Carnival Corporation Ltd. Common Shares

Good morning, everyone, and welcome to our Business Update conference call. I'm Arnold Donald, President and CEO of Carnival Corporation and PLC. Today, I'm joined telephonically by our Chairman, Mickey Arison, as well as David Bernstein, our Chief Financial Officer, and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. I know I'm certainly not alone when I say I'm glad to put 2020 behind us. Clearly, 2020 was unprecedented. On the other hand, it also proved to be a true testament to the resilience of our company. I am really proud of how well we weathered the storm, and I'm very grateful to all of those who helped make it happen, particularly our Carnival family, both shipboard and shoreside. And believe me, it took all hands on deck to return over 260,000 guest homes, to repatriate 90,000 crew members, to process billions of dollars, euros, and pounds of guest refunds, and billions in future cruise credits, to accelerate the exit of 19 vessels and negotiate the delay in 16 ships on order, to move our entire fleet into full pause status, to develop new cruise protocols and put them to the test as we resume cruise operations in both Italy and in Germany, to extend debt maturities and amend agreements with over 20 lenders and 40 different agreements, all while completing over a dozen financing transactions for a cumulative $19 billion of new capital. We ended the year with $9.5 billion in cash, and we have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment. And we are emerging from a pause a more efficient, and even better operating company. Now, we executed a significant rationalization of our fleet, reducing capacity by 13%. As a result, we are less reliant on new to crews thanks to our recurring base of repeat guests. Now, that represents a source of nearly 8 million guests each year, which will now be spread over a smaller fleet. Our strategic capacity reduction also delivers a structurally lower cost base. Just by the fact that the 19 ships leaving the fleet are smaller and less efficient ships, we benefit by a 2% reduction in unit costs and a 1% reduction in unit fuel consumption going forward. Our efforts to right-size our shore-side operations reduces our costs further. as well as our continued focus on finding efficiencies across our ship operations. And, of course, over time, we will achieve an additional structural benefit to unit costs as we deliver new, larger, more efficient ships. And this includes the recent delivery of Princess Cruises' Enchanted Princess, P&O UK's Iona, Costa Firenze, and the highly anticipated Carnival Mardi Gras. Both the first roller coaster at sea on board Mardi Gras has already generated significant media attention for Carnival Cruise Line, garnering hundreds of millions of media impressions just in the last few months. As has the Queen Mary II for Cunard, which was the focal point in the recent star-studded film Let Them All Talk, capturing over 7 billion media impressions. We further strengthen our board of directors, adding to an already experienced and strong board with the addition of a new independent board member with a comprehensive background in compliance. We strengthen our management team, promoting Josh Weinstein to chief operations officer. Josh is uniquely suited for this role, having previously led Carnival UK and prior to that, serving as our corporate treasurer. And prior to that, serving in a role in our legal department. And together with the rest of the leadership team, it will serve a key role as we continue to aggressively streamline our operations for effectiveness and efficiency. We are honoring our commitment to diversity and inclusion, and in fact, half of our operating companies are now led by women executives. We once again continue to make advancements in our sustainability efforts, reducing food waste and accelerating the reduction in single-use plastics, amongst other goals. One of the most rewarding aspects of 2020 clearly was the strong fundamental demand for our brands. The forward booking trends we have consistently experienced throughout this period, in spite of the extended pause in our operations, in spite of our minimal advertising efforts, and even in spite of the abundance of negative global news, affirm the underlying demand that will facilitate our staggered resumption and support the long-term growth of our company. And we have not only seen tremendous support for our brands from our loyal guests, it is also very encouraging to see demand from new guests. Upon resuming service, we believe we are well positioned to optimize that pent-up demand for our leading brands around the world. Now, as we've mentioned on our last couple of updates, our company is uniquely positioned for phase resumption and cruise travel, given our multiple national brands, which can each be restarted independently. Now, this has already proven to be instrumental in enabling us to resume cruising on a limited basis, both for Costa Europe, which is nearly 80% continental European source, and for AIDA, which is roughly 95% German source. Our other brands, like P&O UK, which is 98% British source, P&O Australia, which is more than 99% Australian New Zealand source, and Carnival Cruise Line, which is 92% U.S. source, all present further opportunity. Additionally, the fact that these brands are characterized by ready access with drive-to markets and a prevalence of shorter-duration cruises strengthens the potential for success in today's environment. Of course, we will continue to utilize the six destinations we own and operate, including our two highly regarded private islands in the Caribbean, Princess Cay and Half Moon Cay. Half Moon Cay, for the 20th consecutive year, was rated by Porthole Magazine and its Reader's Choice Awards as the best private island. We continue to work diligently to resume operations in the U.S., including, of course, ongoing discussions with the CDC. At the same time, we're working toward resuming operations in many other parts of the world, including Asia, Australia, and, of course, the U.K. And we're working hard to do so in a way that serves the best interest of public health. Our highest responsibilities and therefore our top priorities are always compliance, environmental protection, and the health, safety, and well-being of our guests, of the people in the communities we touch and serve, and of our Carnival family, our team members' shipboard and shoreside. We've dealt with many types of viruses previously and already have effective protocols in place onboard our ships including screening measures, medical centers, and enhanced sanitation procedures which prevent and reduce spread once brought on board from land. Clearly, however, this virus is unique. And as you know, we've been working with leading medical and science experts around the globe to develop new and enhanced protocols and procedures based on the best available science to specifically address the risks associated with COVID-19. And we expect these protocols to continue to evolve as society's understanding of COVID-19 strengthens. And as we are demonstrating with both Costa and AIDA, which have received high satisfaction scores from our valued guests, we have appreciated the changes we've implemented. We intend to initially resume operations with a small percentage of the fleet. So for our initial voyages, we've chosen to sail with low occupancy levels, enabling us to gain valuable experience with our enhanced safety protocols. We're working toward having all of our ships back in service by the end of the year. The development of low-cost testing, the continued advent of therapies, and the pace of the distribution of vaccines will certainly influence the pace of our recovery. As the industry leader, maintain a strong balance sheet has historically been a key strength for our company and a differentiator for our shareholders. Accordingly, we secured the necessary funding in a balanced and responsible way. Currently, we have the lowest leverage in our industry, and we retain the capacity to issue additional debt. Having secured the necessary financing to get through 2021, we will turn our attention to improving the balance sheet and reducing interest on our path back to investment-grade credit. Now, we stretched out the delivery schedule, pushing out new bill capital, and more importantly, we have just one ship for delivery in fiscal 2024 and just one ship for delivery in fiscal 2025. That will significantly reduce capital expenditures during those years, enabling us to pay down debt. Now, all of these efforts are in keeping with our primary financial objective going forward, to maximize cash generation. As we return to full operations, our cash flow will be the primary driver to return to investment-grade credit over time, creating greater shareholder value. With the aggressive actions we've taken, managing the balance sheet and reducing capacities, we are well positioned to capitalize on pent-up demand and to emerge a leaner, more efficient company, reinforcing our industry-leading position. Throughout these challenging times, we've received overwhelming support. So again, thank you to our valued guests. Thank you to our dedicated members of the Carnival family. Thank you to our travel agent partners. And thank you to our other stakeholders for their ongoing support. And especially, thank you to our investors for their continued confidence in us and in our future. With that, I will turn the call over to David.

