brand to develop strategies and roadmaps to target markets, optimize pricing, and improve guest experience. To ensure success, the company has restructured their global executive leadership and company structure.

The author has implemented changes to the organizational structure of Carnival Corporation, which has resulted in fewer direct reports and an 18% reduction in shoreside staff. These changes have been made to make the organization more nimble and accountable, as well as to make Carnival Corporation an attractive employer. The author has also focused on optimizing the portfolio and fleet of the company, concentrating on the highest returning brands, which has resulted in a purposeful reduction in capacity growth and yield improvement.

Carnival Cruise Line recently added the Costa Venezia to its fleet, with Jay Leno as its first ship godfather. This has generated 1.5 billion earned media impressions and has been an instant success. Carnival Cruise Line is continuing to increase its capacity and reduce Costa's, which is having a positive effect on its revenue profile. Bookings for the European deployment for the third and fourth quarters have seen double-digit increases in both volume and price compared to 2019. The company remains committed to its strategy of owning a portfolio of world-class brands.

Carnival Cruise Line is leveraging their strategic advantage in the Caribbean with the expansion of Half Moon Cay and the development of Grand Bahama port, which is designed to drive higher revenue yields and margins. They are also taking advantage of their ownership of cruising in Alaska, with hotels, rail, and motor coaches providing unique land packages. During the quarter, they used excess liquidity to prepay over $1 billion of debt, while still retaining $7.3 billion of liquidity, and are on an upward trajectory to rebuild their financial fortress and deliver strong profitability.

In the second quarter, the company outperformed its guidance by taking up ticket prices, maintaining onboard spending, building occupancy, and growing capacity. They are also working to close the gap between their value and land-based offerings, mitigate inflation, and reinvest in advertising and sales support. David Bernstein will provide a summary of the 2023 second quarter results, a recap of their advanced booked position, color on their 2023 full-year June guidance, and an explanation of the SEA Change Program's impact on their financial position.

In the second quarter, the company achieved a record revenue of $4.9 billion with net yields turning positive compared to 2019. Net per diems were 7.5% higher than the midpoint of March guidance, and the cumulative advanced booked position for the remainder of 2023 is at higher prices than 2019 despite headwinds. The occupancy rate is expected to be 100% or higher for the full-year 2023, and net per diems are expected to be up 5.5% to 6.5% compared to a strong 2019.

The company has increased their guidance for the second half of 2023 by 2.5 points, driven by passenger ticket revenue and strong onboard revenue trends. Adjusted cruise costs without fuel per available lower berth day for the full year 2023 are expected to be up 10-11%, due to increases in incentive compensation programs, further investments in advertising, and a slower than expected ramp down in inflationary pressures. Despite the inflationary impact, crew costs per available lower berth day are expected to be up less than 2% compared to 2019.

The company has used a portion of its liquidity to prepay $1.4 billion of variable rate debt, reducing its interest expense by over $80 million and leaving 80% of its debt with fixed interest rates. This, combined with other factors, has led to an expectation of adjusted EBITDA of $4.10 - $4.25 billion for the full-year 2023 and adjusted EPS of $0.70 - $0.77 per share in the third quarter of 2023. The company also expects its total debt at the end of the year to be below $33 billion, and it will use the SEA Change Program targets as a guide for paying down debt maturities in the future.

The company is expecting to generate an average of $5 billion in cash flow from operations over the next three years, 2024 through 2026. Capital expenditure net of the $3 billion in export credits will be less than $2 billion per year, resulting in an average of over $3 billion in annual adjusted free cash flow to reduce debt. This will result in over $8 billion of debt reduction by the end of 2026 and a 50% increase in adjusted EBITDA per ALBD. The SEA Change Program will transfer $10 billion of enterprise value from debt holders to shareholders, and an adjusted ROIC of 12% is expected, representing the highest level of ROIC in almost two decades.

