Norwegian Cruise Line Holdings Ltd. (NCLH) Q3 2013 Earnings Report, Transcript and Summary

Good morning and welcome to the Norwegian Cruise Line third quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I would now like to turn over the conference over to your host Ms. Andrea DeMarco, Director of Investor Relations. Ms. DeMarco please proceed.

Thank you Karen. Good morning and thank you for joining us for our third quarter earnings call. I am joined today by Kevin Sheehan, our President and Chief Executive Officer and Wendy Beck, our Executive Vice President and Chief Financial Officer. Kevin will begin the call with opening commentary and Wendy will follow with more detail regarding the quarter. Kevin will then provide some closing comments after which we will open up the call for your questions. As a reminder, this conference is being simultaneously webcast on our Invest relations website at www.investor.ncl.com and will be available for replay for 30 days following today’s call. Before we discuss our results, I would like to cover a few items. Our press release for the third quarter 2013 results was issued yesterday and is available on our investor relations website. I would like to review information about forward looking statements and the use of non-GAAP information as a part of this call. Some of our comments today may include statements about our expectations for the future. Those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future period to be materially different from any future results or performance suggested by these expectations. We cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any forward looking statements during the quarter. If you would like more information on risks involved in forward looking statements, please see our SEC filing. In addition, some of our comments may represent non-GAAP financial measures in reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website. With that, I would like to turn the call over to Kevin Sheehan. Kevin?

Thanks Andrea and Good morning everyone. Thanks for joining us today. I was looking forward to the third quarter of each year not only because it is our seasonally strongest quarter and our ships are positioned in some of our most exciting itineraries areas but with kids out of school and parents looking for well-deserved break, it is when our ships sail most full meaning, it is the best opportunity to engage the largest number of guests by operating an unsurpassed experience that will make them lifelong Norwegians. Once you sail past the breathtaking Na Pali Coast in Hawaii on the Pride of America, we are being splashed with paints during our performance of Blue Man Group on the Norwegian Epic or walk the plank in the middle of the Atlantic on the Norwegian Breakaway you’ve created memories of a lifetime and ones that can only be created on a Norwegian cruise vacation. In the third quarter of 2013, our capacity increased by 15% with the addition of Norwegian Breakaway to the fleet. Our deployment included four ships in Europe demonstrating our commitment to the region with pricing gains and traction over the last year. With three ships positioned in Alaska for the first time since 2009, and while we grow into our shoes with the introduction of a unique new itinerary, we remain committed to a region that a must do for seasoned and Northwest cruises alike. And our capacity in Hawaii increased slightly as state rooms on the Pride of America which began built during her dry dock earlier this year opened to receive their first guests in September. The addition of these 24 luxury suites, four inside and four Studio staterooms demonstrate our continued focus of not only improving on-board experience for our guests but also enriching the returns of our existing fleet. The built that of studio staterooms along with the addition of the Moderno Churrascaria also demonstrate how we are taking the learnings from our new builds. In this case, both concepts being drawn from Norwegian Epic to continually enhance the guest experience throughout our fleet. The quarter also marked first full quarter of operations for the 4000-berth Norwegian Breakaway and her results and guest experience have exceeded expectations. Guests and travel agents alike continue to rave about the variety of dining, entertainment and accommodation options as well as the energetic atmosphere that keeps that ship buzzing late into the early morning hours. She finished her normal season in Bermuda and has now transition to seven-night itineraries from New York to Florida and the Bahamas. The expectations surrounding Norwegian Breakaway were many. She is the first of our new builds launched with the principles from our continuous improvement in platinum standards programs and the results were evident. With some of some of the best and the brightest crew from across our fleet to ensure that her introduction was a success on the operational side, the result has been a measurable improvement in guest satisfaction scores in the first month of operation when compared to our last new build Norwegian Epic for the same period after her introduction. She operates to healthy premiums in both ticket pricing and on-board spend and contributed to our industry leading 4% increase in that yield in the quarter. Norwegian took the traditional concept of cruising and turned it upside down with the introduction of three-star cruising. The Breakaway class provides even more freedom and flexibility as the latest generation of free-stop vessels. Communicating the unique experience we offer to potential guests is extremely important which is why I want to thank all of our loyal travel partners who are the best educators and promoters of our product. It is in large part due to their hard work and dedication that has made Norwegian Breakaway the success that she is and got enough through much of the challenging environment in the industry over the last few years. Now the same travel agents are poised to benefit from Norwegian growth that is unparalleled in the industry. That growth includes Norwegian Getaway arriving in January 2014, and the recently named Breakaway plus vessels the Norwegian Escape and Norwegian Bliss, debuting in the fall of 2015 and spring of 2017 respectively. But I will talk a little bit more about these exciting new vessels later in the call. Turning to our performance in the quarter, higher net yield coupled with business improvement efficiencies resulted in EPS slightly above our guidance range. And while I am always pleased to report results that beat expectations, I want to point out that they come in environment that has been more challenging than we had expected at the beginning of the year. Incidents earlier in the year have now have been coupled with the macroeconomic events that included deliberations around the government shutdown and debt ceiling. While the [indiscernible] was eventually resolved those 16 days of the government shutdown coincided with the challenging booking environment. As a result, as you guys know us, we are working harder and harder to get through these macroeconomic industry related events that have led to a heightened closed-end booking environment. Knowing the value of the proposition of a Norwegian cruise vacation will always resonate with consumers, but before looking ahead we should look at the quarter just and it’s our turn the call over to Wendy for more detailed commentary on our third quarter results. Wendy.

