The conference operator welcomes everyone to the Royal Caribbean Group Second Quarter 2023 and Business Update Earnings Call and introduces Michael McCarthy, Vice President of Investor Relations. He notes that there will be forward-looking statements and discusses non-GAAP financial measures. Jason Liberty, the Chief Executive Officer, will provide a strategic overview and update on the business, followed by Naftali Holtz, the Chief Financial Officer, who will give a recap of the second quarter and update on current bookings. The call will then be open for questions.

The Royal Caribbean Group achieved record EBITDA per APCD and return on invested capital, exceeding their expectations for the second quarter. They reported strong booking volumes, higher prices, 1.9 million memorable vacations, and exceptional guest satisfaction scores. The revenue outperformance was driven by record yields that were 12.9% higher than in 2019, close-in demand, higher pricing, and onboard spend.

The Caribbean is performing well this year, and cruising demand for European itineraries has accelerated, resulting in better-than-expected yields. Booking volumes have continued to increase for both 2023 and 2024, with North American and European consumers looking to book summer vacations. This has led to double-digit yield growth expectations for the year and low teens growth rate for the second half of 2023. Consumer sentiment remains strong due to strong labor markets, high wages, and excess savings, with customers preferring to spend their money on experiences rather than goods.

Experience spending has increased significantly over the last few months, and the addressable market is expanding as a result of favorable demographics and wealth trends. The percent of guests new to the brand or new to cruising has surpassed 2019 levels, and post-cruise repeat booking rates have nearly doubled. Future cruise consideration is near all-time highs, and website visits have doubled compared to 2019. Travel partners are delivering more bookings than in 2019, and guests are spending more on their vacation experience. Net Promoter Scores are strong, indicating high guest satisfaction.

The demand for the company's products is supported by their industry-leading brands, innovative hardware, and global sourcing model. They have taken delivery of 3 new ships in 2023, including the Silver Nova, Celebrity Ascent, and Icon on the Seas. In 2024, they will take delivery of the Utopia of the Seas and Silver Ray, both of which have seen strong demand and higher prices. The company is also continuing to enhance their e-commerce and pre-cruise capabilities, resulting in increased guest loyalty and spend.

In the second quarter, the company reported strong performance with adjusted earnings per share of $1.82, a 105% load factor, and a 12.9% increase in net yields compared to 2019. This growth was driven by new hardware and an increase in rates on like-for-like hardware. Costs were consistent with the May guidance, but stock-based compensation contributed 220 basis points to the quarter. Favorable timing will shift this cost to the third quarter.

The exceptional job of the operational and commercial teams has led to a strong performance in the second quarter and an increase in expectations for the full year. Caribbean itineraries account for the majority of capacity for the full year and Europe sailings for the third quarter. Demand for both Caribbean and Alaska sailings has been strong, leading to a net yield growth of 11.5-12% for the full year, a 450 basis point increase from the midpoint of the prior guidance.

The company is expecting higher yields and net cruise costs for the year, mainly due to stock compensation expenses, the return to China in 2024, and structural costs related to operations. The third quarter guidance expects net yields to be up 13.5-14% compared to 2019, driven by strength in Caribbean and Europe itineraries. The company is expecting record EBITDA per APCD and adjusted earnings per share of $6-$6.20.

NCC is expected to increase 11.2%, with half of the cost increase compared to 2019 being attributed to structural costs and stock-based compensation. The company has $3.7 billion in liquidity and generated $1.4 billion in operating cash flow during the second quarter. They have also paid off a significant amount of debt and redeemed $300 million of 11.5% senior secured notes due June 2025. As a result, they expect adjusted earnings per share of $3.38 to $3.48 for the third quarter and have a goal of achieving investment-grade balance sheet metrics.

Jason Liberty of the company discusses the Trifecta goals, which are expected to be achieved by 2025. The current trends suggest that these goals could be achieved earlier than expected. He states that the Trifecta is a base camp and that there is a lot of value to unlock as the people and brands of the company continue to execute and grow the business.

