Norwegian Cruise Line Holdings Ltd.

Good morning and welcome to the Norwegian Cruise Line holding second quarter 2021 earnings conference call. My name is Rache 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 then zero on your touch tone telephone. As a reminder to all participants this conference is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DiMarco, Senior Vice President of Investor Relations, Corporate Communications, and ESG. Ms. DiMarco, please proceed.

Thank you, Rache, and good morning, everyone. Thank you for joining us for our second quarter 2021 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. We would also like to welcome a special guest joining us today, Dr. Scott Gottlieb, former commissioner of the U.S. Food and Drug Administration, chairman of our company's Sail Safe Global Health and Wellness Council, and author of the soon-to-be-released book, Uncontrolled Spread. Frank will begin the call with opening commentary, after which Mark will follow to discuss our financial results 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.nclhltd.com forward slash investors. 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 begin, I'd like to cover just a few items. Our press release with second quarter 2021 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 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. As always, I hope that all of you joining us today, as well as your loved ones, remain healthy and safe. Before I get into my prepared remarks, and if you haven't already heard the good news, I would like to congratulate Andrea on her new appointment to Chief Sales and Marketing Officer of our luxury brand, Region 7 Seas Cruises. After more than 30 earnings calls with our company, we will all miss her, but wish her the very best of luck in her new role. Jessica John, who many of you have already met, will assume the role of Vice President of Investor Relations, Corporate Communications, and ESG, beginning September 1st. Congratulations, Andrea and Jessica. I am pleased to say that we are taking this morning's call from Seattle, Washington, as we prepare for a very exciting day tomorrow, the relaunch of our first ship from the United States in over 16 months. And as Andrea mentioned, we also have a very special guest with us today, former FDA Commissioner, Dr. Scott Godley. After over a year of working together remotely to reach this long-awaited milestone, it is truly a pleasure to finally meet Dr. Gottlieb and the other public health experts on our Sail Safe Global Health and Wellness Council in person, and for the first time today, as we kick off our great cruise comeback. Today we will focus our commentary on the progress we have made on our return to cruising, our comprehensive plan for the phase resumption of operations for our entire 28-ship fleet, and the record-setting strength we continue to experience in consumer demand, which has translated into a record load and record pricing for calendar year 2022 and beyond. As you can see on slide four, our return to service plan is centered around three key phases. First, we developed our multi-layered sales safe health and safety strategy, including mandatory FDA, WHO, or EMA authorized vaccinations for all guests and crew at its cornerstone. In addition, we test all guests at the terminal prior to embarkation and all crew undergo weekly routine testing. Next, we have now announced voyage resumption plans for all 28 ships in our fleet. And lastly, we are intently focused on the flawless execution of the phase relaunch of our fleet, which we expect to complete by April 1st, 2022. Against a still ever-changing COVID backdrop, we remain vigilant and ready to adapt as needed, keeping a close watch on port availability, travel restrictions, and any changes to the global public health environment which could affect our planned operations. Overall, we are encouraged to see some relaxation of travel restrictions and opening of borders in recent weeks, particularly for vaccinated travelers. Just a few weeks ago, Canada moved up its plans to allow the return of cruise ships in November, four months earlier than previously announced. Many countries in the EU are now allowing travelers from the US, and in the past few weeks, both Canada and the UK announced entry to vaccinated travelers without quarantine. Travel restrictions and port closures do remain in place in other parts of the world. but we are ready to execute on our cruise resumption strategy and have backup plans ready to go, which we can implement and adapt to as needed. Slide 5 details our voyage resumption plans by brand and by vessel. After 500 days, the time has finally come, and I could not be more pleased to say that our great cruise comeback officially commenced last week with Norwegian Jade operating Greek Isle Voyages out of Athens. The relaunch went off without a hitch. and demonstrated that strict vaccination requirements, comprehensive pre-boarding testing, and a suite of other robust protocols are working as designed to help mitigate the introduction and transmission of COVID-19 aboard our vessels. A special thank you goes out to the officers and crew of Norwegian Jade, who even after 16 months of not operating, seamlessly adapted our new protocols and delivered the same exceptional service and world-class cruise experience that our guests expect from our company. As an indication of this top-notch service delivery, our onboard revenue on this first cruise significantly exceeded our target, which was focused on 2019 actual results by over 50%. All of our incredible team members around the world worked tirelessly to prepare for this critical moment, and I am truly grateful for the privilege to work day in and day out alongside such a dedicated, passionate, and talented team. I also want to express our sincere thanks to our loyal guests, valued travel partners, and all of our stakeholders for their patience and support during these challenging times as we ramp up our return to cruise plans. Norwegian Jade's successful relaunch is just the first of many to come, including our much anticipated return to cruising in the United States. Tomorrow, Norwegian Encore, the line's newest and most innovative ship, will make her West Coast debut with a seven-night sailing to Alaska from Seattle. We are looking forward to once again bringing guests to explore the last frontier, one of the most popular destinations with our guests, and providing some much needed economic relief to the communities, families, and small businesses throughout coastal Alaska who have been devastated by the loss of cruise tourism revenue during this prolonged suspension. The next step in our relaunch plan is our return to Miami, the cruise capital of the world. I'd like to address our request for a preliminary injunction that we filed last month, which will allow us to confirm guest vaccination status for sailings departing from the state of Florida that is being heard in a Miami federal court today. Combating this virus is an unprecedented historic challenge that requires everyone, including governments at the local, state, and federal levels, plus private enterprise and society at large, to do their part. I have a tremendous empathy for our elected officials, business leaders, friends and families, neighbors who are all doing the best they can under enormously difficult circumstances to beat back this virus. Having had the pleasure to work in the cruise industry for nearly 30 years, I am confident that in the current global health environment, and especially with the rise of the Delta variant, having a fully vaccinated and tested population on board our vessels is the best path best path to keeping our guests, our dedicated crew members, and the peoples of the communities we visit safe from COVID. In order to do that, we must be able to confirm vaccination status of our guests at every port we sail from, including those in the state of Florida. We owe it to all our stakeholders to do everything possible to make sure we deliver on this critical mission. We hope that the federal courts will agree with our vision and our missions. When we say the health and safety of our guests, crew, and communities we visit is a number one priority, we mean it. It is not a slogan nor a tagline. The legal actions we have taken in Florida reflect our deep commitment to resume sailing in accordance with our robust, science-backed, sail safe health and safety protocols outlined on slide six. Our policy of 100% vaccinations coupled with pre-boarding testing of guests and routine testing of crew is in place without issue and there are nearly 500 ports we sail to and from around the world, except Florida ports. Nothing takes priority over health and safety, and we have gone to great length and expense to pursue this commitment to our guests, crew, and all stakeholders. Again, this commitment is not a slogan nor a tagline. Health and safety is far and away the most important principle that guides how our company operates at all levels, and this fundamental philosophy has never been more important than right now. We want to use every tool available to us that science and medicine have developed to prepare our ships to return to service, and vaccines are our most powerful tool. Given that we have Dr. Gottlieb here today, who is not only a world-renowned expert, but is also the chairman of our Sail Safe Global Health and Wellness Council, I'd like to give him the floor for his thoughts on our health and safety program. Dr. Gottlieb?

