Good morning, and welcome to our business update conference call. I am Arnold Donald, President and CEO of Carnival Corporation & plc. I'm joined today telephonically by our Chairman, Micky Arison, who is in Europe. And here with me in Miami. David Bernstein, our Chief Financial Officer; Beth Roberts, Senior Vice President, Investor Relations; and as part of our previously announced transition, our Chief Operations Officer, Josh Weinstein. Thank you all for joining us this morning. Now before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. This is my final business update as CEO. While very disappointingly, our share price unfortunately reflects the current market conditions, I am nonetheless very proud of all that the team has accomplished over the last 9 years. I am especially proud of how well we have collectively overcome what seemed like insurmountable obstacles at times these last few years. And I remain very excited about our future. With cash from operations now turning positive, we have reached an inflection point and, in fact, turned the corner and are headed on a positive trajectory. I'm not only excited about, I am also very confident in the future of our company, and I'm looking forward to its continuous success. I strongly believe in this team and we are enjoying a smooth transition. As Vice Chairman, far and away, my number one responsibility will be to support Josh and his management team as they work to build on the current momentum. Josh is a proven executive. He is well respected throughout the company. He served in key leadership roles. He's driven strong business results during his tenure. And he played an integral part in tuning the company…

Thank you, Arnold. And thanks again to Micky and the entire Board of Directors for this great opportunity. I strongly believe in our company and our ability to create happiness by delivering unforgettable and much-needed vacations for our guests. This need is even more important in the current environment given the stresses of the past 2 years and the value that we all place on shared experiences with friends and family. Now we are uniquely placed to deliver on this through our 9 leading cruise brands, each with a focus on meeting their specific guests' needs and wants. We plan on renewing our efforts to ensure each brand achieve clarity of positioning and effectively reaches their target audience. This, alongside providing cruise experiences that really resonate with their distinct guest base, will help each brand optimize its yield and growth aspirations to drive revenue. We also expect to capitalize on our revitalized fleet, our continued portfolio optimization efforts and our unparalleled destination footprint, particularly in the Caribbean and Alaska. In addition, we have an exciting sustainability road map that underlies all of our efforts. What also gives me tremendous confidence is our determined and resilient team around the world. They've proven time and time again for the last 2.5 years that they can absolutely achieve anything and they do it while staying true to Carnival Corporation's collective values and positive culture. All of this will help us accelerate revenues and returns, drive durable earnings growth and improve the balance sheet. As you said, Arnold, we are clearly at an inflection point and have a bright future ahead. I'm looking forward to putting the perspectives I've gained here in my 20 years in multiple roles to work for the benefit of our shareholders and our many other stakeholders.

Thanks, Josh. We're looking forward to your leadership. David?

Thank you, Arnold. I'll start today with a review of guest cruise operations, along with a summary of our second quarter cash flow. Next, I will touch on our 2024 mandatory auditor rotation. Then I'll provide an update on booking trends and finish up with adjusted EBITDA expectations and our current financial position. Turning to guest cruise operations. During the second quarter 2022, we restarted 20 additional ships, resulting in 74% of our total fleet capacity in guest cruise operations for the whole of the second quarter. This was a substantial increase from 60% during the first quarter 2022. As of today, 91% of our fleet capacity is in guest cruise operations. We were pleased to see that the second quarter 2022 revenue increased by nearly 50% compared to first quarter 2022, reflecting continued sequential improvement. For the second quarter, occupancy was 69% across the ships in service, a significant increase from the 54% in the first quarter. We were encouraged by the very close-in demand we experienced during the second quarter for the second quarter, resulting in nearly double the close-in occupancy gains in second quarter 2022 versus second quarter 2019, a trend we had anticipated. Revenue per passenger day for the second quarter 2022 decreased slightly from a strong 2019. As Arnold indicated, we are focused on optimizing occupancy while preserving long-term pricing. However, let's not forget the impact due to the future cruise credit, or FCC as they are more commonly called, which cost us a couple of percentage points in second quarter 2022 versus second quarter 2019. Excluding the impact of FCC's revenue per passenger cruise day, the second quarter would have been higher than a strong 2019. Once again, our onboard and other revenue per diems were up significantly in the second quarter 2022 versus…

Thank you, David. Operator, please open the call to questions.

