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spk17: Good morning. My name is Paul and I will be your conference operator today. At this time, I would like to welcome everyone to Vikings second quarter 2024 earnings conference call. As a reminder, this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. Thank you. I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mangalini.
spk02: Good morning, everyone, and welcome to Vikings Second Quarter 2024 Earnings Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer, and Leah Talaktak, Chief Financial Officer. Also available during the Q&A session is Lynn Vaughan, Executive Vice President of Finance. Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release as well as in our filings with the SEC. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics which are reconciled and described in our press release posted on our investor relations website at ir.viking.com. Tor and Lia will provide a strategic overview of the company, a recap of our second quarter results, and an update of the current booking environment. We will then open the call for your questions. To supplement today's call, we have also prepared an earnings presentation that will also be available on our investor relations website following this call. With that, I'm pleased to turn the call over to Tor.
spk14: Thank you, Carola. Good morning, everyone, and thank you for joining us. I'll start today's call highlighting a few key performance indicators. I will then take the opportunity to touch on demand, sharing with you some of the characteristics and qualities of our target customer. As you can see on slide three, this morning we reported successful second quarter results with our consolidated net yield up 6.6% from the prior year. Additionally, we continue to experience robust demand for our core products with 95% and 55% of our 2024 and 2025 capacity already sold as of August 11th. Our momentum was strong throughout the second quarter, culminating with two sales milestones at the end of July. First, the week ending July 31 was the company's highest-grossing ever, and it included the highest-grossing day of sales. These results speak to the strength of our One Viking brand and give us confidence that our core consumer demographic continues to show financial resiliency, prioritizing travel, and actively seeking enriching memorable experiences. And these results also speak to the effectiveness of our sales and marketing teams and strategy. Now, if you look at the next slide, I mentioned in the past that our approach to sales and marketing is different. We have a marketing platform that directly engages with consumers, supported by a database that includes more than 56 million North American households. This has enabled us to develop deep relationships with our guests through a strategy that leverages robust digital capabilities and data-driven decision-making. As you see, we can generate demand, and to this end, we will continue to invest in sales and marketing during the second half of the year to support our growth plans and to keep momentum going. Now, if you follow me on slide five, Last quarter, I discussed our identity and unique differentiators, one of which is our dedicated focus on a specific target demographic. Today, we'll delve deeper into this. You can see that we cater to curious, affluent, English-speaking travelers, age 55 and over. Since our inception, we have focused on mature travelers who not only seek to explore the history and culture of the destinations, but also possess the time and financial flexibility to travel. On slide six, we are sharing a few graphs that visualize the strength of our target demographic, more precisely the U.S. demographic, which currently represents most of our guests. As you can see on the left side of the slide, the population age 55 and over is the fastest growing segment, expected to increase by 13%, to 110 million by 2030. Moreover, the segment is not only growing fast, but their spending power is also increasing. Adults over 55 have the largest spending power of any demographic, holding 73% of U.S. wealth, and that metric has been on the rise, with the net worth of this group currently up 41% since 2019. To give you some perspective on metrics related to our current customers, this quarter we carried about 200,000 guests. We spent an average of almost $8,000 each on their holiday. Now moving to slide seven. It is one thing to have a clear profile of the consumer we are targeting, and it's another to align our product and deliver a great experience. And we believe we are winning on both fronts. Our guests share a passion for travel and a keen interest in the destination. At Viking, we have a mantra about tailoring experiences to this group. We do not try to be all things to all people. We understand that our guests are thinking people who are traveling to learn and engage with the destination. To this end, when guests book with us, we provide destination-specific content from reading lists to language classes. Once on board, our comprehensive programs cover the past, present, and future of the destinations through lectures, performances, and local demonstrations. We offer these experiences on itineraries across all seven continents. Interestingly, our 2025 itineraries include over 500 unique destinations, significantly more than the 350 visited in 2018. Now we're talking about how we believe our offering resonates with our target customers. It's always encouraging to see this being publicly recognized. On slide number eight, we are highlighting that this summer we received top honors from Travel & Leisure and Travel Age West for our river, ocean, and expedition voyages. Travel & Leisure readers once again recognize us as the world best for all these three categories. Additionally, we also earned five category wins in the 2024 Travel Age West Wave Awards, and these awards are voted by travel advisors and showcase the success we have had with these important stakeholders over the years. Last October, we were also ranked number one by Conde Nast Traveler across rivers, oceans, and expeditions. No other travel company has simultaneously been honored for rivers, oceans, and expeditions by both Travel & Leisure and Condé Nast Traveler, something Viking has achieved for two years in a row. This is very special for us. In summary, we will continue to obsess over our guests by providing an excellent travel experience at good value, catering our offering to what we know they desire and enjoy. We believe that our clear focus on our core consumer demographic and our product is the essence of our brand promise and the cornerstone of our success. I will now turn to Leah to discuss the financials.
