Norwegian Cruise Line Holdings Ltd.

Good morning, and welcome to the Norwegian Cruise Line Holdings first quarter 2020 conference call. My name is Jonathan, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions for the session will follow at that time. If anyone should require assistance during the conference, please press star and then zero on your touchtone telephone. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference call over to your host, Ms. Andrea DeMarco, Senior Vice President of Investor Relations, Corporate Communications, and ESG. Ms. DeMarco, please proceed.

Thank you, Jonathan. And good morning, everyone, and thank you for joining us for our first quarter 2020 earnings call. In the past, we have hosted our earnings calls from various locations, including London, the New York Stock Exchange, and even on board our vessels. Never have we hosted a call with our entire team scattered in different locations. It's one of the many ways we're adapting to the new environment, so I ask that you bear with us as we find our sea legs on our first socially distanced earnings call. I'm therefore joined virtually today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, and Mark Kempa, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Mark will follow to discuss results for the quarter before handing the call back to Frank for closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website at www.nclhltdinvestor.com. We will also make reference to a slide presentation during this call, which may also be found on our investor relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we discuss our results, I'd like to just cover a few items. Our press release is first quarter 2020 results was issued this morning and is available on our investor relations website. This call also includes forward-looking statements that may involve risks and uncertainties that could cause your actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. And with that, I'd like to turn the call over to Frank Del Rio. Frank.

Thank you, Andrea, and good morning, everyone. I hope everyone joining us today, along with your loved ones and colleagues, are safe and healthy. Every one of us is doing our part to combat this pandemic by sheltering in place and practicing social distancing. But no one is doing more for us than our first responders, frontline workers, and those providing essential services. Today, I'd like to extend our sincerest thanks on behalf of everyone at Norwegian Cruise Line Holdings for all they are doing for communities around the world. In the three months that have passed since we last spoke, the entire world's way of life has changed. The impact from COVID-19 global pandemic on our company and the broader travel industry have been swift and severe. In my weekly communications to our team members, I consistently stress two themes. First is to ensure that we are taking care of our guests, our crew, our travel partners, and each other. Second is what I consider key to overcoming this uniquely challenging time in our history, and that is to be nimble and to be ready to adapt to the fluid environment around us. And what the team at Norwegian has accomplished in the two short months since we suspended voyages is nothing short of extraordinary. In that time, we have laid up our entire fleet, repatriated over half of our 28,000 crew members, significantly pared back operating and capital expenditures, improved our debt maturity profile, and successfully completed a historic simultaneously executed quad tranche capital raise of $2.4 billion. These actions will enable us to weather the unlikely scenario of over 18 months in a zero-revenue environment and still have enough liquidity to relaunch operations when conditions allow. I couldn't be prouder of what our team has accomplished, and now they have risen to the occasion by continually adapting to the ever-changing environment. In its 53-year history, Norwegian has overcome a myriad of exogenous events, many during the tenure of this management team. And we haven't just persevered after these challenging events, we've proven our mettle, our resilience, and we've thrived. We have done so because of the mix of the unmatched value and unique experiences that only cruising provides, coupled with an exceptional management team one that has faced and overcome uncontrollable black swan events and a multitude of headwinds time and again. While much remains unknown regarding the severity and duration of the global economic downturn resulting from COVID-19, we do know from history that the excitement factor and value proposition that cruising provides will be, when the time is right, a compelling driver of reviving consumer demand. And as far as that value proposition goes, we believe that we have an unbeatable competitor advantage with three brands that offers the most value-packed proposition in the industry. To demonstrate that advantage, for the two months of sailings we operated in the first quarter of 2020, we generated higher net yield, revenue, and adjusted EBITDA than over the prior year. And this, despite numerous canceled sailings in Asia and the incremental customary costs Without corresponding revenue, it came from the launch of 7C Splendor. On slide four, we provide an update on our current book position. There continues to be demand for cruise vacations, particularly beginning in the fourth quarter of 2020 and accelerating through 2021, with the company's overall book position at this time and pricing for 2021 within historical ranges. These are two examples. one from the recent past and one pointing to the future, both of which demonstrate the underlying demand that cruising and cruising on our brand has had in the past and will also have in the future. As I mentioned earlier, the impacts of COVID-19 were swift and severe, and they require a response exponentially faster and larger than any in our recent history. I'll direct you to slide five of our presentation where we parse our company's response to the pandemic in three phases. In the first phase, which I will discuss in a moment, we addressed our immediate operational concerns. In the second, which Mark will cover in his commentary, we swiftly executed on a financial action plan to reduce cost and increase liquidity. Lastly, I'll come back to discuss where we find ourselves today, developing a roadmap to launch a new era of cruising across our three brands. Phase one began by quickly addressing concerns over COVID-19 when the virus was mainly impacting Asia, and we proactively canceled or modified 40 voyages in the region across our three brands. Despite the virus's initial impact predominantly affecting greater Asia, we began adapting and enhancing our embarkation and sanitation protocols worldwide, which you can see on slide six across our 28-chip fleet. As a leader in one of the most consumer-facing industries in the world, the health and safety of our guests and crew is always our top priority, and we are accustomed to implementing new procedures quickly and efficiently. As the pandemic progressed, we continued to adapt and increase the rigor and frequency of our protocols. When guests became hesitant to travel, we introduced relaxed cancellation policies to alleviate many of our guests' concerns by providing them peace of mind regarding their cruise vacation. Our most decisive action came on March 13th when we announced what we thought was a temporary 30-day suspension of voyages across all our brands. Never had our company halted sailings across an entire fleet and suspended them for an extended period of time. but it was necessary for us to play our part in combating the spread of COVID-19. With voyages suspended, our next challenge was safely disembarking our guests as soon as possible and securing safe harbor for our 28 vessels. The officers and crews across our fleet, along with our shoreside team, displayed an extraordinary amount of urgency, professionalism, and compassion in the face of this monumental task. Today, all vessels remain in safe harbor, and we continue to work with the CDC and other regulatory bodies to repatriate crew back to their home countries. Our guests impacted by the canceled sailings were offered value-added future cruise credits worth 125% of the cruise fare paid to compensate them for the disruption and disappointment of canceled vacations. This enhanced offer, which has proven to be popular, was provided to guests in lieu of cash refunds and can be used on future voyages all the way through the end of 2022. Lastly, our entire shortcut operation was moved to work remotely, an endeavor that involved shifting an entire global workforce to work virtually in a matter of days. I want to commend our IT and human resources team for flawlessly executing on this initiative in such a condensed timeframe. Concurrently, as you can see on slide seven, we swiftly developed and launched our financial action plan to prepare the company for a prolonged void suspension. Mark and his team were instrumental in spearheading this phase of our response, so I'd like to turn the call over to him now to discuss our action plan in more detail, provide a deeper dive into our liquidity position, and discuss our results for the quarter. Mark?