Thank you, Frank. It's a great pleasure to be here with you today and to witness the culmination of over a year's collaboration on enhancing Norwegian's health and safety protocols. All of the scientific and medical experts on our SailSafe Council fully support and recommend a fully vaccinated and tested population to relaunch cruising, as it's the most effective way to mitigate the introduction or spread of the virus on board a cruise ship or anywhere else in society. Even with vaccines, however, the risk can't be fully mitigated, but this approach mitigates the risk to the greatest extent possible and significantly reduces the severity of any potential breakthrough cases. While the Delta variant is fueling the current rise in cases, if the UK is any guide, I believe we're perhaps further into this epidemic surge And we'll hopefully be turning a corner in the next several weeks. In fact, some of the states hardest hit by the Delta surge in the south are already showing some indication that their epidemic waves could be starting to peak. In the meantime, the vaccines are highly effective even against the Delta variant and Norwegian is taking the extra step of coupling vaccines with multiple additional layers of protection against COVID-19. including universal testing prior to boarding the ship. This goes well beyond what we're seeing in other travel and hospitality sectors, and with the controlled environment a cruise ship provides, it can offer one of the safest vacation options. I look forward to seeing our protocols in practice with you tomorrow on Norwegian Encore.

Thank you, Dr. Godley, for your insights. I again want to thank you and the members of the Sail Safe Global Health and Wellness Council for all the hard work and expert guidance that you and the Council have provided us. Now, with our safety protocols in place and our voyage resumption plan in full swing, we'll shift the discussion to our booking trends, which you can see on slide 7. In short, pent-up demand for cruise vacations, especially for 2022 sailings, are very strong, as we have experienced record-breaking demand for future cruise vacations across all three of our brands. This outsized demand is even more impressive when considering that this strength is true despite significantly reduced levels of demand-generating marketing investments in the absence of a full complement of our all-important travel agent partners throughout the world. The unparalleled pent-up demand I speak of is demonstrated by our record book position and pricing. For full year 2022, load factor continues to be meaningfully ahead of 2019 record levels by a wide margin. And when you look at our booking curve at the same point in time versus two and three years ago, we are now booked nine to ten weeks ahead of those levels. Pricing is also higher than 2019's record level, even one including the dilutive effect of future cruise credits. The strength we are experiencing is evident throughout 2022, but particularly strong sequentially as we move through the year and our fleet rollout is completed and becomes fully operational. In addition, approximately 75% of our book position in 2022 is comprised of new cash bookings, with the remainder comprised of future cruise credit bookings. So far, approximately 45% of our outstanding future cruise credits have been redeemed. The strong demand is also extending beyond 2022. Last month, Region 7 Seas Cruises easily broke the opening day booking record for its world cruise for the third year in a row. The 2024 world cruise, a 132-night sailing, surpassed all expectations and sold out in under three hours and at higher pricing than the 2023 world cruise. Not only was this without a doubt the strongest world cruise launch day in the line's history, But it also saw a strong increase in new-to-brand guests, which comprise approximately one-third of bookings. This is further evidence of the continued demand we are seeing, both from our loyal past guests and new-to-brand cruisers, even for these long, exotic itineraries. As I have said time and time again, the pent-up demand is real. Last quarter, we reached an inflection point in our advance ticket sales bill. which continued its positive trajectory throughout the quarter. Our advanced ticket sales increased approximately 300 million on a gross basis, or over 50% versus the prior quarter's bills. As we begin phasing in the rest of our fleet, we expect this momentum to continue to accelerate sequentially. As we look to the future, the growth opportunity we have planned for as we emerge from this crisis is impressive. In May, Norwegian Cruise Line unveiled Norwegian Prima, the first of six Prima-class ships, which marked the first new class of vessels for the brand in nearly a decade. Debuting in summer 2022, Norwegian Prima, which you can see a rendering of on slide eight, is absolutely stunning, offering the most outdoor deck space of any new cruise ship, including more total pool deck space than any other ship in the line's fleet, as well as multiple infinity pools and vast outdoor walkways. She will also take the line's groundbreaking ship-within-a-ship concept with The Haven to the next level. Most importantly, however, she is resonating with guests unlike any other new ship launch we have ever seen before. Her sales debut in May set a single best booking day and best initial booking week record, doubling the previous record set by Norwegian Bliss in 2018, and it prices approximately 20% higher than Bliss commanded. Turning to slide nine, we also had an exciting announcement from Regent Seven Seas Cruises, which unveiled the name of its newest ship, Seven Seas Grandeur, the sixth ship in the world's most luxurious fleet. Seven Seas Grandeur will host 750 guests and is a sister ship to Seven Seas Explorer and Seven Seas Splendor. There are more reveals to come leading up to her launch in the fourth quarter of 2023, with her inaugural season set to be unveiled and open for reservations next month. As you can see on slide 10, we have an industry-leading growth profile with nine shifts coming online through 2027. These new