Royal Caribbean Cruises Ltd.

introduce Blake Banyer, Vice President of Investor Relations. Mr. Banyer, the floor is yours.

Good morning, everyone, and thank you for joining us today for our third quarter 2025 earnings call. Joining me here in Miami are Jason Liberty, our President and Chief Executive Officer, Naftali Holtz, our Chief Financial Officer, and Michael Bailey, President and CEO of the Royal Caribbean Brands. Before we get started, I would 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, and 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, and Naftali will follow with a recap of our third quarter, the current booking environment, and our outlook for the remainder of 2025. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason.

Thank you, Blake, and good morning, everyone. I am pleased to discuss our third quarter results, updated outlook, and the many exciting initiatives fueling our momentum at the Royal Caribbean Group. This has been another great quarter for us. We continue to see strong momentum across our business, powered by accelerated demand, growing loyalty, and all-time high guest satisfaction. Our commercial flywheel, combining innovative ships, distinctive destinations, and world-class brands continues to drive sustained growth in guest trust and our ability to deliver the best vacation experiences responsibly. Before getting to the results for the third quarter, I want to highlight how we are continuing to build a stronger, further leading, and more resilient vacation company for the long term. We are focused on building a vacation platform that continues to lead the leisure market through innovative ships, a growing portfolio of exclusive destinations, technology, and AI that enhance every step of the guest journey. Together, these high return investments strengthen guest loyalty and attract new travelers, positioning us to win more share of the fast-growing $2 trillion vacation market. Earlier today, we announced the Royal Beach Club Santorini, further expanding our portfolio of exclusive destinations, extending our brand's reach beyond the ship and meaningfully enhancing the guest experience. This reflects our vision to redefine how the world vacations, and together with the Royal Beach Club Paradise Island, Perfect Day Mexico, and others, we expect to increase our exclusive land-based destination portfolio from two to eight by 2028. These initiatives reflect the thoughtful, sustained investment behind our commercial flywheel and reinforce the strength of our vacation platform. Cruising and leisure travel continue to outperform the broader travel industry, and we are exceptionally well positioned to capture that momentum. With a powerful pipeline of strategic initiatives, a strong balance sheet, and a disciplined approach to growth, we have both the resources and conviction to continue making game-changing investments that delight our customers, strengthen our competitive advantage, and drive long-term shareholder value. I want to thank the entire Royal Caribbean Group team for their passion, dedication, and commitment that enable us to deliver the best vacation experiences responsibly and to drive exceptional financial results. Turn into our results and outlook. Third quarter results exceeded our expectations, driven primarily by strong close in demand for our vacation offerings and lower costs. In the third quarter, our capacity increased 3%, and we delivered nearly 2.5 million in credible vacations, a 7% increase year-over-year at high guest satisfaction scores. Net yield grew 2.4%, driven by strong demand across all key itineraries. We delivered adjusted earnings per share of $5.75 for the third quarter, which was 11% higher than last year. Naftali will elaborate more on Q3 results in a few minutes. Moving to our outlook for the remainder of the year, our capacity in the fourth quarter is up 10% year over year, and we expect to grow yields 2.2% to 2.7% on top of a 7% yield increase in the same quarter last year. Our fourth quarter year outlook has been trivially impacted due to adverse weather and the unplanned extension of the temporary closure of Labadee, one of our exclusive destinations. Despite these marginal headwinds, We are expecting our total revenue to be up approximately 13% year-over-year in the fourth quarter. Full-year net yield is expected to grow in the range of 3.5% to 4%. That's 25 basis points better than our initial expectations in January, which highlights the continued strong demand for our brands and the amazing vacations they deliver. Our yield growth this year is on top of several years of double-digit growth, resulting in an industry-leading 31% yield growth compared to 2019. This highlights the remarkable transformation of our business and the enduring strength of our leading brands. Full-year adjusted earnings per share is now expected to be in the range of $15.58 to $15.63, a 32% year-over-year growth. We're also on track to deliver nearly $6 billion of operating cash flow this year a significant step change in our performance. We are a growth company, and our proven formula of moderate capacity growth, moderate yield growth, and strong cost discipline is driving significant earnings growth, continued margin expansion, and robust cash flow generation. We remain on track to achieve our perfected targets by 2027, a 20% compound annual growth rate and adjusted earnings per share, and return on invested capital in the high teens. As we've always said, Perfecta is an important milestone on our growth journey, but our ambitions go well beyond. The combination of our game-changing shifts on order, our growing exclusive destination portfolio, advancing our commercial technology platforms that are fueled by AI, and disciplined capital management is setting up the post-Perfecta era for another step change in the guest experience and financial performance. Now I'll provide some more insight into what we're seeing in the demand environment. Consumers continue to prioritize experiences and make room in their budgets for meaningful vacations. Our independent research, combined with millions of daily customer interactions, continues to show positive sentiment towards travel and leisure and continued growth in