Royal Caribbean Cruises Ltd.

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group second quarter 2024 earnings call. All participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone keypad. I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Good morning, everyone, and thank you for joining us today for our second quarter 2024 earnings call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bailey, President and CEO of World Caribbean International. Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined in a reconciliation of all non-GAAP items can be found on our investor website and in our earnings release. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our second quarter, the current booking environment, and our updated outlook for 2024. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. I am proud to share our outstanding second quarter results and the continued upward trajectory of our business. As you saw in the press release this morning, our momentum continues. Demand for the incredible experiences our leading brands deliver continue to be robust. As a result, we achieved trifecta 18 months early. We are reinstating a dividend, and we are raising our full-year guidance. Less than two years ago, we announced Trifecta, a three-year financial performance program that created the pathway back to what we internally call Basecamp. We said we would deliver triple-digit adjusted EBITDA per APCD, double-digit adjusted earnings per share, and return on invested capital in the teens. Today, I'm delighted to share that we have achieved all three Trifecta goals on a trailing 12-month basis, 18 months ahead of schedule. Our leverage is now below 3.5 times when excluding the impact of new ships that were delivered mid-year. With Trifecta accomplished and our balance sheet in a strong position, we are excited to broaden our capital allocation by reinstating a quarterly dividend of $0.40 per share. Capital returns that include a competitive dividend have always been and will continue to be a key pillar of our strategy to supplement our growth as we focus on delivering long-term shareholder value. I want to thank the entire Royal Caribbean Group team for their passion, dedication, and commitment. Their efforts helped accelerate our path to reaching Trifecta and will continue to ensure us to deliver the best vacation experiences responsibly while driving exceptional financial results. Trifecta is an important milestone, but we are just getting started as our ambitions go well beyond it. We are excited by the large opportunity in front of us as we seek to take a greater share from the rapidly growing $1.9 trillion vacation market. Our plan to capitalize on this opportunity is well grounded in a set of underlying strategies, the powerful foundation of our leading global brand, and a proven formula for success. Moderate capacity growth, moderate yield growth, and strong cost discipline, and the best people in the world to execute on it all. Now moving on to our results. The second quarter exceeded our already elevated expectations. We have seen an incredibly robust booking and pricing environment across all our key itineraries, which is not only setting us up for success in the future periods, but also contributed to the outperformance in the second quarter. This coupled with continued strength and onboard spend, which is heavily influenced by our pre-cruise commercial engine, drove the revenue and earning outperformance for the quarter. In the second quarter, we delivered approximately 2 million vacations at exceptional guest satisfaction scores. Yields grew 13.3% compared to the second quarter of last year, which was almost 300 basis points above our guidance. The revenue outperformance, combined with approximately 15 cents in favorable timing of cost, resulted in an adjusted EPS that was considerably higher than our guidance. Naftali will elaborate more about second quarter details and results in a few minutes. The strong demand environment is also translating into higher revenue and earnings expectations for the balance of the year. We are increasing full year yield growth expectations by 115 basis points compared to our prior guidance. And we now expect adjusted earnings per share to grow 68% year over year. 2024 bookings have consistently outpaced last year throughout the entire second quarter and into July. despite the fact that we have significantly fewer staterooms left to sell, leading to higher pricing for all key products. The North American consumer, who represents approximately 80% of our sourcing this year, continues to be robust, driving strong yield growth across all key products. In addition to strength in the Caribbean, European and Alaska summer itineraries are performing exceptionally well, and we have experienced greater pricing power than expected since our last earnings call leading to increased expectations for yield growth. Our nimble sourcing model, coupled with our brand's global appeal and leading position in their respective segments, allows us to successfully capture quality demand across those segments, source from new and younger consumer bases, and attract the highest yielding guests. With such strong momentum, 2024 is on track to be another exceptional year with double-digit yield growth and significant earnings growth. We now expect full-year net yield growth of 10.4% to 10.9%. Our yield outlook is driven by the performance of new and existing ships combined with our leading private destinations, a strong pricing environment, continued growth from onboard revenue, and our accelerating commercial apparatus. We increased our revenue expectations for the second half of 2024 and now expect to deliver mid-single-digit yield growth in the back half of the year. which continues to be above our typical moderate yield growth expectations. Just as a reminder that this is on top of approximately 17% yield increase versus 2019 in the back half of 2023. We also continue to expect higher margins and higher earnings with adjusted EPS expected to be between $11.35 and $11.45 and EBITDA margins that is over 300 basis points higher than last year. As we look ahead, we remain focused on executing our proven formula for success, moderate capacity growth, moderate yield growth, and strong cost controls, which lead to enhanced margins, profitability, and superior financial