Thanks Kevin and Good Morning everyone. The following commentary unless otherwise noted compares third quarter of 2013 to the same period in 2012 and figures are given on as-reported basis. Net revenue in the quarter increased 19.6% to 596.1 million from 498.4 million as a result of an increase in capacity days and an improvement of net yield in the quarter. A 14.9% increase in capacity days was driven by the addition of Norwegian Breakaway for the full quarter. Net yield for the period improved 4.1% or 3.9% on a constant currency basis with growth in both passenger ticket and on-board revenue. Net yield from passenger ticket revenue increased 5% with net yield from on-board improving 1.5% both helped by the premium pricing enriched on-board offerings of Norwegian Breakaway. Looking at expenses adjusted net cruise cost excluding yield per capacity day increased 4.6% or 4.3% on a constant currency basis and below the lower end of our guidance mainly due to better than expected results from business improvement initiatives in the period. As always, I would like to reiterate that the effective timing and other factors made net cruise cost matrix better analyzed on an annual versus a quarterly basis. Fuel prices in the quarter increased to $695 per metric tons compared to $679 in 2012. While higher fuel prices had an impact they are partially offset by efficiencies, particularly the addition of the fuel efficient Norwegian Breakaway, which helped to reduce overall fuel consumption matrix when compared to prior year. The hard work put in over the past few quarters to optimize the balance sheet including the redemption of higher rate debt and the refinancing of certain credit facilities resulted in a sharp 44% decrease in interest expense in the period to 26.6 million from 47.2 million in 2012. To give you further evidence of the benefits of these transactions you only have to look at the trend in our cost of debt. On December 31, 2012 our weighted average cost of debt was at 6.6%. On March 31, 2013 our cost of debt was 5.4% as we used proceeds from our IPO and 300 million of the 5% seen or unsecured notes offering to redeem certain high rate senior notes. Currently our cost of debt has decreased to under 4% after refinancing certain existing credit facilities and redeeming the outstanding balance of our higher rate notes. Summarizing results for the quarter Norwegian Breakaway’s first full quarter has helped drive top line growth in both whole dollars and net yield while net cruise cost was better than expected as a result of business improvement initiative. The result was a 21.2% increase in adjusted EBITDA to 271 million and an improvement in adjusted EBITDA margin in the quarter to 34% from 33.2% layering in lower interest expense as a result of the aforementioned transactions. Our bottom line result was a 42.1% increase in adjusted net income to 182.2 million from 128.2 million and an increase in adjusted EPS to 86 cents from 72 cents in 2012. Looking ahead deployment for the fourth quarter shows the majority of our capacity returning to warmer climates. 55% of our capacity will be in the Caribbean with the deployment sailing from home ports in Miami, Tampa, New Orleans, and New York. 17% of our capacity will be in Europe with the remaining capacity spread between Hawaii, Panama Canal, Bermuda and other cruises. Lastly, we have provided guidance along with associated sensitivities for both the fourth quarter in full year 2013 in our earnings release. The following guidance matrix are both on an as-reported and constant currency basis. For the fourth quarter we anticipate an increase in net yield between 4% and 5%. Note this increase comes against the strong counts from prior year during which we had helped pricing in the wake of Superstorm Sandy. Adjusted net cruise cost excluding yield per capacity days expected to increase between 6% and 7% due to a dry-dock for Norwegian sky and partial launch expenses for Norwegian Getaway which enters the fleet in January 2014. Also affecting year-over-year comparisons with the troop of compensation expense in 2012 as the impacts of Hurricane Sandy and the incident at Italy on our earnings for the year resulted in us falling shy of our internal bonus compensation targets. Regarding adjusted earnings per share, we expect to be in the range of 13 cents to 18 cents. For the year we expect net yield to increase 4% to 4.5% and adjusted net cruise excluding fuel per capacity day to increase between 3.5% and 4.5%. Lastly, the guidance range for adjusted EPS has been narrowed to between a $35 to $40. As I stated on our call last quarter industry incidents and the answering media coverage impacted not only our results for the quarter, but our guidance as well. As with last quarter our growth particularly in net yield has been tampered a bit from our view at the beginning of the year. However, we still report a great result and continue to guide solid growth in Q4 in a full year. Looking to 2014, we expect adjusted net cruise cost excluding fuel to stabilize and decrease in the range of 1% to 2% as we return to our more normalized dry-dock schedule and new build launch expenses roll over year-over-year. With that I will hand the call over to Kevin for some closing comments.