spend. Roughly three quarters of consumers intend to spend the same or more on vacations over the next 12 months, a level that has remained consistent for several quarters. While the broader consumer environment has normalized from the exceptional strength over the past two years, demand for experiences and leisure travel remains intact. Cruising offers superior value for money versus alternative options, driven by the high-quality onboard amenities and services, pricing inclusive of meals and entertainment, and the opportunity to visit a variety of destinations with the convenience of having everything in one place. Earlier this year, we announced our plans to launch a new vacation experience, Celebrity River. The introduction of Celebrity River has received an extraordinary response with all initially available deployment selling out almost immediately. The majority of booked guests are Royal Caribbean Group loyalty members without prior river cruise experiences. highlighting a powerful opportunity to attract new guests to the segment and deepen engagement by creating new vacation occasions with our existing ecosystem. In fact, the majority of guests shared their primary motivation for booking a Celebrity River vacation was the opportunity to experience a new celebrity product driven by the trust and affinity they have for the celebrity brand. Guests were also motivated by our new river ship design and features, with most of them expecting superior staterooms, ship amenities, and outdoor spaces, all hallmarks of the brand. These early booking patterns are a powerful validation of our strategy to expand the Royal Caribbean group vacation ecosystem, creating new ways for guests to experience the world with us while deepening the connection to our family of brands. We continue to be encouraged by the demand environment. Since the last earnings call, bookings are up on both new and like-for-like hardware, with particular acceleration for close-in families. Booked load factors for 2026 remain well within historic ranges at record rates, with booked APD growth at the high end of historical ranges. As always, we remain focused on optimizing our pricing and yield growth. Our spectacular new ships continue to generate strong quality demand. Star of the Seas is exceeding our expectations, and Celebrity Excel is shaping up to be the best performing new ship in the brand's history. The last three years saw unprecedented yield growth, and although that creates a high bar for comparables, our proven formula for success of moderate capacity growth, moderate yield growth, and strong cost control is expected to continue to drive top line growth, margin expansion, and substantial cash flow. While still very early in the planning process, we anticipate earnings in 2026 to have a $17 handle on it. At the Royal Caribbean Group, we've always believed that clarity and conviction are competitive advantages. Our mission is clear to deliver the best vacations responsibly, and our objective is just as ambitious, to capture a greater share of the growing $2 trillion global vacation market by turning a vacation of a lifetime into a lifetime of vacations. We don't just talk about that ambition. We built a robust multi-year plan that shows exactly how we intend to get there. through bold, high-return investments that strengthen our brands, elevate the guest experience, and create long-term value for our shareholders. That includes our expansion into River, the ongoing expansion of our private destination portfolio, the transformational development of Perfect Day Mexico, and, of course, a steady stream of game-changing ships. This quarter, we announced a long-term agreement with Myra Turku securing shipbuilding slots through the next decade, to continue both companies' tradition of innovation. The agreement confirmed an order for ICON5 for delivery in 2028, added an option for a seventh ICON class ship, and positions us for a new game-changing class beyond ICON, making the next stage in Royal Caribbean Group's history as we continue to redefine the future of vacations. In a world where digital experiences also define customer expectations, we're working to set the standard. We continue to enhance our digital capabilities to engage customers, remove friction from the guest experience, and drive incremental revenue. When we first introduced our app in 2017, the goal was simple. Give guests back the first day of their vacation by eliminating the need to wait in line for onboard reservations. Since then, the app together with our e-commerce engines has evolved into a cornerstone for our e-commerce strategy, transforming from a utility into a powerful platform that drives revenue, improves operational efficiencies, and deepens guest engagement. In the third quarter, e-commerce visits and conversion rates both increased double digits versus last year, marking a very strong improvement for these channels. In addition, a record share of onboard revenue was booked pre-cruise with nearly 90% of those purchases being made through our digital channels. And we continue to redefine loyalty in a way that deepens engagement and provides guests with greater flexibility in how they earn points and status. Building on the success of Status Match, I'm excited to announce Points Choice, the next evolution in how guests earn and apply loyalty points across our family of brands. Beginning in early 2026, Guests will be able to apply loyalty points to the Royal Caribbean Group brand they prefer, regardless of which brand they are sailing with. This initiative further strengthens the overall value of our loyalty proposition, deepening engagement across our portfolio, and reinforcing our commitment to putting the guests at the center of our orbit. As our ecosystem expands, it creates a virtuous cycle of demand, value, and advocacy. one that drives both short-term performance and enduring growth. It's a model that compounds over time, and we're just at the beginning of what it can become. I am incredibly proud of our teams at the Royal Caribbean Group for their dedication and exceptional execution. The opportunity is significant, and we're well-positioned to lead the next era of leisure travel. With that, I will turn it over to Naftali.

