Norwegian Cruise Line Holdings Ltd.

good morning and welcome to the norwegian cruise line holdings business update and second quarter 2022 earnings conference call my name is daryl 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 operator 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, Jessica John, Vice President of Investor Relations, ESG, and Corporate Communications. Ms. John, please proceed.

Thank you, Daryl, and good morning, everyone. Thank you for joining us for our second quarter 2022 earnings and business update call. I'm joined 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 our financials 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 slash investors. We will also make reference to a slide presentation during this call, which may 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 would like to cover a few items. Our press release with second quarter 2022 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. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Jessica, and good morning, everyone, and thank you for joining us today. Over the past several quarters, we have reached many pivotal milestones as we continue the steady march of our post-pandemic recovery. On our last call, we had just welcomed the last ship in our fleet back to service, becoming the first major cruise operator to be fully operational. This quarter, we are pleased to report that we have reached another key milestone with operating cash flow turning positive for the second quarter. While our focus is on a profitable future, when I take a moment to reflect on the tremendous progress we have made since launching our great cruise comeback just over a year ago, I can't help but be immensely proud of the entire team in Norwegian for rising to the occasion time and again and delivering impressive results. Working right alongside us has been the travel agent community, who more than anyone can appreciate the challenges that we as an industry have overcome and more importantly, can also see the tremendous opportunities that lie ahead. We thank them for their unyielding support throughout this journey. We have been disciplined and methodical in our ramp up and have maintained a clear and consistent mindset focused on our quarter market strategy of market to fill and emphasizing value over price by continuing to expand and refine our bundling strategy. Our guiding principle has been a focus on the long-term profitability of the company, particularly for 2023 and beyond, by protecting our long-term brand equity and building on our industry-leading pricing. This means making intentional, tactical sacrifices in the short term in favor of long-term, sustainable results. With this ethos at the forefront of our business plan, we also continue to be opportunistic, exploring all options to accelerate our recovery. As I survey the current landscape, I see several tailwinds and catalysts for our company, which are outlined on slide four. First, as we last spoke, we have seen further improvement in the public health and regulatory environment, which has allowed us to relax COVID-related protocols and align us more to the rest of the hospitality industry. Last month, the CDC discontinued its voluntary COVID-19 program for cruise ships This was a strong signal of confidence by the CDC that the industry's COVID-19 mitigation and management plans are robust and effective. This very positive development has paved the way for us to begin removing barriers for our guests. We're permitted by local regulations, bringing us not quite on equal footing with land-based vacation and leisure alternatives, but significantly closer. Just yesterday, we announced a number of changes to our own health and safety protocols that which are effective September 3rd and, as always, are subject to local regulations. We will no longer have a mandatory vaccination requirement on any of our ships and have relaxed testing protocols regardless of sailing length. To put it simply, vaccinated individuals, including those embarking on NCLH ships from U.S. ports, will no longer have any pre-cruise-related protocols, and those who are unvaccinated or choose not to provide proof of vaccination will be required to test negative within 72 hours prior to embarkation. In addition, all guests 11 years old and younger will be exempt from vaccination and testing requirements of any kind. There remain a few jurisdictions with stricter requirements, including Canada, Greece, and Bermuda, where we will continue to comply with local mandates. These modifications to protocols are meaningful and give us additional flexibility to reach a wider cruising population, reduce friction and travel-related hassles for our guests, and bring greater variety to our itineraries. In fact, yesterday's announcement was an instant catalyst, resulting in one of our top three best-looking days of the year. Our top priority remains the health, safety, and well-being of our guests, crew, and communities we visit. and this commitment is unwavering even as we are evolving our sales-safe protocols to adapt to the changing public health environment. Across the globe, we continue