. Our first question comes from the line of Steven Wieczynski with Stifel.

Arnold, congratulations, and it was a great run. So thanks for your service. So first question would be around the booking patterns, which clearly here are continuing to strengthen. However, I guess, investors are going to, at this point, based on where your stock is, they're going to look past booking -- current booking patterns and they're going to focus on what could come next given an uncertain macro backdrop. And I guess my question is, how would you guys attack a slowdown in bookings or load factors? In the past, you would have typically cut prices in order to keep load factors high. But this time around, if you do see bookings slow, do you think you guys and your peers will be able to stay more disciplined on the pricing side of things, so the recovery wouldn't be as steep on the other side?

A couple of quick comments. First of all, I wouldn't comment on what the others would do. You can talk to them directly. For us, we have, as we've been hit with different variants and invasion of Ukraine and other things and bringing more capacity on board, we've had to consider all of that. And at this point in time, largely we have done everything in mind of trying to keep our pricing strong going forward because we think that's the right move right now. The positive thing here is that there is pent-up demand. And so even if there was a global recession, the reality is we are, as I said in my comments, recession-resilient historically. And this time, if there was a recession, there's tremendous pent-up demand, which in the past wasn't necessarily the case because it's been a couple of years where people have not been able to travel the way they wanted to. So a combination of things. One is we are naturally somewhat recession-resilient. We have added tailwind of pent-up demand. And yes, we're focused on doing what we can to ultimately drive the cash we need but, at the same time, do in a manner where we can maintain pricing strength. David may have a comment.

Yes. Just one thing I'd add to that. Remember, Steve, not every recession is the same. And we are currently in a very strong labor market. And given that, if people have jobs and they feel comfortable in their jobs, they're likely to need a vacation. And remember, vacations are no longer a luxury, they're a necessity in today's world. So I think we will do very well. As Arnold said, we are recession-resilient and we'll do very well in a recessionary environment.

And then there's -- we'll see if a recession comes right now. Savings are really high. As David pointed out, employment rates are really low. And so there's economic strength for the time being. We'll see what happens.

Okay. Got you. And then second question, I guess, probably for you, David, around the recent debt raise. And we got a lot of questions from investors about why you guys would go out and raise debt north of 10% and maybe what drove you. Or maybe there was an underlying reason as to why you had to raise debt at those levels. And I guess from here, the question is going to be, what is the opportunity moving forward to refinance? Or maybe there is enough chance to refinance given where rates are at this point?

Yes. So if you -- as I said on the last conference call, we were looking to, over time, refinance the $3 billion of 2023 maturities, and we were focused on that. And we took a look and we believe that we're in a rising interest rate environment. And so we did go out and we raised $1 billion at 10.5%. It was a difficulty in the market, nobody could have predicted what would happen in the overall market. But what's interesting is despite the market backdrop, we were able to raise $1 billion within the price talk that we wanted on that day and we felt very good about that. We're looking to do $2 billion to refinance the remaining portion, as I said in my notes, over time. But we're just averaging in. If you look at it today, interest rates are higher than they were a month or so ago when we actually did our bond offering. So I'd say that we were in a good position. We feel good about what we did. And we'll look to refinance the other $2 billion over the ensuing months ahead. And we're just averaging in. Keep in mind, despite, I will say, adding 10.5%, if you look at our portfolio of debt, our average interest rate today is 4.5%. So we've done a great job managing the whole portfolio. And this is just one minor piece in the portfolio.

Next question from the line of Robin Farley, UBS.