return. We continue to see a very positive sentiment from our customers bolstered by a resilient economy, low unemployment, stabilizing inflation, and record high household net worth. Consumer preference continues to shift towards spend on experiences, with particularly prioritizing towards travel. Consumers have 10% more vacation days compared to 2019, and they are using half of that increase to travel. In fact, our research suggests that consumers are spending more on travel than any other leisure category, and that they intend to increase their travel spend in the next 12 months. Cruise remains an attractive value proposition, and cruise purchase intent is high and continues to strengthen. Consumer financials remain healthy across demographics. The number of baby boomers reaching retirement age is expected to grow 30% to 73 million by 2030. Based on our research, retirees take 50% more vacation time than non-retirees. The baby boomer generation also holds 50% of the $156 trillion of U.S. wealth, and they are expected not only to spend more on travel, but also to transfer $72 trillion of their wealth to other generations over the next two decades, including traveling together. We're already benefiting from that active and real-time wealth transfer through multi-generational travel across our brands. Our research shows that younger generations, millennials and younger, are also benefiting from the 10% increase in leisure time compared to 2019, and that they intend to allocate more of this time on travel than any other leisure category. This attractive traveler continues to gain share within our customer base at a faster pace than any other generation, and today, one of every two customers is a millennial or younger. Their travel needs and behaviors vary across trip length and type, so the differentiated experiences offered by our incredible brands resonate extremely well with these next generations of cruisers. Our addressable market is growing, and we are attracting more customers into our vacation ecosystem. New to cruise customers are up double digits versus last year, and at the same time, we are seeing stronger repeat rates. Once booked, guests are quickly engaging with us and buying significantly more onboard experiences per booking than in the second quarter of last year, both earlier and at meaningfully higher APDs, translating into higher satisfaction rates and higher onboard spend. Putting customers at the center of our orbit has been critical to our success and allows us to meet guests for all of life's moments, transforming the vacation of a lifetime into a lifetime of vacations. A key differentiator for us on this journey is our hardware, where we are constantly innovating. This quarter, we took delivery of Utopia of the Seas, the ultimate weekend getaway, a shift positioned to be another game changer for our short Caribbean product. Our short Caribbean cruise product is an important entry point for new to cruise and new to brand with nearly 7 in 10 guests falling in these categories and always skewing more towards younger customers. Younger consumers find this product particularly appealing. In fact, approximately 40% of guests who fall in this demographic have indicated that they intend to book a short vacation in the next 12 months. Moreover, 90% of guests who sail on our short product intend to cruise again with roughly half planning to return for a longer cruise. We also launched Silver Ray, which continues to redefine the ultra luxury segment. Since introducing the Nova class last year, Silver Nova and Silver Ray have attracted a higher mix of younger guests than the rest of the fleet. We have an exciting lineup of new ships on order, including Celebrity Cruises Celebrity XL, which launches in late 2025, and Royal Caribbean's Star of the Seas debuting in mid 2025. the third ICON class ship in 2026, and the seventh OASIS class ship in 2028. We also continue to lead the vacation industry with exciting new experiences on our ships and our portfolio of private destinations. Perfect Day at Coco Cay continues to perform exceptionally well, and we are reaching important milestones on Royal Beach Club Paradise Island opening in 2025 and Royal Beach Club in Cozumel, Mexico opening in 2026. These new experiences uniquely position us to continue taking a share from land-based alternatives. As we deepen our relationship with our guests, this quarter's launch of our Enterprise Loyalty Status Match program is an important step in integrating our brands, rewarding our guests for staying within our family of brands, and making travel planning even more seamless. In just two months since the program launched, we have seen a significant increase in enrollment across all of our brands, and positive feedback from our loyal fan base. Once customers book their dream vacation, over 90% utilize new features and enhancement on our apps. Notably, more than 70% of guests are making pre-cruise purchases before they sail, and they spend more than double compared to those who only make purchases onboard. Finally, our sustainability ambitions help inform our strategic and financial decisions daily. supporting our mission to deliver the best vacation experiences responsibly. We remain committed to our see the future vision, sustaining the planet, energizing communities, and accelerating innovation. Our recent maritime decarbonization summit on board Utopia of the Seas underscores our commitment to reaching net zero emissions by 2050 through industry-wide collaboration. More than 30 ship owners, ship builders, and technology and energy providers convened to catalyze advancements in necessary technological solutions and alternative fuels. We are optimistic about this important step in unifying our industry and fostering an environment for advancing quality and scalable, sustainable solutions. In summary, our business continues to perform exceptionally well, and we are very pleased with our performance, achieving trifecta early and reinstating the dividends. This sets us up well as we seek to take share from the rapidly growing $1.9 trillion vacation market. With our strong platform, our proven strategies, we are creating a lifetime of vacation experiences for our customers while delivering long-term shareholder value and strong financial results. And with that, I will turn the call over to Nath Tali. Nath?

