Norwegian Cruise Line Holdings Ltd.

Good morning, and welcome to the Norwegian Cruise Line Holdings fourth quarter and full year 2020 earnings conference call. My name is Josh, and I'll 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, then zero on your touchstone telephone. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Senior Vice President of Investor Relations, Corporate Communications, and ESG. Ms. DeMarco, please proceed.

Thank you, Josh, and good morning, everyone. Thank you for joining us for our fourth quarter and full year 2020 earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, and Mark Kempe, 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 cover just a few items. Our press release with our fourth quarter and full year 2020 results was issued this morning and is available on our investor relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statements 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 our presentation. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea, and good morning. I hope that everyone joining us today, as well as your loved ones, remain healthy and safe. Similar to our last few earnings calls, we will focus our commentary today on the progress of our response to the global COVID-19 pandemic, the overall booking and pricing environment, which has shown particular strength in recent weeks, and our view of what the month ahead may look like as we prepare for an eventual return to service. To say that 2020 was challenging would be an incredible understatement. as it was, without a doubt, the toughest and most difficult year in our company's 50-plus year history. After a record-breaking 2019, the foundation was well set for 2020 to be even a more successful year. That upward trajectory, however, quickly changed last March, and 2020 instead became a year of great hardship and disappointment, and one in which we had to rely on our nimbleness and our ability to adapt. by taking swift, proactive, and decisive actions to overcome the multifaceted challenges presented by the pandemic. These actions included bringing our entire fleet to a halt literally overnight, followed by the complex logistics of safely returning more than 50,000 of our guests home. Next came the challenge of repatriating over 25,000 of our crew members and finding safe haven for our 28 vessels. all while transitioning them to various states of reduced money. We quickly bolstered our liquidity through multiple capital market transactions, totally in excess of $6 billion, and led the industry in establishing cutting-edge health and safety standards through the co-founding of the Healthy Sale Panel. I'm incredibly proud and profoundly grateful for the dedication and perseverance demonstrated by our team members who continue to adapt, innovate, and flawlessly execute while faced with unprecedented challenges. The tremendous efforts of our team are what have enabled our company to prove our resilience time and again in the past and gives me confidence we will do so again. As we survey that current public health situation, both in America and around the world, it is extraordinary to consider just how much has transpired in the few months since our last update. As expected, the fourth quarter resurgence of the virus drove caseloads to record highs, resulting in renewed lockdown and stricter global travel restrictions. During this time, perhaps the most important breakthrough, though, to defeat the pandemic was the coming online of several vaccines that were authorized for emergency use. Fast forward to today, and caseloads across the globe have been in decline since mid-January, while simultaneously vaccination programs are ramping up where currently over 6 million doses are being administered globally daily, a number that will only increase as manufacturing, distribution, and healthcare systems align. So where does that put us and the cruise industry? In reality, we're not sure, but directionally, we're headed in the right direction to an eventual restart of cruising. Public health experts do predict that caseload, while already on the downside, will continue to decline primarily for three reasons. First, a significant portion of the population has already been infected and recovered. Second, the number of individuals vaccinated will rapidly increase. And lastly, we will soon move into the less troublesome spring and summer seasons. All three of these factors are expected to combine to begin establishing herd immunity sometime during the third quarter, with the spread of variants and the durability of vaccine protection being the two main variables that could slow down, but not completely halt the rapid progress being made. And while we are moving in the right direction, scientists continue to caution that we are not yet out of the woods. The crisis is far from over, and we must all remain vigilant and ready to adapt to the ongoing fluidity of the public health environment. Our industry has recently seen some encouraging green shoots. After the first quarter resurgence caused nascent cruise operations in Europe to temporarily halt, several European cruise lines have since resumed or are planning to return to service in the next few weeks, sourcing EU nationals from Italy and Germany. The hope and expectation is that by late spring, sailings will expand to include cross-border European nationals, and eventually, likely during the third quarter, international guests as virus prevalence decreases to manageable levels. Shifting to our company's recent events since our last earnings call, several key milestones mark the fourth quarter, which can be found on slide three of our presentation. These include two capital raises resulting in approximately $1.7 billion of additional liquidity, new debt deferral amendments providing additional financial flexibility, and continued progress on our environmental, social, and governance initiatives, which I will touch on in more detail later in the call. On slide four, we outlined the actions we have undertaken as we continue to navigate through this crisis, remaining focused on what we can control. Subsequent to the issuance of the CDC's conditional sale order in October, we anticipated a return to service in the first quarter of 2021. Since it takes up to 90 days to ready a ship to reenter service from layup status, we initiated a phased crew restaffing of select vessels and began a ramping up of marketing activities. This initiative, unfortunately, was met with several headwinds, most notably the rise of confirmed cases to all-time highs and the emergence of new variants, which combined with a slower than anticipated rollout of vaccination programs, additional lockdowns and travel restrictions, continued closure of key ports around the world, and most important, the reluctance by public health