Great. Arnold, best wishes, since this is the last earnings call you'll be joining it for. Good luck with everything. Had a question on occupancy. I think investors kind of struggle with how much of the lower occupancy is sort of temporary, like the Omicron cancellations in Q1 and new ships going into service at lower levels. And how much -- in other words, to try to kind of see the path demand there, I wonder if you could give us a little bit of color on sort of the sequential build in occupancy through Q2, I know you normally wouldn't give that level of detail. And/or maybe something with your visibility on Q3, which I think normally you would be 80% to 90% booked by now. And just kind of are you seeing, for ticket price relative to '19 and occupancy, with that level of visibility, I don't know if you can comment a little more specifically.

Yes, you bet, Robin. I'll have David share some details. But the overarching comment would be that we have real strength in occupancy. And we had some intentionally constrained occupancy as we brought ships on back online because of protocols in different places and so on. We also had some isolated situations where we're moving crew around temporarily as we were staffing up with crew and constrained capacity for those reasons as well. But overall, our occupancy -- but our occupancy rates, as we shared, have really improved over time here. And as we mentioned, the Carnival brand is looking at 110% occupancy in the third quarter. So we have more capacity sailing and occupancy is rising nicely. And as the world continues to relax and become comfortable managing the virus and restrictions are relaxed, we see things moving more into the direction of the Carnival brand where things are more normalized even though they still have some restrictions right now. David?

Yes. So during the second quarter, I mean, the variance between the months, it went from 67% to 71%, which is why we wound up overall with that 69% occupancy for the quarter. So -- and as Arnold said, we're approaching 80% for the month of June. And with booking trends good, we continue to build. So -- but keep in mind, that as I had indicated, we started 20 ships in the second quarter. And of course, there are a number of cruises, we're early on, we constrain occupancy to ensure we practice and the guests have a great time. And so we build on those ships, and you can see the benefit of that when we got to June. So we feel very good about the overall trend. It is positive. Moving in the right direction. And we do expect to see an improving trend in the third quarter and into 2023.

Okay. Great. And maybe just as a follow-up question on the expense commentary. You put -- you mentioned a lot of sort of buckets about pause status, ship restart costs, dry dock, all of those as being part of that 23% increase. And I know you mentioned that will improve significantly by year-end. I wonder if you could quantify a little bit of how much of that increase was just inflation in health and safety. In other words, the other factors all being somewhat temporary, the pause status, the restart cost, the dry dock, how much of those sort of 23 points are -- go away automatically just by having your -- the fleet back in service? Just so we can think about kind of where you could get to by the end of the year in terms of expense per passenger per se.

Yes. I think the best way for you to -- you can do your own quantification and it's pretty easy. If you think about, we were sort of 24% up per ALBD for the first half. And all you have to do is if you're mid-teens for the full year, you can back into where we were for the second half, taking out the pause status, the restart, the dry docks. Because I did say that the dry docks in the back half of the year were going to be sort of more normal like in terms of the number of dry-dock days. So if you back into the number, you'll be able to see where we are for the back half of the year, which is a better reflection overall than the first half. Now there's still noise in that because supply chain disruption and other things. And we are working really hard to manage that down. And we will do that. So -- but that's probably the best way to back into it.

I know that simple average would get you to kind of a mid-single digit for the second half. But I guess I was wondering by kind of the end of the year, really thinking about 2023, that's how I was looking for sort of what pieces would maybe go to...

I understand. And I'm not in a position to give cost guidance for 2023 at this point. But I was just trying to give you some directional. You can see what the back half is, and we'll manage through all of those items effectively over the next 6 months. And like I always say, we hope to do better. But at this point, it would be premature for me to give you cost guidance.

Our next question comes from the line of Jaime Katz with Morningstar.

I'd be interested in hearing how you guys are seeing differences between domestic and international consumers, particularly because of this transition of Costa ship, maybe being this rebranding with Carnival and whether or not that's signaling anything?