Thank you, Frank, and good morning, everyone. Given the swift and significant impact COVID-19 has had on our business, my remarks today will not be typical for an earnings call. I will not focus on yield growth or net cruise costs, as today these metrics simply aren't relevant. Instead, I will focus on the quick development and execution of our financial action plan and how we believe we've positioned our company to withstand an unlikely scenario of over 18 months in a zero revenue environment. Slide seven illustrates our four-point action plan, which we quickly implemented to conserve and increase cash to protect the business. The four key areas of focus include reducing operating expenses, reducing capital expenditures, improving our debt maturity profile, and securing additional capital. First, let's focus on operating expenses on slide eight. We deployed several levers to reduce both shoreside and shipboard operating expenses. SG&A savings included the significant reduction or deferment of near-term marketing expenses, the introduction of a shortened work week, with a commensurate 20% salary reduction for team members and a furlough of approximately 20% of Shoreside employees through July 31st. These actions affecting our team members were especially difficult. However, unlike layoffs, the furlough process allowed impacted team members to remain employees of the company while continuing to receive benefits. In addition, we committed to covering our team members' share of medical insurance premiums during the furlough period. It was the least we could do to support our impacted team until we can welcome them back. As for shipboard operating expenses, as you can see on slide nine, with cruise voyages suspended through June 30th, we meaningfully reduced expenses such as crew payroll, fuel, food, and port charges. As we reduce our manning levels and transition the majority of our ships to cold layup, we continue to repatriate crew back to their home countries, working through challenges around global travel restrictions. On slide 10, we provided details around ongoing monthly ship and administrative operating expenses under two scenarios, a warm layup and a cold layup. The primary difference between the two scenarios is that a cold layup is a prolonged layup with further reduction of staffing to a skeleton crew and further savings to fuel expense, repairs and maintenance, and other operating costs. All of the cost-saving measures implemented have significantly reduced operating expense to approximately 70 million per month with all of our ships in a cold layup scenario and approximately 110 million per month in a warm layup scenario. With the majority of our shifts transitioning to cold layup, we are moving towards the lower end of that range. Shifting to capital expenditures on slide 11, we identified approximately $515 million in reductions. Non-new build capital expenditures for the remainder of 2020 were reduced by approximately 65% or almost $350 million. We are also finalizing documentation to defer approximately 170 million of new-build CapEx-related payments due through March 31st, 2021. Total CapEx for 2020, including both new-build and non-new-build, is now expected to be approximately 805 million, of which approximately 195 million will be spent throughout the remainder of the year. First quarter CapEx was elevated due to the delivery of Seven Seas Splendor and the full revitalization of Norwegian Spirit. As we look forward, we are also benefiting from lower near-term CapEx commitments resulting from moderate capacity growth, with no new capacity additions scheduled for delivery until mid-2022, which could be delayed given extended closures at shipyards. Given the continued uncertainty, we are not providing CapEx guidance for 2021 and 2022 at this time. Another key focus in our action plan was improving our debt maturity profile through the deferral of amortization payments and the extension of maturities. As you can see on slide 12, we took advantage of an industry-wide 12-month debt holiday initiative granted by export credit agencies, and we expect to be able to defer approximately $540 million of total debt amortization payments through March 31st, 2021. Approximately 385 million of this has already been finalized with Hermes, the export credit agency in Germany, and we are currently finalizing documentation for the balance with our other ECA lenders. This initiative also provides for financial covenant testing relief for 12 months with all postponed amortization to be repaid evenly over the following four years and eight semiannual installments. In addition, our commercial lenders also agreed to a 12-month debt holiday for approximately $150 million of amortization payments, bringing our total aggregate deferrals of payments to approximately $700 million. We also extended our debt maturity profile meaningfully by exercising the contractual option to extend our $230 million Pride of America term loan maturity by one year to January 2022, as well as extending our new $675 million revolving credit facility maturity by one year to March 2022. These actions, coupled with the amortization deferrals, leave us with no significant debt maturities through 2021. On slide 13, we outlined the multiple measures we took to secure over $3 billion of new capital and liquidity in response to COVID-19. In March, we quickly secured a new $675 million revolver and subsequently drew down on both that and our existing untapped $875 million revolver. Just last week, we completed a series of highly successful capital market transactions led by Goldman Sachs. Significant demand for this capital raise resulted in the transaction being oversubscribed many times over. Not only did we have excess demand across the three offerings, the green shoe options were also fully executed for both the ordinary shares and exchangeable notes. As a result, the transaction was upsized from $2 billion to approximately $2.4 billion of gross proceeds, significantly strengthening our financial position and extending our liquidity runway. We are extremely pleased with the result of this transaction and are proud of the team's adaptability to execute this extremely complex capital raise while sheltering in place. Turning to slide 14, we have provided an illustrative liquidity runway that shows how we believe we are well positioned to withstand an unlikely scenario of over 18 months in a zero revenue environment. Our pro forma liquidity post the capital market transactions is approximately $3.7 billion as of quarter end. At the end of the first quarter, we had just under $1.2 billion of advanced ticket sales related to the remainder of 2020, including approximately $800 million for voyage cancellations through June 30th, where guests can choose to accept a value-add future cruise credit or a full cash refund. To date, slightly over half of guests have requested a cash refund. For the remainder of 2020, we have approximately 370 million of advanced ticket sales on the books. Our net liquidity is approximately 3.1 billion, assuming roughly half of the customer deposits for all sailings in 2020 are refunded. Our cost reduction in cash conservation measures have resulted in a significant decrease to our monthly cash burn rate, which is now expected to be in the range of $120 to $160 million per month. This includes additional cash financing expense associated with debt refinancings and new financing secured last week, which is expected to be approximately $12 million per month over the next 12 months. This burn rate excludes cash refunds and cash inflows from both new and existing bookings. As you can see, we believe we have significantly extended our liquidity runway to over 18 months in a prolonged zero revenue environment scenario, which we do not expect. The recent capital raise and the significant measures taken to reduce costs and conserve cash have alleviated management's concern about the company's ability to continue as a going concern for the next 12 months, which is simply a technical accounting reporting requirement that received some slightly out-of-context media attention last week. Shifting the focus to our financial results, the first quarter was significantly impacted by COVID-19. Not only did we feel the impact from canceled and modified cruise voyages, we also recorded a $1.6 billion non-cash impairment loss related to goodwill and trade names. In addition, the reduction in fuel consumption driven by canceled voyages resulted in an approximately $14 million loss related to a portion of our fuel hedge portfolio due to a reduction in forecasted fuel consumption and flows through the other income line. As a result, we recorded a net loss on a US GAAP basis of $1.9 billion, or $8.80 per share. Looking ahead, given the rapidly evolving impacts from the pandemic's We cannot estimate the impact on our business or the longer-term financial and operational results with certainty, and therefore will not be providing second quarter or full-year guidance. While we are not providing traditional guidance, we do expect to report a net loss on both a U.S. GAAP and adjusted basis for the quarter ending June 30th and the year ending December 31st, 2020. Before returning the call back to Frank, I want to reiterate our confidence in in our ability to weather the impacts of COVID-19 and emerge stronger on the other side. Our strong liquidity position gives us ample resources to absorb a prolonged voyage suspension, allowing the team at Norwegian Cruise Line Holdings to focus on doing what is right for our guests, crew, travel partners, team members, and other stakeholders, while protecting the equity of our brands for the long term. Lastly, we believe in our business model. which has demonstrated its resilience repeatedly in the past and are confident it will do so again. With that, I'll hand the call back over to Frank to discuss our next phase of response to COVID-19 and provide some closing commentary.