authorities to lift crews' suspensions. These headwinds caused us to change course. With the much-hoped-for AQ1 relaunch postponed, the decision was made to return vessels to reduced manning status until there is certainty on the timing for a return to service. With new crew rested, ready, and eager to work, we took the opportunity to rotate certain crew that had been on board beyond their usual contracted term and made the difficult decision to repatriate 4,000 crew members back to their home countries. Next, we continued to execute on our strategic financial action plan, which Mark will provide an update on, and on the incremental actions we have taken to bolster liquidity a little later in the call. Turning to our roadmap to relaunch, which is illustrated on slide five, we continue to work with the Healthy Sales Panel along with the CDC and other public health authorities and governments across the globe to prepare for a safe and healthy resumption of cruising. As we await for additional technical guidelines from the CDC and other public health officials around the world, we continue to make progress on enhancing our already rigorous health and safety standards, implementing new advancements including digital technology for contract tracing, as well as streamlining safety drills with our state-of-the-art e-mustering technologies. While we are confident in the ability of the 74 protocols developed by the Healthy Sail Panel to keep our ships, crew, and guests safe, our frontline defense strategy has expanded from protocol-led preventive measures to now also include the protective health and safety benefits of vaccines. We view vaccine as a powerful tool, the most powerful tool, that when combined with various protective measures society is already accustomed to, such as face coverings and physical distancing, forms a multi-layered, sign-based approach to mitigate the risk of COVID-19 infection. We expect that by the time cruising resumes, vaccinations will most certainly be widely available in a developed world, and we believe that by then, we will be able to secure vaccines for our crew, as we are today well along in the procurement process. A mix of vaccinated guests and crew along with the other established protocols, will provide a powerful combination to mitigate the risk of COVID-19 on board our ships in the communities we visit. Ports and destinations is the next step of our roadmap, and we are in constant communication with key ports around the world to assess the status of travel restrictions, quarantine requirements, and port availability. Of particular importance to the industry was the recent announcement by Canadian authorities to restrict cruise vessels from operating in Canadian waters through February of 2022. Throughout this pandemic, the travel industry has experienced the introduction, subsequent repeal, and reintroduction of lockdowns and travel restrictions, depending on the prevalence of the virus and other factors. Thankfully, the Canadian order allows for the suspension to be rescinded based on improvement in public health. We remain cautiously optimistic that a rescission may be possible. And in the meantime, we await the results of several Alaskan delegation-led initiatives, which we want to acknowledge today and greatly appreciate, that may allow Alaska Cruises to operate in 2021. The third step in our roadmap is to begin reactivating our sales and marketing machine, which, as you know, is guided by our industry-leading Market to Fill versus Discount to Fill strategy. We have revalidated the effectiveness of this strategy in the pandemic environment, generating demand for the back half of 2021 and especially strong demand into 2022 and beyond. We will resume a disciplined process of ramping up sales and marketing efforts once we finalize an initial voyage resumption plan. Lastly, and once there is certainty, we continue to expect a gradual and phased approach to the resumption of cruise voyages. Depending on the timing of our return to service, Our vessels could return in certain regions before others. For example, given the seasonality of our operations, a typical year the deployment of our vessel is concentrated in Europe during the peak summer season with 17 of our 28 ships operating in this region. Therefore, seasonality will likely play a key role in the initial deployment of our vessels. Our booking trends, which you can see on slide six, demonstrate how we continue to experience strong demand for future cruise vacations, despite the uncertainties in the broad travel sector, the reduction of demand generating marketing investments, and the temporary absence of a full complement of our all-important travel agent partners. For the second half of 2021, our load factor is below historical ranges, impacted by continued uncertainty around timing of the resumption of cruising, and the shift of our limited marketing investments to focus on 2022 voyages. Pricing continues to be at the peak level, despite the dilutive impact of the value-added future cruise credits for canceled voyages. And while it is still early in the booking cycle, we are very encouraged and very pleased by the strong booking activity driven by pent-up demand across all three brands for 2022 voyages. volumes during January and February sequentially improved by over 40% from November and December 2020. And as an added bonus, over 80% of these bookings were new cash bookings. For the first half of 2022, and for all of 2022, in fact, our load factor is currently well ahead of pre-pandemic levels, with pricing at each of our award-winning brands in line to up mid-single digits when excluding the diluted impacts of future cruise certificates. The consumer appetite for global travel aboard our 28 vessels is so strong that even with limited marketing investments, we are yielding outsized results and we are experiencing record demand with our launches for our future itineraries and global voyage collections. A case in point is Oceana Cruises' 2023 World Cruise, which sold out within one day of opening for sale to the general public. In addition to our loyal past guests, approximately one-third of all bookings for this cruise came from first-time new-to-brand guests. We believe this achievement, along with multiple booking records we have announced in recent months, demonstrates the pent-up demand that exists from our mature and affluent cruisers, even for long and exotic voyages, once the severe impact of the pandemic subsides. This demand, coupled with the opening of voyages for sale further in advance, has also resulted in a significant expansion to the booking curve during the fourth quarter, which is now double versus the same time last year. I'll be back later to provide closing remarks, but for now I'd like to turn the call over to Mark for a financial update. Mark?