spk04: Thank you, Tor, and good morning, everyone. We are very pleased to have reported a strong second quarter. On a consolidated basis, total revenue in the quarter grew 9.1% year over year to almost $1.6 billion, mainly due to higher revenue per PCD. and an increase in the year-over-year size of the company's fleet. During the second quarter of 2024, capacity PCDs increased by 3.1% and occupancy was 94.3%. Adjusted gross margin in the quarter increased 9.5% year-over-year to 1 billion. Our net yield was 562, 6.6% higher than the second quarter of 2023. which is remarkable since, as I mentioned last quarter, 2023 was already a very good year for us. Vessel expenses, excluding fuel per capacity PCDs, were down 1.9% year over year. This positive cost performance compared to last year was mostly driven by favorable timing of expenses. It is important to note that we do not manage our expenses quarterly. For example, our repair and maintenance expenses are tied to specific projects and purchase orders which can shift between quarters. Net income for the second quarter of 2024 was $156 million compared to $190 million for the same period in 2023. The net income for the second quarter of 2024 includes a loss of $123 million from the revaluation of warrants issued by the company due to stock price appreciation. It also includes a loss of $66 million related to the net impact of the private placement derivative loss and interest expense related to the company's Series C preference shares. In comparison, the second quarter of 2023 includes a gain of $3 million from the impact of the Series C preference shares. The company's Series C preference shares converted into ordinary shares immediately prior to the consummation of the company's IPO. The second quarter of 2024 is the final quarterly period for which the financial results will include private placement derivative gains or losses and interest expense related to the Series C preference shares. Excluding the impact of these items, the majority of which are non-cash, net income for the period was $345 million. Adjusted EBITDA for the second quarter totaled $493 million, improving more than $50 million when compared to the same time last year. This significant year-over-year improvement was driven by our top line, which was bolstered by a higher net yield compared to last year and increased capacity. The adjusted EBITDA margin was 47.5% for the second quarter and 36.7% for the last trailing 12 months. I will briefly address our net interest expense in the quarter, which decreased by $77 million compared to the same time last year. This decrease mainly reflects a one-time charge incurred in the second quarter of 2023 related to the early financing of a senior secured note originally maturing in 2025. Now, before moving to our reportable segments, I would like to highlight that rather than managing the company on a quarterly basis, we focus on the long term and manage the business profitability on an annual basis. To this end, adjusted gross margin for the first half of the year increased by 12.5% year-over-year to $1.5 billion, and our net yield was $543, 5.2% higher than the first half of 2023. Now, moving to our two reportable segments, river and ocean. For the river segment, adjusted gross margin grew 12.6% to $664 million for the first half of 2024, and net yield grew to $568 compared to $506 in the same period last year, up more than 12% year over year, driven by strong demand for our European itineraries. Occupancy was 94.7%. As a reminder, the bulk of our river business begins in the second quarter. For ocean, capacity PCDs increased by nearly 10% year-over-year, mainly due to the addition of the Viking Saturn, which was delivered by the end of April of 2023, and the occupancy was 94.9%. Adjusted gross margin grew 11.4% to $711 million. Net yield for the ocean segment grew by 1% compared to the previous year, primarily due to the regional mix and specifically because a larger portion of the capacity was related to the world cruise itinerary. In 2024, we had two world cruises versus one in 2023. Excluding these cruises, our net yield for the first half of 2024 increased by mid single digits compared to 2023. It's worth noting that the world cruises, which went on sale in 2021, were met with exceptional demand. Although the world cruise itinerary typically has lower than average net yields, it garnered overwhelming support from our past guests and required less sales and marketing spend. While I've given some details on our reportable segments, I'd like to emphasize that we view our business as one entity. Whether our guests choose to travel by ocean or river, our focus is on providing a best-in-class travel experience, prioritizing the destination. Now let's move to the balance sheet. As of June 30, 2024, we had total cash and cash equivalents of $1.8 billion and net debt of $3.6 billion. To this end, our net leverage improved to three times at the end of Q2, compared to 3.4 times on March 31, 2024. As of June 30, deferred revenue was $3.8 billion. Also on slide 12, you can see our current bond maturity outlook. which has not changed since we last reported, with one bond maturity due in May 2025 and all other maturities in 2027 and beyond. With this, I'd like to confirm our debt amortization for 2024 and 2025. As of June 30, 2024, the scheduled principal payments for the remainder of 2024 are $101 million and $415 million for the full year 2025. From a committed capital expenditure perspective and for full year 2024, the total expected committed ship capex is about 830 million, net of financing 450 million. And for the full year 2025, the total expected committed ship capex is about 710 million, net of financing 90 million. The primary driver of the quarterly change in committed ship CapEx for both 2024 and 2025 is a signing of the options for ocean ships 17 and 18, which are scheduled for delivery in 2028 and 2029, respectively, and remain subject to certain financing conditions. With that, I'll turn it back to Tor to review our business outlook, including our booking curves.