Yes, I think just generally, obviously, Europe in many ways is more challenged from consumer demand standpoint as it relates to travel to an extent than North America. And what you're seeing in the move with Costa by Carnival and the transfer of the Luminosa in Australia to Carnival is part of a rightsizing of Costa for what we see as a European environment which has complicated not only by COVID and macroeconomic conditions, somewhat triggered by invasion of Ukraine, but also the invasion of Ukraine. And so all of those things are impacting the European market sector. So we're reallocating to brands that have stronger demand, that are in a stronger position. That's one of the beautiful things, our assets are mobile. So -- but overall, we still see strong demand in Europe. And there are portions of Europe, the U.K. in particular. Also we see some continuing strength in portions of Germany and what have you. And so we see a good market in Europe, a strong market in North America. And we're just reallocating across the brands to optimize our portfolio and maximize the cash generation and position us for the long term.

If I can build on that a little bit. I did want to point out, so we talked about our bookings in the second quarter nearly doubling the -- what they were in the first quarter. So the NAA brands were a little bit over double than the EA brands, which includes Costa, we're a little bit less than double book, I mean everything is heading in the right direction. There is good, solid, strong demand in all the brands. But the NAA brands are doing, from a booking trend perspective, a little bit better than the EA brands. I'd also like to point out, add to Arnold's comments, about Costa by Carnival. Because keep in mind, a big chunk of Costa's capacity in 2019 was in China. And so with that market at the moment closed, we rather than take all of that capacity and put it in Europe, we created a new market towards the Carnival guests which we think will expand the market here in North America and we'll be in a much better position overall. So we feel very good about all of our brands and the direction and we are managing it appropriately as you could see, what Arnold talked about the moves of the ships.

Okay. And then David, I don't think it was explicitly noted, but in the past, I think you guys had pointed to 2023 EBITDA above 2019 levels. And do you still feel like the business is tracking in the right direction to achieve that?

So I said that quite a number of times. I think we are -- what I've always said is we have the potential for EBITDA to be greater in 2023 than 2019. That one big wildcard, of course, is the price of fuel which has risen quite a bit in the last few months. So just keep that in mind. But there is, with the occupancy improving over time, there certainly is that potential.

Our next question comes from the line of Patrick Scholes with Truist.

Arnold, best wishes as well. Well, first question is, can you comment on your potential willingness to sell brands to -- one or more brands to help shore up the balance sheet?

Well, we're very pleased with our portfolio of brands. Having said that, our job is always to keep an open mind and do what's best for the shareholders. And so we would absolutely, again, evaluate any and all options. But we're only going to do what makes sense for the shareholders given our projections of opportunity given the portfolio we have.

Okay. Fair enough. And then my second question is a bit of a clarification on some of the text in the earnings release where you noted that cumulative advanced bookings for the second half of '22 are now below the historical range, which implies -- obviously it was lowered from the previous where you said it was at lower end. Specifically, you noted here, this position is consistent with its expected improving occupancy levels for the second half of '22. Can you explain a little bit more what that last phrase means? I'm not quite understanding what you mean by consistent with expected improving occupancy levels.

Yes. So what we were trying to -- yes, what we're just trying to say there is, like Arnold indicated, that in the month of June, in his prepared remarks, he said occupancy was approaching 80%. And so what we were trying to say is despite the fact that we were below the historical range, we do expect, because of the closer-in nature of the booking patterns, to see occupancy in the back half of 2022 to be higher than the 69% in the second quarter. And that's all we were really trying to indicate to people with that statement.

Next question from the line of James Hardiman with Citi.

Arnold, I wanted to reiterate congratulations and good luck with what's next. Wanted to hone in a little bit on some of the pricing commentary, particularly the revenue per passenger cruise day. I think you said that number was down a little bit. There was some -- a little bit of an FCC headwind there. But I think that same number was up north of 7% in the last quarter. Obviously, there's this growing concern that the industry is going to need to push price a little bit to fill these ships. Maybe speak to that idea. As we continue to fill up the ships in the third quarter and beyond, should we expect that pricing number to go down, down further? And then obviously, we're going to get back to some of that FCC impact. But sort of excluding that piece, how should we think about revenue per passenger cruise day as we continue to raise occupancy?