builds represent approximately 24,000 additional births, growing our fleet by approximately 40%. In 2023, when our fleet is back in full force, we expect our capacity to be approximately 20% higher than 2019 pre-pandemic levels, with the benefit not only of our four 2022 and 2023 new builds, but also a full year of both Norwegian Encore, which joined the fleet in November of 2019, and Region 7C Splendor, which launched in February 2020. With a smaller footprint of 28 shifts in our fleet, the addition of our new nine shifts strongly positions us to further diversify our product offerings and penetrate unserved and underserved markets globally. which is expected to drive meaningful growth to both the top and bottom line. As slide 11 clearly demonstrates, our excellent track record speaks for itself in our ability to successfully absorb capacity and turn that capacity growth into outsized revenue, EBITDA, and net cash flow growth. Our new shifts are expected to be accretive to earnings and to cash flow and I expect our historical industry-leading performance to continue in the years to come with the addition of our new ship deliveries. I'll be back later to provide an update on our ESG efforts as well as provide closing remarks, but now I'd like to turn the call over to Mark for a financial update. Mark. Thank you, Frank.

Our remarks today will focus on the continued execution of our COVID-19 financial action plan, our liquidity profile, and our all-important phased voyage resumption plan. I am pleased with the significant progress we've made on our return to cruising. As Frank mentioned, we are here in Seattle ready to relaunch Norwegian Encore tomorrow. We have a comprehensive voyage resumption plan in place and are focused on the execution of this phased relaunch. We expect to have eight ships representing approximately 40% of our total capacity operating by the end of the third quarter, and 17 ships representing approximately 75% of our capacity by year end. The last ship, Oceana's Nautica, will emerge better than new after an extensive dry dock and re-inspiration and join the rest of the fleet on April 1st, 2022. While we've reached several important milestones in our road to recovery, we recognize that the global health environment is still fluid. so we remain focused on maintaining our cost discipline and pulling all available levers to conserve cash and maximize financial flexibility as we execute our relaunch plan. As you can see on slide 12, since the halt in global cruise operations in March of 2020, we worked quickly to implement our COVID-19 financial action plan. During the pause in operations, we successfully reduced operating expenses by nearly 60% and capital expenditures by over 75%. As we ready our ships to return to service, costs will increase as expected, but we will do so in a strategic and disciplined manner to balance our cash needs while maintaining a strong liquidity profile. Since the beginning of the second quarter, we've taken several additional proactive measures on our financial action plan. We continue to significantly reduce or defer near-term demand generating marketing expenses, and non-essential capital expenditures. In July, we amended nine credit facilities for our new build program to increase the commitments by approximately $770 million to cover owner supply costs, modification costs, and financing premium fees. We want to thank our banking partners for their continued support of our company during these extremely challenging times. Turning to our liquidity and cash burn on slide 13, we had approximately $2.8 billion of cash and cash equivalents as of June 30th. This provides us with significant financial flexibility to continue to navigate through this fluid environment and execute on a return to service plan. As for cash burn for the second quarter, our average monthly cash burn rate was approximately $200 million per month. This was slightly higher than our guidance of $190 million driven by the announcement of additional ship relaunches in our voyage resumption plan and the associated restart expenses. As for the third quarter, we expect our average monthly cash burn rate to increase to approximately $285 million as restart expenses accelerate with additional vessels entering service. Restart expenses are primarily related to repositioning, provisioning and staffing of vessels, implementing new health and safety protocols, and a measured ramp up of demand generating marketing investments. Note that this cash burn estimate does not include our expected cash inflows from both new and existing bookings. We will continue to take a disciplined approach to reintroducing costs as voyages resume, while at the same time balancing the need to drive new cash bookings. Looking ahead, Based on our resumption plan, we expect to reach a crucial inflection point with operating cash flow turning positive over the course of the first quarter of 2022. To assist with modeling, slide 22 details additional guidance we have provided for certain metrics, including depreciation and amortization, interest expense, and new build related capital expenditures. Turning to slide 14, we ended the second quarter with approximately $2.8 billion of cash. Our cash balance in the second quarter decreased, driven primarily by approximately $600 million of operating cash burn, including operating expenses, SG&A, interest, and CapEx, customer cash refunds for canceled voyages of approximately $150 million, and net working capital and other outflow of approximately $10 million which includes health and safety investments. Before handing the call back to Frank, I want to reiterate that as we continue to navigate through this crisis and relaunch our fleet over the next few quarters, we have not taken our focus off the future. Our relaunch milestones bring us one step closer to executing on our medium and long-term financial recovery plan as outlined on slide 15. And to rebuild and continue to drive margin expansion, maximize cash flow generation, and optimize our balance sheet. With that, I'll hand the call back to Frank to provide closing comments.

