$NCLH Q4 2023 AI-Generated Earnings Call Transcript Summary

NCLH

Feb 27, 2024

The operator introduces the Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call and hands it over to host Sarah Inman. She introduces the President and CEO, Harry Sommer, and the Executive Vice President and CFO, Mark Kempa. A reminder is given that the conference call is being simultaneously webcast and a slide presentation is available on the company's Investor Relations website. The call will cover forward-looking statements and may reference non-GAAP financial measures. The CEO welcomes everyone to the call.

The cruise industry is thriving with new products and high demand for vacations. 2023 was a successful year for Norwegian Cruise Line Holdings, with full ships and profitability. The company also introduced three new world-class ships, a first in its history. This achievement would not have been possible without the hard work and dedication of the crew and team members. The new ships have received positive feedback from guests.

The company has experienced strong demand and positive reception for its brands, allowing it to absorb an 18% increase in capacity and drive revenue per passenger cruise day up 17%. Onboard revenue has also increased by 27% due to enhanced presold revenue. The company has also focused on cost optimization, resulting in a 21% reduction in adjusted net cruise cost per capacity day. This has led to $1.9 billion in adjusted EBITDA and the repayment of nearly $2 billion in debt.

Norwegian Cruise Line is focused on enhancing the guest experience by making smart investments and decisions. They have successfully rolled out high-speed internet on half of their fleet and plan to finish the rest by the end of the year. They are also improving the pre-cruise experience and utilizing digital tools across all three of their brands. These efforts have resulted in positive returns and they have also announced sustainability commitments to reduce greenhouse gas intensity. Overall, the company is performing well.

The company's strong operational and financial results have set the stage for continued growth in the future. They plan to achieve this through measured capacity growth and optimizing their fleet. The company's new build pipeline represents a 28% increase in capacity from 2023 to 2028. The current booking environment is also strong, with high demand and record-breaking booking weeks. As a result, they have redeployed two ships to offer Caribbean sailings instead of Mediterranean ones due to strong demand in that market.

The Caribbean capacity for the NCL brand is expected to increase by 300 basis points in 2024. The company has demonstrated its ability to adapt to changes in consumer demand and preferences. Demand has also returned for sailings in Hawaii, which are performing well. The Norwegian Cruise Line brand has strong demand and higher bookings and pricing for all four quarters of 2024. Oceania and Regent are also experiencing strong demand, except for redeployed voyages in the Middle East. The company has cancelled all calls to Israel and rerouted cruises in the Red Sea. This region represents a larger percentage of capacity for Oceania and Regent, but replacement cruises have been or will be put on sale. The company's book position for 2024 is at an all-time high with higher pricing, and they expect healthy net yield growth of 5.4% for the year.

The company is seeing strong onboard revenue and pre-cruise purchases, indicating a healthy consumer base. They have implemented a cultural shift to focus on cost efficiency and profitability, with a transformation office monitoring progress. This has resulted in a flat core cost for 2024. The company expects 18% growth in adjusted EBITDA and 76% growth in adjusted EPS for 2024. They will discuss their multiyear targets in May and the speaker will now hand it over to Mark to discuss financial results, guidance, and their financial position.

In the fourth quarter, the company saw strong growth in net per diems and net yield, as well as a decrease in adjusted net cruise costs. Adjusted EBITDA and EPS were in line with guidance, while adjusted free cash flow was strong. The company is confident in their improved financial performance and has provided an outlook for the first quarter and full year of 2024 on Slide 12.

In 2024, the company expects adjusted EBITDA to increase by 18% and adjusted net income to increase by 76%. The company's share count will be affected by the settlement of exchangeable notes and their tax residency has been moved to Bermuda. Occupancy is expected to be at 105% and net yield is expected to increase by 5.5%. The first quarter is expected to have the highest yield growth due to strong demand for Caribbean sailings.

The paragraph discusses the expected yield growth for the remainder of the year, which is expected to return to normal levels despite challenges in the Middle East and Red Sea. It also mentions that adjusted net cruise costs are expected to increase by 3.4% due to more dry dock days, but core costs are essentially flat. The company plans to save approximately $100 million through cost savings, and notes that this year will have a more normal dry dock schedule with 175 dry dock days. The impact of this on adjusted net cruise costs is estimated to be 325 basis points or $5 per unit cost. The company is committed to reducing costs and improving margins by identifying opportunities across the business.

The transformation office at the company is working to identify and improve operating inefficiencies in order to enhance margin recovery and cash generation. One focus area is optimizing fuel consumption and bunkering strategies, which is expected to result in significant cost savings. This, combined with strong expected top line growth, is projected to increase adjusted EBITDA margins by 250 basis points for the full year. In the first quarter, net yield is expected to increase by 15.5% and adjusted net cruise cost ex fuel per capacity day is expected to be $165, a 3% increase from the same quarter last year. The increase in dry dock days will have a $6 or 350 basis point impact on adjusted net cruise cost.

The company's adjusted net cruise costs for the first quarter are expected to be flat compared to the previous year, showing their ability to offset inflation with cost savings. Adjusted EBITDA is expected to be $450 million, with adjusted net income of $50 million and adjusted EPS of $0.12. The company also successfully refinanced their debt and plans to continue deleveraging their balance sheet.