Thank you, Jason, and good morning, everyone. I will start by reviewing second quarter results. our teams delivered another strong performance that exceeded our expectations, resulting in adjusted earnings per share of $3.21. The $0.51 per share outperformance compared to the midpoint of our guidance is driven by better revenue across our leading brands and across key itineraries, as well as approximately $0.15 per share favorable timing of expenses. We finished the second quarter with a net yield growth of 13.3%. Load factors were 108.2 and contributed approximately 300 basis points to yield growth, with the remaining increase driven by rates that were up by 10% from both new and existing hardware. Oki products had double-digit yield growth, with strength in close in demand for the Caribbean and Europe that drove the outperformance in the quarter. NCC, excluding fuel, increased 5.7% in constant currency. The favorable cost performance compared to our guidance is driven by favorable timing of expenses that more than offset the negative impact of stock compensation given the significant appreciation of our stock price during the second quarter. Adjusted EBITDA was $1.6 billion, and gross EBITDA margin was 38%. As Jason mentioned, we also achieved our Trafecta targets on a trailing 12-month basis as of the end of the second quarter. We delivered $113 adjusted EBITDA per APCD, 13% above our triple-digit target, mid-teens RYC, consistent with our target in the teens, and $10.08 adjusted EPS, slightly above our double-digit target. Leverage was below three and a half times when excluding the impact of new ships that were delivered mid year. And we are on track to get very close to our double digit carbon intensity reduction target. By year end, our 2024 booked position remains very strong across all products and markets and continues to outpace last year in both rate and volume. The Caribbean makes up approximately 55% of our capacity for the year. and 42% for the third quarter. This product is booked ahead in both rate and volume and the strong yield growth is driven by new hardware and higher pricing on existing ships supported by our private destinations. Europe accounts for 15% of our capacity for the full year and 28% during the third quarter. Europe is in a record book position in both rate and volume and continued strength in pricing, it resulted in an increase in our revenue expectations for Europe sailings. Our summer Alaska season represents 6% of full-year capacity and 14% in the third quarter. We have increased our capacity this year as a result of upgrading the hardware in the market. Like Europe, we have seen strong demand since our last earnings call, leading to increased expectations for yield growth for this product. Now, let me talk about our increased guidance expectations for 2024. Net yields are expected to be up 10.4 to 10.9% for the full year. The increase in guidance is driven by higher pricing for both new hardware and like-for-like, as well as onboard revenue. The yield cadence for the year is influenced by the load factor and pricing power catch-up in the first half. The timing of Coco K's opening makes the comp easier for the first half of 2024. And when adjusting for such structural changes, yield growth is just about the same amount in each quarter compared to 2019. Now moving to costs. Full year net cruise costs, excluding fuel, are expected to be up approximately 6%. Our cost metric is up 50 basis points compared to our prior guidance and is driven entirely by higher non-cash stock-based compensation given the significant increase in the stock price since the last earnings call. We have very few dry dock days in the third quarter, but significantly more in the fourth quarter, which together with timing of stock compensation expense will weigh on our cost metrics for the fourth quarter. We anticipate a fuel expense of $1.17 billion for the year, and we're 61% hedged at below market rates. we are raising our adjusted EPS guidance to $11.35 to $11.45. I want to provide a little more color on the progress of our earnings guidance. We are increasing our guidance by 60 cents for the year. About half of the increase is driven by second quarter close in demand, and the other half is driven by better pricing and business outlook for the rest of the year. As I mentioned, we had about 15 cents of cost timing in the 2nd quarter, which is shifting into the back half of the year. Now, I will discuss our 3rd quarter guidance. We plan to operate 13.4M APCDs during the 3rd quarter. Net yields are expected to be up 6.5 to 7% compared to 2023 and that is on top of a 16.7% yield growth last year. Net cruise costs, excluding fuel, are expected to be up 4.7% to 5.2%. Taking all of this into account, we expect adjusted earnings per share for the quarter to be $4.90 to $5. Turning to our balance sheet, we ended the quarter with $3.8 billion in liquidity. We have been making significant progress in strengthening the balance sheet towards our goal of investment-grade metrics. Better performance and disciplined capital allocation allowed us to reduce leverage below 3.5 times as of the end of the second quarter when excluding the impact of new ships that were delivered mid-year. This level is within our target leverage range. We plan to continue to proactively pay down debt and pursue opportunistic refinancings to manage maturities, reduce interest expense, and achieve an unsecured balance sheet. During the second quarter, we paid down the remaining balance of our debt holiday that allowed us to remove any restrictions around capital return. As you saw in the press release today, we also initiated a quarterly dividend of 40 cents per share. In closing, we remain committed and focused on executing our strategy and delivering on our mission. With that, I will ask the operator to open the call for question and answer session.