Thank you, Mark. Before we wrap up our remarks, I'd like to provide an update on our global sustainability program, Sail and Sustain, shown on slide 16. This summer, we reached several key milestones on our ESG journey, starting with the publication of our first comprehensive ESG report, which included disclosures aligning with the Sustainability Accounting Standards Board, or SASB, index. This was a significant step forward in our efforts to enhance our transparency, and I encourage you all to take a look at the report, which is on our website, if you haven't done so already. We also unveiled our Redesign, Sell, and Sustain program, which is structured around five pillars developed through cross-functional collaboration with key internal and external stakeholders. The pillars include reducing environmental impact, sailing safely, empowering people, strengthening our communities, and operating with integrity and accountability. In addition, we have aligned to the United Nations Sustainable Development Goals and have identified 10 goals where we believe we can make the greatest contribution to achieve a more sustainable future for all. In conjunction with the report, we have also developed a new sustainability website, which we will use to continue to provide critical disclosure to all of our stakeholders. On the environmental front, we were pleased to announce our newly created long-term climate action strategy and our goal to reach carbon neutrality. This ambitious program is centered around three key action areas, including reducing carbon intensity, identifying and investing in technologies, including exploring alternative fuels, and implementing a carbon offset program. We continuously seek opportunities to reduce our overall footprint, by minimizing fuel consumption, and in fact, our ongoing investments in systems and technologies have resulted in a reduction of fuel consumption per capacity day of approximately 17% from 2008 to 2019 for our entire 28-ship fleet. With the introduction of our nine new and more fuel-efficient vessels through 2027, we expect to see further improvement in our intensity rates. In addition to ongoing initiatives to reduce our greenhouse gas emissions rate, We have committed to purchasing high-quality verified carbon credits to offset 3 million metric tons of carbon dioxide equivalent over a three-year period beginning last year. This is a measurable step in the near-term emissions reductions which will help bridge the gap in our decarbonization efforts until new technologies become available. Our 3 million ton commitment is sizable. To put it in perspective, it is the equivalent of over 7.5 billion miles driven by an average passenger car, and we plan to increase offset purchases in future years to help us reach our goal of carbon neutrality. We are very proud of the progress we have made so far in ESG, and we are committed to making a lasting impact on the world as responsible corporate citizens and ESG leaders. I look forward to sharing additional details with you as we continue on our ESG journey. Turning to slide 17, I'd like to leave you with a few final key takeaways. First, we are putting health and safety at the forefront of our return to service as demonstrated by the great length we are taking to resume cruising in the safest manner possible with our universal mandatory vaccination and pre-boarding testing policy across our three brands. Our great cruise comeback has commenced and we are focused on the flawless execution of our phase voyage resumption plan with a target to have our full fleet in operation by April 1st, 2022. We continue to experience strong future demand for cruising with very positive booking and pricing trends for 2022 and beyond. And lastly, as we emerge from the pandemic and focus on our longer-term prospects, we have an attractive and well-thought-out growth profile, which we expect will provide a meaningful boost to our financial results and shareholder value in the coming years. Overall, while we still have a long road to full recovery ahead of us, we are encouraged by the significant milestones we have reached in recent days on our return to cruising. Tomorrow, we will take another monumental step forward with our official U.S. relaunch, and I look forward to getting back to what we do best, providing exceptional vacation experiences and lifetime memories for our guests. And with that, we can open the call for questions.

Before we take our first question, we ask that you please refrain from asking any questions regarding pending litigation. We appreciate your understanding and cooperation in this regard as we will not be commenting any further. Rache, please take the first question.

Your first question line of Steve Wozniacki with Stifel.

Yeah, hey guys, good morning. So, you clearly now have a nice roadmap as to when the full fleet will be back in service. And, you know, I guess the question is if you stay on that path that you're on right now, and let's say you get, uh, your target 60% of your capacity back in service by the end of the year. Mark, I think I heard you correctly that by one cue you would be in that kind of break even standpoint. I want to make sure I heard that right. And then maybe what goes into, you know, what are some of the assumptions that you're making to kind of get to that level?