Couldn't find the mute button, Mark. Thank you. With our ships in safe harbor, and an enhanced liquidity position post our extremely successful capital raise, we now shift our focus to the third phase of our response as seen on slide 15, executing on our roadmap for a new era of cruising. This phase is critical, very critical, and will be predicated on two main factors. First, receiving approval to safely resume operations from governments around the world, including the CDC. And second and most important, providing consumers with absolute confidence in our ability to deliver safe and healthy vacation environments through new and enhanced health and safety protocols, utilizing the latest state-of-the-art technologies and testing methodologies. Nothing will be more critical to reviewing sustained and profitable long-term operations than making cruising the safest option in the travel and leisure space and providing our guests with the peace of mind around their good health while vacationing aboard our vessels. This will require a multi-pronged, multi-disciplinary, and multi-agency and global strategy that will involve strong collaboration between cruise lines, industry associations, national and local governments, public health agencies, and ports around the world. Our goal is to preserve the traditional elements of the cruise experience, the great value, the multiple destinations visited, the wide array of dining and entertainment offerings, modified as necessary as to the many changes we are becoming accustomed to in our daily lives. Another area of focus is working with our port agents and operators around the globe to understand and coordinate plans for reopening. This endeavor will undoubtedly involve fits and starts as destinations decide when to reopen cruise ports. Overlaying these plans with possible new consumer demand trends will guide the early days of our gradual relaunch, including which itineraries will first come online. Having assets with rudders and propellers is a unique advantage to our industry as we can be extremely nimble and reposition our ships as needed. While our operations teams focus on protocols and destinations, our brand presidents will focus on reactivating and accelerating the sales and marketing machine that is at the heart of our market-to-sale philosophy. Our brands have done a fantastic job fostering demand and engaging guests and travel partners in this challenging operating environment with our shifts sitting idled. As we prepare for sailings to resume, we will have to adapt our marketing strategy to focus on health and safety measures while at the same time keeping sight on the overall thrilling experience of cruising and what makes it such a unique vacation experience in the travel industry. With new protocols in place, coordination with ports and demand engines churning, what follows will be a phased relaunch of voyages. We expect sailings to restart with a handful of vessels, phasing in others over a period of five to six months before we have our full fleet back in operation. As I said earlier, as with many new endeavors, there will be fits and starts. It will require the quick implementation of new protocols, which we will continue to adapt as we learn what works and as newer, more efficient, and more cost-effective technologies involve and become readily available. Before turning to Q&A, I'd like to leave you with a few key takeaways from slide 16. First, we have significantly strengthened our financial position to withstand a prolonged suspension of voyages by significantly reducing operational and capital expenses and executing several liquidity-enhancing measures, including a successful capital raise of $2.4 billion. Second, there continues to be demand for cruise vacations despite limited marketing and demand-generating investments. And lastly, we are intently focused on developing and executing the next level of health and safety protocols for a new era of cruising led by a seasoned management team that has proven its ability to navigate through uncertain and challenging times. And with that, Jonathan, let's open up the call for questions, please.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Thomas Allen from Morgan Stanley. Your question, please.

