Viking Holdings Ltd

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' third 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 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Thank you. I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mangolini.

Good morning, everyone, and welcome to Vikings Third Quarter 2024 Earnings Conference Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer, and Lieta Laktak, Chief Financial Officer. Also available during the Q&A session is Lin Ban, 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. Tora and Leah will provide a strategic overview of the company, a recap of our third 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 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.

Thank you, Carola, and good morning, everyone. I will start today's call highlighting a few performance indicators for the quarter, which has been remarkably strong. As you can see on slide three, we reported a great third quarter results with our consolidated net yield up 11% from the prior year. Additionally, we continue to experience strong demand for our core products with 95% of our 2024 capacity and 70% of our 2025 capacity sold as of November 3rd, 2024. I believe that this booking position reflects how well our products resonate with our target consumer. To this end, today I want to take the opportunity to talk a little bit more about our ability to generate demand, which is fueled by our top-rated and well-defined product, effective cross-selling practices, strong brand recognition, and a singular sales and marketing approach. If you look at the next slide, I want to start by highlighting the scale and reach of our operations. We sail across five oceans, 21 rivers, and the five Great Lakes, offering our guests unforgettable experiences in over 85 countries and across all seven continents. What sets us apart is that we achieve this global presence under a single brand, Viking, a name that stands for excellence in all three categories of the cruise industry, ocean, river, and expedition. Each of our products consistently reflects the high standards of the one Viking brand. This allows our marketing efforts and strong brand loyalty to drive growth across all our offerings. And while I mentioned that our top-rated product continues to fuel demand, it is immensely gratifying to see this excellence consistently being recognized. If you follow me on the next slide, you will see that for the second year in a row, Viking was rated number one for oceans, number one for rivers, and number one for expeditions by Continental Traveler in their 2024 Reader's Choice Awards. This achievement marks the first time that a travel company has won these three categories in back-to-back years. These awards are particularly meaningful because they are voted by our guests, which means that they reflect our team's hard work, passion, and dedication to excellence. These levels of guest satisfaction are gratifying for many reasons, but one of them is that they increase brand loyalty. If we move to slide six, you can see that our repeat guest percentage has steadily increased over time, from 27% for the 2015 season to 53% for the 24 season to date. Moreover, in the graphs at the bottom of the slide, you can see that we leverage this strong brand loyalty for future product launches. Over 60% of bookings for each of the inaugural seasons for Viking Ocean, Viking Expedition, and Viking Mississippi were made by past guests. These trends show that our guests trust Viking to deliver the best-in-class travel experiences, whether it be new itineraries for products they love or completely new offerings. In summary, one of the benefits of our single brand is our ability to effectively cross-sell across our product offering to our loyal customer base. Moving to slide seven, for the past 27 years, we have built a single brand that is highly recognized by our target markets around the world. Today, we are the leading brand in North America outbound the river market and in the luxury ocean market. As of the third quarter of 2024, we had 92% of total US brand awareness for river cruises and 80% for luxury ocean cruises. With a single brand, a strong brand awareness drives growth for all our products. Our brand message is clear, and we can streamline and leverage our sales and marketing efforts. Now, as I mentioned earlier, Viking operates globally. This past quarter, I traveled to Egypt and China, and I would like to share some updates on these unique regions. First, let's focus on Egypt on slide eight. Just a couple of weeks ago, I was in Luxor for the naming of our two newest vessels for the Nile River, the Viking Hathor and the Viking Sobek. These beautiful ships can accommodate 82 guests each, and I believe that they offer the most elegant way to navigate the Nile. This addition brings our Egypt count to six ships, and we have four more under construction to be delivered by 2026. Although Egypt represents a small portion of our total capacity in the low single digits for 2025, it is a destination of great interest for our guests. For example, our 12-night Pharaohs and Pyramids itinerary offers our guests a fascinating and culturally rich experience that garners demand and strong yields. We are frankly very pleased to be able to offer this highly distinctive product. This quarter, I also traveled to Shanghai, If you now flip to the next slide, you will see that as it pertains to China and the Asian market in general, we have adopted a unique approach rooted in a couple of core principles, which include destination-focused experiences and single language environment on board. So let's begin by addressing our ocean cruises in Asia for English-speaking guests. In September, we celebrated our return to China with Viking Yidun, offering exclusive itineraries and access to rarely visited destinations. China is a fascinating country and our guests can now explore its coastline with the same level of comfort that have been provided on our ocean offerings. This marks the start of an exciting journey for us and we plan to expand this program in 2025 with new itineraries that include Japan. In addition, We are expanding our ocean cruises to better serve our Asian guests. We believe that the Asian market has been historically underserved by the cruise industry. To this end, we will provide culturally rich experiences on the product tailored specifically to our Asian guests' preferences and language. And lastly, since 2016, we have offered river cruises in Europe for Chinese guests. These itineraries feature curated excursions, cuisine adapted to their taste, and a fully Mandarin-speaking crew. Currently, we operate four dedicated vessels for these experiences. While the products I have highlighted represent only a very small portion of our overall portfolio, they are very appealing to our target demographics and play an important role in our long-term growth strategy. Now, shifting gears and turning to slide 10. During this quarter, we completed a secondary offering of 34.5 million shares on behalf of TPG Capital and CPP Investments at a price of $31 per share. As you can see on the slide, this event slightly changed the ownership composition, increasing the institutional float. We appreciate all who participated in the offering and the continued interest and support in our company. We have much to be proud of in this quarter, and we look forward to our continued success and growth. With that, I will turn to Leah to discuss our financials.