Hi, good morning, Steve, and thank you for the question. So you're absolutely correct. Based on our, you know, first let's talk about our voyage resumption plan. As you know, we've been very disciplined, we've been very methodical, and we've said we are not interested in being the first to the race to launch our vessels. We think we have a very measured and disciplined plan with approximately 75% to 80% of our fleet in operation by year end. And as a result of that, when we look at our cash flow, both the inflows and just the regular operating contribution from each of our vessels, yes, we expect to be cash flow positive sometime over the course of the first quarter of 2022. And to put that in perspective, that's five to six months away. So we're very pleased with the booking trends that we've seen. Obviously, as we restart and our ships enter service, that starts to generate that cash flywheel that we've been talking about. So We're very pleased. We don't think, you know, with anything, there's always a little bit of risk out there. But based on our measured plan, we think we have a solid game plan of returning to cash flow positive operations.

Okay, thanks, Mark. And then, Frank, I want to ask about, you know, all the changes that we've seen. You know, it's been going on with the operators over the last week or so. I mean, we've seen changes in terms of sending your peers around, mask mandates, the requirement to get tested before you board, just want to understand, you know, what do you think this does or what is this going to do to the psychology of the cruise passenger right now? Meaning, do you think some of these folks are going to say, you know, ah, forget it, let's, you know, let's book at a later date or, you know, how do you think this is affecting your customer right now?

Hey, Steve, good to speak to you. Look, it's not what we're seeing in our booking trends. As I mentioned in my prepared remarks, we were ahead approximately 10 weeks when compared to where we were in 2018 at this time for 19, a record year. And as you know, we at Norwegian Cruise Line Holdings came out very, very early, as early as late March, and we said we're not going to cruise until – it's safe to do so, and as a precursor, everybody has to be vaccinated, crew and passengers, and we haven't moved from that. We think that's a competitive advantage, quite frankly. During a pandemic, people who are willing to travel want to travel safely, and the Norwegian Cruise Line platform allows you to do that. Dr. Gottlieb spoke about it. It becomes just about the safest place on Earth to be on a Norwegian Cruise Line ship, and I'm glad to see my my peers in the industry following suit because now they have begun to introduce at least some of the measures that we have announced early on. So to me, it is a competitive advantage. We will continue to do the right thing, and that is to protect the health and safety of our guests and the communities we visit in every possible way we can.

Okay, great. Thanks, guys. Appreciate it. Best of luck.

Your next question might know Stephen Grambold with Goldman Sachs.

Stephen Grambold, thank you. How should we be thinking about the customer deposit inflow over the course of the restart? And as you mentioned, the restart costs moving up a little bit in the coming quarter. Should that be front-end loaded, or should we be expecting a similar amount of spend each quarter until fully up and running?

Hi, good morning, Steve. It's Mark. So, look, when we look at our customer deposits, as we said in our prepared remarks earlier, Our customer deposits increased 50% versus the prior quarter, roughly $300 million on a gross basis. So obviously, as we continue to relaunch and restart and we get closer to the voyages operating, we expect that to accelerate. So we're very, very pleased with that. When we look at our relaunch costs, look, everything, all the costs that we're incurring They're normal. They're expected. You look at how many ships were restarting over the course of the next five to six months. There's nothing out of the ordinary. There is going to be some one-time front-end loaded costs. Again, you're relocating, you know, whether it's 1,000 or 1,500 crew per vessel from across the globe. So you have some one-time initial costs. But that will settle. That will balance as typical. But most importantly, as our vessels start to sail, and as we've said publicly, most of our vessels are starting at either 60 and then ramping 60% load factor and then slowly ramping up to 80 and then hopefully back to our normal load factors in a short time. Those vessels which are operating are cash flow positive out of the gate, and that's very, very important. And we've seen that with our first – to initial voyages that have just been completed by Norwegian Jade. And we expect that to be the case for the coming voyages as well for the rest of the fleet.

That's super helpful. Maybe one more if I can sneak it in, which is kind of a topic du jour. But have you seen any impact, and you kind of talked about this a little bit, from the Delta variant on bookings pricing more recently, and how would you think about the impact or risk if further requirements are imposed on even 100% vaccine sailing, such as masking or otherwise?

Hi, Steve. It's Frank. Look, we have seen a modest decrease in our net new booking activity during the month of July when the Delta variant has surfaced. It is sequential, so it's more gradual. more pronounced in year 2021 sailings, which for us is not that significant. I'm not focused on 2021. It's a transitional year. The focus is to get the ships operating again. As Mark mentioned, a very successful launch of Norwegian Jade went off without a hitch. We do have muscle memory. We do remember how to operate cruise vessels. The customers had a great time. Onboard revenue was through the roof. And so we are encouraged that we're off to the races. It's good that we have such a pad, so to speak, on our forward bookings to be 10 weeks ahead of our best prior year ever. It's certainly a wonderful cushion and insurance policy to have. In discussing the likely course of the Delta variant with Dr. Gottlieb, we think this is a transitory, temporary phenomenon. It's going to run through the course of the population very, very quickly. We don't think it will have lasting effects. But again, having a 10-week advance, so to speak, is certainly wonderful to have.