spk14: Well, thank you, Leah. Before we get started on the curves, I'd like to remind everyone that advanced bookings includes bookings for cruises, land, and air for our core products. I also want to note that advanced booking per PCD has historically decreased as we got close to the forward year. This is not indicative of a price reduction, but rather a reflection of complex interplay of several factors, which include variations in deployment mixes, the timing and types of itineraries open for sale. For example, our most popular and newer itineraries will usually sell first. Also, the cabin categories, as typically better cabin categories, book first. And the timing and price increases. And finally, our internal revenue planning decisions as we manage pricing and pacing based on market conditions. Let us now dive into the curves, which are evolving according to our expectations. On slide 14, we see our consolidated metrics. As you can see, our 2024 capacity is almost completely sold with 95% of our capacity PCDs booked for our core product and $4.6 billion of advanced booking sold as of August 11. This is 14% higher than the 2023 season at the same point in time. And 2025 looks encouraging too. We have 55% booked with $3.4 billion of advance bookings. This is 20% higher than the 2024 season at the same point in time in 2023. Please keep in mind that our operating capacity for 2025 is 12% higher. So all this looks good, but I will highlight that depending on the market conditions, we might not want to be booked too far out as we also look to optimize pricing. We might want to slow down the pacing if we think that it will benefit the overall year. It is important to analyze the curves with these things in mind. On the next slide, you will see our curves for ocean cruises. This is slide 15. I will start with the green line, which shows the bookings for 2024. If you look at the box on the upper left side of the slide, you will read that for 2024, we have sold $1.9 billion in advance bookings, which is 15% higher than last year at the same point in time. I will also note that our operating capacity is up 6% year over year. Moreover, 94% of the 2024 capacity is already sold as of August 11 over this year. So we have very little to sell for 2024 and our sales and marketing teams are now really focused on 2025 and beyond. I will note that we are pleased with the 2024 rates, which are up to $665 compared to $621 last year. If you now look at the blue line, you will see how the bookings for the 2025 seasons are doing. For the 2025 season, we have sold $1.7 billion in advanced bookings, which is 24% higher than last year at this time for the comparable period. Our operating capacity is up 18% year over year, and 60% of the 2025 capacity is already sold as of August 11 of this year. Regarding the rates, they are up to $755 compared to $672 for the 2024 season at the same point in time. Now, if we move to slide 16, you will see the curves of the river cruises. I will start with advanced bookings for 2024, which is the green line. As you can see, we have sold more than $2.3 billion in advanced bookings, which is 14% higher than last year. And I remind you that our operating capacity is up 4% year over year. So 96% of the 2024 capacity is already sold as of August 11th of this year. Like Ocean, we have very little to sell for 2024, and our teams are now focused on 2025 and beyond. The 2024 rates for rivers are up to $761 compared to $690 last year. Now looking at the blue line, these are the advanced bookings for the 2025 seasons and for the 2025 seasons. We have sold about $1.5 billion in advanced bookings, which is 13% higher than the 24 season at the same point in time. Our operating capacity is up 8% year over year and 49% of the 2025 capacity is already sold as of August 11th of this year. So these trends are very good for 2025 with rates up to $887 compared to $829 for the 2024 season. As I mentioned before, we are pleased with all these metrics, which are progressing according to our plans. Now Leah will add some color to our order book and capacity.
spk04: Thank you, Tor. Moving to our order book and capacity updates. During the month of August, we took delivery of the Viking Hathor, a state-of-the-art vessel specifically built to cruise the Nile. which will start sailing with guests by the end of the month. And lastly, as it relates to the two options exercise in June 2024 for ocean ships 17 and 18, these are now scheduled for delivery in 2028 and 2029. In summary, we are pleased with our results for the quarter and we are encouraged by the strong demand trends we are seeing for 2025 and beyond. Moreover, we feel that we are well-positioned to continue to grow in this environment due to our clear focus on our target demographic, which is financially resilient and growing, and our great product and value proposition. This concludes our prepared remarks, and I'll now turn it back to the operator to take questions.