Hey, good morning. So focusing on the future, how do you think your higher domestic source mix and your higher absolute yields will affect the way your recovery looks versus the industry in general? Thanks.

You know, Thomas, I think there's a lot of muscle memory throughout the ecosystem, and so everything is relative. I think that demand, overall demand, certainly will be impacted. It will be weaker as we roll out, as the economy takes its toll, as people need to regain confidence in the cruise industry and our ability to keep them healthy. But if we had the highest yields coming into this, I think we'll have the highest yields during it and highest yields coming out of it. Part of it is because of our brands. Part of it is because of our fleet. Part of it is because our go-to-market strategy, as you know, is not to discount to fill. It's to market to fill. So we're very anxious to getting back to do what we do best, which is marketing. And as you know, we have literally shut down the marketing machine, the sales and marketing machine, over the last 10 weeks or so. And despite that shutdown, as you've seen in our disclosures today, we're still taking booking. And that gives us a lot of encouragement that despite everything that's going on, people still want to cruise. And I think that's the best indication we have that there is a future and the future will be bright.

Okay, thank you. And then just as a follow-up, there was some encouraging comments in the prepared remarks around overall book position and pricing for 2021 being within historical ranges. How much of that is new money being, you know, being booked versus rebooking the existing voyages and how should we think about that? Thank you.

Yeah, the vast majority, the vast majority of the booked position today that has us within historical ranges. And historical ranges for us means 17, 18, 19, 20, the last three, four years. The vast majority is good old cash booking. Over time, as people finalize their future plans, we hope that they do take advantage of those future cruise certificates which, as you know, are good through the end of 2022. So they've got plenty of time. But today, the vast majority of those failings, of those bookings, I should say, are just normal cash bookings.

Thank you. Thank you. Our next question comes from the line of Stephen Gramley from Goldman Sachs. Your question, please.

Hey, thanks for taking the questions. I know there's a lot of unknowns, but how do you think about the free cash flow generation at the ship level at various occupancy levels as we start seeing some go back out in the water and there's still different social distancing measures that could be in place?