At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and one follow-up, then re-enter the queue for any additional questions you may have. Our first question comes from the line of Steven Wazinski with Staple. Please go ahead.

Yeah. Hey, guys. Good morning. Congratulations. Another pretty solid beat here. So Jason and or not, if we think about the guidance for the rest of the year, not to kind of touched on this very briefly, but, you know, the feedback we're getting, you know, I would say from investors this morning is that the, you know, the embedded fourth quarter yield guide of, I think it's just about 5% is showing a, you know, immaterial sequential decline and could possibly indicate bookings are, you know, slowing, I guess. You know, I'm guessing the lower yield is more a function of you guys being at, you know, essentially full load factors last year in the fourth quarter of 23. But is there anything you would add on there? And then maybe, you know, also a little bit more color on 2025 bookings and if there's been any, you know, changes in booking patterns for next year as well?

Yeah. Well, good morning, Steve. Hope all is well. So I think maybe just first starting off on the back half of the year, obviously our yields have grown significantly since 2019. So the back half of the year, our yields are up 25% versus 2019. And so I think our commentary of strength and how we feel about the back half of the year, I think is still very bullish. But as you mentioned, we have been ahead of the curve in terms of bringing our business back up. And so our load factors relative to last year, our load factors were pretty normalized in the back half of last year. So really all the yield improvement that you're seeing in Q3 and Q4 is really being driven by price. And so I think it's a really strong indication that not only the willingness to pay more, but these prices continue to increase as we move you know, build and manage demand. When we think about 2025, first, you know, the reason why, you know, it's July, so we typically don't talk a lot about 2025. So it is early. We mentioned in the release that we are, we're now in a place where we're taking more bookings for 2025 than we are for 2024. So the strength in the commentary that we talk about on pricing and pricing increasing very much applies to, to 2025 and beyond. So we feel very good. We're in a very strong book position for 2025. Pricing is up and increasing are the trends that we continue to see. But I think it's important to just note again that the load factor recovery is done. We are operating at full load factors. I think it needs to also take into account that the yields have improved by over 25%. versus 19. So it's not necessarily a like-for-like story in the industry, I think, to point to. So I think we feel really good about 2025. The patterns show pricing continues to accelerate. And I think that what you're starting to see in the back half of the year is still elevated compared to what we describe as our formula of success of that moderate yield growth, which is typically around 3% to 5%. And we're pointing to to a yield profile that is at the very top end of that in Q4 and above. And so I think we feel that, you know, for us, if we're growing our yields moderately, controlling our cost, growing our business in a disciplined way, what you see is significant margin accretion, significant return profile, and continued step change, significant step change in our earnings profile.

Steve, I'll just add one point. Just add one more thing about 2019. I said it in my prepared remarks, but also remember in 2019, the first half had an easier comp, right, because we didn't have CocoCay open. It opened in the second half of the year, and that with a lot of other structural changes was five years ago. It's pretty consistent through that period in terms of yield growth.

Thanks for that comment, guys. Second question, Jason, would be around your recent change in deployment with Ovation, essentially taking that ship out of China, home porting it on the West Coast. We've gotten a bunch of questions about this move, and I think investors are concerned at this time that the China market might not be as strong as what you would have previously thought, or maybe it's just the domestic market is just way more profitable right now. But any thoughts there as to or any color around the move there would be helpful. Thanks.

Hey, Steve. It's Michael. We're kind of in this great position of having very good market choices to make. Our belief in the long-term potential for China has not changed at all. Spectrum, as you know, we started operating it out of Shanghai a few months ago. It's performing very well in the market, and we feel good about the China market. It still hasn't reached the levels we're seeing in the American market. And, of course, this is where we've got these good choices. And we have strong ambitions to grow the West Coast in the U.S. If you think about California, it's the sixth largest economy in the world. And Navigator, which is the ship we put in the West Coast about a year or so ago, has been performing exceptionally well. So we're kind of faced with this choice. Should we deploy Ovation into California? or should we deploy into California? And we made the decision really based upon maximizing performance, but it doesn't in any way indicate that we're moving away from the China market. We're quite committed to the opportunity there, and I think you'll see that we'll be announcing in the future more deployment into China.