Thank you, Tor, and good morning to everyone. We are pleased to have reported a very strong third quarter. On a consolidated basis, total revenue in the quarter increased 11.4% year over year to almost $1.7 billion, mainly due to higher revenue per PCDs. Adjusted gross margin increased 12% year-over-year to $1.1 billion, resulting in a net yield of $576, 11% higher than the third quarter of 2023. We believe this to be quite remarkable because, as I have mentioned before, 2023 was already a very good year for us. Vessel expenses, excluding fuel per capacity PCDs, increased 2.5% this quarter compared to the same time last year, but remained almost flat on a year-to-date basis. This quarter's year-over-year increase was mainly due to repair and maintenance costs. These expenses can vary between quarters depending on the fleet needs and other factors. Adjusted EBITDA for the third quarter totaled $554 million, improving more than $73 million when compared to the same time last year. This significant year-over-year increase was driven by higher revenues per PCDs in both the river and ocean segments. The adjusted EBITDA margin was 50.4% for the third quarter and 37.6% for the last trailing 12 months. Net income for the third quarter of 2024 was $375 million compared to a loss of $1.2 billion for the same period in 2023. The net income for the third quarter of 2024 includes a loss of almost $19 million from the revaluation of warrants issued by the company due to stock price appreciation. In comparison, The third quarter of 2023 includes a loss of $1.5 billion from the impact of the Series C preference shares and an additional $73 million loss due to the revaluation of warrants. Excluding the warrants loss, adjusted net income attributable to Viking Holdings Limited for the third quarter of 2024 was $394 million. Adjusted net income attributable to Viking Holdings Limited represents net income or loss excluding certain items that we believe are not part of our primary operating business and do not reflect future earnings performance. This metric served as a numerator for calculating our adjusted EPS, which we introduced this quarter. Adjusted EPS was 89 cents. Before moving to our reportable segments, I would like to highlight that year to date, our adjusted gross margin increased 12.3% year over year to $2.6 billion, and our net yield was $556, 7.5% higher than the same period last year. Now, I will briefly discuss our two reportable segments, river and ocean. Unless noted, I will be referring to year to date metrics. or nine months ended September 30, 2024. For the river segment, our capacity PCDs are relatively flat year over year, although during the third quarter, we took delivery of the Viking Hathor, a beautiful vessel that started sailing the Nile by the end of August. Adjusted gross margin grew 12.1% year to date to $1.2 billion, and net yield was $546, up more than 13% year over year, driven by strong demand for our European itineraries. Occupancy was 95.3% for the nine-month period. For ocean, capacity PCDs increased 7.2% year over year, mainly due to the delivery of the Viking Saturn in April of 2023 and the addition of the Viking Idun in September of 2024. Occupancy for the period was 95%, adjusted gross margin increased 11.7% year over year to $1.2 billion, and net yield was $533, up 4% compared to the previous year. Now let's move to the balance sheet. As of September 30, 2024, we had total cash and cash equivalents of $2.4 billion. and an undrawn revolver facility of $375 million. Our net debt was $3 billion, and to this end, our net leverage improved from 3.0 times as of June 30, 2024, to 2.4 times as of September 30, 2024. As of September 30, deferred revenue was $4 billion. Also in slide 14, 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 September 30, 2024, the scheduled principal payments for the remainder of 2024 are $53 million and $462 million for the full year 2025. From a committed capital expenditure perspective and for the full year 2024, the total expected committed shift capex is about $850 million or $440 million net of financing. And for the full year 2025, The total expected committed ship capex is about $770 million, or $150 million net of financing. The main drivers of the quarterly increases in total committed ship capex for both 2024 and 2025 are related to changes in the ocean fleet. With that, I'll turn it back to Tor to review our business outlook, including our booking curves.