Helpful. Thanks so much. Best of luck with the ramp.

Thank you.

Your next question will be from Brent Montour with J.P. Morgan.

Good morning, everyone. Thanks for taking my questions, and congratulations on the official relaunching of And Mark, maybe you alluded to this in your prior comment, but I want to understand, Frank, how you're thinking about occupancies while COVID is still sort of among us and you're 100% vaccinated. Can you get to a full ship under that scenario without masks? And is that safe? And is that in your plans? And has that changed at all in the last few weeks because of Delta?

Yeah. As Mark mentioned, we're starting every vessel in the 60 to 70% range of load factor. That's not anyone's requirement. It's not a CDC mandate. It's something we think is a responsible way to start operations, train our crew, get our feet wet, so to speak. If all goes well, after three days, we'll increase that to 80% load, and after 60 days, we will resume trying to fill the vessel as in pre-pandemic levels. And yes, in a fully vaccinated environment, the way that we are conducting it, where we test everyone at the pier, where we have the protocols in place, the new air filtration systems that we have spent tens of millions of dollars to upgrade throughout the fleet, We believe that we can safely operate vessels at full capacity. We will see. It will be staggered. We will learn along the way. But, yes, we believe that that can be achieved. And, by the way, so does our Sail and Safety Council, which they, again, believe that our protocols are second to none, not just in the cruise industry but in any kind of port you know, public environment.

Yeah, and Brant, I want to just add to that, that when we look at all the measures we're taking and you look at that vis-a-vis any other hospitality-driven type of venue in the world, what we're providing our customers is one of the most safest experiences that we can based on today's science and technology. So that, again, we believe that that's an advantage for all three of our brands.

Yeah, this is Scott. You know, we feel confident that given the measures that we've taken, creating a 100% vaccinated population on board the vessel, testing people before they enter into that environment, you can substantially reduce the risk and create a safer environment. And relative to other kinds of options people may have to engage in leisure and vacation, this becomes a much safer environment, a much more predictable environment. And we have measures on the ship, not only measures to control the risk of introduction of the virus onto the ship, we're taking significant measures to control the risk that if you do have an introduction, you're going to have secondary spread onboard the ship. And then if you do have a case that emerges on the ship, we've tried to do our best to make it a safe environment to seek treatment, including getting some of the advanced therapeutics onboard the ships, having ICU-level care available, having procedures in place on how to off-board passengers who may become ill during a cruise. So at every step, we've tried to take every reasonable measure to create the safest possible environment for someone to engage in leisure activity.

That's all great, Culler. Thanks for that, guys. And then my second question is just on that metric you gave, Frank, on the onboard spend on on the first ship out and up 50%. That's obviously a really impressive statistic. Is that apples to apples, I guess, with what you would have seen from that ship in 2019, I guess, on a per-person basis since it's going to have a little bit less load on that ship? But I guess, can you also talk about the mix on the ship of where you're seeing that consumer spend really take off?

Yeah, Brant, I'll take that one. So certainly when we look at that and we look at the measure of onboard spend, while we look at it in totality on the vessel, you know, more importantly, we're looking at it on a per person per day basis. So that's the measure of what the customer is willing to spend. And, yes, it is on an apples-to-apples basis of a similar voyage, similar itinerary from 2019's record levels. And when you look at the mix of passengers, I think that voyage was predominantly probably the majority U.S.-based and then followed by a European base. And when you look at the spending trends of it, it was your normal areas. Shorex was very intense. food and beverage, and then casinos. So it's great to see that we're seeing the trends that we're used to. Customers are willing to spend while it's early. It is certainly very, very encouraging.

Excellent. Thanks for all the color guys. Good luck.

Your next question, like event C-PIL with Cleveland Research.

Great. Thanks for taking my question. Sounds like deposits are building nicely and there's an expectation to move cash flow positive at some point, maybe in the first quarter, even of 2022. A number of things go in the right direction. Can you help us think about the path and timing for deleveraging of the business?

Yeah, good morning, Vince. It's Mark. We are intensely focused on that. As you can recall, in 2019, we were on a path to our stated leverage of 2.5 to 2.75. We've obviously had to lever up the balance sheet as a result of this. But as we look forward, our goals right now are we want to get below five, and then obviously we'll look to get into the fours. It's a bit premature to really telegraph when we're going to get to those levels. As we've said before, if 2022 continues on the path that we're seeing today, it could be a very nice year in terms of EBITDA and subsequent cash flow generation. So that's certainly going to assist and help us with that de-levering story. So we are focused on it. We have not lost sight of that because we know that's important. But right now we're focused on relaunching and providing the best experience that we can to our customers. And if we can do that, that's going to subsequently turn into significant cash flow generation. And I will reiterate, we've said and we expect in our conservative relaunch plan, we expect to be cash flow positive over the course of the first quarter of 2022. So when you think about that from a restart within a six-month period to be cash flow positive, we feel that's pretty tremendous, and we're pretty proud of that. So we look forward over the next few months of restarting our fleet and, again, the cash flow that that spins off.