spk17: Thank you. At this time, we'll be conducting a question and answer session. In the interest of time, we ask that participants limit themselves to one question and one follow-up on today's call. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. And the first question today is coming from Steve Wychinski from Stifel. Steve, your line is live.
spk13: Hey, guys. Good morning. So I want to start, I want to ask about the remaining questions. inventory that's out there for 2025. And look, I guess the question is how you guys are thinking about pricing for that remaining 45% of inventory, given, look, you probably have now sold your most desirable inventory, cabins and whatnot. So to move that remaining 45% of inventory, do you think it's possible to take price action here or Do you think there might have to be some discounting or promotional work in order to get that inventory sold moving forward? So just kind of looking for high-level thoughts there.
spk05: No, I think it's four here.
spk06: I think we're in a good spot for 2025. If you look at, for example, the booking cards for the rivers, you see that maybe sometimes we even feel we've gotten a little ahead of ourselves. So I think there's opportunity for, there's no need for any negative price action.
spk04: Yeah, to add to that, you know, the remaining inventory 2025 would be the later seasons of 2025. So we do have some time. So at this stage, You know, the demand looks pretty good. As Flo mentioned during the call, we are able to generate demand through sales and marketing. So I think we have a variety of levers to use such that pricing would not be our first lever in terms of moving that demand.
spk13: Okay, that's great, Keller. Thanks for that. And the second question is around the cadence of your customer deposits. And we've actually got a couple of questions about this this morning in terms of you had a decrease in customer deposits from the first quarter to the second quarter. And obviously, given the fact that you're a new public company, just maybe wondering if you can give us a refresher course of how that cadence of your deposit line kind of looks through the year. Thanks.
spk03: This is Lynn. Hope you're well. The decrease in Q1 to Q2 is really just because operations really pick up in the second quarter. It's not necessarily a reflection of a decrease in deposits. You'll see that throughout the year. Q2, Q3 is our highest season, and as such, you'll see the deposits kind of steady. But then Q4, Q1, which we know our river season starts to dry off, you'll see customer deposits build. So it's really just a cadence of how our business runs.
spk13: Okay, perfect. Thanks, guys. Really appreciate it.
spk17: Thank you. The next question will be from Matthew Boss from J.P. Morgan. Matthew, your line is live.
spk15: Great, thanks. So, Tor, you cited encouraging demand trends that support bookings for next year. Could you elaborate on what you're seeing in terms of health of the consumer and maybe any key differences that you're seeing across regions or product segments. And then, Leah, on the 25 booking curve at 55% book, 10% pricing, I guess how best to think about opportunity for next year relative to that multi-year baseline 3% yield growth versus the mid-single-digit performance historically that you've seen?
spk05: Yes.
spk06: Maybe on the first part of it, part of the question. I read papers and I see what other people's report. I must say, we haven't seen anything that gives us any pulse for concern for 2025. As a matter of fact, July was an extremely strong booking month for us. I think one of the weeks was the strongest booking week we've ever seen. I mean, that's one week, don't get me wrong, but it's been an underlying So I don't think we've seen any sign of weakness.
spk05: It may come, but we haven't seen any.
spk04: Yeah, and as far as the bookings are concerned, you know, we've said before that typically what sells first are the high season and also, you know, the better cabin categories. At the end of the day, we're really a value, you know, we want to make sure that our guests feel that they're getting a good value. As you can see from our growth plans, we have a large order book coming online, and we want our guests to repeat. And so it's a balance between, you know, the experience, getting strong yields, but also making sure that our guests feel like they're getting something meaningful from us. And also, you know, we have historically said, you know, mid to high single digits. I think that's a pretty good clip for us in terms of our pricing. And at the end of the day, you know, I would just keep in mind that the early inventory that's sold is higher prices, they're better itineraries, they're high season. And then as we finish out the year, it's going to be, you know, a little bit more of the shoulder seasons in lower cabin categories.
spk15: Great color. Best of luck.
spk17: Thank you. The next question is coming from Andrew DeDora from Bank of America. Andrew, your line is live.
spk07: Hi, good morning, everyone. Maybe shifting a little bit to costs here. Just in the second quarter, costs were better than we thought. Was there any shift in spend that we should think about in 2Q relative to the back half of the year? And I guess bigger picture here, is there any color you can provide just on how to think about vessel operating costs, you know, can trend here, you know, maybe on an ABCD basis, you know, particularly as you grow the ocean segment?