Great. Thanks, guys. Thanks for the color. Appreciate it.

Our next question comes from the line of Branch Montour with Barclays. Please go ahead.

Hey, good morning, everybody. Thanks for taking my question, and congratulations on the dividend announcement this morning. So first question is on the fourth quarter, just following up on Stephen's question. You know, the 5% implied yield guidance, which, you know, I know you have tougher comps, and that's all priced. Can you help us understand what the sort of, how to think about the like, the embedded like for like is within that? And maybe it's easier to answer. How does that compare versus the like for like that you generally embed in your longer term algo?

Yeah, well, you know, so I would comment brand first, Hope Hall as well. It's very, actually, if anything, the like for like is growing faster than than what would be in our typical algorithm. And as new chips come on, they're meaningful, but the overall denominator is much larger. So the impact on the yield profile, Icon is obviously just unbelievably successful. Utopia is crushing it. But it's a smaller percentage of our overall denominator. So really what you're reading into that 5% is that the like for like growing. And as part of that story is not just the ticket, but it's also what's happening on board. And I think the power of our pre-cruise commerce engine is shifting more and more of that booking activity for onboard spend forward, which is also resulting in us getting our guests to have a fuller breadth of experiences, which increases our share of wallet.

Great. That's super helpful. And then just as a follow-up, and I apologize for sort of a shorter-term question, but this earnings season, we have heard from land-based, some land-based hotel operators made some softer comments on pricing sensitivity. I'm curious, when you look at your 25 bookings data, what you're seeing coming in, are you starting to see any pricing sensitivity at all forming at the lower-end itineraries, the older ships? your base, your Royal Caribbean brand versus your upper brand, anything that you're seeing?

Yeah. We obviously have the opportunity of taking on 25, 30, 35,000 bookings a day. We get to see the cash register ring pretty much every second somewhere in the world on our ships. And I know there might be a group seeking to hear that there's some type of break in in the, in the pattern, but there just isn't, um, you know, we're seeing our guests, um, the booking window continues to extend. So they're planning further out, um, their willingness to pay more for these incredible vacation experiences continues to increase. So our pricing continues to increase into 2025 and, and into 2026. Um, and that's not just happening at the, you know, at the short, the short product that's happening, uh, in the ultra luxury space, um, as, as well. And I think, Brand, people say, well, how can that be? I think it's still just the reality that there's still a 20% value gap to land-based vacation. And you get a lot of bang for the buck when you're traveling with our brands. And I think that value gap is potentially shielding us from some of that noise that you're hearing from land-based operators. But for us, whether you look at it by product or whether you look at it by market, whether it's ticket or whether it's on board, the trends that we see is just continued acceleration on the pricing side. Now, there's some reality as well that we're managing to, which is we're really well booked. And you're never at that optimal, are you too booked or underbooked? But for us, we probably, because we have less inventory to sell in the back half of this year, a lot of that pricing opportunity is also going to fall into 2025. Okay. Thanks a lot.

Great quarter.

You got it. Thanks, Brent.

Our next question comes from the line of the NCPO with Cleveland Research. Please go ahead.

Thanks. So I guess it's kind of a question on strategy on a go-forward basis, and you touched on this in your opening comments. Just getting back from this utopia inaugural and from the moment you're boarding the ship, to the naming ceremony. I mean, it's very clear that you're targeting this kind of getaway, biggest party at sea type of focus. So can you talk a little bit about how you make decisions with allocating new hardware towards this shorter sailing that's a getaway as opposed to something more like a week-long vacation, family-oriented icon type experience? And I imagine that the development of your private islands close to South Florida probably unlock some of this, but what do you see as being a bigger driver in the years ahead?