Thank you, Jason, and good morning, everyone. I will start by reviewing third quarter results. Net yields grew 2.4% in constant currency compared to the third quarter of last year, 15 basis points above the midpoint of our guidance. The yield outperformance was driven by the stronger than expected close in demand. Yields grew across all key products and were mainly driven by existing hardware, given the timing of new ship deliveries. During the quarter, a record share of onboard revenue was booked pre-cruise, and nearly 90% of those purchases were completed through our digital channels, with the app emerging as the fastest growing driver of engagement and conversion across those platforms. NCC, excluding fuel, increased 4.3% in constant currency, 195 basis points lower than our guidance, as we continue to find ways to better deliver the best vacations without compromising the guest experience. Adjusted gross EBITDA margin was 44.6%, 60 basis points better than last year, and operating cash flow was $1.5 billion. Adjusted earnings per share were $5.75, 11% higher than last year, and 3% higher than the midpoint of our guidance. Earnings are performance was driven by the strong closing demand and lower costs. As Jason mentioned, demand for portfolio brands and industry-leading experiences continues to be very strong. Book load factors remain within historical ranges at record rates for both 2025 and 2026. Capacity is expected to grow 5.5% for the full year and 10% in the fourth quarter. As expected, capacity growth in the fourth quarter is driven by new ships, Start of the Seas and Celebrity Excel, as well as additional APCDs due to lower dry dock days compared to 2024. The Caribbean represents 57% of our deployment this year and 63% of capacity in the fourth quarter, a region where we hold a strong position and are advancing a series of strategic initiatives to reinforce that. These include industry-leading hardware, shorter and longer attractive itineraries, the upcoming Royal Beach Club Paradise Island, and Perfect Day Mexico. Our Caribbean capacity is up 6% for the year and 10% in the fourth quarter. And even with capacity growth in the region, we see continued yield growth with Caribbean yields in the fourth quarter expected to be up 37% compared to the fourth quarter of 2019. will account for 15% of capacity for the year and 9% in the fourth quarter and is in a strong booked position as European season wraps up. Asia Pacific is expected to account for 11% of capacity for the year and 13% for the fourth quarter. Now, let me talk about our updated guidance for 2025. Our proven formula for success, moderate capacity growth, moderate yield growth, and strong cost discipline is expected to drive significant earnings growth and higher cash flow generation. We continue to expect net yield growth of 3.5% to 4% for the full year, driven by gains in load factor and APD across new and like-for-like hardware. Full-year net cruise costs, excluding fuel, are expected to decline approximately 0.1%, 40 basis points better than our prior guidance, as we remain focused on better execution through leveraging our skill and utilizing technology and AI, all while ensuring strong customer satisfaction and enhanced product offering and vacation experiences. We anticipate a fuel expense of $1.14 billion for the year, and we are 68% hedged below market rates. Based on current fuel prices, currency exchange rates, and interest rates, We expect adjusted earnings per share between $15.58 and $15.63. The $0.12 increase compared to our prior guidance is driven by Q3 outperformance, $0.02 of better Q4 performance, offsetting a $0.05 impact from recent adverse weather events and the unplanned extension of the closure of Labadee. We also expect 18% growth in adjusted EBITDA to just above $7 billion and 290 basis points growth in adjusted EBITDA margin. This positions us to accelerate our cash flow generation, which allows us to continue investing in our strategic initiatives, maintaining investment-grade balance sheet metrics, and expanding capital return to shareholders. Now, let me comment on fourth quarter guidance. In the fourth quarter, we expect capacity will be up 10% year-over-year, with net yield growth of 2.2% to 2.7%. As noted on the last earnings call, the timing of Celebrity Excel's delivery and fewer derog doc days versus last year will unfavorably impact fourth quarter net yield growth by about 90 basis points. Net cruise costs, excluding fuel, are expected to decline between 6.6% and 6.1% during the fourth quarter. Taking all this into account, we expect adjusted earnings per share for the quarter to be $2.74 to $2.79. Now I will share insights for 2026, which is shaping up to be another very exciting year for us. with multiple strategic initiatives that are already well underway. 