spk03: Hey, Andrew. Yeah, you know, we did notice the positive cost performance. I think Leah mentioned it earlier on the call. This was mainly driven by timing, and I think you guys know this by now. We're long-term. We don't manage by quarter. we tend to look at things on an annual, long-term basis. So things can shift between quarters, including operating expenses. Our main goal, of course, is to prudently manage expenses without compromising quality. And so that's what our team does. And that's something that, you know, is a focus area for us.
spk07: No, I understand that. I guess any, you know, any color that you can provide on how to think about that cost trend over the next few years, particularly as you have outsized growth on the ocean side?
spk03: I mean, I think from our perspective, from expense profile, we're subject to everything else everyone else is. The last couple of years, we've managed through. And as we look forward, hopefully inflation kind of settles and cost increases settle a bit more. And that's really... You know, we don't provide guidance, as you're aware, but we will say, you know, we do look at expenses. That's something that's very important to the company and something that we will continue to manage.
spk07: Okay, got it. And just lastly, just for modeling purposes, you know, I know the share count in the release was, you know, influenced by averaging. Do you have the current basic and diluted share count available? Thank you.
spk04: Yeah, I did want to add here that, you know, this quarter, the EPS calculation is a little bit strange because we went public in the second third or the last third of the quarter. And so the calculation of EPS is more, there's like a weighting, so you can't just do a straight division of the diluted into the income. when excluding these non-cash impacts on that income, you really have to use $345 million, which adds back the Series C and the warrant. And as to your question, could you remind me what your question was again? What number were you asking for?
spk07: Just the act because of the timing of the IPO, just what's the basic and diluted share count at the end of the quarter?
spk04: Yeah, so our diluted is
spk05: So what we're using for the calculation, are you diluted for the 37 cents?
spk07: No, just what your current diluted share count is. Thank you.
spk04: Okay. So it's 445, 757, 520.
spk05: But again, because of the weighting, that's not what we use on the EPS calc. Understood. Thank you.
spk17: Thank you. The next question is coming from Robin Farley from UBS. Robin, your line is live.
spk12: Great, thank you. I wanted to ask about the booking curve that you mentioned. When you say it's in line with your expectations, just to help us understand what that would be, looking at the revenue per booked cruise day, the increase is sort of down a percentage point for the current year and down two points for next year. Is that kind of what we should think of as a typical percentage quarterly pace as you approach 2025? Is that sort of two points per quarter, you know, what would be expected? Thanks.
spk03: Ramin, hope you're well. I think we discussed this, and just as a reminder, for oceans, we operate year-round, and for rivers, we have seasonality, right? So the river season is mainly, let's say, March, April through October. We do have ships that sail into the winter, but that's like the bulk of the season. And so when we're selling oceans, you will see pricing kind of be pretty consistent as we sell. But for rivers, you will see that Q2, Q3, you know, high season, high cabin category, that will sell first. How pricing, you know, trends will always be dependent on what sells. the deployment, of course, and, you know, our yield management. So we can't really say there is a set percentage of what, you know, changes as we continue to sell. But I think we can say, you know, right now sitting here with 55% sold for 2025, we are in a good position.
spk12: Okay, great, thank you. Maybe just one clarification on that. When we think about that seasonality, would the change over the course of Q3 and Q4 as you're approaching the year ahead tend to move more than Q2 did? It seems potentially that's what we should expect just as you're saying that the things that sell closer in. Is that likely to change more in sort of a Q3, Q4 than it did and maybe in Q1, Q2 when we think about approaching 2025? Thanks.
spk03: I mean, I think as we look to just, you know, selling out the rest of 2025, we do anticipate that, you know, the price we get will come down mainly because of the mix of what's selling, which is the shoulder season, you know, the things that, you know, generally are lower prices. But at the end of the day, I think we have to step back. We're sitting here in August for 2025. We're well sold at good pricing. We have a lot of time to sell the rest of the inventory. So we are really quite pleased with where we are on the curve.
spk05: Okay, great. Thank you.
spk17: Thank you. The next question will be from Dan Pulitzer from Wells Fargo. Dan, your line is live.
spk16: Hey, good morning, everyone. Thanks for taking my question. First, in terms of the yield in the quarter, I believe Ocean was around flat. And I know, Leah, you mentioned that there was some impact from world cruises. Is there any way for the second quarter to give kind of an ex-world cruise type yield? And then similarly, I think for the full year of 24, based on the booking curves, Ocean pricing is indicated up seven, which would, I believe, assume a pretty big acceleration in the back half of the year. So I just want to make sure we're thinking about that the right way as it relates to kind of the disclosures and the curves and kind of the one-offs there. Thanks.
