Carnival Corporation Ltd. Common Shares

Greetings. Welcome to the Carnival Corporation PLC's second quarter 2025 earnings call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may now begin.

Thank you. Good morning and welcome to our second quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our CFO, David Bernstein, and our chair, Mickey Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, yields, and cruise costs without fuel will be in constant currency unless otherwise stated. References to yields will be on a net basis. References to cruise costs without fuel, EBITDA, net income, ROIC, and related statistics for all will be on an adjusted basis unless otherwise stated. All these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable U.S. GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh.

Thanks, Beth. Before we begin, I'd like to take a moment to address the conflict in the Middle East. The escalation of the past two weeks, culminating over the last few days, has been swift. While we certainly hope for a quick and peaceful resolution, and it has not yet had any discernible impact on our business. This is all unfolding too quickly in real time to try to project how it could impact our future business. Like many others, we will actively monitor the situation over the coming days and weeks to evaluate its potential effects on our business and provide updates as needed. In the interim, our thoughts and prayers are for the safety of all innocent civilians and for the brave men and women of the U.S. Armed Forces who work tirelessly to protect the United States of America. Turning to our business, another quarter on the books and another set of phenomenal results. This marks eight quarters in a row we've achieved record revenues on record yields. We also hit new second quarter highs for EBITDA and operating income. both in total and on a per ALBD basis, while customer deposits also reached an all-time high. Year over year, EBITDA was up 26%, operating income increased by 67%, and net income more than tripled as we continue to benefit from our focus on commercial execution. Net income came in $185 million better than guidance as we outperformed across the board. Yields grew by almost 6.5%, beating our guidance by 200 basis points. Both ticket and onboard equally outperformed on very strong close-in demand, reaffirming the strength of our consumer. Unit costs also came in 200 basis points better than expected on timing between the quarters. This was yet another quarter with EBITDA margins up significantly year over year. You know, investors often ask me, can margins get above 2019 levels? Well, as I've always answered, I never thought of 2019 as a ceiling. And we've now proven that out. Last quarter, EBITDA margins were 140 basis points above 2019. And this quarter, they were 200 basis points higher. In fact, This past quarter's margins were the highest we've achieved in nearly 20 years. This consistently strong performance significantly accelerated progress towards our 2026 fee change targets. In December, we telegraphed being able to hit our 50% EBITDA per ALBD growth target at the end of 25. In March, We said that we expected our 12% return on invested capital target to also materialize at the end of 2025. And now, we can advise that through the hard work of our amazing global team, we met and exceeded both of these targets a full 18 months ahead of schedule. We were able to deliver trailing 12-month EBITDA per birthday 52 percent above our 2023 baseline, and our ROIC surpassed 12.5 percent, more than doubling in less than two years. Now, this was no small feat, given these are both the highest levels this company has seen in nearly 20 years. Not to be forgotten is our third 2026 commitment to reduce our carbon intensity by 20 percent as compared to 2019. I'm very pleased to report we have also just met this target as well. This is not only great for the environment, it's also great for our bottom line. Again, thanks to each of our phenomenal team members, we topped these milestones in half the time originally expected. And even better news, we have so much more potential to take our margins, returns, and results even higher. With our 2026 targets in the rear view mirror, we anticipate setting new targets in early Q2 next year, and I look forward to raising the bar even higher. In the short term, this outperformance has also enabled us to take up our full year guidance again. This includes raising our yield guidance to 5% based on our strong second quarter results while affirming yield expectations for the remainder of the year. that will take our yields up 16% across 2024 and 2025. In a world of heightened volatility, the amazing cruise experiences our portfolio of cruise brands deliver at a truly exceptional value simply stand out. It's enabled us to deliver two consecutive quarters that were significantly better than expected, and maintain strong 4% yield growth in the back half of the year consistent with our original guidance in December, which I would remind you was given well before much of 2025's macroeconomic and geopolitical turbulence had surfaced. Now, would the second half of the year have been even stronger but for all of this noise? Absolutely. No excuses though. we need to deal in the realities of the world we live in. And while it's proving to be a fairly unpredictable place of late, we are well positioned and clearly will do our best to meet or exceed guidance, taking another significant step forward for the company. We also continue to set ourselves up well for 2026. Our book position is in line with last year's record levels and at historically high prices. Our elongated advanced booking window and limited capacity growth give us flexibility to patiently take price, and our sharpened yield management tools are helping us optimize our performance in the current environment. Our strong results, book position, and outlook are a testament to the success of our ongoing strategy to deliver same-ship, high-margin revenue growth. We remain focused on achieving yield improvement by driving demand that outpaces our supply, and we have a lot more in store to keep our strong momentum going. We are counting down the days to the opening of Celebration Key, which is now less than a month away. With the largest lagoons in the Caribbean at over 275,000 surface square feet, multiple times that of any other private cruise destination in existence or in construction, over one and a half miles of white sand beach, and the world's largest swim-up bar and largest