The Norwegian Cruise Line Holdings Second Quarter 2024 Earnings Conference Call is being held and is being recorded. The host, Sarah Inman, introduces the participants and mentions that the call is being webcast and a slide presentation is available for replay. She also covers a few administrative items and mentions that the call includes forward-looking statements and non-GAAP financial measures. The CEO, Harry Sommer, thanks everyone for joining and expresses excitement for the company's future.

The second quarter of the year has exceeded expectations, leading to an increase in full year guidance for the third time. The company's focus on balancing return on experience and return on investment is yielding results, with strong demand, high guest satisfaction, and effective cost control. This aligns with their charting the course strategy for long-term success and achieving financial and sustainability targets by 2026. The second quarter results surpassed guidance and showed growth in adjusted EBITDA and EPS, as well as a decrease in net leverage ahead of schedule. The company's sustainability program, Sail and Sustain, is also contributing to their success.

The company is committed to further reducing debt and has raised its revenue and earnings guidance for the year. They are on track to achieve their 2026 targets for margin, EPS, and ROIC. The long-term growth platform is focused on measured capacity growth and optimizing the fleet for strong financial returns. The next two new ships are scheduled for on-time delivery in 2025, with the first ship in the Prima Plus class featuring innovative offerings such as a hybrid roller coaster and digital sports complex.

Oceania is eagerly anticipating the debut of their new ship, Allura, in 2025. They recently celebrated the float-out of the ship, marking the final stages of construction. The ship will offer luxurious accommodations and dining options, and will sail in the Mediterranean and Caribbean. Oceania's Marina also returned to service after a refurbishment, with new dining options and penthouse suites. The company is also expanding their destinations and home ports, including adding a new home port in Jacksonville, Florida and returning to Philadelphia after 17 years. These deployments have been met with strong consumer demand and bookings.

In the second quarter, the company saw growth in onboard revenue due to guests' enjoyment of amenities and pre-cruise purchases. This led to a 6.3% increase in net yield, surpassing expectations and resulting in a raise in yearly net yield growth guidance. Despite the cancellation of some itineraries, the company's financial performance was strong, leading to a new all-time high in advance ticket sales for the second quarter. The company anticipates strong pricing growth for all four quarters in 2024.

The company's success was driven by strong pricing, a dynamic deployment mix, increased pre-sale packages, and capacity growth. The company's sustainability program, Sale & Sustain, has achieved significant milestones, including equipping 50% of its fleet with shore power technology a year ahead of schedule and testing 20% of its fleet with biodiesel blend. The company is dedicated to continuing its sustainability efforts and maintaining high standards of operational excellence. The team is proud of these accomplishments and will now discuss the company's financial results and outlook.

Mark Kempa, in his commentary, discusses the strong second quarter 2024 financial results of the company, exceeding their targets in net yield and adjusted net cruise cost ex-fuel PCD. The top line results were driven by robust demand for European, Caribbean, and Alaskan sailings, higher onboard revenue, and the redeployment of canceled Red Sea sailings. The adjusted net cruise cost ex-fuel PCD was lower than expected due to the timing of certain expenses, and excluding the impact of dry docks, it would have been flat year-over-year. This demonstrates the company's ability to offset inflation with cost-saving initiatives. As a result, the adjusted EBITDA increased by 14% compared to the same period in 2023.

The company's adjusted EPS for the second quarter exceeded expectations and increased by 33% compared to the same quarter last year. This strong performance has led to an increase in the company's full year guidance for net yield growth, adjusted net cruise cost, adjusted EBITDA, and adjusted EPS. The company is on track to achieve their charting the course 2026 targets. The third quarter is expected to see a net yield growth of 6.5%, driven by strong demand in Europe and Alaska.

The company has seen strong onboard revenue and pre-booking for amenities, leading to an increase in full year net guidance. Despite headwinds from rerouted sailings, the company expects a 5% net yield growth in the fourth quarter. Their adjusted net cruise costs remain unchanged, with a 3.3% increase in the third quarter due to non-recurring benefits and timing differences. However, they still expect unit costs to remain flat for the full year and are recognizing higher variable compensation due to their business outperforming initial forecasts.

In the third quarter, our adjusted EBITDA is expected to be $870 million, driving a 21% increase in adjusted EPS compared to the same period in 2023. Our net yield guidance has been raised once again, with an additional $35 million improvement in adjusted gross margin in the second half of 2024. This will result in solid net yield growth of 5.9%. Our efforts to boost margins and reduce costs across the organization have led to flat unit costs, fully offsetting inflation and increased variable compensation. We are confident in our ability to continue this momentum in the future.

The company's disciplined approach to earnings and returns has resulted in substantial growth in adjusted EPS and improved net yields. This, along with controlled capacity growth and a focus on debt repayment, has led to a strong balance sheet and a target of 12% adjusted ROIC by 2026. The company's trailing 12-month adjusted EBITDA margin has improved to 33%, and they anticipate reaching 34.5% by the end of the year, a significant milestone towards their target of 39%. The company's balance sheet and debt maturity profile have remained stable, with plans to refinance or partially repay their 2024 notes. The company has also achieved their net leverage goal ahead of schedule, reducing leverage to 5.9 times.