So -- okay. I think, overall, Arnold in his notes talked about the fact that we were focused on maximizing occupancy while preserving price in the long term. And so we are very keen on that. We did increase advertising expense in the second quarter for that purpose to create more demand. We are seeing more first timers. We had mentioned the fact that we saw a significant improvement in first timers. So what we're trying to do here is we're building towards historical occupancy levels in 2023 with better pricing. As we indicated, the pricing for 2023 is up. But with the shorter booking window and the use of OPay channels and the use of limited promotions, we are driving occupancy in the short term in order to optimize the EBITDA and the cash flow from operations of the business. So while I'm not prepared to give you guidance on the third and fourth quarter gross revenue per PCD, which, by the way, if you just think about the third quarter, one of the things to remember is we hope to have a lot of kids on board in the third quarter. And those thirds and fourths will also generally, they add to the revenue, they add to the bottom line. But they will also on a per PCD basis be lower than the lower berths, both for the ticket and the onboard. The kids don't generally spend as much on board either. But we're happy to have them all on board. So there are factors in there that you have to consider as you think about the trend per PCD from third to fourth quarter and beyond.

And with the increase in occupancy that we experienced in the second quarter, even with also the capacity increase we had in the second quarter, when you normalize the FCCs, our pricing did not decline.

That's really helpful color. And maybe you already answered this to some degree, but if I sort of zoom out here for a minute. Historically, the industry has largely used this price to fill paradigm. And I think with some of these metrics, the concern is that we'll return to that. We were -- pre-pandemic, we were -- it seemed like in a better place, thinking more about long-term pricing opportunity. Maybe speak to if there's been any change in your philosophy pre pandemic to now just given the importance of filling up these ships and getting to positive free cash flow.

So one of the things that you have to think about in all of this is, over time, we are already seeing it, but we -- the protocol friction is reducing. Just recently, they dropped -- the U.S. dropped the testing requirements for people to get back into the U.S. from international places. And we are seeing -- we are starting to see the ability for us to reduce our protocols and reduce the friction. And I think that will bring back people from the sidelines and will create additional demand which will allow us to get better occupancy at a better price. So directionally, with more first timers coming on board and the reduced protocols, we feel very good about the future over the next few quarters in 2023.

And keep in mind, as you track all of this, that there are mix issues in here, too. Just portfolio mix and overall brand positioning as well as specific itinerary -- itineraries available and what have you. So the average price is, there's a lot of noise in that. And the overall -- the message we're sending and what we are experiencing is an encouragement of a strong market coming back, pent-up demand and us carefully managing that, thoughtfully managing it, as we create the cash and at the same time position the business well for the future.

Next question from the line of Dan Politzer, Wells Fargo.

And Arnold, best of luck. And Josh, congratulations on the new position. So I had a question on customer deposits and how we should think about this for the rest of the year. Obviously, it was very strong in the second quarter. I mean, there's typically a decline sequentially. So just as we think about cash flow for the rest of the year and how customer deposits flow through, is it safe to say that the third quarter should -- is not going to be cash flow positive or -- just given that there's that sequential decline? Or given the extent that you guys continue to recover in terms of your bookings and operations, the third quarter could continue to be cash flow positive?

So that's a great question and we've been trying to answer that. I will tell you that in the last -- since the end of May, customer deposits have continued to increase. They're up a few hundred million dollars. So that at least directionally in the last -- what has it been, 3.5 weeks, that's where we're at. Normally, during the third quarter, there is a reduction because we reach the seasonal high peak at the end of May. But there are offsetting factors this year that we would expect to see. With more ships coming back online and higher occupancies, that should mitigate any normal seasonalization. Whether it completely mitigates it or not, it's very hard for me to predict at this point. But there are some mitigating factors to the normal seasonalization of customer deposits.