spk05: Yeah.
spk04: So, I mean, you can see from the ocean bookings update that Tor spoke about that for the 2024 season, we expect yields, you know, as of today, they're 7% up. So if you consider that we're you know, 1% as of the first half, and we expect to be 7% around, 7% for the full year.
spk05: I think that kind of will guide you as to the second half expectations.
spk16: Okay. And then just for my follow-up, in terms of costs, I know you mentioned that a bit, but were there any specific ways to quantify any benefits from timing or cost shifts in the quarter that will shift into the back end of the year?
spk03: As you're aware, you know, we don't provide guidance. And so what we can say is, you know, cost did trend favorably to the same quarter last year, which is great. It's something that we will look to. Some of this is timing at the end of the day. I think we can't, you know, we'll reiterate again, we do look at the business on a long-term basis. And so from that perspective, we don't really manage by the quarter. But I think, you know, the trend in how operating costs are, for us, it's positive.
spk16: Okay. I guess one other kind of related one on the cost side. The new flooding, has that been a headwind or is that something that should be on investors' radar as we think about the cost in the rest of the year?
spk04: I think that we handled that exceptionally well. As you know, our identical longships allow us to do ship swaps so that we minimize canceled cruises. I personally went on the Danube this summer, and everything is back to normal. It's great. It was very encouraging to see all of the longships operating along the Danube. You know, I think our operators are very good at what they do, and this is just par for the course for them. So as far as managing costs, you know, ship swaps really go a long way. And to the extent that we do have to, you know, do a little bit more deviations, our operators are also very cost-conscious and make best efforts to minimize them.
spk16: Got it. Thanks so much.
spk17: Thank you. The next question is coming from Brant Montour from Parkleys. Brant, your line is live.
spk10: Good morning, everybody. Thanks for taking my question. So starting off on Egypt, I know you guys have a decent amount of your deliveries coming to the Egypt market over the next couple of years. And so the question is maybe for Tor or for anyone, You know, is there any sensitivity around that region for Americans traveling to the Middle East because of geopolitical events? And even if you're doing well, do you think perhaps you'd be doing better if not for those? And how do you think about that oncoming inventory through that lens? Thank you.
spk06: So I think the Americans have been surprisingly willing to go to Egypt. Of course, it has been a little bit hurt on the occupancy, but the economics of those ships are so phenomenal that that has been okay. It's been picking up again. And as you know, we are contrarians. So I think this is probably the time to even think about more capacity, as we have indicated that we are. So I think Egypt is very profitable for us. So I think we are not concerned at all. Americans are welcome to come and have a naming ceremony in November, December, which I think will have a lot of attendance.
spk10: Okay. Thanks for that. That's really helpful. And then a second question on capital allocation, a question I think you've probably gotten before but you'll probably get again is, you know, we have you building a fair amount of excess cash from operations over the next couple years. And obviously, most of your growth is financed at attractive levels. Maybe you can remind us, outside of growth, to the extent that you can't find places to put that cash to work in operations, what is your plan with the excess capital?
spk06: I think there's probably a question that comes to me often. I think we should focus first on making sure we have adequate financing, which we do. And then I think we have many opportunities. Of course, if we run out of ideas and opportunities, we may have to consider alternatives. But for the time being, I think we have seen our order book. And I think that's a sign of our belief in this business. And I think it's comfortable to have have cash on hand also in case some bad things happen with that. So for the time being, we concentrate on getting the cash in, and then we'll worry a little bit later about how to divvy it out.
spk05: Thanks, everyone.
spk17: Thank you. The next question will be from Meredith Jensen from HSBC. Meredith, your line is live.
spk18: Hi, good morning. Just a quick follow-up on that last question to think if you could speak a little bit about just sort of the longer-term view of the order book. Obviously, we do have a vision quite a bit out, but given competitors have sort of moved into the future quite a bit with their order book, I was wondering if you just might speak to, given your history, how – you think about the positioning within the shipbuilding facilities and how you think about that for the future. Thank you.
spk06: As I said before, I think we think we are contrarians, but that means that we have been able to place orders when other people did not. So you can say our order book has been at what we considered it being quite favorable prices. And of course, we now have an order book on the ocean side of 10 ships.
spk05: So we're going to double the capacity from 10 to 20 ships if we include our options.