2026 capacity is expected to be up 6% as we introduce Legend of the Seas in Europe next summer, as well as benefit from a full year of STAR and Excel. Capacity growth is higher in the first and third quarter due to the timing of new ship deliveries and dry docks. In 2026, we expect to have more dry dock days compared to this year, partially due to longer dry docks for several planned modernization projects of our existing ships. Caribbean capacity will represent about 57% of our deployment in 2026. For Caribbean products, we have continued to add shorter itineraries, building on our success in the last several years, enhanced by the opening of the beach club in Nassau this year. European itineraries will account for 14% of our capacity. Alaska and West Coast will account for about 10%, and Asia Pacific will also account for 10%. As Jason mentioned, book load factors remain within historical ranges at record rates for 2026. Bookings for 2026 have come in at APDs that are nicely higher than prior year, resulting in 2026 booked APD growth at a high end of historical ranges. Now, moving to costs. We remain committed to driving margin expansion supported by strong cost performance, even as we advance major initiatives throughout 2026, including the opening of the Beach Club in Nassau and the build-out of Perfect Day Mexico. Even with these strategic initiatives that weigh on the NCCX metric, while being significantly accretive to margins, we expect anemic cost growth next year. We continue to focus on improving fuel efficiency and are also hedging our rates exposure. Next year, we expect EU ETS to increase from 70% this year to 100%, weighing on our energy efficiency gains. Moving below the line, keep in mind that announced dividends and already completed share repurchases were funded through a combination of strong operating cash flow and incremental borrowings while maintaining our commitment to keep leverage below three times. Additionally, we expect the global minimum tax policy updates beginning January 1st, 2026 to impact us by an incremental couple hundred basis points. Taking all this into account, we expect adjusted EPS to have a $17 handle, and we will provide more details during our fourth quarter earnings goal. Turning to our balance sheet. We ended the quarter with $6.8 billion in liquidity, and it's adjusted leverage that was below three times on an LTM basis. We're in a very strong financial position, which allows us to fund our growth ambitions while also returning capital to shareholders. During the third quarter, we issued one and a half billion dollars of investment grade unsecured notes at five and three eighths coupon. Proceeds were used to opportunistically finance the delivery of Celebrity Excel at a lower cost than the existing committed ECA financing, as well as refinance other debt. This was an opportunistic issuance where we utilized our strong investment grade balance sheet to access the capital markets to finance a new ship delivery. We intend to continue to evaluate these types of transactions compared to existing committee DCA arrangements to lower cost of capital and gain tenor. We have very limited maturities left for this year, all related to SHIP amortization payments that we plan to repay with cash flow. In connection with the debt offering, Fitch upgraded our credit rating to BBB and S&P update our outlook from stable to positive. We are very pleased with the recognition of the rating agencies of the strength of our balance sheet and our strong financial performance. In September, we received a cash dividend of $258 million from our joint venture, TUI Cruises, and we expect it to continue to pay a regular cash dividend given its strong financial performance and balance sheet. Also during the quarter, we repurchased approximately 1.3 million shares, and as of September 30th, we have $345 million still available under the current authorization. In September, the board of directors authorized a 30% increase to the quarterly dividend to $1 per common share. We remain focused on both growing the company through strategic investments, as well as returning capital to shareholders. Since July 2024, we returned $1.6 billion of capital to shareholders through dividends and share repurchases, and we intend to utilize our strong financial position to return capital going forward. In closing, we remain committed and focused on our mission to deliver the best vacation experiences responsibly as we wrap up another strong year and look ahead to an exciting 2026. With that, I will ask our operator to open the call for a question and answer session.