Josh Weinstein mentioned that the brands are doing a good job of getting ahead in the 2024 booking process and doing it at a price that is satisfactory. He also mentioned that the occupancy gap is closing and the trajectory is good. He expects to make up the sub-seven points of occupancy in 2024 when operations get back to a normalized level.

Josh Weinstein discussed the SEA Change Program, which will result in low-to-mid single-digit increases in yields and low-single-digit cost increases. He noted that occupancy increases will have a cost drag, but they are willing to take it. He also mentioned that their advertising plans will be more concrete for 2024 and beyond.

Steve Wieczynski asked Josh Weinstein for more information about their advertising investments and how they expect them to pay off over the remainder of the year. Josh explained that they will continue to adjust their advertising spend to maximize and optimize their results, and Steve thanked him for the explanation.

Josh Weinstein and James Hardiman discuss the three-year target math and the leverage metrics for 2026. David Bernstein explains that the cash balance should start coming down over time and the company is targeting a 2-2.5% liquidity level. He also states that most of the liquidity will be in the form of an undrawn revolver and it is difficult to project the cash balance by year or quarter.

Josh Weinstein explains that the company's 2026 targets do not assume a return to China, as their assets are in a good place and yielding more than they would have had they stayed the course. He mentions that Carnival Cruise Line has done well with the tonnage from Costa, and that they are excited about China opening up for international travel, but they will be on the sidelines for a few years.

In the second quarter, bookings for European cruise brands saw double digit growth in both volume and price compared to 2019. This was due to the strategy of deploying the strongest brands in Europe, which are the number 1 or 2 in Germany, the UK, Italy, France, and Spain. This 10-point improvement in comparison to 2019 was more than the North American brands, which had already seen significant improvement in the previous quarters.

Josh Weinstein explains that each brand is very diligent in thinking about how to optimize for the variables they have in order to generate the most revenue when the ship leaves. He also states that they have been pushing the booking curve out in order to give guests what they are demanding, but there is a point where they will stop in order to not leave any optimal pricing on the table.

Josh Weinstein explains that reorganizing the corporation into operating units was done to get scale within those units and to give brands more nimbleness and flexibility. He also pulled some things up to the corporate level to support brands more holistically. As a result, 93% of the capacity now reports directly to him and the smaller brands can piggyback on bigger ones.

Josh Weinstein spoke about the potential for increased EBITDA in 2024, noting that there are both positives and negatives to consider. He mentioned that occupancy will be higher, the booking curve is in the best position ever, and commercial activities are in full swing. However, he also noted that there could be challenges such as the Ukraine, China, and energy security concerns, as well as more dry docks.

Josh Weinstein, CEO of the company, is expecting a 50% growth in unit EBITDA and to reach the highest points in ROIC and EBITDA in 20 years. He also expects the margins to get back in-line with historical norms. Patrick Scholes from Truist Securities asked for more color on these targets and Josh provided some additional information.

Josh Weinstein and David Bernstein answered Patrick Scholes' questions regarding the reserve funds from credit card processors. The funds have increased from 1.7 billion at the end of the first quarter to 2.2 billion at the end of the second quarter. Dan Politzer then asked about the 12% ROIC target and the changes needed to reach it, such as changes in mix of brands and reallocating capacity to higher ROIC brands, as well as the cost of capital.

Josh Weinstein explains that Carnival Cruise Line will be a third of their capacity in the next four years, up from 25%. He also mentions that they are focusing on generating demand for all their brands and that their land based portfolio will increase their number of guests from 5.5 million this year to 7.5 million, which will be a nice pick-up in their business.

Josh Weinstein discusses how the cruise industry has an "outrageous and ridiculous value gap" relative to land-based vacations, and the company's strategy of home porting (75% of ships are positioned so guests don't need to fly) sets them up well for the current recession. He also notes that their bookings are well-stocked for the next 12 months, and they are optimistic that their value offering will help them weather any potential slowdown in RevPAR.

David Bernstein concluded the conference call by thanking everyone for joining and inviting those who would attend the following day's Investor Day. The operator then thanked everyone for their participation and asked them to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.