The operator of the Norwegian Cruise Line Holdings' Third Quarter 2023 Earnings Conference Call introduces the host, Jessica John, and reminds participants that the call is being recorded. Jessica John welcomes participants and introduces the President and CEO, Harry Sommer, and the Executive Vice President and CFO, Mark Kempa. She also mentions that the call is being simultaneously webcast and that a slide presentation is available for reference. She reminds participants to consider the cautionary statement and non-GAAP financial measures before turning the call over to Harry Sommer.

Harry Sommer, CEO of Regent Seven Sea Cruises, congratulates Jessica on her new role as Chief Strategy Officer and welcomes Sarah Inman as the new Head of Investor Relations and Corporate Communications. He then shares that the company achieved strong third quarter results, meeting or exceeding guidance on all key metrics. The team is focused on capitalizing on the strong demand for cruises and maximizing revenue. They are also working on defining their longer term strategic vision and reducing costs through margin enhancement initiatives.

The company has seen improvement in operating costs without impacting guest satisfaction. This is due to a change in culture and a focus on finding innovative ways to accelerate margin recovery. An example of this is a tour of a ship ahead of a scheduled dry dock, resulting in cost savings and shortened downtime. The company remains committed to identifying and executing on further opportunities in a methodical manner. The next priority is to make strategic enhancements to their offerings and guest experience.

The company is making smart investments in products and services, such as the launch of Air Choice and upgrades to their technology. This has led to high guest satisfaction, as evidenced by their recent award from Conde Nast Traveler. The company is also continuing to expand their fleet, with the recent addition of Norwegian Viva and the upcoming delivery of Regent Seven Sea Grandeur.

The company's new ships have been well-received and are expected to drive future earnings growth and margin expansion. The company has a 5% capacity growth plan through 2028 and is confident in its ability to handle this growth profitably. The company plans to continue adding new ships across its brands in the future. The company's final priority is to reduce leverage and derisk the balance sheet, with a focus on improving net leverage through expected cash flow generation and debt payments. The company is currently undergoing a review of its entire business and is committed to regaining a leadership position in the travel, leisure, and hospitality sector.

Norwegian is currently focused on developing a long-term strategic plan and vision for the future, which they plan to share with shareholders in the spring of next year. The company recently held a global conference to unite its team and spur innovation and collaboration. In the third quarter, they achieved record revenue and strong load factors and net per diems, despite a 20% increase in capacity. The company also acknowledges recent tragedies in Mali and Israel and sends their thoughts and prayers to those affected.

Norwegian Cruise Line's top priority is the safety and well-being of their guests, team members, and the communities they visit. They have modified itineraries and supported relief efforts in response to the wildfires in Hawaii and the conflict in Israel. Bookings for Hawaii were temporarily affected, but are now improving and approaching normal levels. They have also canceled all calls to Israel for the remainder of the year and 2024, and are working to modify itineraries for affected guests.

Despite the ongoing conflict in the Middle East, the cruise industry is able to adapt and offer attractive itineraries to guests. However, there has been a decrease in bookings for this region, especially for close-in sailings. Despite this, the company remains optimistic about future bookings and onboard revenue generation, which has seen a significant increase compared to 2019. This is due to a multiyear effort to enhance bundled offerings and pre-sell more revenue before guests even board the ship, resulting in higher spend and cash inflows for the company. As a result, advanced ticket sales have increased by 60% in the third quarter, surpassing capacity growth of 20%.

The speaker discusses the company's global sustainability program and recent partnerships, including joining the Getting to Zero Coalition. They also mention being recognized by Forbes as one of the world's best employers. The focus then shifts to the company's financial results for the third quarter of 2023, which exceeded expectations for key metrics such as net per diem and net yield. The company also saw a decrease in adjusted net cruise costs.

In the third quarter, the company generated strong results with adjusted EBITDA of $752 million and adjusted EPS of $0.76, meeting projections. For the fourth quarter, the company is projecting strong growth in net per diem and net yield, but has tempered revenue expectations due to lower occupancy and impacts from external events. The company is also fine-tuning its strategy for longer, more premium itineraries and has already adjusted booking and marketing plans for similar sailings next year. Operating costs will also be monitored.

In the fourth quarter, adjusted net cruise cost excluding fuel per capacity day is expected to be around $151, which includes some one-time benefits and costs related to inaugural activities. Adjusted EBITDA is projected to be $360 million and adjusted EPS loss is expected to be $0.15. For the full year 2023, adjusted EBITDA is expected to be $1.86 billion and adjusted EPS is expected to be $0.73. Net yield growth is expected to be 4.25% to 4.75% and adjusted net cruise costs excluding fuel per capacity day is expected to average $155 for the full year. The team has been working to reduce costs and has identified savings across all aspects of the business.

The company is proud of their accomplishments in reducing food costs by 30% since the fourth quarter of 2022. They have been able to achieve these savings while maintaining the exceptional guest experience and service levels. Looking ahead to 2024, there may be some variability in their NCC ex fuel metric due to expenses like dry docks. They have limited dry docks in 2023, but expect 170 dry dock days in 2024, which will impact NCCs by approximately 300 basis points. The company has generated over $1.7 billion in cash flow from operations and has repaid $1.5 billion in debt so far this year. They have approximately $330 million of scheduled debt payments remaining for the year. In October, they completed the refinancing of their operating credit facility, extending their debt maturity profile and increasing liquidity.