The speaker discusses the company's recent financial results, which have surpassed expectations and allowed them to raise their full-year guidance. They reiterate their ambitious targets and strategies outlined at an investor day two months prior, with a focus on providing exceptional vacation experiences and a commitment to sustainability. The management team is confident in their new strategy and optimistic about the company's future.

Steven Wieczynski congratulates the company on their results and asks about booking trends. Mark Kempa responds that they are seeing strength across all itineraries for 2025 and beyond, with particularly good performance in Alaska and Europe for next summer. He also notes that their view of optimal book position has changed due to customers booking further out.

The speaker discusses the company's book position and how it has improved compared to 2019 due to better analytics and revenue management tools. They emphasize that their goal is not to be at record book positions, but rather to have optimal positions for maximizing yield. The speaker also mentions their ambitious long-term financial goals, including targeting double-digit ROICs by the end of the year and 12% by 2026.

The speaker is responding to a question about the company's cost savings and reiterates their commitment to achieving their targets by 2026. They mention that there has been incremental progress on the cost side and that they are confident in achieving their cost reduction and waste elimination goals. The timing of costs between the second and third quarters may have had an impact, but they expect to see favorable results for the full year. Variable compensation is also mentioned as a factor in the third quarter.

The company is ahead of their $100 million goal for the year and is committed to finding new ways to eliminate waste. They plan to make incremental investments in parallel with the opening of the new peer in October 2025, but the majority of investments will come in 2026 and 2027. They have a long-term master plan for their private island in the Caribbean and will maximize its potential by having a significant percentage of their NCL fleet visit there. The investments will be made in a measured and disciplined way, with a focus on returns.

Conor Cunningham asks about the costs for 2025 and any potential headwinds, such as dry dock expenses and investments in Jacksonville and Philadelphia. Mark Kempa and Harry Sommer respond by stating that they do not expect any major cost increases and are focused on delivering sub-inflationary unit cost growth. They clarify that the investments in Jacksonville and Philadelphia are being funded by the local communities, not by the company.

The speaker responds to a question about booking for 2025 and the impact on occupancy levels. He explains that their focus is on optimizing yield rather than occupancy, as the third and fourth guests in a cabin have a small marginal benefit. The next question asks about pricing power and demand momentum, and the speaker responds that demand is robust and there is no pushback in any region. He also mentions a 2.5 point cost spread target and how it may be affected by continued outperformance of net yields.

The majority of demand for the NCL brand comes from North American consumers, with Europe and Asia being less important. However, demand from these regions is still strong. The company is aiming for a 2.5% yield increase in 2025 and 2026, but there is no set quarterly plan and they are focused on the full year spread.

Mark Kempa, responding to a question from Brant Montour of Barclays, discussed the fourth quarter guidance and the impact of the Middle East on the company's performance. He stated that the Middle East Red Sea accounted for a one to two point impact for the year, with a disproportionate effect on the fourth quarter due to 10% of the company's capacity being in that region. However, he also mentioned that the company has consistently increased its guidance for the third and fourth quarters, showing strong momentum and potential for outperformance.

Harry Sommer adds that they are guiding for a 5-point yield increase year-over-year, which is not a significant difference from the 6% they are guiding for in the next two quarters. He hopes this will finally put to rest the conversation about deceleration. Brandt Montour asks about the potential decrease in onboard spend, but Mark Kempa assures that they are not seeing any decrease and that they have actually seen an increase in preselling of onboard items. He also mentions the value gap between hotel ADRs and cruise line yields as a long-term tailwind for the company.

The speaker discusses the strength of their business and the positive outlook for the future. They mention that their customers stay on their ships for extended periods of time, giving them an advantage over hotels. They also mention that there are no signs of weakening in their business and that they expect to see continued growth in the next few years. They mention that they will have two new ships coming online next year, which could have a positive impact on their yield but it is not expected to be significant.

The speaker believes that next year's growth will be mostly organic and driven by marketing and demand. They do not anticipate any major one-time events or ancillary items that will impact yield. They are not yet prepared to discuss their plans for loyalty programs. The speaker also addresses cost management and states that they are targeting $300 million in savings over the next three years.

The company believes they have the necessary tools and culture in place to effectively eliminate waste and mitigate inflation in the upcoming year. They are ahead of their targets for 2024 and have a lot of runway for initiatives that will be fully implemented in the next year. It is too early to predict 2025, but the company is focused on preserving the guest experience while eliminating waste. They expect their share count to remain similar next year and their DNA to be around 9.5% of gross revenue.

The speaker anticipates that the gross revenue will remain consistent and the interest will continue to improve. They mention a potential improvement in paying off debt and do not give a specific number for interest. The next question asks about the algorithm for net yield, with a focus on the lower onboarding ticket and higher commissions leverage. The speaker clarifies that the benefit was not solely based on commissions or direct bookings, but rather a combination of factors.

The company has seen a significant benefit from better air purchasing, which has allowed them to offer lower air costs to guests and increase net revenue. The analyst community may misunderstand this as they see lower gross revenue, but it is actually a competitive advantage and a long-term benefit for the company. The company continues to work on improving their air purchasing and contracting with new carriers.

The company's net yield guidance for the remainder of the year is expected to improve, although there may be some variability due to market volatility. The company has reached its year-end target for leverage and is making progress towards its 2026 target. The company's debt and EBITDA are being closely monitored. The call has concluded.

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