Well, it's a great question, and you kind of answered a lot of the question in your question. You know, for the Royal brand, we're very much a, you know, multi-generational family brand. We're fortunate that we've got the scale and the size. We've seen over the past couple of years that we've got growth in every single segment. We know that the on-ramp for cruise is the shore product. We've known that for quite some time. We changed up our strategy some years ago with the development of Perfect Day at Coco Cay and significant investment in many of our ships that we moved to the shore cruise market. And we started to really aggregate that segment of our business. And the volume of new to cruise is significantly higher on short product than it is on longer product for very logical reasons, which I think you touched on. It's just a much easier product to purchase. It's only a few days. It's less investment of time for new to cruise. And we found that when you get the product right, you can stimulate a large amount of demand. And I think what we've seen with Utopia is it was a very strategic decision to take a brand new product Oasis class that we started to work on some years ago in terms of the product vibe the energy what we're offering the customer and placing it into Really the Port Canaveral Orlando market drive to market which is significant It's a great product to put up against what we see in Orlando and it's and it's easy to package you know a trip on utopia as well as maybe a trip to Orlando and Certainly, we've seen the demand has been outstanding for that product and we're only in the second week of Utopia and it is literally knocking it out of the park. Exceptionally high customer satisfaction, net promoter scores, the onboard revenue has been just very strong. We're very pleased with the onboard revenue and guests are booking it. We know that if we get that product right and we can put our best foot forward, that then we'll see a significant upswing in repeat to brand because of what they've experienced with utopia. And certainly when you think of icon in the seven day market and soon to be star of the seas, which is also going to pork and Avril down into, into perfect day, we've got a really good, strong range of products that we can offer the customer and they're booking it just as a sideline headline. Icon now is currently sailing at around 132% load factor, which is delighted with very high customer satisfaction.

Yeah, and I think just to add, because I think Utopia is just a great example of our intentionality. I mean, each of our brands are hyper-focused on understanding the different segments, the consumer of today and the consumer of tomorrow, and growing demand. And our commentary is, around what's happening with the younger generation. And half of our guests are now kind of in that category, though I consider myself young, but I'm not in that category, I guess. But it's us trying to address these multiple generations, these multiple experiences that people are looking to collect and trying hard to meet our guests there. And I think you can see that whether you're looking at Utopia with the short whether you're seeing that with Icon on 7, but you see that in Celebrity, you see that with Silver Sea. And our goal is to really make sure we have an experience that matches with the guests at different points in life, and that goes to our overarching strategy of having a lifetime of vacations.

Got it. That's helpful. So the Michael Baileys and the millennials of the world, like Utopia, it sounds like. I have a question on... Question on 2025 yield setup. I think you got into this a little bit when asked for this on 4Q, like for like, but when you think about next year, you have another half year of utopia, you have Star coming, you have Excel at the tail end, you have Royal Beach Club. There seems to be a number of drivers incremental to the like for like that could be supportive of yield growth. And then you also mentioned that the denominator is much larger now. Do you expect these other factors to be yield accretive next year in addition to like for like or like for like it's still the larger driver? How should we be thinking about that?

Yeah, well, I think when you certainly full year of utopia, a full year or half a year star will definitely be something that I would point to that will contribute to our yield improvement next year as well as like for like. Excel is at the very, very end of the year and the Royal Beach Club will be towards the back half of the year and And that will ramp itself up as we typically do to make sure it's operationally perfect. And so I think those are things. I think Excel and the Royal Beach Club will probably be more of a driver in 2026 than it will be in 2025. But certainly that new capacity, it benefits us. And what we're seeing in the like-for-like pricing is that we expect that to be a meaningful contributor to our yields in 2025, as well as, by the way, onboard spend activity.

Great, thanks. Sure.

Our next question comes from the line of Matt Voss with JP Morgan. Please go ahead.

Great, thanks, and congrats on another great quarter.

Thanks, Matt.

So, Jason, with all your trifecta targets hit, you cited today that you're just getting started. So maybe could you elaborate on what that means in terms of global market share based on new customer trends that you're seeing today? And then, Naftali, maybe just the multi-year margin opportunity, EBITDA margins exit this year, two to 300 basis points above 2019. Where do you see us going from here?

Yeah, well, I think, so the comment on the just getting started and you're all very familiar with this, but when we've talked about trifecta and even internally, we've talked about it as base camp. You know, so we've hit it, we've announced we're hitting it, but you won't see anybody here like doing victory laps. It's getting our business. We're now back to full strength, full financial health. And if you just take what we've talked about with our formula of moderate yield growth, cost discipline, discipline in the growth of our business, it drives significant margin of returns for the business. You combine that with the plan-based things like the Royal Beach Club in the Bahamas and the Royal Beach Club in Mexico, you see the power of the earnings and the returns that are going to come forward here in the business. So I think when we look at what's next, it's now setting ourselves on how do we make sure we execute on those significant margin drivers. Because if you think about just in 2024, a 1% change in our yields is $120 million. A 1% change in our cost is about half of that. So if you're continuing to grow your yields faster than you're growing your costs or significantly faster than you're growing your costs, that's going to deliver a lot of margin and return. The other point that I would add is that what are we chasing? Again, we're not chasing our cruise competitors. What we're chasing is how do we grab more and more share from that $1.9 trillion and growing vacation market. And I think with things like Icon and Utopia and Nova and Excel, et cetera, and the private destinations, what we're doing is trying to further differentiate ourselves and reel in more of those land-based consumers and to make sure that we are a clear consideration in that vacation choice. And if we do that really well, that's where we can further close the gap to land-based vacation. And that will, you know, because there's so much operating leverage in this business, that's going to drive significant earnings power and returns to our shareholders.