At this time, if you'd like to ask a question, press star followed by the number one on your telephone keypad. As a reminder, given the number of participants on today's call, we are strictly limiting each person to one question only. No follow-ups will be permitted. If you have additional questions, you must re-enter the queue. Our first question will come from the line of Steve Wojcicki with Steeple. Please go ahead.

Hey, guys. Good morning. Good morning. So, Jason, you mentioned that 26 EPS is going to start with the 17 handle, and it seems pretty clear that 26 bookings, demand, pricing all look pretty solid at this point. So, look, I fully understand you guys aren't prepared to give detailed guidance for next year, but as we think about 26, I would assume your company tagline very much remains in place here, meaning, look, we know capacity growth, Knopf said it's 6%. Moderate yield growth, I would assume, is kind of in that low to mid single-digit range. And then the discipline cost control probably means low single-digit growth, or in your terms, anemic, even with some of your structural costs you'll be taking on next year. So from a high-level perspective, is that kind of the right way to think about 26? Hi, Steve.

Yeah, I think that is a good high-level way of saying it. I think first to start off with, it is early in our planning process. And I actually, I even said it earlier today on CNBC, $17 handle does not mean 1701. If you take moderate yield growth, you take good cost control or as Nof used the term anemic, which I think is probably a better description of how we think about costs for next year as we are significantly leveraging our scale and leveraging technology and so forth to get more and more efficient each and every day. that that leads you to sizable earnings per share growth, ROIC growth, et cetera. I think where there's probably a little bit of noise is below the line and probably in fuel. And so there are an increase in our fuel costs that have a compliance component to it. And then also, as we're managing global minimum tax, there is a slight increase in the taxes that we're anticipating to play. And that's probably where there's a little bit of a disconnect. The other thing I just want to add is we're also investing a lot in technology. We're investing a lot in these new destinations. We're going from two to eight. And so as we bring these things online, there's also depreciation and other things that could potentially come into play. Lastly, I would just add is we're also leveraging to return capital to our shareholders. You saw that here with the raise in our dividend to a dollar. And I think you've also seen that it's not talked about in our buyback of shares. And so we are our balance sheets in an incredibly strong position and we are opportunistically buying back shares. And we're doing that and taking advantage of being able to lever ourselves up to maintain a strong investment grade position. but maintaining that leverage point that we've said to maintain that rating. So we feel really good about the book position. The rates that we're booking at provide us a lot of rate room and opportunity for next year as we are optimizing our yield profile while we're growing the business at 6% on a capacity basis and bringing on new, incredible a destination experiences with the Royal Beach Club here in Nassau. So there's a lot of really great and exciting things. And I would say just last is that we continue to see a very strong consumer. Our guests are their thirst for our brands, for the ships, for the destinations and the incredible experiences that our incredible crew are delivering. um is that is that the very highest level and we see that in our net promoter score so we're we're super excited um about um the strength and and um and you know there's there was you know a little bit of of of noise here in the fourth quarter there were three storms that just you know one even even in asia there's a typhoon in asia that you know impacted our this our um our some of the land-based experience and some of the compensation we needed to give back but yeah that's uh not a reflection of the strength that we're seeing.

Our next question will come from the line of Robin Farley with UBS. Please go ahead.

Great, thanks. I also wanted to think a little bit about your 2026 comments. To clarify, when you talk about the anemic net cruise cost growth, is that sort of anemic before, because that would sound like sub 2%. And is that before we think about the impact of the new destinations you're opening? In other words, would that be in addition with the anemic referring to sort of like for like, and then there would be more than that. And then similar clarification on the booking side of things for 2026. It sounds like your price on the books is up year over year and maybe booked load is down year over year. And I assume that's intentional. Maybe you could just, you know, kind of give us some color around that. Thank you.

Hi, Robin. Let me talk about the cost expectations for next year. So, you know, in the last couple of years, we're opening and we have plans to open every year a private destination, right? So next year is going to be the Paradise Island Beach Club in Nassau. And we have a lot of other initiatives that we're doing. But at the end of the day, the way we manage our costs is we look at, we're subscribed to our formula. We have the moderate capacity growth, moderate deal growth, strong cost control. We grow capacity next year by 6%. So with all this, we take this into account, and my comments are totally on the total amount. And, of course, we have those headwinds, but on the other hand, we have a lot of things that we're doing. We are finding better ways, as I noted in my remarks, to manage the business, deliver the experience in a more efficient way through technology, just efficiencies and AI. And so the way we manage it is all in a total. And so my comments are on the total cost growth for next year. Yeah.

And just to put a point on it, Robin, is that the anemic comment includes the structural costs. So it's not just like for like, it includes the Royal Beach Club in the Bahamas as well, as we leverage AI and we leverage the scale of our business. On your question on the booking side of things, I think there's a few things to keep into consideration. One, we've obviously leveraging our incredible ships and leveraging our private destinations while also considering what different segments of consumers are looking for. We have more short product coming online next year, and those guests book closer in. And so that's a little bit of probably what I would say is the year-over-year comparable on the load factor standpoint. This really is what influences that. We actually think we're in an optimal book position. We're at rates. that are, I think, higher than we probably thought that they would be at, which I think is a really great thing, as we see really strong demand and people are dreaming more and more on their vacation experiences. And we're also seeing that translate to onboard spend. And so we're thoughtfully meeting our guests with the experiences, and they're willing to pay for that.

Our next question will come from the line of Matthew Boss with JP Morgan. Please go ahead.

Great, thanks. So Jason, maybe could you just elaborate on the progression of global demand that you saw over the course of the third quarter? Any change in momentum at all that you've seen in October? And maybe to your comment before, just drivers that you see supporting 26 bookings at the high end of historical ranges? And maybe just if you're seeing anything different from new customer acquisition?