Thanks, Wendy. As I mentioned earlier the positive results of the quarter came in an elevated closer-end booking environment. But while there have been some bumps in the road that entirely have some effect on bookings including the government shutdown of debt ceiling, we already know we have a bright spot to start the year strong. Norwegian Getaway will debut in the first quarter with some inaugural activities in Europe before crossing over to New York and eventually to her home year-round port of Miami. There are many reasons to be excited for her arrival in the magic city. Like her sister ships she embodies much of what makes her homeport city unique and Getaway will have many touches that are unmistakably Miami. From the Tropicana room and complementary dining venue that evokes the Miami Beach of the 1940s and 1950s, The Fontainebleau a causal pool side dining venue serving off [indiscernible] dishes from throughout Latin America that could be capped with a Cuban coffee otherwise known as the rocket fuel that keeps Miami buzzing. Getaway’s godmother is also deep in the tides of the city. Being a fairly young city institutions are still developing in Miami; however, one institution has immediately linked to the city is the Miami Dolphins Football team which is why we are proud to have the Miami Dolphins Cheerleaders as godmothers for Norwegian Getaway. Their enthusiasm and commitment not only for their team but for the community of South Florida make them a perfect choice to represent Miami’s ultimate ship. But aside from her features and amenities one of the most important aspect of Norwegian Getaway is her positioning as not just the largest ship to homeport in Miami year round but also is Norwegian’s first year-round seven-night Miami ship in over 10 years. The importance of this year-round return to Miami cannot be understated. There was a time Norwegian ships were year-round staple at the Port of Miami, but deployment decisions predicated on the sites of fleet left us without a year round presence for almost a decade. The impact of our absence was particularly felt in the summer months. For years potential guests assuming we had a year-round presence were met with disappointment when looking to book a summer Caribbean cruise with us. It was also difficult for travel partners as they would have to make conscious effort to remember what became a difficult phrase for us to digest that Norwegian did not sail out of Miami in the summer. That would no longer be the case, as we not only bring in a year-round ship, we bring in one of the most – one of the largest and most innovative ships to Miami. Getaway’s presence in Miami does double duty for filling the demand from guests for year-round option in the Caribbean, as well as keeping Norwegian top of mind for travel agents wanting to provide their customers with the freedom and flexibility of a Norwegian cruise out of Miami at any time of the year. If the performance and recent awards received by Norwegian Breakaway are any indication, we are feeling pretty good about how Norwegian Getaway will be received in Miami. Breakaway recently took home the US and UK Editor’s Choice Award for Best New Ship from cruise critic along with the Gold Award from Travel Weekly and the contemporary and large ship categories as well as the award for Pool Design for the Innovative Water Park. Miamians will now be as lucky as New Yorkers to have the most innovative vessels ever sailing year round from their homeport. Before turning over to questions, I would like to comment on the talk about the industry regarding capacity in the Caribbean particularly in 2014. With Norwegian Getaway and Breakaway, we have two of the industry’s newest and most innovative vessels sailing to the region from two of cruising’s busiest ports and while they share a common region as their destination, they are different products with different of ports of calls and different sourcing regions and patterns. By home porting Norwegian Breakaway in the country’s largest metropolitan area, we are able to source the majority of passengers from in and around New York City and the Northeast. Meanwhile, Getaway’s sourcing along with the sourcing for ship sailing from warmer climates to the Caribbean, we cast a wider net and take a more national focus. These differences and nuances are key with looking at the capacity change in the Caribbean. Another nuance is utilization of Norwegian Pearl as a part of our seasonal Caribbean deployment out of Miami in 2014. While she is contributing tonnage to the region, the majority of her sailings in the first quarter are chartered, reducing the capacity we have to sell for Caribbean sailings. The same is true in New York for Norwegian Jade, which has been chartered for a month long stint to accommodate guests at the Winter Olympics. We are entering 2014 executing on our strategies of driving demand to our incredible product enhancing the guest experience that continue growing a family of loyal Norwegians and smartly investing in our fleet and leveraging new builds to drive increased returns from our unique assets. It is with that backdrop that we expect earnings to grow approximately 60% in the coming year. With that we will open the call up to questions. Operator?