Yes. One more quick one, if I could just squeeze it in. On just the newer cruise product, a lot of your fleet has been refreshed. To what extent have you been able to capture that pricing? Typically, the newer product gets a premium price but this is kind of a weird environment. Have you been able to capture that? And if so, any kind of metrics or a way to quantify that?

Yes. It's very hard to tell. I mean we look at so many things, but...

There's so many variables right now.

So many variables right now, it is just very, very difficult to tell in a comparison going back to 2019. So we look at the total, we manage it appropriately. I will tell you, those new ships are performing very well, high levels of occupancy, generating significant cash flows. And as we move forward, I suspect that we will be able to continue to generate a premium there. Arnold indicated nearly 1/4 of our fleet will be new in 2023 or newly delivered. The average age of our fleet, believe it or not, I think I said this before maybe on one of the previous calls, but from 2019 to 2023, despite the passage of 4 years, the average age of our fleet went down 1 year. So that we've got a lot of new capacity which should help very well both on the revenue side and on the cost side from an efficiency perspective and better fuel consumption. So we are very excited about the future and delivering memorable vacation experiences to probably 14 million people in 2023 as we go for historical occupancy levels.

Our next question comes from the line of Assia Georgieva, Infinity Research.

Arnold, you'll be missed. But Josh, very happy that you received this great position responsibility and triple promotion. So I do have a good question for you, hopefully. With the Costa by Carnival concept, that is obviously something that would be a long-term fixture. We're not just moving ships around for the next 2 or 3 years. Do you believe that this is something that could be expanded? And does the Costa fuel play any role in terms of what ships might actually continue to join the new concept? LNG deliveries have been somewhat difficult, I guess, in Europe. We had issues with Costa in South America last winter season. So how do you see the development of the concept? And what are the key parameters that would actually play into it?

I'm going to have Josh comment on the overall brand positioning and stuff as we go forward. But real quickly on the LNG fuel question. LNG, as you know, is the cleanest burning fossil fuel. It gives us a 20% reduction in carbon emissions, et cetera. But the shifts are dual, so they can also burn MGO. And so that, unto itself, wouldn't impact the future of the Costa brand. We'll burn LNG whenever it makes sense to do so, which we think will be the majority of the life of the ships. But there are times where we'll obviously opt to burn MGO. But in terms of the Costa by Carnival positioning, it's a new concept, and I'll let Josh share his thoughts on it. Go ahead, Josh.

Just one thing to clarify. Obviously, the 2 ships that we're talking about that are going under this Costa by Carnival umbrella are not LNG ships. So that obviously didn't enter into our mindset at all. So just to reiterate Arnold's point. And with respect to the positioning, I think this is a great example of leveraging the scale of this corporation. Because what we could have done is taken those ships, new beautiful ships, solely under the Costa name and try to introduce them into the North American market on a stand-alone basis. But this is actually the opportunity to leverage everything that Carnival does so well here in the United States and Canada for its guest base. So by marrying that along with Costa's beautiful tonnage and onboard experiences, we have the ability to marry that up and make a best go of creating something really special. So the short answer is, we absolutely expect this to be successful and we don't look at this as something short term. But ideally, it will be something that works and we can build upon.

Okay. So currently, no further plans. Obviously, you've made plans for 2023 and 2024. So that's plenty of time and capacity coming in the 2 ships. So at this point, it's too early to discuss whether this would become sort of a mini brand on its own.

Yes. I think let's try it out with two ships, and then we'll see how we do. But that's it for now.

Thank you, everyone. Go ahead. Go ahead. I'm sorry. Okay. Thank you, everyone. Really appreciate it. And looking forward to listening to these as we go forward and hearing the great news coming from Josh and our team. So thank you all very much, and have a great day.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.