spk06: And according to the rule of 72, that means over seven years, that means 10% growth per year, which I think is a reasonable thing to have. We feel we have the relationships for the yards that's needed. We must be among the largest customers in terms of number of ships I think Contieri has ever had. Is that what they said? And I think we also have a relationship with the river ship builders. There are not so many boats available any longer.
spk05: So I think we're in a very good spot that that order book has value.
spk18: Thanks. That makes a lot of sense. And just one quick additional, I realize you have a lot of direct business from your loyal customers such that marketing has been sort of a network effect, but I was wondering if you could speak to some of the interesting targeted marketing I've seen around, for example, the Olympics and sort of tying in event-based events. ship capacity around the Seine and the Olympics and what kind of ROI you might have seen from that as one example how we can think about your marketing and advertising strategy. And thanks.
spk06: As you may know, we are very proud of many of the docking places we have before for seven years to have the docking place we have in Paris by the Eiffel Tower, which we had to evacuate for a few days while the events took place. But I think that's one of our key strengths. I think it's clear that we did place some ads on NBC during the Olympics, and I think we'll see spikes in bookings for Paris, obviously, as a result of that. But these things don't last forever. But I think it adds to who we are.
spk05: And yes, I think that was good. But I think we are using our marketing to enhance our standing.
spk06: As you know, we also have these special relationships with the Downton Abbey. We have a lot of privileged access, which really matters, and we focus a lot on that.
spk18: Wonderful. Thanks a lot.
spk17: Thank you. The next question will be from Stephen Grambling from Morgan Stanley. Stephen, your line is live.
spk01: Thank you. Perhaps asking about demand trends from a different angle, just given the increased consternation on the back of airlines, hotel and parks commentary in the second half, I guess, what would you be focused on in your business as a leading indicator to assess whether trends are potentially deteriorating and would it be occupancy or any types of add ons before or after cruises or other factors? And then how should investors think about the levers that you have to pull should things decelerate that may differentiate you from other cruise peers?
spk05: I think this is where our booking curves are a huge advantage for us.
spk03: And we said it from the get-go, we would be transparent and we would provide the curves to our investor base as well, which we have done. And so from that perspective, I think that is our number one biggest indicator as to what is happening for demand for our consumer group. And I think, you know, Tor mentioned this earlier, we had a great July. Where we are for 24 and 25 is a good place to be. We will continue to focus on marketing and sales to keep this momentum going in the second half of the year and to continue to, you know, sell.
spk06: Maybe I could add, maybe I shouldn't, but when you look at the booking cards for the rivers, for 24 and 25, you see they're quite further advanced than we were used to. And I wouldn't be surprised if we say it would be reasonable to slow that down a bit in the future. Sometimes we feel that we have electioneers. This is an electioneer in the US, I've been told. We then typically like to be a little bit ahead.
spk05: We probably go a little bit further ahead than we need it to be, if I should be honest. That's helpful. Thanks so much. Thank you.
spk17: The next question will come from Alex Brignole from Redburn Atlantic. Alex, your line is live.
spk09: Hi, thank you for taking the question. I actually just have one that they've been asked already. But just on China, obviously, a little while ago, you reduced your planned capacity source from that market, sailing in Europe in terms of the ships you were going to have, the boats you're going to have available. Could you just talk about any... evolution that there's been in that in terms of air capacity or demand or the way that things are opening up or appetite that you're seeing for outbound China into European river sailing. And then I guess if you could expand and talk about the kind of closer to home sailing, then that would be helpful as well. Thank you so much.
spk04: Yeah, so we are, you know, as we've said before, we're taking a measured approach with respect to China. We have four ships operating in Europe as far as longships are concerned. And, you know, I mentioned earlier in this call that I went on a river cruise on the Danube, and I actually went on a China outbound cruise. And I'm happy to report that, you know, the guests are, you know, they're very well rated. They have high net promoter scores. And so I think from that perspective, we do have, we've got the product right for that consumer. But there are challenges in terms of, you know, visas or airlifts. I think those are going to eventually work themselves out. But again, you know, this is a small part of our business. You know, we do have a very strong core product business. And as far as China, you know, we will continue to invest, but we will take it in a very measured approach manner.
spk09: And I guess just as an extension of that, is that any new... kind of customer source markets, clearly that kind of lend themselves in English-speaking ships that you think are opportunities for you to expand the distribution and that can obviously give you yields comparable to those from Americans, which have historically been the highest when coming to Europe?