Thank you Mr. Sheehan. (Operator Instructions) Our first question comes from the line of Felicia Hendrix from Barclays. Felicia Hendrix – Barclays: Hey Kevin and Wendy and everybody. Good Morning. I want an answer. Kevin, you kind of knocked in that last sentence pretty quickly. I wanted to touch on that and in light of your comment earnings to grow back 60% in the coming year may be you can just talk about what you are seeing in 2014 and give further color on the sourcing and the capacity that you are adding but it may be you can just help us to understand better what you might be seeing by region not only in light of your own capacity increase but your competitors that would be helpful. Thank you.

Sure, Thanks Felicia. You know when you – when you look at the business and as you guys all know I am very in all when looking at the stuff 20 times a day and looking at the booking trend for 2014, I want to make sure I provide little bit of context. As you remember, and I have said this many times over the last couple of years especially since we have been public, I think focus of mine when we came out of the economic downturn in 2009 and 2010 was a very important focus on the booking curve and getting our business to be at a solid position when we come into the New Year and as we finished 2011, we had our best booked position that we have had going into 2012, and then as we finished 2012, we had actually even improved upon that as we went into 2013. So it is important to see you know that we put a lot of emphasis on that and we continue to do that. For this period now as we look at the booking patterns, we for the most part – I am going to break it into two stories, the first quarter and then I am going to say the rest of the year. So our booking position is solid and on par with last year or little bit ahead in some of the quarters except for the first quarter. The first quarter we are booked a little bit behind and it is a conscious decision by us and it is always a delicate balance between you want to be booked or you want to go for pricing and the situation that we are in right now is that we are booked slightly behind and there are a couple of reasons for that; one being that the Easter break which the big time off, as you know, especially, the Northeast is toward the end of April this coming year versus it was I think March 31 for 2013, so that booking momentum has changed a little bit into the second quarter. The other thing is that we are solidly priced in the first quarter of 2014, I would say that the pricing is above the mid-single digits to not give too much specificity to it, but so that – that is the balance that we are working through, we want to continue to push on pricing and, and you know – and keep a careful eye of course on the load. So that is really the booked position and I would say when you look at the Caribbean as a percentage of the booked position, we are pretty consistent with the booking position for the first quarter of 2014 with our overall position and you know having said that are we happy with it, I think I would like to see it a little bit stronger. We have a couple of things going on right now that is giving us some momentum so you know. Every week it is a critical time to look at everything and make sure we gauging everything and hopefully you guys have seen how we have done this in the past and you know industry leading pricing in the quarters and all the rest of it. So we are going to continue to run the business for the long term success of this business and we watch every single quarter but we are also keeping you know, a very careful eye on 2015 and 2016 and the next 10 years. Having said all that let me just give you a little bit of color on 2014, and yes it was a 60% increase in EPS that we are – just keep in mind that we are very early in the budget process, but I glean the information from what I’ve been able to see so far and we are couple of weeks from