Thanks, Leah. Let's now dive into the booking curves, which are all as of November 3rd, 2024. On slide 16, we show our consolidated metrics for our core products. As you can see, 95% of our 2024 capacity BCDs is already booked, and we have sold $4.6 billion of advanced bookings. This is 14% higher than the 2023 season at the same point in time. These metrics are very similar to what we shared last quarter, with the 2024 capacity mostly sold out. I will note as we approach the end of the calendar year, we might experience a few cancellations, which is normal. While we typically resell these rooms, the last minute prices may be lower than the original rates, causing the full year advance booking to slightly change. Now, moving to 2025, the figures look very encouraging. Our capacity is increasing by 12% and we are already 70% booked with $4.3 billion of advanced bookings. These are 26% higher than the 2024 season at the same point of time in 2033. This metric is higher than what we shared last quarter, mainly due to strong demand, but also due to a slightly easier comparable. Last year, we saw some volume slowdown in October, due to the conflict in the Middle East. Aside from this, the reality is that we are achieving very strong bookings for 2025, and we are very pleased with it. On the next slide, you will see our curves for the ocean cruises. This is slide 17. I will start with the green line, which shows the bookings for 2024. Overall, we have sold $1.9 billion of advanced bookings, which is 15% higher than last year at the same point in time. Notably, our operating capacity is up 6% year-over-year, and we have already sold 94% of the capacity. I will also note that we are very pleased with the 2024 rates, which are $661 compared to $614 last year. If you now look at the blue line, you will see booking trends for the 2025 season. We have sold about $2 billion in advanced bookings, which is 30% higher than last year at this point in time. Our operating capacity is up 18% year over year, and 74% of the 2025 capacity is already sold. Regarding the rates, they equal $753 compared to $680 for the 2024 season at the same point in time. Now, if we move to slide 18, you will see curves for the river crisis. 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. Our operating capacity for River is up 4% year over year. So we're having a great year with 96% of the 2024 capacity already sold. and with rates that are equal to $759 compared to $689 in 2023. Like Ocean, we have very little to sell for 2024, and our teams are now focused on 2025 and beyond. Now looking at the blue line, these are the advance bookings for the 2025 season. As you can see, we have sold about $2 billion in advance bookings, which is 22% higher than the 2024 season at the same point in time. Our operating capacity for the river is up 7% year over year and 67% is already sold. In summary, these are very good trends for 2025 with rates equal to $856 compared to $819 in 2024. Overall, we are very pleased with all these metrics which are advancing in line and in some cases even exceeding some of our expectations. Now Leah will add some color to our order book and capacity.