Don't think of it as load factors. Think of it as total revenue, as you know, yields. Total revenue is made up of three variables, load factor, ticket revenue, and onboard revenue. And so there is a relatively low total revenue threshold before that particular sailing is cash positive. But look, the number one factor as we relaunch operations is not the necessarily the revenue of a particular sailing or the EBITDA of a particular sailing. It's regaining the confidence of the consumer so that the consumer can continue to book under the normal booking curve. Remember, this is a forward-looking business. The cash flow comes from customer deposits and the advanced payments is what fuels this industry and what has been draining out of everybody's treasury over the last 10, weeks or so, as we either cancel sailings or people cancel their own gorges for a myriad of reasons. So as we start operations, we've got to regain momentum, Stephen. This is an industry, a company that was running 1,000 miles an hour and overnight was shut down, was just screeching halt. And we've got to get that momentum back. And so I am less concerned about what the EBITDA, the revenues, It may be of a particular sailing, especially in the first 30 or 60 to 90 days. But I'm more concerned about getting back normal operations, getting back to the sales and marketing machine, you know, churning out the cash flow necessary to rebuild our advanced ticket sales. Because the important part is knowing that people book seven, eight months in advance. let's not forget that. And so I'm concerned about cash inflows in the short term as we resume operations, and we'll be looking at what revenue and EBITDA will be six, seven, eight months after that in the normal course of what the booking curves are. That's helpful.

And as a related follow-up, can you just remind us what percentage of forward bookings typically come on board the ships? And Any other color? It sounds like you're kind of going down this path, but around when working capital, you know, would potentially inflect as we think about different booking curves and ships coming back out in the water.

I'm not sure I understand the question, Stephen. Yeah, Stephen, I think that this is Mark, so there's two pieces to that. I think you were asking how many customers book while on board. Is that correct? Correct. Yeah, so I don't think we've disclosed that, but obviously we have very solid programs under our Cruise Next program where we are able to secure forward bookings, but we don't give publicly those numbers. In terms of the working capital, the way we're thinking about it is, look, one of the positive signs that we've seen is we've seen a significant inflow of new bookings and new cash but as well as customers with existing bookings. And while we are now in the process of obviously refunding quite a few customers their advanced bookings, we believe that in the next 30 to 60 days we are going to be working capital positive as a result of the new and existing cash that's coming in from those bookings. So you will see there is going to be a little bit of – a little bit of a slower ramp up to that. But again, in the next 30 to 60 days, we see a positive working capital from that. Thanks so much.

Thank you. Our next question comes from the line of Harry Curtis from Instanet. Your question, please.

Morning, everybody. I wanted to go back to the comments you made, Frank, about... importance of customer confidence. You've recently brought on Scott Gottlieb as a consultant. Can you walk us through some of the new protocols that what they might look like to improve that confidence as potential customers consider cruising again and the safety aspect?

Good morning, Harry. Look, I don't want to front run what we're going to be developing. That is up to all the experts that we have put together. We think we put together a very strong team. So it's first things first. The number one game consideration today is to get the CDC to lift the no-sale order. That's job one. Can't go very far without that. And so we have to introduce a series what I would refer to as robust and comprehensive series of protocols that gives the CDC confidence that the environment on board a cruise ship is healthy. And then once we do that, we have to communicate whatever those protocols may be to the traveling public and give them the same confidence that we were able to instill in the CDC. So it's a multi-pronged process. Similar submissions to the CDC will likely have to also take place around the world. You know, the U.S. isn't the only country concerned with the spread of COVID-19. They all are. We've seen some recent cracks in the opening, if you will, of what's happening in the EU. They have a more unified plan in place to gradually reopen borders and therefore tourism. So that's very hopeful and encouraging. But this will take some time. We want to do this right, Harry. This is not an exercise of optics. This is not an exercise of let's get away with the minimum required. I want to do everything humanly possible within the bounds of what technology offers us today to be able to look my own family in the eye and say, you are safe to go on board our cruise ships. And until we do that, respective of what the CDC or anybody else might say, we're not going to operate. We want to make sure that we... We preserve and enhance the equity value of our three brands, and you're not going to do that if you have outbreaks of disease on board. So it's still too early to talk about specifics, but know that everything is on the table to make sure that we can provide that health, security, and confidence among all stakeholders.

Thank you for that. Maybe a quick follow-up on the comment that Mark just made about working capital positive. Can you talk about the expectations of how when you begin to market again, when you get two or three ships in the water, is that likely to lift the velocity of bookings as customers actually feel confident that they can set itineraries And, Mark, maybe you can comment on how you get to maybe a 30- to 60-day narrowing of that working capital gap and whether or not just by setting those itineraries is really the primary catalyst for that.

Yeah, I think so first, you know, let me be clear that, you know, since we've shut down and I'll reference the month of April, we have taken in a significant amount of new cash bookings and collected a significant amount of advance ticket sales. And that is during a period where we had a horrific news flow and we had essentially zero marketing in the marketplace. And that continues through May, and it continues to increase. So I think you're absolutely right. To the extent when we can actually get voyages on sale and we actually start to really spend a little bit more marketing dollars, I think you're going to see that flywheel spin even quicker. But even without that, and, again, that's what's important and why we're so confident here is that we continue to take in a significant amount of cash every today. And so so it is not our working capital, my working capital comments are not dependent on us saying that we have to announce an itinerary in one month or two months or three months. That will help and that will help accelerate but it is not dependent upon that. So again, it just continues to demonstrate with the new cash coming in the resiliency of this industry and, and, you know, consumers are smart. They understand that there will be solutions. You know, we are seeing customers come back. They're booking. Obviously not to the volumes that we would like to see in a normal environment, but consumers know this product is going to be there, and they have confidence in it. So bottom line is that will help, but it is definitely not dependent on that.