Sure. So I'll just start off maybe first on the new customer acquisition side. First, all the things that our brands are doing and what we're doing on an enterprise basis to really kind of build out further our commercial flywheel is really working. So even like the announcement today about points choice and making sure that our guests, when they choose to sell on any of our brands, that they're getting a the point that they want on their primary brand that they have loyalty status in. So we continue to evolve things like that. Our technology, our AI tools are getting smarter and smarter so that we're able to curate what is relevant to that consumer. And that's drawing in more new to cruise, really seeing an elevated amount of increase first to brand. So seeing people shift from other cruise lines to our brands, we've seen an elevated amount of that. And then our loyalty program and what we've been doing to add to that is we're just getting more and more reps from that consumer. And so we're really happy about that. When you think about just what we see broadly, really each of the markets that we're doing business in or that we're sourcing our guests from is doing quite well. We saw a little bit of a pullback from the north here in Canada, you know, in the early kind of mid part of the year, but we've now seen that normalize. Demand from Europe this summer was really strong and their focus now on booking into 2026 is actually stronger. And the reason for that, when we talked to those guests and our travel partners, is that we didn't have a lot of inventory left. in the summer of 2025 for the European consumers that typically book a little bit later. So they're getting a little bit ahead of that curve, and that's really encouraging. And then, you know, but we, again, we continue to see the U.S. consumer really across all segments, whether that's our family segment to our ultra luxury segment, want to sail with us, and so those demand patterns have been quite strong. What I will say is that as these tools develop, our forecasting is getting better. And so our ability to predict what's going to happen in a quarter and in close in is getting better as this kind of marriage between AI and our historical forecasting capabilities is getting closer and closer in terms of its predictability. And so I would not in any way take that because we hit the high end of our range in Q3. We don't guide with the hope of coming out with some incredible beat. We guide because that's our best thinking at a point in time. It's a 50-50 forecast. And that's how we try to manage the business. We've just, I think, all collectively been in an environment where what we would see you know, in the forward-looking picture was greater than what we saw in the previous picture. And we're still seeing that, but now we're able to predict it better.

Our next question will come from the line of Lizzie Dove with Goldman Sachs. Please go ahead.

Hi there. Thanks for taking the question. I just wanted to ask about the Caribbean. You know, there's been a lot of talk about whether there's open supply in the region as people move. you know, more capacity there. You know, you gave that great start about 4Q, and it doesn't sound like you're seeing it, but curious just what you're seeing there, whether there is oversupply and how you think about, you know, the setup for 2026 specifically.

Yeah, well, I mean, it's... I think it's well known, it's been known for some time that there's an increase in supply in the Caribbean. Of course, the Caribbean has been working incredibly well for us. And so I'm not surprised that there's been a supply increase there. But it's a very manageable increase in supply. So we've seen it. It's been a little bit more promotional in the Caribbean activities. But for us, I think because of our differentiated assets with our ships and our destinations, and our ability to kind of keep our guests inside of our ecosystem, and we're seeing a draw from other ecosystems coming into our ecosystem, you know, that we're able to not only manage that demand, but we're able to see our guests, you know, pay up to experience our delivery.

Our next question will come from the line of Brand Montour with Barclays. Please go ahead.

Great. Thanks, everybody. Thanks for my question. So if you look at your guidance for the fourth quarter net yields and you add back the 90 basis points or so from comparison issues that you laid out and then maybe add something for the storms, you kind of get to, I don't know, maybe something like mid threes exiting the year. I just want to know if that's the way you would sort of cleanse the fourth quarter in terms of how yield growth is exiting the year through the lens of the fact that there's not much new hardware helping out there. And so maybe this is what we could look at as a like for like exiting the year. But let me know if there's other puts or takes as we think about building our models for 26.

Yeah, I mean, obviously we're not providing guiding for 26, but we are going to subscribe to the formula as we just talked about. But in terms of how you exit the fourth quarter, your math is directionally correct. So we did quantify the less dry docks as well as the new hardware. And so when you take kind of a more normalized new hardware and like for like, you're definitely in the zip code.

Our next question comes from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning. So maybe to that last point, as we as we sort of roll things forward into 2026, I think investors are very keen, as we think about puts and takes that there's a lot of puts, right? You've got, whereas in 2025, you had sort of negative chip timing, that was a headwind that now becomes a tailwind. Obviously, you know, weather, It's not a big number, but, you know, in theory, that becomes a tailwind as we think about 2026. I guess where I struggle a little bit is to get to anything less than $18 if I don't assume that yields are, I don't know, less than they were this year as we think about growth. So maybe help us, you know, are there any takes as we think about the puts and takes? Specifically, you know, are some of these tailwinds maybe offset by a weaker consumer environment broadly? It doesn't really sound like it, but just trying to sort of put some of these items.