spk06: You know, we have been very strong proponents of having one brand and one customer reserve. If we could, over time, get a crack on the Chinese market, of course, that would be great. But as I said, we'll take a very measured approach to it. There are, as I said, you know, other dark markets in Asia. And we know which way Asia is going. So it wouldn't be surprising if we do a little bit more there. But this is, again, just getting a small foothold. It wouldn't be a thing that really will have any impact on our significant impact on P&L one way or the other. So over time, of course, you could see that these markets should be developed because these are people who have money and increasingly they also have demographics that gives them time. So there could be something.
spk05: But for the time being, we remain mainly focused on the English-speaking markets. Brilliant. Thank you very much. Again, if I could add one, because we make a very strong point.
spk06: We have one brand, and the more we have looked and thought about others and how they do it and so forth, I think the fact that we have this one brand and four product lines or three product lines is really a very huge advantage. So that guests, when they come to Viking, they know exactly what they get.
spk05: I think it's a very strong point of action. Thank you. Thank you.
spk17: The next question will be from Patrick Scholes from Truist Securities. Patrick, your line is live.
spk08: Thank you. Good morning. Another way of asking the cash flow balance sheet question here, in a long-term stable environment, what would you ideally want or target your net leverage to be? Let's say in five years the world continues to be stable, where would you want it? Thank you.
spk06: As you know, we've been asked this question several times. Some of us have become experts at dodging it several times, but we don't really want to give a commitment. to anything like that in the future. But there can come opportunities when we say, okay, maybe it's time to add back a little bit of leverage. And when I leverage, I've gone from 3.8 to 3.0 in a year or less than a year. So the trend is good. So it should give opportunities. But there may become opportunities when we'd like to leverage a little bit more. We had talked about our We don't have any ambition of being investment grade as a bond. We are in business of making money for our shareholders. And then I think it's better to be in the double deal range. But we are very comfortable where we are now, of course. And there are things we can do, but I don't think we can make any, either commitments or forecasts.
spk08: Okay, I appreciate it. This probably won't be the last time you'll have to take that question.
spk06: You'll get the same answer next time.
spk08: I appreciate the answer. Thank you.
spk17: Thank you. And the next question will be from Connor Cunningham from Mellius Research. Connor, your line is live.
spk11: Hi, everyone. Thank you. On the potential decision to hold back inventory closer in, What might drive that decision? And if you do hold back, you know, higher demanding inventory, does that potentially benefit some of the off-peak inventory that you sell closer in?
spk05: Thank you.
spk03: I think from our perspective, you know, Julia, I think, mentioned this earlier, our priority is to deliver a great experience at a good value. In terms of yield management, you know, we want to ensure our guests have the opportunity to book what they want to book. And so, as of this point, we have not necessarily held back inventory. The back half of the year or shoulder seasons, I think many of us are aware that's just something that books closer in. Generally speaking, whether you hold back, you know, high season inventory or not, the shoulder seasons just look closer in. That being said, obviously, for biking, our curves, you know, are generally more well-advanced than others, including the shorter season. But at the end of the day, that's not something we've necessarily done yet. But, you know, when we look at our curves, we're sitting here in August, like, you know, we mentioned earlier. We're 55% sold for 2025 at good pricing. So we're quite pleased with where we are.
spk06: Maybe I could add something. you you use the word hold back but uh i guess we all know uh viking is a direct marketing company and that means uh that we generate demand ourselves uh so you can say marketing uh is not an expense of such as a revenue generator so so if we if we should the action we take is to market less i mean we would market less when things are uh good So many people market, you know, because that's how the demand would be generated.
spk05: So that's a mechanism.
spk04: Yeah, I think when you, I guess the question might have arisen from our comment that we said that we would slow down the booking curve. But we're not holding back, but it's really our demand was so high that the curves were accelerating in a way that may not quite optimize how we would like our yields to look. And so that was just an indication that, you know, we may not want to be 55% sold out by the same time next year to optimize pricing. That was what that statement was about.
spk11: Got it. And then just on the marketing, leaning into marketing, are you being more pointed outside of the U.S.? Like, I understand that the U.S. is your biggest source market, but is it being more targeted towards the other English-speaking source markets that you're focused on in general?
spk05: Thank you. Oh, it's the same. Okay. Thank you.
spk17: Thank you. This does conclude today's Q&A session. I will now turn the conference back over to Tor Hagen, Viking's chairman and CEO, for closing remarks.
spk06: Yes, I'd like to thank everyone for joining us on today's call.
spk05: Thank you for your support and for your interest in Viking. It's been good so far, and we wish you a great day. Thank you.
spk17: This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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