The company expects to see improvement in their net leverage over time, driven by organic cash generation and debt payments. They have a multiyear plan to further reduce leverage and improve their balance sheet. The CEO is confident in the company's ability to capitalize on strong demand and deliver growth and shareholder value, and will share their strategic vision and financial targets at an upcoming Investor Day in May.

The speaker is turning the call over to the operator for questions. The first question is from Brandt Montour of Barclays, who asks about the deceleration in net yield growth in the second through fourth quarters and the impact of disruptions in the Middle East and repositioning of ships. The speaker, Harry Sommer, confirms that the deceleration is in line with their long-term goals and that the situation in the Red Sea and Suez Canal has had a 1-2 point impact on yield for Oceania and Regent brands, but this is already factored into their guidance. He also mentions that this will have a positive impact in 2025.

The speaker discusses the booking patterns for European sailings and how they have been impacted by COVID-19. They mention extending the booking curve for 2024 and being happy with the results across all three brands, except for those going to Israel and the Middle East. They also do not give specific guidance on booking positions for each quarter, but mention being fully booked for Q1.

The company is not expecting any significant bookings for the first quarter, but they are in record booked positions for the other three quarters. They have the ability to refinance and address their debt, and they are actively working on improving their balance sheet and reducing leverage.

The speaker, Harry Sommer, responds to a question about the company's long-term cost outlook. He expresses pride in their current cost control efforts and mentions a $100 million improvement compared to core inflation. While they cannot provide specific guidance for 2025 and 2026, they aspire to continue growing costs at a rate lower than inflation. The company has established a transformation office and is constantly looking for ways to improve efficiency and leverage their scale without impacting the guest experience. Sommer mentions their fuel and bunkering strategies as examples of this.

The speaker discusses the benefits of monitoring food waste and mentions that the company is focused on this issue and has been taking it seriously. They also mention that pricing and bookings for the Norwegian brand are higher for all four quarters of the year, and that they use sophisticated revenue management systems to take advantage of demand. They also mention that the luxury brands have been impacted by recent events, but they hope it will be a one-time issue. More details will be shared at the May Investor Day.

The new voyages for Oceania and Regent are performing well, with the new deployment already on sale and filling up. However, there has been a slight impact on yield growth due to the Middle East, with the second and fourth quarter being the most affected. The company is continuously working on improving onboard revenue and expects consistent yield growth for the remaining three quarters.

The speaker asks how much of the difference between first quarter and the rest of the year in terms of yield can be attributed to itinerary mix shifts. The speaker notes that Europe is expected to increase from 0% to 34% and 51%, while the Caribbean is expected to decrease from 58% to 18%. The speaker wonders if this explains the 800 to 900 basis point difference and asks for a quantification.

The speaker, Harry Sommer, is responding to a question about how they are seeing pricing in North America and Europe for the rest of the year. He mentions that there isn't much of a mix issue and that their deployment for 2024 is similar to 2023, except for some ships being moved out of Europe earlier. He also explains that the first quarter of 2023 was weak due to COVID and disruptions in Asia and Australia, but they are happy to see a 16% growth in the first quarter of 2024. The only issue they are seeing across brands and regions is the impact of the Red Sea and Suez, but they believe they have the right mix of Caribbean product for their guests.

The growth in the Caribbean could have been more, but the end result would have been less. The company still has the highest net yields within its competitive set. There may have been more growth if more capacity was positioned in the Caribbean, but it would have resulted in a lower overall number. In 2024, the company will be lapping over 8.5-9% yield growth in the fourth quarter of this year. The underlying strength in pricing is good across all geographical areas except for the Middle Sea and the Red Sea. There is no meaningful difference in pricing growth between Europe and the Caribbean.

Vince Ciepiel from Cleveland Research asks about the margin improvement and the steps being taken to get back to pre-COVID levels. Mark Kempa explains that the key is to continue improving pricing and leveraging the company's cost base and scale. They have made significant progress in the past 18-20 months and are confident in their ability to mitigate inflation. The cost base, excluding dry dock and reduced capacity days, is expected to be flat for 2024. More details will be provided at the May Investor Day.

The company is continuously looking for opportunities to improve their margins through top line growth and cost improvement. They are also focused on reducing fuel consumption and have plans in place to achieve this. Onboard revenue is a significant contributor to their overall revenue, with occupancy and pricing also playing a role in the growth expected in quarters 2 through 4. The company will continue to work on improving onboard revenue.

The company's goal is to increase their share of customer spending before they even step foot on a cruise ship. They are constantly working to improve this, but do not expect significant growth in this area compared to their core ticket prices. In terms of costs, they are looking for efficiencies across the board, including marketing, but the volume of marketing will remain the same. The company is also focused on improving their balance sheet and reducing leverage.

The speaker discusses various ways in which the company plans to improve its profits, including reducing fuel and food waste costs, improving air costs and SG&A expenses, and focusing on the overall P&L. Another speaker adds that they are focused on reducing leverage and expect to see significant improvements over the next few years. The call concludes with the speakers thanking the audience and inviting questions.

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