Thanks. Yeah, so thanks, James, for the question. I think first to start off is that the consumer or our guest is strong. They have great jobs. They have great balance sheets, bank accounts. Um, and they have a strong desire to, uh, to vacation and build experiences and memories with their friends and family. Um, um, but you know, there's, you know, we're also not immune to what's generally happening, um, in the, in the environment. Um, and so it's, it's, it's, it's, it's what the consumer is willing, their willingness to pay. Um, and they are willing to pay up. They may not be willing to pay like last year, you know, double digits up or the year before, you know, I think it was 13 or 14% up, but they're willing to pay more. And so I think in your math of yield growth is, you know, we expect moderate yield growth for next year. I would describe like this year was a moderate yield growth type year, which we had foreshadowed for a very long period of time. I would say second, as we said, is we expect our costs to grow on a per APCD basis. at an anemic level. So we want to have a healthy margin between our yields and our costs, and that's going to drive more margin to our business, more returns, more cash flow to our shareholders, and gives us the confidence to continue to invest in our business. I think where, when you're probably trying to reconcile your numbers, and you can certainly, your Blake and team can help you do more of it, I think more of it is below the line where I think that there's an opportunity to provide some clarity here. And again, I just want to stress, I did not say our earnings for next year are going to be $17. I said that they're going to have a 17 handle on there, just to clarify again. So I think we feel very good about the business for next year. And it's, you know, whether we look at our book position or what we're hearing from our guests, you know, we're going to continue to generate very strong demand and deliver these incredible vacation experiences.

Our next question will come from the line of Ben Chaiken with Mizuho. Please go ahead.

Hey, good morning. I have a question on the river. You mentioned, Jason, you sold out of your 27 itineraries in a few hours. I think you have 10 ships in the first order. How are you thinking about allocating capital to this opportunity in the context of what appears to be accretive ROIs? Like, are there balance sheet limitations? Are there ship construction limitations? Or is it just getting comfortable with the opportunity? Thanks.

Sure. Thanks for the question, Ben. First, it didn't sell out in a few hours. It sold out in a few minutes. So to our head of our celebrity brand, I told you so. The good news is we're going to have more. That's right. Our initial order was 10. Obviously, we have options for much more than all that. First and foremost, what you want to do is you want to make sure that you get the product right. Our launch of it, and you had the opportunity to see what the ship is going to look like. the amenities that it's going to offer, it will deliver on the true DNA of the Royal Caribbean Group. It will be a step change, and it will change the expectations of what our guests are looking for. As I also said when we announced this, this is not a hobby. We do expect to be a substantial vacation player in the river business, and so we will continue to grow that. I mean, our limitations, I think, more is just squaring up that we got the experience what we want it to be. And then this is an area where we have an opportunity to accelerate into here. And we have full confidence in doing that.

Our next question will come from the line of Connor Cunningham with Milius Research. Please go ahead.

Hi, everyone. Thank you. Maybe just going back to the comment of moving to shorter duration itineraries and as a result, banking on close in yields. I think that A lot of the questions have just been obviously around the yield performance in the next year. But it seems like that mixed dynamic is really what's kind of changing your approach to the 2026 year. So I guess maybe my question is, if close in demand were to stay here, would that suggest that you would see significant upside to your underlying earnings upside in 2026? Is that a fair assumption? Thank you.

Yeah. Um, so, so one, I wouldn't say that we are, we're, we are banking on close in demand. I would probably describe it as, um, you know, each product that we offer to our guests and their different segments and different brands and different destinations has a different booking pattern to it. Um, that's very natural. Um, and, uh, like a weekend getaway is not typically what's on somebody's mind, you know, 18 months in advance. And so as we have more of those opportunities that we're able to deliver because of the assets that we have, that is what's driving a change in that behavior. But the behavior in our other products actually looks very similar to what we have typically seen for seven-night Caribbean or seven-night in Europe, et cetera. And so those patterns are are there, they're strong, and they're accelerating. And so I think that's what you want to see is that for each of the product in those different tracks that things are moving at a rate that's going to optimize your total revenue performance. And so that's how I think we think about it. Now, certainly, we have seen in the past, and we do not count on this, is that close in on all these products accelerate. and we end up beating our expectations. But we do, of course, try to bake in to our forecast. These are the patterns we saw last quarter, the patterns we saw a year ago, try to inform how we expect the track to occur. And that's how our yield management works. That's how our tools work in trying to predict and to lay out what we should be offering in the market. So I think, again, we feel very good about the booking environment. We feel good about our book position. I would read into our commentary is we are optimizing our revenue as when we look back in time, we see more often than not that we've left some money on the table. And that's our job to maximize revenue.

Our next question will come from the line of Sharon Zakvia with William Blair. Please go ahead.

Hi, good morning. I wanted to talk through kind of the composition of your revenue as you ramp up more of the owned destination. So I know with Coco Cay, you also saw a ticket lift in addition to the onboard spend that you get on the island. Is that a similar dynamic with the Royal Beach Clubs or as the Royal Beach Clubs come on, do we start to see the the composition of yield shift a little bit more to onboard spend and have that lead versus ticket?