this time and I actually get into and go through a forensic review of every single lined item. But where I see it now and why I feel pretty comfortable that we will be at a 60% increase for 2014 as our yields the way I see today will grow with a yield increase of something that hopefully begins with 4 whether it’s, you know, the low 4s or the mid 4s, it’s too early to say, but I am comfortable to say that that’s yield side of it. On the per capacity day basis, we see that our costs – as we have told you that with the anniversary the dry docs that we had in 2013 we expect our per capacity day cost basis to come down by 1% to 2%. So there have been two big contributors into it. Wendy gave you a lot of color on the balance sheets that you could see where are interest cost is and then the depreciation, you just have to, you know, weight in the additional ship in there and the tax cost of the interest given the fact that we have an American ship will be in the range of 3% to 4% on a long term basis. In 2014 it will be a little bit less about 2% as we move through that converting from recouping losses to being in the earning side. That’s kind of how we get to the 60% increase in 2014 and as we get further into the year we will have a lot more color when we come back with the year end results there will be 12 more weeks of data and we could provide some more specificity behind that.

Our next question comes from the line of Robin Farley from UBS. Robin Farley – UBS: Great, you gave a lot of color that actually clarified a bunch of things. I just need two points of clarification when you mentioned 60% earnings growth next years, is it fair to say that you’re also talking about in the 60% range as well in other words that just taking the pieces that you mentioned it seems like it would actually be up a little bit more than 60% and you have committed to a number but you clarify that and then also you mentioned Q1 – I think you were saying mid-single digit price increase on the books and I assume that that includes the mixed benefit of having – because it will be breakaway of first Q1 as well as gate away. I want to see if you could give us any color answer on kind of same ship growth, how that looks just to get a sense of premiums from the new ships versus the [indiscernible]?

Sure, yes, so the way I came with the 60%, I took the midpoint of the guidance we had for 2013, which as a matter of fact we have gone from $20 to $40 when we first went out the guidance to that quarter $30 to $30 to this quarter $35 to $40. So each time we have raised up the lower end of that, so at the midpoint $37.5 and if you take 60% on top of that you get to, I believe, $220 and you know hopefully as we get more clarity on the environment we will build from there. But I think for the most part when you look at it and taking into account the consensus that we see the couple at large but you we are comfortable in that low to mid-220 range at this point, so that is that. For the first quarter you are right, you know we have the benefit of the breakaway for its first quarter and we also have the getaway coming in probably by the time we actually are diverting up to new which was not originally scheduled for a big event that we happened to be hosting in New York that I cannot talk about – that happens to be a big event in New York at the end of January, beginning of February which will go without any further clarity and then we come down to Miami, so it’s a partial quarter. But when you cut through and you look at the pricing that we expect on our new ships and then you look at the organic pricing, we are in the range of we have said is our long-term guidance. You know I would, 2.5% to 3% is probably the comfortable level that you could see, you know, the give or takes in the different ships and each one is behaving a little bit different, it’s never a straight line. Robin Farley – UBS: Okay, great, that’s helpful. Thank you very much.