sandcastle, we are gearing up to deliver even more fantastic experiences for Carnival guests than ever before. We are on schedule to welcome our first ship, Carnival Vista, on July 19th. and intentionally ramp up from there into the fourth quarter so that we can make sure the guest experience is as extraordinary as possible from the start. You know, it's gratifying to see that already Celebration Key is consistently ranked among the most searched cruise destinations on Google, and it hasn't even opened yet. We fully expect the buzz around it to only build once our five portals built for fun begin welcoming guests to our expertly curated ultimate beach day. Once complete, we'll be augmenting our marketing materials with live footage and imagery from this amazing destination. And of course, word of mouth from over 2 million guests annually will amplify our share of voice. We're also on track for the mid-2026 opening of a significant expansion at Relax Away, Half Moon Key, our pristine Caribbean oasis. This spectacular tropical paradise, already ranked among the best private islands in the Caribbean, invites our guests to enjoy an idyllic beach day full of white sand, turquoise waters, refreshing ocean breezes, delicious food, tropical drinks, and opportunities galore to do exactly as its new name invites you to do, relax. We've shaped many itineraries that combine these perfectly paired destinations in order to provide our guests with both the ultimate and the idyllic beach days, all on one vacation. During the quarter, we also announced another meaningful expansion and enhancement to our beautiful destination, Mahogany Bay in Roatan, Honduras. Already rated one of the highest destinations in the Caribbean, Upgrades will include a large pool with a swim up bar, a beautiful new private beach club and doubling the beach line to almost half a mile. This destination will be renamed Isla Tropical and along with Celebration Key and Relax Away Half Moon Key as the pinnacle of our seven Caribbean gems marketed as the Paradise Collection. You know, as beaches are the number one destination for vacationing Americans, It is no accident that this is central to our destination strategy. Our seven Caribbean gems collectively provide miles upon miles of some of the most beautiful beaches in the world. By making targeted incremental investments and stepping up our marketing efforts across this portfolio, we believe we have a significant opportunity to further monetize these strategic assets by using them to drive consumer consideration and conversion, taking share from land-based alternatives. At the same time, we continue to make investments in our existing fleet that will generate new demand and enhance pricing. AIDA DIVA recently reentered service, the first ship to undergo the AIDA evolution upgrade. Since her revamp and reintroduction, AIDA DIVA has been knocking it out of the park. with a huge take up for its many added bar and specialty dining venues and rave reviews for its ship-wide enhancements. This success is a great sign for the remaining six vessels in the AIDA fleet that will undergo this upgrade over the next few years. We also recently ordered two new builds for AIDA for delivery in fiscal 2030 and 2032. as we reinforce our strategy to rebalance the company towards our higher returning brands. These next generation ships, coupled with the AIDA evolution program, modernizing much of the existing fleet, will drive even more demand for our AIDA brand, which is already synonymous with cruising in Germany. Additionally, Carnival Cruise Line recently announced exciting new features for its fourth and fifth incredibly successful XL class ships for delivery in 2027 and 2028. Carnival Festival and Carnival Tropical will feature Sensation Point, a new outdoor zone on the top three decks, purposely designed to be the most family-friendly water park at sea with six exhilarating slides, including two family raft slides. And for the first time, the fun will continue into the evening. with extended park hours for guests to enjoy a vibrantly illuminated nighttime waterworks, including a DJ and a slew of other special evening activities. These ships will be ideally suited for families, with 70% more interconnecting rooms than prior XL class ships. And just around the corner, we'll be welcoming our next new build, Star Princess, sister ship to the hugely successful Sun Princess, awarded Conde Nast Travelers 2024 Mega Ship of the Year. That means we'll be doubling down on Sun Princess's innovative platform and tremendously successful guest operations spanning across F&B, entertainment, and its elevated ship within a ship, Suites Sanctuary Collection. With our moderate new build pipeline, including just three ships on order over the next four years, we have ample room to continue to pay down additional debt and return to investment grade leverage metrics while providing ourselves with a headroom to return value to shareholders. And yet another opportunity that will help propel us forward is the exciting news Carnival Cruise Line announced just last week. In June of next year, Carnival will be launching a brand new and improved loyalty program. This will be an industry first, tying loyalty benefits and status to total spending on Carnival and spending on everyday purchases with Carnival's co-branded credit card, rather than being based on the lifelong accumulation of day's sales. David will speak to the financial impact, so I'll just add that we see this as an important tool for improving customer engagement an increasing customer lifetime value, and a long-term strategic differentiator for us. I would like to thank our team members, ship and shore, once again, for the enthusiasm and commitment they exhibit, which enabled us to deliver happiness to almost three and a half million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. It is their combined effort that has made a truly transformational change in this company inside of just two years. I would be remiss if I also didn't express my appreciation for all of the many supporters who contributed to this successful outcome. Thank you to our travel agent partners, destination partners, investors, and of course, our loyal guests. We could not have done this without all of you. While I'm incredibly proud of the great progress our teams have made in such a short amount of time, these results are nowhere near our end point. The tailwinds and opportunities before us give us the potential for so much more. With that, I'll turn the call over to David.