Well, that's a positive statement relative to the negative press that you see. in the media these days. Good luck with that. Thanks. Thank you.

Thank you. Our next question comes from the line of Felicia Hendricks from Barclays. Your question, please.

Hi, thanks. Good morning, and thank you for all the helpful information. This is probably for both you, Frank, and Mark. Just question slash clarification on your booking commentary here. because it seems to have moved around over the past few weeks, and we've just been getting a lot of questions on that. So, you know, when you filed your AK on April 27th, and that data was as of April 17th, you said the 2020 book position was meaningfully lower with pricing down low single digits. And then that changed in the following AK. You said that bookings as of 4-24 were meaningfully lower, but pricing was now down mid-singles. And then for 21, the pricing commentary didn't change, but the booking commentary did. So as of 4-17, your book position was flat, and then as 4-24, it was slightly lower. In both cases, pricing remained down to single digits. And then in this release, there wasn't really a lot of color on the booking commentary. So just trying to get an idea overall, you know, about the trends, because just based on that, it seems like they're getting worse. But also, like, is it even – meaningful, right? So, like, how much of an indication do you think it really gives us for pricing and bookings once cruising actually opens up?

So, Felicia, as time goes on, remember, we started the year in an incredibly, you know, better book position than any other time. We had a huge lead. We had a huge lead at the end of February and And as the COVID-19 pandemic has worked its way through the booking process, we're taking less bookings than we were this time last year. We're still taking bookings, as Mark said. It's encouraging to see how much bookings we're taking, given that the entire sales and marketing apparatus is shut down, that we're working virtually, that travel agents would still make up the majority of our business is not at full strength either. But as time goes on, and we take on less bookings in the current period or periods than prior year, you're going to see a deficit being built over time as we continue to be shut down and not until we reopen all the sales and marketing activities and the travel agents reopen for business, et cetera, will you see, you know, a pivotal change acceleration of new business that hopefully gets us back to a rate that allows us to sail full. So over time, if things continue the way they are today, over time, the commentary will be that we are falling behind to where we were this time last year because we are taking less bookings today than we did a year ago.

Okay, that makes sense. And then just to clarify something you said earlier, because you said it very fast, just that, you know, because when you were talking about the historical booking patterns for 21 and you were saying, I think that was, you know, in terms of how much is booked in 21 in the high teens, I think you said 17, 18, 19 percent. Did I hear that right?

No, I think that was a reference to say when we look at our historical trends, it was based on calendar years 17 through 20. Yeah.

Oh, okay. So if we look at normal historical booking patterns, though, just for the industry in general, I think this time this year, you know, the following year is somewhere around 20%, 25% booked. So is that the metric when you're staying in line with historical patterns? Yes.

We won't comment as to your, you know, high teens, 25%, because we typically don't comment on where our book position is for the following year at this early stage. But we are comparing where we are right now for 21 compared to where we were right now a year ago for 20, and compared to what we call the historical range, which includes 2017, 18, 19.

Okay, thanks for the clarification. And then just on your comment that the full fleet could return in five to six months, I was just wondering, is that based on, you know, customer surveys you're doing now and the booking curve? And do you think you'll be selling it at historical occupancy levels, or does that really depend on kind of some of the regulations that will be in place?

Yeah, the return to service of a phased approach – of roughly five vessels per month is what we believe we operationally could handle in terms of bringing back the ship from cold layup, including re-crewing the vessels, et cetera. And so that, given that we have 28 vessels, if you bring back an average of, you know, five vessels a month, it's going to take about six months to get all ships back operating. Now, that assumes that the itineraries that these ships would operate are available for operation. And so it could be that if ship number 19 is operating a certain itinerary and that itinerary is not open or certain key ports in that itinerary are not open, it may be that that vessel has to stay laid up longer periods of time. So the six-month ramp-up assumes more than anything else our operational capability to ramp up and that the ports are open. It has nothing to do with consumer demand because we believe consumer demand and the bookings that follow are based on our ability to market, travel agents being back open again, the whole industry being back in operation as opposed to, you know, sitting idle, et cetera.

And on the occupancy side, you think you'll be sailing at regular occupancy levels?