Thank you. Our next question comes from the line of Gregory Badishkanian from Citi Group. Gregory Badishkanian – Citigroup: Great, thank you. If you comment what’s driving the 4+% in that yield growth in 2014. How do you foresee the Caribbean discounting environment which is pretty aggressive by one of your big competitors and how do you see, you know, which are expectation for year up developing for 2014 to get to that, kind of that 4% guidance?

Yes, I think it’s a mix bag, I think. We are working from, as I said, with the load, we are balancing that but when I look at the pricing in the first couple of quarters in the Caribbean we have a healthy pricing environment right now. So you know it’s going to be you know let’s get through another few months to see how that continues along but we are managing at this capitol as possible and we are – you know it’s a promotional market now and you know we’re in there as well as everyone else and we are working our way through it. I suspect that as you know the consumer has a short-term memory and as we have had a pretty benign environment for now, a period of time, and as we get to the beginning of the wave season I expect that the consumers will remember the phenomenal value of a vacation and things will back more towards you know the expectations that we all have for 2014, and hopefully that will be a little bit of positive. Gregory Badishkanian – Citigroup: All right. And just finally, in terms of the promotional environment right now – you know, let’s says for the last one or months, have you noticed any difference in the promotional environment in the Caribbean or is it been pretty stable?

No, I think it is a little bit more promotional and I think you know we all want to make sure we are doing as best we can but we are working our way through it. I got to tell you this is the thing that I think everybody needs to remember that this is a competitive industry. Since I worked in here, we have had different markets that have been you know competitive and we work our way through them and then we get on to the next market and the next quarter and you know we all kind of focus absolutely on the things we need to do and as an industry I think that’s proven out to be you know the success of the industry over the long term. Gregory Badishkanian – Citigroup: Alright. Just to clarify me, I know it’s been very promotional the last number of months but the last month or two you’re saying it’s gotten more promotional or it’s been just consistently very promotional?

Yeah, I think it’s been pretty consistent. You know, I would not say it’s like you know a huge difference in what it’s been from prior year. Fourth quarter is usually the time, you know, you will remember we build our businesses, but peak parts of the year are the second and third quarter and we will all work very hard to be thoughtful of that how we book our ships for the first and fourth quarter to be in a stronger position coming into them as possible and you know some of the stuff that has happened in the year has put us a little bit, you know, behind, so that’s why there is a little bit of heightened promotional activity but not enough to say it’s a different market. Gregory Badishkanian – Citigroup: Right, okay. Thank you.

Thank you. And our next question comes from the line of Harry Curtis from Nomura. Harry Curtis – Nomura: Hi, good morning. Just wanted a follow-up on the European piece. Can you give us a sense of the mix of Europe for all of 2014, and I do not know if you may have missed it but did you get into the level of detail on your expectation for Europe as you did on Caribbean?

Yeah, how you doing by the way. For 2014 European deployment it’s about 20% for the entire year as you know peaks a little bit in the second and third quarter as we have the Epic in there and we have a ship up in the Baltic, so that’s consistent with what we have this year. I made the conscious decision to stay with the ships and you know to be honest about we debated quite a bit about whether we should move the ship but something very critical to me was keeping consistency of our ships in the market, so that are travel agents knew where we were and they started to rely on us being more consistent and that helps our booking behaviors from the travel agents and the pricing has been, you know, a positive from the way we are looking at it today and are positioned in 2014, as we get out to the summer is loaded well, so we are feeling pretty good about Europe right now. Harry Curtis – Nomura: Do you think the pricing is it fair to use mid-single digit range in that pricing?

Yes, I think that’s a reasonable assumption. Harry Curtis – Nomura: And then just the…

Remember but it’s after being down quite a bit as you know in the last couple of years, so we are just [indiscernible] our way back as an industry. Harry Curtis – Nomura: Yes, so in end the last quick question was housekeeping item. Can you give us the average price of you fuel hedges for 2014?