Thanks. And another question, you look at the hotel industry, leisure nights, 15, 20% ahead of 19 levels right now, pricing in that industry is 5% ahead of 2019. You know, when you think about the path for yield and to 22 and 23, you've already kind of had a glimpse into once people get a path and the ability to go that unleashing of pent up demand, what it can mean for pricing. in other aspects of leisure. So, you know, curious, as you look out over the next couple of years, is just a little bit ahead of 19 the right way to think about it? Or could pricing be even better than that in years ahead for cruise?

You know, I think it's better than that. If you, I hesitate to give you any specific numbers, but when you strip out the dilutive effects of the future cruise credits, the like-for-like pricing, the pricing to the public, so to speak, is up significantly, up multiples of what our typical year-over-year growth is in yields. And so the pent-up demand is real, and we're taking advantage of it. We do have these future cruise certificates to deal with, which will end in 2022. These FCCs will not be dilutive at all in 2023. The FCCs have to be used by the end of 2022, or else we're going to refund the customer whatever they paid in. And also remember, as I mentioned, I believe it's slide 11, look at our future growth. We have 20% more capacity coming online through the end of 23. look at our historic ability to absorb that growth and how we turn the capacity growth into gross revenue growth, outsized EBITDA growth, and outside net cash growth. So we're very much looking forward to taking delivery of these vessels over the next few years. Four of them come online in 22 and 23. They're going to be accretive. They're going to be higher than the corporate average. So we believe that that's a wonderful setup. As Mark mentioned, before the pandemic hit, NCLH was hitting on all cylinders. We were delivering to investment grade. We were going to start paying a dividend. The biggest problem we used to sit around the boardroom was, what are we going to do with all this cash? And, well, we're going to start generating cash again, and that cash is first going to go to pay down debt that we took on to survive the pandemic. And then we're going to look to do what companies do, buy back stock if it's opportunistically to do so, perhaps expand the business. We're bullish on this business. We know how to operate a cruise industry, a top-line cruise company. We haven't forgotten how to do that over the pandemic. and we're seeing the pent-up demand from customers that allow us to do exactly what we do best. So we're very much bullish on the future.

Thanks. Best of luck.

Next question, Robin Farley with UBS.

Great. Two questions. One is if you could remind us, I know you've laid out your restart, but what percent of your shifts in 21 or in the next six months are Florida-based for this year? And then also an expense question on, you mentioned carbon credits. Can you sort of help us quantify what the cost of that might be, your spend on carbon credits? Thanks.

Hi, good morning, Robin. So when we look over the next six months, I believe we have roughly six vessels that would be operating out of Florida, with the first one being Norwegian Gem out of Miami on August 15th. And then I think the rest come online in mid to late December. I think the second part of your question was related to the carbon credits We're very excited about this. This is something we're serious about. We've really taken a hard stance on our ESG efforts over the last year or two, and we're committed to this. So we've spent a few million dollars on purchasing these carbon credits. I think that together with our other investments that we continue to make with the fleet, whether it's exhaust gas, cleaning technology, waste heat recovery, we're looking at all viable investments where we can to reduce our carbon footprint. So And just back to the first part, when you look at the Florida-based vessels, I believe it's about 35% to 36% of our fleet sailing out of Florida over the next six months.

Okay, great. And the carbon credit has not run through the P&L yet, right? I guess you've purchased it, it's on the balance sheet somewhere, and then that expense will run through when you're operating?

Yeah, that'll get expensed as we consume the fuel that it's related to in a pro rata fashion over the course of the next two to three years. But again, I want to highlight that it's not a significant amount. It's a few million dollars, so you're not even going to see it when you look at our financial statements.

Okay, that's very helpful. Thank you. Thanks.

Your next question will come from the line of Jamie Katz with Morningstar.

Hi, good morning. My questions are actually on the composition of cruisers looking forward and given your disproportionate exposure to US cruisers, what that looks like for some of the European itineraries in September and October. In addition to that, I think you guys had commented that a third of the bookings for the region seven seas world cruise was new to brand. So is there anything noteworthy that you saw in those new passengers that's different from maybe what you've seen in past passengers? Thanks.

Yeah. Um, typically for a, a cruise on the Norwegian brand that operates in Europe, uh, roughly half the customers are from the U S and half the customers are from the rest of the world. On the first two Norwegian Jade cruises to the Greek Isles out of Athens, we have seen that number jump in the neighborhood of 80%. So many Americans have not been able to go overseas for such a long period of time that the pent-up demand that we're seeing for cruising overall is higher indexed by Americans wanting these long-haul travel plans to places like Greece. So we don't think that's sustainable in the long term, perhaps in the short to medium term as this pent-up demand is sort of burned off. But it's good to see that we have the marketing strength and the sales platforms throughout the world to be able to fill our ships. And whether it's Americans who want to come over or Europeans, we're seeing strong demand across the board.

And then as far as some of the debt service on the balance sheet, are you guys taking steps to maybe refi some of the operating debt that you raised early in the COVID cycle? Or is that something that's maybe on pause for now with a bigger focus on just restarting the fleet?

Well, we're focused on all of the above. While our immediate focus, obviously, is on restarting the operations, we have not lost sight of our balance sheet and balance sheet management opportunities. So it's something we've been looking at, we continue to look at, and there is some opportunities in some of our higher-priced notes, I believe in our 12.25 and 10.25 notes, where we have the ability to possibly – have some clawback opportunities around that. So we're looking at it. We want to get the most important thing for us right now is getting the vessels operating. But once we get a few vessels in the water and we have more visibility around that, I think that's what you're going to see over the course of in the future is us looking at all those opportunities and exercising on some of those balance sheet management opportunities that we have.