No, I don't think so one bit. I think it'll take time to ramp up loads. We don't know, for example, whether government agencies will require us to initially sail at less than 100%, even if there was demand to fill 100%, just remember it's very easy and it occurred very quickly to dismantle the whole apparatus and that it takes time to refill the apparatus. So if the booking curve on average is seven to eight months, it's going to take at least that long without taking consideration, you know, economic factors of how it may have affected the consumer to get the pipeline back to a full or near full environment. And so this is going to take time. All we can do now is, you know, use some level of reasonable projections. But until we get back in the game and recognize that being back in the game could be different than it was before, for the reasons I noted before, what are the protocols that we will have to operate by, what ports are open, et cetera. Those are the biggest gating factors, not necessarily consumer demand. I believe that consumer demand, this industry and these three brands of ours, are very apt at marketing. The travel agents are well behind us. There's pent-up demand. Let's not forget that. You know, people only talk about the negative, but the fact that the industry has been shut down now over four months, there'll be pent-up demand. People will want to cruise again. And so all those are positive factors, but nothing takes the place of time, and we have to be conscious of that.

Thank you so much. That was very helpful.

Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. In the interest of time, we'd like to ask that please each individual just limit yourself to one question each. Our next question comes from the line of Ivan Faisal from Tigris Financial. Your question, please. Ivan, you might have your phone on mute.

Yes. Sorry about that. Thanks for taking my question. Just two quick questions. Were you able to take advantage of the drop in oil that we saw in April? The slide in the appendix shows oil prices just at the end of March. And my other question is, the people who are booking, are you getting bookings from people who are within driving distance to the ship they're booking on? Or are you seeing people who are booking also willing to fly to get to the port and ship that they're looking on.

I'll take your second question, and Mark will answer your question about fuel. You know, I thought somebody would ask me this type of question, so I looked into it. For the ocean and region brands, their number one itinerary in terms of demand for Q1, early Q2, is Japan. It's Dubai, several of the world cruise segments. So therefore, you have to fly there. And so, you know, this notion that people aren't going to want to cruise to faraway places or exotic destinations, what we're seeing is defying that. So we're not seeing any particular area of strength other than these Japanese itineraries, these world cruise segments that are sold out, literally. No particular destination is performing particularly well or particularly bad. People are booking and people are canceling sailings in the future at the pro rata rate that we have those itineraries available, Ivan. I'll let Mark answer the question about fuel. Yeah, hi. Good morning, Ivan.

Yeah, we did take advantage of some of the recent fuel pricing and opportunistically layered on some hedges for 22 and 23. We didn't do anything for the remainder of 2020, obviously, because we're already 68% hedged for the back half of the year. And really the big question is when are we going to be able to restart? So we didn't want to do anything there. And we continue to look at 2021. So now that we have our capital raise behind us, we will continue to focus on that. And, again, from an opportunistic standpoint where it makes sense, we will enter that market.

One other quick question. In the fact that some of your, like the Regent cruises, include plane tickets, and you have had promotions in the past that include airfare, do you think there's an opportunity to work with the airlines who, unfortunately, like your industry, have been, you know, unfairly hurt by this to get a deal on plane tickets that you could help market in the future to people who cruise but don't live close to the ports?

We definitely believe that airfares in the next six to 12 months will be lower than usual. So it'll be a tailwind to cost. And we'll look to do more and more promotions, including air, on itineraries that require that.

All right. Thank you.

Thank you. Our next question comes from the line of Brad Montour from J.P. Morgan. Your question, please.

Good morning, everyone, and thanks for taking my question. Just one for me. Based on, you know, the internal scenarios that you're running for load and for price, and assuming you can't start sailing in August, roughly how much of your fleet do you think needs to be in the water to break even on an EBITDA basis?

Yeah, so good morning, Brent. This is Mark. So, again, you know, I think there's two ways to think about this, right? In terms of, you know, if you look at our historical EBITDA margins, they're about 30%. So that kind of gives you, you know, upwards of 30%. That kind of gives you how much, You know, whether it's revenue or a combination of costs we can reduce, and you could translate that into a percentage of fleet. But then it depends on whether or not the ships are full or operating at reduced load. But as Frank had said earlier, our concern right now is not are we operating in a positive EBITDA or a negative EBITDA. We need to gain momentum. We need to get ships in the water to accelerate the product awareness and get that ATS cash flywheel going again. And that's what we're focused on for the next six to eight months. So, you know, there's not a magic number of ships because there's just too many dynamics between the pricing and the load and then what the spend is. So I will tell you that we, you know, obviously we don't want to run the business at a loss. But we will have to run the business that I lost for the next, you know, few months. But it's more importantly about getting that cash flywheel going again.

Understood. Thanks a lot, guys. Good luck. Thank you. Our next question comes from the line of Steve Wazinski from Stifel. Your question, please.

Yeah, you guys, good morning. Mark, let me ask the working capital question a little bit differently, and I hope this makes sense. Sure. You know, you guys have indicated this morning that, you know, I don't remember which adjective you used, but a good bit of the 2021 bookings are new or unique bookings. So after the first wave of refunds that have already occurred, is it fair to say that for every dollar you're refunding now, you're bringing in a new dollar for an advanced booking, or is that ratio still tilted way more toward a net cash outflow?