Sure, so we are 64% hedge in 2014 and we used US Gold Crust 3% as our hedge proxy, which historically has had a high correlation with what we consumed and the rate is in the high 80s. Harry Curtis – Nomura: Okay, very good. Thanks very much.

Thank you. (Operator Instructions) Our next question comes from the line of Steven Kent from Goldman Sachs. Steven Kent – Goldman Sachs: Hi, Good morning. Two questions. First, Kevin you mentioned a couple of times that during the government shutdown, things got weak. How weak did they really get? I mean that’s a low period anyway but did you actually turn negative on bookings and phone calls and this level of activity? And then second, what kind of premium are you getting on the new ships as you go out into 2014? I think at one point it was 30% to 40% of a premium to the rest of the fleet. Is that decelerating as you get further out into 2014?

Yes, on the first part of that, no, it’s just benign difference to be honest. You just could see that you know we were positive but just a little bit less positive than the expectation on the booking activity. So I think nothing to be you know overly concerned about. It’s just we could notice a little bit of you know distraction as you can imagine every time that some macro news that goes on and people are distracted a bit. On the second point, you know, those numbers are not any number we have ever talked about on the premiums on the new ships. We have already said that the premiums on the new ships are double digit. I think, you know, some of you guys in the industry have come up with sell side and the buy side that come up in numbers that are more specific than that but we have continued to say that we find that the new ships are pricing at about, you know, double digit premium to the Epic and the Epic has been pricing at a double digit premium to the rest of the fleet. So it’s kind of, you know, we ever seeing it and we do not see anything different from that right know. Steven Kent – Goldman Sachs: So they have not decelerated even from the double digits you were saying earlier in the year as you get further through.

Well, the only – I would say the getaway when we first went out, which is a normal thing, we price it really, really high and, you know, it’s such a natural thing. You are trying to attract in the beginning and then as you get close you start to gauge the supply demand and the booking curve and it just naturally moves that way as time goes by but nothing that was not expected. Steven Kent – Goldman Sachs: Thank you.

Thank you. And our next question comes from the line of Steve Wieczynski from Stifel. Steve Wieczynski – Stifel: Hey, good morning guys. So on the cost side of the equation, you’ve done a very good job this quarter in terms of driving cost down and when you talked about you categorized this business improvement initiative and that came in a little better you have expected. Can you break that down a little bit and then Kevin I know you talked about before trying to pull out another 500 basis points in margin, I think that was a couple of quarters ago, so does that numbers seem pretty conservative now?

Looking further at the cost improvements that we have had first of good portion that’s coming from our lean management initiative which some people would call Six Sigma but internally we call it continuous improvement. We also are gaining efficiencies through our disciplined inventory control, both on the technical and hotel operations, also leveraging purchasing across the fleet, implementation of standard service contracts and in-house riding crews for continuous proactive maintenance things like engines, coffee machines etc. Those are the primary ways that we are continuing to drive in efficient way to start of the business and there is lots of opportunity still.

And as far as the margin improvement, you know, when we look at our model the way we built it and just keep in mind that we are looking at the environment that we are in and, you know we are not building in Nirvana from an economic standpoint. And if you know the interest rate environment continues and oil prices continue and unemployment continues and housing starts and all the rest of the things that that play into the economy and people’s feelings about their spending behavior, if we have a return to a more normalized or an improved economic climate that would be something that would enable us to improve upon the 500 basis points. But what we look at when we see our, you know, same store kind of building in the new ships and running the business smartly and the lean management and all stuff that we have been talking about for years now, we see that – you know in the same economic situation growing by about 500 basis points. Steve Wieczynski – Stifel: Okay. And then second question if I could Kevin, can you just give all the color in terms of getaway and how that’s booking right now and I know it’s a ship that you wanted to go after more you know Latin American community and maybe how that’s booking that perspective as well.