to see the easing of travel restrictions and reopening of ports to cruise, bringing us closer to a normal operating environment. One significant example of this easing is the listing in June of the onerous one-day testing requirement to enter the U.S., While the decision was too late to have a meaningful impact on ships sailing in the second and, to a lesser degree, third quarters of this year, the change resulted in an immediate and sustained boost in booking volumes for future periods in the weeks following the announcement. Second, and despite recession and economic slowdown fears abounding in the broad marketplace, we continue to see a strong upmarket consumer with booking trends continuing to show steady improvement week over week. which I will touch on in more detail later in the call. But at a high level, to evaluate the extent and willingness of consumers to spend on cruise travel, we typically monitor two key indicators. First is the booking window, which provides a peek into the consumer psyche about the future, given that cruise is a long lead time and relatively high ticket purchase. To be clear, we have not seen any cracks emerge in the dynamics of the booking window, and it remains both within historical range and our own expectations. Second is our onboard revenue generation, which is a real-time now indicator of how our guests are feeling about their financial situation right now and while onboard our shift. Onboard revenue generation has continued to be impressive. even as we continue to ramp up occupancy carrying more guests across all shifts and cabin classes. In the second quarter, onboard revenue per passenger cruise day was approximately 30% higher than during the comparable 2019 period. We continue to focus on enhancing our market-leading bundled offerings and increasing quality touch points with our guests starting from the time of booking to capture even more revenue pre-cruise. allowing guests to arrive on board with an ever fresher wallet, which ultimately results in higher overall spend. In fact, our pre-cruise revenue on a per passenger day basis for second quarter 22 is up over 50% versus 2019 levels. At a high level, guests who make pre-cruise purchases tend to spend approximately double that of guests who do not pre-book on board activities. And while the broader economy has experienced a pullback in consumer spending for physical goods, we continue to see strong propensity for spending on travel and experiences, particularly from the affluent consumer. Hotel average daily rates and airline fares remain at or near record levels, with occupancies reaching pandemic peaks. Consumers want a vacation, even during economic downturns. and we believe cruises are much better positioned than land-based alternatives to capture the strong demand given our unmatched value proposition. While consumer appetite for experiences bodes well for the entire cruise industry, we believe our company in particular is best positioned to outperform in this environment. Our three brands focus on providing upscale experiences relative to their respective industry categories and therefore, skewed towards the higher-end consumer, which, while not immune, have proven more resilient than other cohorts in previous downturns, and all indications are that the intent to travel for this demographic has not abated. The last and arguably most exciting catalyst I want to touch on is our attractive pipeline of new builds outlined on slide five, which will greatly enhance our already world-class fleet and drive significant contributions to the top and bottom lines. I just came back from Italy last week, where we took delivery of Norwegian Prima, the first of six next-generation Norwegian cruise line ships, bringing our total fleet to 29 vessels with approximately 62,000 berths. We are excited to celebrate her christening ceremony later this month in Reykjavik, Iceland, and I encourage all of you to experience her firsthand, as she is truly incredible. In fact, our shipbuilding partners have said Prima is the finest most demanding and most complex vessel they have ever built. The Prima class marks an evolution for Norwegian Cruise Line as every aspect of the design and guest experience has been elevated. Last week, we also celebrated the float out of Norwegian Viva, the second vessel in this groundbreaking new class, which is expected to debut in summer of 2023, as seen on slide six. The Prima class will further differentiate Norwegian Cruise Lines compared to our cruise peers and reinforce the positioning of our brands as the leaders in providing upscale experiences in each of the major cruise categories. In addition to the new Norwegian vessels, we are also gearing up for the delivery of Oceanus Vista in spring of 23 and Regent Seven Seas Grandeur later that year. These new additions will further add to our dominance in the flourishing upper premium and luxury segments. You know, I often get asked whether we are confident that we can profitably absorb the capacity growth we are expecting for the next few years, and the answer is a resounding yes. Given our relatively small base of only 29 ships, we still