Hey, Sharon, it's Michael. Yeah, it's a good question. I mean, Perfect Day really was a huge driver of ticket lift as well as onboard spend. I think with the beach clubs, it's a slightly different product. So it does kind of slip more into the short excursion onboard revenue frame. And so it's also a driver for itinerary as well, because we're beginning to see that itineraries that include the Beach Club as well as Perfect Day seem to be driving even more demand than historically, which has been really strong. So I think we'll see that that kind of combination of beach clubs really push through in onboard revenue and short excursions. And then Perfect Day is typically a key driver of tickets.

Yeah, and Sharon, I think just to add on to Michael's point, it's got to modulate a little bit, right? Because the perfect day model tends to bring a lot of premium on the ticket side. And so we still have this opportunity for us to grow more in Coco Cay, but as Perfect Day Mexico comes online, that's probably a little bit more of a balance between ticket and onboard, while when the beach clubs come online, it's more on the onboard side. So it will modulate a little bit. um um here and and um but it's it's uh all the answer to all of it is it's great revenue it's a great guest experience great margins great returns um and so it's a true kind of win-win opportunity for everybody our next question will come from the line of vincey peel with cleveland research please go ahead thanks so much uh just want to

clarify kind of the yield picture here in 25. You know, the first half was up, I think, closer to 5%. Second half looks on track for 2.5% or maybe something a little bit north of that. Clearly, some moving pieces. You know, how much of that D cell is related to just tougher compares versus maybe less new hardware tailwind. Is new hardware still tailwind for the second half on a year-over-year basis, or is it kind of transitioned to a little bit of a headwind? And then the last piece, obviously, is you've called out, I think, some port fees, as well as dry dock, as well as Haiti, et cetera. So there's a number of, like, isolated headwinds. But just help us kind of bridge that step down, first half versus second half, if you could.

Yeah, and thanks, Vince. So every quarter is something, right, because the ship delivery timing does impact those. These are large ships, and this year we had two deliveries. I think the best way to look at it is you kind of look at it on a yearly basis, and that's if you kind of – kind of look at it across the board. It's probably in, you know, if you normalize all these quarter over quarter things, some of it was a 24 easy comp or a harder comp. And some of it is just some of these events and timing of ship deliveries and how we ramp up. But if you look at it on a yearly basis, that's a great, I think, just way to look at our business. And it also subscribes to our formula, which we've said all along, this is how we manage the business, this is how we subscribe to that, and then we drive to grow the business according to that formula, including the yield, the capacity, and the cost.

Our next question will come from the line of Andrew DeDora with Bank of America. Please go ahead.

Hey, good morning, everyone. Actually, I just wanted to touch on the bond deal quickly to finance the Liberty XL. Obviously not a usual way to finance a ship, but certainly makes sense given the rate differential. That's my question. Are you pretty much indifferent in how you finance the ships right now? As long as there is that rate benefit and out of curiosity, are there any additional benefits of tapping the unsecured market as opposed to the ECA financing? Thanks.

Yeah, great question. Thank you. And so, yes, you know, for now we're in a place where we have a very strong investment grade balance sheet. We're benefiting from rates that, you know, are basically commensurate with our, you know, with our financial performance and our ratings. And so when we evaluate that, we look at it and we say, what does it, you know, what does that make sense to finance with? You know, the ECA, obviously, they're great partners. We're very grateful to kind of the partnership we have. It's obviously very important during the construction period to have the financing. And all these ships will, you know, they always have that committed financing in place, also post-delivery, which is, you know, obviously very valuable. But when we come to the decision, when we take the ship, we have this alternative. And for this one, you know, we negotiated this financing several years ago when the And so we and our improvement in the capital markets was quite substantial. And so when we looked at that, it just made more sense and much lower cost of capital. The other thing is just to remind everybody is, you know, these ECAs also have amortization payments. So when you look at the average tenor. of the loan is roughly a little bit over six years, we obviously now issuing 10-year piece of papers in the unsecured market. So it's not just that the cost is low, we also gain tenor with it. And obviously the covenant package is a little bit different too. So you have the benefit there. So we're very happy with kind of how this went. We're going to continue to evaluate all the alternatives. It's very important to understand that all our ship deliveries and orders will have committed financing going forward, and then we'll have that option to evaluate what's the best alternative for us when we take delivery.

And that will conclude our question and answer session. I will turn the call back over to Naftali for closing comments.

Thank you. We thank you all for your participation and interest in the company. Blake will be available for any follow-ups. We wish you all a very good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for joining.

You may now disconnect.