Yeah, I would say looking at it today, it is still definitely weighted toward a net cash outflow. And what I was referring to earlier is that, you know, when we look over the course of the next 60 days, by the end of that 60-day period, we believe that ratio would flip to a positive. And that's just a matter of timing and, again, giving the amount of refunds that we are implementing as a result of the canceled voyages. So, again, that's... we anticipate in the next 60 days that that is a positive ratio. But I will tell you, again, it's very encouraging that we are substantially offsetting those refunds with that new cash coming in, and that's where we definitely see some of the green shoots of this industry.

Okay, gotcha. And then second question, I think it might be for Frank or you, Mark, but I assume you guys have run all kinds of scenarios as to what the business looks like as it comes back online, and Can you kind of help us think about the timeline you guys are kind of projecting or expecting that we might be looking at in order for you guys to return to some kind of profitability level, whether that's a 2019 level, whether that's a 2018 level? Anything like that would be pretty helpful as well.

You know, let's start with 2020. You know, 2020 is a wasted year. At a minimum, the industry is going to go the entire Q2 2020. without a penny of revenue. It's impossible to overcome. Depending on how quickly we can reopen and whether in our case, for example, can we execute in the plan that I laid out where we bring back the fleet gradually over a six-month period. So pick a date. Let's just, for argument's sake, pick a date. October 1st is the first start date. And I only pick October 1st. Don't read much more into it except that it's the beginning of a quarter. And you figure that we won't be fully operational until the end of Q1 of 21. And during that time, you are ramping up your marketing, travel agents hopefully around the world, especially in the U.S., coming back to work. The booking curve traditionally is seven, eight months. You put all those factors to work and what you end up with is a very challenging period of time through Q1. Getting better in Q2, every subsequent, you know, sequential quarter is better. Whether you get back to, you know, full operations, full load factor, full pricing, sometime in 22. I personally don't believe. I think the runway will be longer. But 21 will be a transition year. And then you can start the rebuilding in earnest in 22 forward. And whether you get back to 2019 levels in late 22 or in 23, and if you're really pessimistic in 24, there's so many details involved. Steve, I know you know this. The things we normally talk about are out the door. We're talking about just it's almost like relaunching a company from scratch when you have your entire fleet shut down and you don't know when you're going to be able to start again because it's not up to you. It's up to public health officials and governments around the world. It's very difficult to to predict with certainty, you know, revenue and EBITDA. As I said before, it's a building block. You know, and the building block starts with when can we start to operate? When can we start marketing? You know, marketing is the seat of cash. Cash comes in six, seven, eight months later. That cash can be recognized as revenue and therefore then EBITDA. So we've got to have patience. You know, it took decades to build this industry. And in a matter of weeks, we dismantled it. And it's going to take not decades to build it up again, but it's going to take a little time. And we just have to be patient. No one is more impatient than me. But I recognize that this is going to be a recovery effort that's going to take, you know, multiple quarters, perhaps multiple years to get back to the good old days of 2019.

That's great.

Thanks, Frank. Great color. We have time, Operator. Jonathan, for one more question?

Certainly. Our final question then for today comes from the line of Institute from Cleveland Research. Your question, please. Yes, thanks.

So it sounds like your plan is if things go right, maybe five to six months of reactivation and reactivating the full 100% of your fleet. I know you have a bit relatively younger age in your fleet versus the industry, but could you comment on what percent, if at all, you think the industry may lay up or retire or scrap through this pandemic?

Yeah. I can't speak for the industry at large with any kind of – specifics. As you pointed out, we have a very young fleet, so none of our vessels are remotely eligible, if you will, for scrapping or anything else. I do believe in a macro environment, given what we are facing, that you're going to find that certain vessels will be retired vessels that might have been marginal performers in good times, may not be may not be worthy, so to speak, of paying in service. You might see that. You might see new delivery. You know, I remember all you guys being so worried about capacity increases and over the last couple of years that it was 5% or 6% and it was a couple of points higher than the historical average and, you know, oh my God, oh my God, and you saw how the industry was able to easily digest at new capacity coming online, and we all had the best years of our history. But I do believe that certain vessels that may be scheduled for delivery in the next 12 to 18 months may be delayed, and that'll help the capacity situation. And different companies will have different plans on how to bring back their fleets. One of the things that I've been I've been telling folks that I usually don't say is that I'm glad I only have 28 ships. Usually I want more ships. That's why we have nine vessels on order, because when you have what you have and they're all full and you're making lots of money with them, you want more vessels. But in this environment, I'm glad I have less vessels. So, look, you know, like... In many industries that are facing the kind of challenges we're facing, there's going to be survivors and there's going to be some that don't survive. There's going to be success stories and failures. We think we are in very, very good position given our liquidity profile, given the quality of our assets, our go-to-market strategy, our management team. We feel like we will be one of the success stories that will write the history books on COVID-19. We'll see where the chips fall for everybody else. Thank you, Operator. I look forward to our next call in 90 days or so. Things, I'm sure, will be very, very different. I hope they're different for the best. In the meantime, I hope you all stay healthy and continue fighting the good fight. Thank you very much. Thank you very much everybody.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.