Yes, I say, you know what, giving away it’s any trade secrets the ship is booking consistent with the expectations we had when determined that we were going to put it down here in Miami. It’s coming from you know various different markets, so that’s working consistent and you know I would say that is nothing that has happened that’s inconsistent with what we thought that you would when we first announced the ship. Steve Wieczynski – Stifel: Great. Thanks guys.

Thank you. And our next question comes from the line of Tim Conder from Wells Fargo Securities. Timothy Conder – Wells Fargo Securities: Thank you, Kevin, I wanted to circle back on I guess the premiums of the newer ships versus the rest of the fleet. Given the ongoing promotional environment have you seen that premium widened in anyway if the legacy part of the fleet may be is come in a little bit challenged than you thought, you know, 90 days or six months ago, has that premium widened because of that or is that stayed the same? This is question number one, I guess. Question number two then is related to cost outlook that 500 basis points just may be kind of refresh us on the timeframe and then as to what level of black belt Wendy would have to achieve to get that?

So we least talked about the second question, and I will come back to the first. Yes, the 500 basis points when we look at the model through 2017 that is underpinning of that and then the other part of that is that will also enable us to double our return on invested capital and hit about 14%. So everything that we have been doing is consistent with that and will be consistent and you know we are you know going to work like Matt to make sure we deliver on those results. As far as the promotional environment and you know the pricing of the new ships versus the old, I think we still if we look at it as they said we have as you know strong pricing for the first quarter. And so I would say that nothing is really playing out different than what we expected and the organic ships are coming in, you know, kind of at the price improvements that we expected as well as the new ships, so I do not think anything has really changed the thesis. Timothy Conder – Wells Fargo Securities: Okay, great, great. Thank you.

Thank you. And our next question comes from the line of Joel Simkins from Credit Suisse. Joel Simkins – Credit Suisse: Okay, good morning. I am glad I got chance to sneak in here.

So you better be easy on it. Joel Simkins – Credit Suisse: Okay, so starting with Europe it does seem like some of the comments referred out of summary it appears as well as folks in the lodging industry seems to suggest that it’s starting to get a little bit better over there. So I guess with that in mind how are you thinking about sort of itineraries, did you start to think about kind of 2015 on or whether or you entailed some capacity back to that market?

Well, I think the capacity we have in the market now is the biggest we have had in the history of this company. We have two ships year around in Europe and then the Epic in summertime seasonally over in the net and then we have ship up in the Baltic. That’s a comfortable position for us. So I am not sure, I see that changing too much in the short term but we have a lot of work that we do in analyzing itineraries and we price out every possible itinerary before we make the decision where we put our ships. So it’s a rigorous process and at the end of the day, you know, it’s where do we get best result and you know, so we have not announced anything yet for the upcoming itineraries. But I would not think that the European marked would be much different in the future than it is what we need to do a better job that no region is getting more Americans on those ships and we are working very hard on that and that will enable us to deliver even stronger on-board revenue and all the rest of it. So as you know the spending behavior is quite different for the rest of the Americans and versus Europeans. Joel Simkins – Credit Suisse: And one quick follow-up on that on the on board, obviously you had a little bit tougher cops in the third quarter could you speak some from sort of a high level perspective what you are seeing on the on board product, kind of what’s working and what’s not working or you are receiving most traction?

Yes, third quarter, we talked about the casino stuff, couple of new onsets in the third quarter. Fourth quarter which is starting out, you know we are starting the quarter strong. The first month you know we pretty much out of handle on where we are and I would say it exceeded our expectations and you know back more towards a normalized level. So you know to be dependent on how well we fill the ships over the next number of weeks for the fourth quarter, but you know we feel very confident with our on board revenue and the trends that we have had, you know we expect to continue. Joel Simkins – Credit Suisse: Thank you.

Okay, thanks everyone. Thanks for your time and support. We look forward to our next quarter if that is call and as always the Andrew and Wendy will be available to answer your questions and thanks for your support guys. And have a great Halloween. Take care.