Thank you, Tor. Moving to our order book and capacity updates. During the month of October, we took delivery of the Viking Sobek. As Tor just mentioned, this is an 82-guest vessel that is sailing on the Nile River in Egypt. In October, we also exercised our options for ocean ships 19 and 20, which are both scheduled for delivery in 2030. These ships are similar in size, accommodating about 998 guests each. And lastly, we entered into an option agreement for four additional ocean ships that, if exercised, will be delivered in 2031 and 2032, two each year. These cruise ships will be built by the Fincantary Shipyard which has delivered the entire Viking Ocean fleet. As you can see, there is a lot going on at Viking, and we are thrilled to share news on further growth. As we continue to deliver strong financial results, we remain equally committed to providing unforgettable experiences for our guests. This balance is key to our long-term success and sustainable growth. With this, I conclude our prepared remarks. I'll now turn it back to the operator to take questions.

Thank you. At this time, we will be conducting a question and answer session. In the interest of time today, we ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 star keys. One moment, please, while we poll for questions. And the first question today is coming from Matthew Boss from JP Morgan. Matthew, your line is live.

Great, thanks, and congrats on another nice quarter. So, Tor, maybe to kick off, any notable changes in forward demand indicators or the consumer backdrop today? And if you could just elaborate on the shift that you cited in focus for 2025 to capitalizing on your well-defined product.

I think we don't see any surprises.

I think we have had a solid long-term plan, and so far we're coming in according to our plan, is really what I can say.

Great. And then. The second part of. Yeah, go ahead. Go ahead. I'm not sure I got that entirely, so please repeat.

So for 2025 and the release, you talk about capitalizing on your well-defined product and shifting your focus to that. So maybe just as we think about the 25 booking curves, how you're thinking about things.

Well, I think the way we started Viking, we said we think there's an unserved market for LVLAP. people who have lots of experiences and would like to be on nice ships. And I think that's what we continue to deliver on. As you know, many of our guests have been on other cruise ships and found that nice. But as, you know, we have a few key points in our product offering. We are proud we don't allow children on board. And I think that's a very strong point. We don't have a casino, so we don't have the noise that goes with that. and we don't like to nickel and dime people. I think those are very strong points when it comes to even experienced cruisers who can be on great ships, which produce lots of profits and lots of noise, but when they come on a Reitner ship, they can really relax, and I think that's a product that we are working on. We also, for new generation ships, we are looking at hydrogen fuel cells and so forth, so we can be

as environmentally friendly as we can, and that will happen two ships from now.

Great. And then maybe, Leah, if you could just elaborate on the composition of 2025 pricing, maybe specifically how trends are relative to your plan, or how best to think about river up mid-single digits on high single-digit capacity versus ocean up low double digits on high teens capacity.

Yeah, I think, you know, we've said it before, you know, as the booking curve evolves, we do it, we have been able to achieve mid to high single digits, I think, from a full year basis, that remains our, our expectation is that as the as the year continues to sell, you know, that would be where we would kind of expect things to land.

Great. Best of luck. Thank you.

Thank you. The next question is coming from Steve Wojcicki from Stifel. Steve, your line is live.

Hey guys, good morning and congrats on a very solid quarter. So as we look at your booking curves into 25, and with you guys now being almost 70% sold for next year, Just, you know, just trying to understand how you view your, you know, what we would call kind of your optimal booked position. And I guess what I'm trying to understand is, you know, maybe how that 70% booked position would look more on a historical basis. And, you know, are you guys getting to the point where, you know, you're maybe booking too much too far in advance? And I hope that, you know, I hope that makes sense.

Yeah, that makes sense, Steve. And I think that was what we had started to introduce in the last quarter and last quarter's call is that, you know, given that this year was an election year and there is some short term volatility as it relates to that, we had started to kind of accelerate the booking curve. But having said that, you know, it is quite accelerated. We are more accelerated this year than what we had been prior to COVID. And I think you will start to see some normalization of that moving forward.