The company has issued $790 million in senior secured notes and used the proceeds to fully repay a term loan. The new notes were oversubscribed and there is increased confidence in the company's financial position. Net leverage is expected to improve and the company's liquidity position remains strong. The company is focused on executing near-term priorities and is conducting a strategic review for the future. Consumer demand for travel and experiences remains strong.

The company has a strong record of bookings and advanced customer deposits despite temporary regional disruptions. They have implemented measures to improve margins and are committed to restoring their balance sheet. They also have the ability to reposition their assets in response to geopolitical instability, with the safety and well-being of their guests and crew being their top priority. Modifications to itineraries have been made to ensure the safety of all sailings through 2024.

The speaker expresses pride in the way the marine commercial and brand teams have handled making modifications to alternative ports and communicating with guests. They will continue to monitor and adjust future sailings as needed. The speaker then addresses a question about the outlook for 2024, with the expectation that the current event in the Eastern Mediterranean will have a short-term impact on Q4 but little impact on Q1. The speaker defers to another speaker to address the question about cost guidance for next year.

The company has a small number of sailings in Q1 and Q2 that are not well booked, but overall demand for next year is higher than the same time last year. The company is not providing guidance but is focused on reducing costs and mitigating inflationary pressures. The previous CEO emphasized maintaining pricing discipline and avoiding discounting.

The speaker discusses the company's approach to pricing and maintaining discipline in order to achieve long-term yield growth. They also mention being well-booked for the next year and having a strong belief in maintaining pricing discipline. Another speaker talks about the balance between cost and customer experience, and the potential margin opportunities in a slowdown environment. They mention having real-time data from the 60,000-70,000 guests currently on vacation.

The company values guest satisfaction and carefully considers changes before implementing them. They have a methodical approach to making changes and have been successful in reducing costs. They are committed to continuing this focus and are optimistic about future opportunities. The company has also perfected their bundling strategy.

The speaker discusses the success of their onboard spending strategy and how they are continuously improving it. They also mention their focus on improving margins and their commitment to reaching 2019 levels and beyond. In terms of bookings, they are in a record position for the next 12 months and 2024, with higher pricing. They do not comment on specific brands.

The speaker believes that it will take a few months to create a long-term strategy that will affect deployment, investments, and onboard product. This will also provide guidance for 2024 and clear financial goals for 2025 and 2026. The speaker also mentions that there has been a change in occupancy for the fourth quarter, with a decrease of 200-300 points due to issues in Israel and the Middle East, as well as some minor problems in Asia that have since been resolved. This is in line with previous expectations of a 1-2 point structural headwind in occupancy for 2024.

In the fourth quarter, pricing was strong for the company, with an expected delivery of 15% to 16%. The decrease in revenue was mainly due to cancellations and conflicts in the Middle East and Hawaii, which resulted in a loss of $40 to $50 million. The company remains committed to maintaining price integrity and focusing on 2024 bookings. In addition, some other destinations, such as Asia and exotics, also experienced softer close-in demand, although not as widespread as Hawaii and the Middle East.

The Eastern Med has experienced more closing cancels than usual, but it is not due to a suppression of demand for the next year. This has also been seen in cruises from Dubai to India. The most widespread closing cancels have been in Hawaii and the Middle East, affecting most Q4 departures. The Q4 expenses are up 19% compared to 2019, but this is due to unusual factors in 2019 and the run rate has been consistently decreasing. There is a higher mix of luxury and ultra luxury products from Oceania and Regent in the current fleet.

The speaker addresses a question about the decrease in bookings in 4Q 2019 and clarifies that it was due to a combination of factors, including changes in the booking curve and a shift towards longer, more exotic itineraries. The issue was limited to 4Q and has been resolved for the following year, with strong bookings already in place.

The speaker is not worried about Q1 because the company's Q1 comp will be compared to 2023, which had issues due to COVID restrictions in Asia. The hedge book for fuel is currently at 36%, but the company's goal is to be at 50% going into a year. The strategy for fuel has not changed, and the company takes advantage of dips in the market to place additional positions. The impact of removing Israel from itineraries in 2024 is being considered, but it is not expected to have a significant impact on the company's outlook for that year. About 4% of the company's visits next year will be to the Middle East, and the impact of the recent events in the region is being monitored.

Harry Sommer explains that the 4% decrease in capacity for next year is mostly concentrated in the fourth quarter and that they are optimistic about being able to book alternative itineraries to replace the cancelled Israel calls. He also confirms that they will not be cancelling or laying out any ships due to this disruption. It is expected that it will take some time for people to feel comfortable returning to Israel, but they are more confident about returning to other places in the Middle East. Additionally, the cancelled Israel calls will not affect their normal cruise transitions in the region.

The company is optimistic that the current conflict will not significantly affect their 2024 targets. They expect a reduction in costs, including marketing, due to the lack of new deliveries in 2024. However, they still have two ships coming in 2025.

Patrick Scholes, from Truist Securities, asks a question about the impact of new luxury competition on the higher-end brands of Norwegian Cruise Line. Harry Sommer, CEO, responds that the new capacity is not significant and there has been no change in booking trajectory. Patrick then asks about the term "optimal book position" in the press release and Harry explains that it means being booked 60-65% for voyages departing in the next 12 months, but also involves managing demand and pricing on a voyage-by-voyage basis. Harry thanks everyone for joining the call and wishes them a good day. The operator then ends the call.

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