Thank you, Arnold. I'll start today with an update on booking trends. Then I'll provide our monthly average cash burn rate along with a summary of our fourth quarter cash flows and then finish up with some insights into our financial position. Turning to booking trends. At this point in time, our cumulative advance bookings for the second half of 2021 are within the historical range. Even better, our cumulative advance bookings for the first half of 2022 are ahead of a very strong 2019 which was at the high end of the historical range. Directionally, comparable pricing on these bookings for the second half of 2021 and the first half of 2022 are down just 1% versus pricing on bookings in the beginning of fiscal year 2019 if you exclude the negative impact of future cruise credits or more commonly known as FCCs. Pricing on bookings in the beginning of fiscal year 2019 is a tough comparison as that was a high watermark for historical yield. However I must say to some extent this is an apples and oranges comparison given the increase in bundled packages that we have offered and that guests have chosen more recently making the underlying comparison more favorable than indicated. In the end, we expect to see the benefit of these bundled packages in onboard and other revenue. I would also like to point out that our book position is very encouraging given it was achieved with minimal advertising and promotional activity. Due to the pause in guest cruise operations in 2020, the company's future booking trends will be compared to 2019 and not the prior year. It is particularly reassuring to see that approximately 60% of bookings taken during the fourth quarter 2020 for fiscal year 2021 were new bookings, with the remainder being FCC rebooking. I am happy to report that this is a five percentage point improvement over the third quarter booking activity. And it's also promising to see that approximately 45% of the 2021 book position are guests that are new to brand with the remaining 55% of guests being brand loyalists, which is just a little higher than the norm. A continuation of the positive position we had at the end of the third quarter. Now let's look at our monthly average cash burn rate. For the fourth quarter, our cash burn rate was $500 million, which was slightly better than the previous expectation of $530 million due to the timing of capital expenditures. For the first quarter, we expect our monthly average rate to be approximately $600 million, which includes restart expenditures. The average rate expected in the first quarter is higher than the fourth quarter driven by higher capital expenditures due to the shifting of CapEx from the fourth quarter to the first quarter, and more first quarter dry dock days as previously indicated as we prepare for the resumption of guest cruise operations. Next, I'll provide a summary of our fourth quarter cash flows. We are currently in a solid liquidity position with $9.5 billion of cash on our balance sheet at the end of our fiscal year. I am happy to say that this is $1.3 billion more cash than we had on the balance sheet at the end of the third quarter. During the fourth quarter, we added to our liquidity position by completing three very well received capital market transactions with cumulative net proceeds of $4.5 billion. The two at-the-market or ATM equity offering programs raised $2.5 billion, while the senior unsecured notes we completed in late November raised $2 billion. This was partially offset by three things. First, our total cash burn for the quarter was $1.5 billion, simply our monthly average cash burn rate of $500 million per month times three. Second, $1.5 billion driven by scheduled debt maturities. And third, a slight decline in customer deposits of $0.2 billion from $2.4 billion at the end of the third quarter to $2.2 billion at the end of the fourth quarter, which was better than our previous expectation. Finally, I will finish up with some insights into our financial position. Since the pause in our guest cruise operations earlier this year, we have raised $19 billion through a series of transactions. This series included three equity offerings raising over $3 billion. These offerings, along with retiring $1.5 billion of our convertible notes through the issuance of common stock, considerably strengthened our balance sheet by reducing debt and bolstering shareholders' equity. From a financial position perspective, 2020 could be characterized as obtaining sufficient liquidity to get through the pause in guest cruise operations. However, with $9.5 billion of cash on hand at year end, our focus for 2021 has now shifted to additional financial transactions that optimize our capital structure. We will look to liability management with our banking partners to refinance existing debt at lower interest rates where possible. We still have the ability to issue more debt if and when needed, and during 2021, we may also opportunistically further enhance our liquidity position. And now I'll turn the call back over to Arnold.

Thank you, David. Operator, please open the call for questions.