The current trends in the booking environment suggest that the organization will be able to reach their metrics earlier than anticipated. The outlook looks bright and the booking visibility is as good as it has ever been. Based on the strong demand from North American and European customers, the organization expects to turn the calendar year at a higher book position than they have in the past.

Jason Liberty and Steven Wieczynski discussed how the demand environment points to 2024 and that the goal is to optimize revenue. Naftali Holtz responded to Robin Farley's question about whether the outlook for 2024 expenses would look like a normal year given that the expense guidance has not changed.

Michael Bayley is calling from Allure of the Seas and using StarLink technology to participate in the call. He mentions that the guidance provided is the result of managing expenses and expanding margin as yield is growing. Jason Liberty adds that their team was able to absorb inflation and still produce significant Net Promoter Score without impacting the product or experience. Robin Farley then asks for clarification on restarting China in April 2024, and what start-up costs might be associated with it.

The speaker is on a cruise with over 6,000 guests and is discussing the success of Royal Caribbean. The speaker mentions that they are open for sale in China and have a thoughtful process when it comes to bringing back employees. They also feel positive about bookings and have accommodated the SG&A expense in the forecast. The speaker also mentions that the increase in cost is due to stock-based compensation and a bit of the China expense. Lastly, the speaker mentions the surprising positive takeaway of European consumer demand.

Jason Liberty discusses the recovery of the European consumer, noting that they were delayed in activating their vacation, but that their willingness to spend was competitive with the North American consumer. Michael Bayley then responds to Brandt Montour's question about how the Icon, CocoCay expansion, and China reopening will affect yields in 2024, noting that China's reopening could be dilutive due to it being a restart year, but Utopia's launch in a short market could be beneficial.

Utopia and Icon are seen as game changers in the cruise industry, and the bookings for these ships have been encouraging. The gap between land-based resorts and cruise ships has been narrowed, and the company is optimistic about the impact of these products in 2024. There is a high demand for the new ships, and the like-for-like bookings are also growing. The company is not expecting to return to normal load factors this year, but the first half of the year saw lower numbers.

Jason Liberty commented on the yield upside, noting that it was largely driven by higher prices and higher demand for their brands. He noted that load factor for the second half of the year was expected to be normalized, but they were surprised by their ability to continue to raise prices.

The cruise line's commercial teams have been successful in keeping customers in their ecosystem, leading to a significant increase in prices. Onboard spending has been driven by the company's ability to curate and take the friction out of the booking process, resulting in an elevated customer deposit balance. The teams have done an exceptional job in moving this forward, particularly in the area of CocoCay.

Michael Bayley explains that the customer experience at Perfect Day is driving a lot of demand, with repeat visits increasing. To increase capacity, Royal Beach Club in Nassau is being opened in summer of 2025 and Hideaway Beach is being opened at the end of this year. Utopia is being sent to the short market to provide the ultimate big weekend.

Jason Liberty explains that the acceleration in trends that Royal Caribbean is seeing in both passenger ticket and onboard spend is due to their ability to curate and take friction out of the experience, as well as the commercial tools they have put in place to make it easier for guests to book their experiences. He believes that this has helped them to get more share of the wallet and has contributed to the acceleration they are seeing.

The company has seen an acceleration in the booking environment and raising of pricing, which has been attributed to their long-term strategies. This success has enabled them to close the gap to land based vacation and take market share from the global leisure market. The Trifecta plan has been seen as a ceiling for EBITDA margins, but there are potential unlocks which could make the model accretive relative to pre-pandemic profitability levels.

Trifecta is the base camp and has a triple-digit EBITDA per APCD which will expand beyond 2019. Jason Liberty added that moderate yield growth, good cost control, and growing yields faster than costs will help to expand margins. Naftali Holtz concluded the call by thanking everyone for their participation and offering Michael for any follow-up inquiries.

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