And Matt, I guess on your question on the margin, so we're very happy with the way we've obviously executed in the last two years. And you can see our margins are much higher than 2019. And this was because we were focused on our formula and kind of continuing to have profitable growth. That doesn't change going forward. So as we think about new ships, new experiences, new initiatives, We want to continue to grow the revenue. That's obviously a great opportunity, as Jason said. $65 billion category, $1.9 trillion market. We see this as an amazing opportunity to win share from the consumer and continue to grow the business and expand it. And while doing that with higher margins. And I'll go back to what Jason said. 1% of net revenue yield is $120 million. 1% of NCCX is $60 million. So you can see that if we continue on this formula and continue to grow the business, there's much more runway on the margin itself. That also creates a lot of free cash flow, right? We're a much bigger company today.

So that will just expand our opportunities for capital allocation as well. Great. Best of luck.

Our next question comes from the line of Connor Cunningham with Melius Research. Please go ahead.

Hi, everyone. Thank you. Maybe just to stick on that return answer that you had. You know, obviously, it's great to see the dividends back. But as you think about additional, as the board thinks about additional avenues of shareholder returns, just curious, like, how you think about that and how that steps up from here. Is it just a function of time, or are you targeting additional balance sheet optimization before you start to think about maybe share of purchases and so on?

Thank you.

Yeah.

Sure. Well, thanks, Connor. And of course, these things are always board decisions. I think the dividend really reflects that now we have gotten ourselves into our balance sheet zone, our credit metric zone that we have been focused on doing. And I think that historically, we've used both dividend and other forms like share repurchasing to return capital to shareholders. And I I would suspect that we would kind of, you know, be focused on both of those things and growing both of those things over time. So I think the dividend and, you know, the amount of the dividend, I think, is a reflection of, again, keeping ourselves in that, you know, three and a quarter to three and a half times, you know, debt to EBITDA zone. We've reached that on the three and a half side. But our ultimate goal is to make sure we have a competitive dividend and opportunistically, you know, buyback shares over time.

And I'll just add that our balance sheet is obviously in the zone where this is within the target. There's always opportunities, right? So we obviously, the first and foremost, manage maturities. We want to continue to reduce the cost of capital. We still are not done with unsecuring our balance sheet. So we have some work to do, but we're definitely in a very strong balance sheet position that allows us to reinstate the dividends and just continue to grow the business.

Yeah, that's helpful. And then sorry to ask the 2025 booking comment again, but how does your yield management strategy change next year relative to this year? It just seems like there's additional opportunity to optimize that you didn't necessarily have this year. Or maybe to ask it a little differently, did you feel like you left anything on the table given your booking curve this year wasn't what you expect for it to be next year as you approach that?

Thank you. Yeah, sure.

So I think that you can see that obviously in the guide we had in the beginning of the year to where we are today, right? We're about 400 plus basis points higher than we were in our expectations in the beginning of the year. So that's a reflection of an acceleration in demand and really acceleration in price. So your takeaway from that is clearly we left some money on the table and we were too booked going into WAVE. Now, how we decide to take on those revenues is we have a very sophisticated revenue management system, a very sophisticated management team that is looking at historical trends, what's happening in the market to inform price and how much we take on and when. And so I think for us, it's always a debate on, and again, this is always probably plus or minus five percentage points in terms of where our book position should be as we cross different periods. And of course, our ultimate goal here is not to say that we're record this or record that. Our ultimate goal here is to optimize our revenue. And that's what our tools do each and every day. And it could very well be that we cross the year in the same type of book position or a little bit less or a little bit more.

And that's just to make sure that we are, again, maximizing and optimizing our revenue. Appreciate it. Thank you. Sure.

Our next question comes from the line of Robin Farley with DBS. Please go ahead.