have many unserved and underserved markets around the world. We are continually innovating and enhancing our product offerings through our new builds and refurbishment upgrades through our existing fleet, and making enhancements to our bundle offering to provide even more value and attract even more high-paying guests to our brands. I can't emphasize this enough, so I will show you once again on slide seven how we've proven our ability over the years to absorb capacity and deliver outsized revenue, adjusted EBITDA, and operating cash flow contributions relative to our capacity growth, and we fully expect to continue this trend. Turning now to our booking, demand, and pricing trends, summarized on slide 8. We continue to see sequential improvement as we remain disciplined and focused on laying the foundation for a record 2023 and beyond. In the second quarter, our load factor was approximately 65%, in line with our expectations and a significant improvement versus the prior quarter of 48%. We expect load factors to increase to the low 80% range in the third quarter, with July already coming in at 85%. This steady sequential ramp is expected to continue until we reach historical 100% plus levels beginning for the second quarter of 2023. In terms of pricing, as you can see on slide nine, our net per diem growth in the first half of 2022 over the first half of 2019 pricing was significant at 18%. These results are consistent with our strategy of holding firm on our go-to-market strategy outlined on slide 10 of market to fill versus discount to fill and maintaining pricing integrity by emphasizing high value over low price. absolutely believe this is the optimal path to continually deliver high quality and sustainable profitability once we return to a fully normalized environment post pandemic as expected our second half 2022 book position remains below an extraordinarily strong 2019 driven primarily by the lasting impacts of omicron and the russia ukraine conflict that said Pricing for the second half of 2022 continues to be higher when compared to 2019, even when taking into consideration the dilutive effect of future cruise credits and the impact of premium price Baltic itineraries from the Ukraine conflict, which is primarily concentrated in the third quarter. As we move beyond this transition year and focus on 2023, our full year book position is in line with 2019's record performance, and our booking pace in recent weeks has reached the level needed to consistently sail full. Pricing is also significantly higher for 2023, and while we typically would not provide this level of detail, our performance in this area is so extraordinary that I just had to share it with you this one time. Pricing for 2023 is currently running in excess of 20%, 20% above 2019's record pricing. and is higher by double digits across all three brands. And while pricing will naturally tend to level off as we continue to build our book for 2023, it is nevertheless a testament that our steadfast strategy of focusing on long-term price increases over short-term load factors is indeed working as intended. Another one-time proof point that I will provide is ticket sales already on the books for 2023 sailings. When compared to the same time in 2018 for 2019 sailings and taking into account capacity growth of approximately 20%, 2023 sales are a whopping 40% higher. In addition, the quality and stickiness of our ticket sales for 23 sailings is also expected to improve as a significantly higher proportion of bookings, four times the level seen in 2019, include air travel booked through our own air programs, which in the past has proven to be indeed stickier. Another positive indicator demonstrating strong consumer demand is our advanced ticket sales bill. As you can see on slide 11, our advanced ticket sales balance stood at $2.5 billion as of the end of the second quarter, up over $300 million versus the prior quarter despite approximately $1 billion of revenue recognized. This represents an all-time record high ATS balance for the company. On a growth basis, advance ticket sales bill increased by over 40% to $1.5 billion in the quarter, the highest level in three years. In addition, approximately $1.5 billion of the total ATS balance at quarter end is associated with bookings that are already within the final payment window and therefore subject to cancellation penalties. The bottom line is that our entire team is more energized now than ever before. We are striving to reach our goal of record net yields and record adjusted EBITDA in 2023, welcoming eight additional ships to our fleet through 2027 after Prima this year, and leveraging all opportunities to maximize value for our stakeholders. This will not be an easy feat, especially as we continue to navigate an uncertain macroeconomics but an increasingly encouraging public health and regulatory environment. We are prepared for all scenarios, and I'm confident that we are taking the right steps today to set us up for future success. I'll be back with closing comments a little later, but for now, I'll turn the call over to Mark for his commentary on our financial position. Mark.