Excellent, thanks. And your next question line of James Hardiman with Wedbush.

Hey, good morning. Thanks for taking a couple questions from me. Maybe a clarification here. So when I digest what you said about your fleet ramp and the occupancy ramp, it kind of feels like second quarter of next year could be a pretty normal quarter. Obviously, your fleet will be back to 100%, but it seems like the expectation is that occupancy will be, at least on all but one ship, 100% plus. So is that sort of what you're targeting in terms of sort of the first normal quarter? That seems like, you know, Frank, you made the point earlier that you weren't so much interested in the starting line, but more so the finish line. It seems like that's maybe a little bit ahead of some of your peers.

Hi, James. Good morning. It's Mark. So look, I think when you look at 2022 and you look at second quarter, third quarter, you know, we are seeing very strong bookings for those periods. But let me just go back in the timeline here. Something we just said about Norwegian Jade's first two voyages, even at reduced capacity, we are seeing significant strength and significant spend on those vessels. So While our vessels are coming online over the course of the next two to three quarters, you know, Q1, I think, is going to essentially look pretty normal as well, so to speak. You know, again, we do have, I believe it's nine or ten vessels that are coming on in Q1. So certainly by the second quarter, we anticipate that all of our vessels or the vast majority should be back at their normal load factor levels. And if we're lucky, maybe sometime sooner than that. But it's not that we don't care about 21. We've taken the stand that we want to do this right. We want to create confidence in our customers, in our shareholders, and our employees. And we want to make sure we're learning from all the cruises that we're launching. So we're excited about 2022 and beyond. But right now, we're focused on 21, getting all the fleet back in the water. So Looking good, but we've just got to go forward in getting the ships wet again.

Got it. That's really encouraging. And then, you know, trying to do a little bit of math here, obviously there are a lot of moving parts, but if I think about, you know, $2.75 billion of cash, about $9 billion in net debt as we stand here today, you've said another $285 million a month of cash burned in the third quarter. Presumably that comes down in the fourth quarter. I'm just trying to figure out, once we get to that inflection point of cash flow positive, what the balance sheet looks like. Is it in the ballpark to think that maybe another billion dollars of net debt before you hit that inflection point?

Look, I think you said it right, James. You look at the math today, we have roughly $2.8 billion. We're going to burn roughly $900 million in 3Qs. But I will highlight that – and I clearly stated that that does not include the customer inflows that we expect from advanced ticket sales. And as we said in our comments, we did see significant growth in the second quarter, and we expect that to ramp up, obviously, in the third and fourth quarter and first quarter. So when you do the math and you look at where our cash is today – and the fact that we've stated that we expect to be cash flow positive over the course of the first quarter in 2022, you can kind of triangulate where our cash balance is going to be and the subsequent generation of cash. So we're comfortable where our liquidity is today. We believe we have a strong foundation. We've taken significant measures to get where we are today. So as long as we can reasonably execute on our voyage resumption plan, we feel that we're in a very, very strong position as we sit here today.

Good stuff. Thanks, Mark.

And we have time for one more question.

And your final question comes from the line of Patrick Scholes with Truist.

Good morning, everyone. You know, in light of the severe labor shortage situation we're seeing domestically in the United States and also problems with the supply chain as it relates to basic ingredients for food, I'm wondering, you know, with your farmer international company, you know, what's the labor situation like for you folks and also the supply chain for food and beverage? Thank you.

Hi, good morning, Patrick. Look, we're not immune to it. I think the benefit we have as a company is the vast majority of our labor force, which is ship-based, comes from overseas. And quite frankly, our employees, our crew, are excited and ecstatic to come back to work. We do have collective bargaining agreements in place for most of those employees. And you have to remember that those employees, unlike other Areas of the world have not for the vast majority received government assistance. So they are excited They want to come back to work You know when we when we see employees on the vessel they just break down in tears of joy Because they have the opportunity to work again So we don't anticipate any issues around the labor sector or the labor portion of our operating model in terms of you know, good old-fashioned, you know, food, consumables, things of that nature. Yes, we're not immune to it. We are seeing some inflationary pressure. We have start to see some of it stabilize. And we think there's, you know, of course, there's probably going to be some laggards in the supply chain that end up being slightly costlier. But on the, you know, just as equally, there's a lot of areas where we've been able to take advantage of and reprice over the last 18 months and re and renegotiate contracts. So we're seeing some benefit from that. So we're laser focused on the cost side. You know, we're not immune to it, but we're focused on it. And we think we, we think we have a good opportunity in 2022 to take advantage of some of the the renegotiations we've seen. So we're looking forward to it.

Okay. Thank you.

Okay, well, thanks, everyone, for joining us this morning. You can see by the tone of our voice, we're excited to be here in Seattle to kick off the Encore's maiden season here for the Alaska season and start our cruising comeback from the U.S. Thanks very much. We'll see you next quarter.

Bye-bye. This concludes today's conference call. You may now disconnect.