Great. Thank you. So, Utopia looks like a great new ship. So, don't mind that I'd like to ask about your next potential ship order. It's kind of a two-part question. First is some other cruise lines have been ordering sort of further out than we'd seen before the pandemic, you know, some eight or nine years, some 12 years. Are you sort of having to think longer term about your order book than maybe you would have previously? Is that something you feel that you'll also have to do or that we may see you do? And then secondly, It seems like there's kind of unofficially talk about a new ship class for me that would be smaller than the last few ship classes that you've had and that may allow you to go to some markets that can't handle some of the sort of newer, larger ships today. And I wonder if you can help quantify for us what percent of the drive-in market now, right, because there are clearly markets like Miami, New York, where you have a big driving market, but these other potential new port cities that you're not going to with some of your new hardware that would be new drive, you know, kind of new source markets that are within a drive. Can you quantify kind of what percent increase that could be in your drive market penetration if, you know, thinking about what those smaller ships may reach? I realize this is a longer-term question, but thanks.

Yeah. Hey, Robin. Um, thanks for the question. So, so first, um, we feel we have a very good line of sight, um, on our order book. Um, and you know, it's, it's all subscribed to being disciplined, um, in the growth of our business. And of course, as we're adding capacity, um, uh, into our fleet, uh, just always remind that, you know, like as you're seeing with utopian icon, um, or you're seeing with, with, uh, with Silver Ray, et cetera, is, you know, they're going to different segments and different markets and different deployments each and every day. So, you know, of course, in the cruise ship business or in the cruise business, you're always thinking longer term. You're not just thinking longer term in terms of growth and orders, but also your environmental footprint and what we can be doing to further reduce our emissions and the fuel that we burn, et cetera. So this is a longer term business and, you know, designs of ships like Icon, which you heard us talk about, with seven years in the making. So this just doesn't happen a couple of years out. So I think we feel very confident about our path of growth and we feel very confident in our ability to take on those orders in a very disciplined way. We're always going through and we're always designing the next classes of ships really for all of our brands. We specifically pick segments and brands in those segments and deployments and experiences that we believe have a very long runway to generate demand globally as each of our brands are a globally sourced business. And of course, the other thing I think that's important when you think about ship classes, whether they could be smaller, they could be larger, it's kind of also a consideration that We also have ships that are reaching 30, 35 years. And so some of this is not just about what we want to build, you know, same size ships, smaller ships. It's also replacing ships that will eventually kind of reach their end of life. And I think when your question comes about the drivable market, the ships that you're referring to that we're looking potentially at smaller ships will probably replace some of those older ships. it's a little bit less about the sourcing market. It's more about where those ships can go. It's getting them into maybe some of the more unique and bespoke destinations and further diversify our footprint around the world. We go to about 1,000 different destinations today, and we keep more and more trying to spread out where our guests go. And size of ship can sometimes matter, and I think our brands are always designing to how do we have the most flexible platform to deliver the experiences in which our guests are looking to go on.

Great.

Thanks very much.

Great. One more question, please.

Our final question will come from the line of Ben Shakin with Mizuho. Please go ahead.

Hi. Good morning. With Paradise Island, how are you positioning this relative to Coco Cay? And is this a different customer or similar, meaning are your future Paradise Island guests going to CocoCase today, or is it a different itinerary? And then a quick follow-up. Thanks.

Hi, Ben. It's Michael. Yeah, it's positioned as another incredible experience. It's a beach club experience. It's exactly what our customers are looking for when they go to the Caribbean. They are seeking an experience on the beach. So it's a rural Caribbean beach club. It'll fit very well into perfect day, particularly for the short product market. You can spend a day in perfect day. And then the next day, you can spend the day in the beach club. So it's kind of like really totally perfect. And we think we're going to see very strong demand for the product. We've deployed, we've got our itinerary set for the beach clubs as they come online. And it'll be a combination of short product, including Perfect Day, longer product that may call into the beach club as it goes into Nassau, and more often than not, including Perfect Day as well. So It's really a very complimentary product that fits extremely well with Perfect Day, and it also fits very well into short and long product. So we think it's going to be really a huge success. And the demographics are exactly the same as the Perfect Day and exactly the same for the brand.

Very helpful. And then as you think about tick pricing versus ancillary spend, how do you imagine Paradise will be different than CocoCay or similar?

In terms of span, we think it's going to be very similar. There's some differences because the Beach Club is a for-purchase experience, whereas Perfect Day, there's a huge amount of the experience is complimentary, and then there's many elements of the experience that you purchase. Because when you go to Perfect Day, the entire ship goes there, and it's the entire day for the guests. Whereas when you have the Beach Club experience, it's an experience that's available to the guest, but the guest can choose other experiences as well. So there's literally a ticket price to enter into the Beach Club. Got it.

Thank you.

Okay. We thank everyone for your participation and interest. Michael will be available for any follow-up. We wish you all a great day.

Ladies and gentlemen, this concludes today's conference. Thank you all for your participation. You may now disconnect.