So, you know, asking that a little bit differently, if we're sitting here a year from now, I would assume 70%, you probably wouldn't be 70% booked for 26. Is that fair to think about it that way?

Yeah, it's a balance between what yield you would like to achieve and also how further out you want to be booked as well. So, you know, for... 2020 you know looking forward a year from now we could be a little bit less sold but again you know that really depends on how we see things playing out and those are one of the leverages that we have in terms of that's the benefit of our our strong bookings right because you can start to see where how demand is shaping and then we also since we are a marketing company as well we are able to you know, throttle up or throttle down demand based on how we market.

Okay, gotcha. And then second question, you know, if I could, and I'm not sure you're going to answer this, but, you know, obviously for 25, you're very well booked out at this point. You know, if we started to think more about, you know, 2026, I guess what I'm trying to understand is that have you basically got your customer base to, you know, to essentially now book further out to, you know, to capture the best itineraries, cabins, whatever you want to think about it. So I guess, you know, what I'm trying to understand is if we think about, you know, where you're booked today for 2026, is it stronger than where you would have been booked historically at this point in time?

So our focus remains on finishing 2024 strongly and also, you know, making sure that 2025 is in good shape. Having said that, our guests, they're older, they do like to plan, they do know that we sell out, and so there are going to be certain segments of them that are more keen to book early to make sure that they either have the itinerary they want, the cabin that they want, and also our pricing reflects that. We like to make sure that the people who book early also have the best deal. It's a combination of many factors, but Again, you know, our focus is in closing out 2024 strongly and then also making sure that 25 is in good shape.

Okay. Gotcha. Thanks, guys. Appreciate it.

Thank you. The next question will be from Robin Farley from UBS. Robin, your line is live.

Great. Great. Thank you. Just looking at your booked revenue per cruise day for next year, and a quarter ago that had been at a 10% growth rate. Now it's at a 7% growth rate. And I think you guys have been very clear that that 10% growth rate would move down. I'm curious now that we're at this point in where the year is booked at that 70% rate, Should that 7% growth rate move up or should we still expect it to potentially move down slightly from that plus 7%? Or since you are booked further in advance than you typically are, is there a chance that 7% moves up? How should we think about that number? Thanks.

Hi, Robin. I mean, I think at the end of the day, our goal, as Leah just mentioned, is to continue to grow capacity. which you can see our order book, and also from a yield perspective, grow in the mid to high single digits. And we can see that for 24 and 25, we've been able to achieve that thus far. So that remains our goal. Obviously, you know, as you know, we don't give guidance, but where we stand today with 70% booked for 2025 at rates that are 7% higher, you know, with a 12% capacity increase, we feel pretty good about that.

Okay. Thanks. And then maybe I'll try to ask with Egypt, which, you know, given how far you book in advance, that a lot of this year maybe would have been booked already before October of last year. And so maybe actually the year ahead becomes a tougher year in terms of comparisons there, in terms of what ends up being on the books for 25 years. Is there anything that you would quantify since, you know, your Nile River ships, you know, are probably at lower than what would be a normal occupancy rate? Is there anything you'd quantify to sort of say the impact of Egypt on 2025 could be, you know, X percent in yield, you know, the typical definition including occupancy? Thanks.

That is actually a great question. You know, Egypt, we... feel very good about that product. It's great experience. It's actually one of our highest rated NPS scores. That being said, as a percentage of capacity, Egypt is a couple percentage points. So although it is a great itinerary with great yields, some small movements there won't move the needle that much. But that being said, your point is very well taken. We do agree. Egypt generally sells out very quickly.

Great, thank you very much.

And if I may add, we were there about a month ago, and the ships we have in Egypt are by far the best on the river. So we are continuing to build, and I think everybody is very impressed with the product, and we will continue to build.