Good morning and welcome to the Norwegian Cruise Line Holdings Second Quarter 2018 Earnings Conference Call. My name is Liz and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Vice President of Investor Relations and Corporate Communications. Ms. DeMarco, please proceed.

Thank you, Liz. Good morning, everyone, and thank you for joining us for our second quarter 2018 earnings call. I am joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; Mark Kempa, Senior Vice President and Interim Chief Financial Officer; and Andy Stuart, President and Chief Executive Officer of Norwegian Cruise Line. Frank will begin the call with opening commentary. After which Mark will follow to discuss results for the quarter as well as provide guidance for 2018 before turning the call back to Frank for some closing words. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at www.nclhltdinvestor.com and will be available for replay for 30 days following today's call. Before we discuss our results, I'd like to cover a few items. Our press release with second quarter 2018 results was issued this morning and is available on our Investor Relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statements contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea, and good morning, everyone. Today, I'm pleased to announce another quarter of record financial performance for Norwegian Cruise Line Holdings, underscored by a robust macroeconomic environment that shows no signs of weakening and bolstered by marketing initiatives that continue to drive strong consumer demand across our three award winning brands. This robust environment combined with our record first half earnings performance, the stellar introduction of the latest ship in our fleet, Norwegian Bliss, and a solid booked position for the second half of the year have led us to meaningfully increase our earnings expectations for full year 2018. Mark will discuss the details of our record financial results for the quarter a little later on, which included measurable outperformance in both top line revenue and bottom line earnings, while I will discuss some of the strategic initiatives that have resulted in our increased earnings power and heightened expectations for full year 2018 and beyond. A few weeks ago, we announced a strategic shift in our 2019 and 2020 fleet deployment to capitalize on the strong and sustained cruise demand we are witnessing by enhancing our itineraries to include more ships, operating more sailings in better performing un-served and underserved markets. Concurrently, we took the opportunity to preview our earnings expectation for full year 2018. Today, I'm pleased to report that we have not only increased our prior earnings guidance for the year, but that confidence in our performance expectations is now such that we have increased the midpoint of our full year guidance well above the high end of our previous guidance range. Our guidance for the full year adjusted earnings per share is now in the range of $4.70 to $4.80 with a midpoint that puts our expected year-over-year adjusted earnings per share growth at approximately…

Thank you, Frank. Unless otherwise noted, my commentary compares 2018 and 2017 net yield and adjusted net cruise costs excluding fuel per capacity day metrics on a constant currency basis. I'll begin with commentary on our second quarter results followed by color on booking trends then walk through the puts and takes of the itinerary optimization initiatives and will close with our outlook and guidance for the third quarter and full year 2018. I'm pleased to report yet another record quarter with both second quarter revenue and earnings the highest in our company's history. Earnings for the quarter exceeded expectations by $0.19 with adjusted earnings per share of $1.21, surpassing guidance of approximately $1.02. The beat was driven by $0.09 of revenue outperformance from strong well priced close-in bookings and exceptionally strong onboard revenue; a $0.07 benefit from fuel and FX of which $0.06 came in below the line from the impact of fluctuating foreign exchange rates on our advance ticket sales liability, please note that approximately $0.03 of this benefit is expected to reverse in the back half of this year impacting revenue yield metrics on an as reported basis; a $0.02 benefit resulting from the timing of certain ship operating costs, which have shifted into the third quarter; and the remainder coming from other below the line items. It is worth noting that this record revenue and earnings performance comes despite headwinds from lost revenue and higher operating expense as a result of close to 50 incremental dry-dock days scheduled in the quarter, which were primarily related to investments as part of our Norwegian Edge refurbishment program and had an approximately $0.20 per share drag to earnings in the quarter. Net yield increased 4% or 4.7% on an as reported basis versus prior year, outperforming guidance expectations by…

Thank you, Mark. As I stated earlier, 2020 will mark a breakout year for Norwegian Cruise Line Holdings. The two newest vessels to the Norwegian and Regent brands will be sailing for essentially a full year and by the end of 2020, we expect to have achieved the targets we laid out in our recent Investor Day. These targets are focused on enhancing returns to shareholders by delivering a double-digit three-year CAGR for adjusted earnings per share, adjusted return on invested capital of 12%, up from 10% in 2017 and expected returns to shareholders of $1 billion to $1.5 billion through share repurchases and dividends from 2018 through 2020 of which $464 million has already been returned to shareholders through share repurchases this year. Looking beyond 2020, in July, we confirmed our order with Fincantieri for ships five and six in the Norwegian brand's new Leonardo Class, extending our newbuild portfolio and securing our company's growth prospects through 2027. We are extremely excited about this new class of vessel. The size of the Leonardo Class allows for tremendous flexibility and deployment with a footprint large enough to include all of the hugely popular features on board Norwegian Bliss with new and exciting innovation that we will announce at a later date. I am very excited for the future of our company as we continue to execute on strategies to drive top line growth, control costs and increase efficiencies, enhancing returns to our shareholders and most importantly, delivering exceptional cruise experiences to our guests whenever and wherever they want to travel across an unparalleled portfolio of brands. And with that, I'll turn the call over to questions. Liz?

Thank you, Mr. Del Rio. Our first question comes from Harry Curtis with Instinet. Your line is now open.

Hey. Good morning, everyone. Very good results. I had kind of a larger question relating to next year's supply growth and forward bookings. What's your view of where in the globe the supply growth is going to be the highest next year and can you give us some more color on demand and pricing? And then kind of the second part of that is, as we get deeper into the booking cycle, shouldn't you expect that booking gap to eventually close as you yield manage for higher prices next year? And isn't that a positive?

Good morning, Harry. Thank you. The capacity growth next year for the industry at large is in the neighborhood of 6.5%. As I mentioned earlier, Norwegian Cruise Line Holdings increase of supply is a little less than 4%, as we lap about five months of Bliss and only have about a month of the Norwegian Encore. So it's relatively subdued by our history and several points below the industry. Where we're seeing – where we're going to be deploying our additional capacity is thankfully where we're seeing the most strength – and that is in Europe and in Alaska with the Joy being repositioned there starting in late April. So we think we're putting our best hardware where it's generating the highest yield. For the industry, I believe Alaska is the region of the world that will see the highest capacity growth year-over-year. So we don't – again, as you've heard me say before, this is a long-term business. You order ships way ahead in advance. We're very, very happy with the tenor of our supply growth. I, quite frankly, wish I had more ships coming sooner. Our load factors are at an all-time high. Our pricing is at an all-time high. I can make the argument that I'm capacity constrained. So I'm glad to see Bliss performing as well as she's performing. I'm anxious to get our hands on Encore. So that's all very positive. And in terms of your other question, in terms of how far out do you get in terms of bookings and pricing, you never really know what the optimal yield curve is. There's – what I always say is – if I can continue to extend the curve or maintain the curve at higher prices, I think it's pushing in the right direction and that's exactly what we're seeing.

Thanks, everyone.

Our next question comes from Felicia Hendrix with Barclays. Your line is now open.

Hi. Good morning. Thank you.

Good morning.

Can you hear me?

Yes. We can hear you.

Yeah. Hi, Felicia.

Okay, great. So I have – so Frank – you gave a statistic that I wanted to make sure I heard right. You said that advance ticket sales were up 26%. I think I heard that was for all future bookings, but I just wanted to make sure that was correct and not just 2019?

No. If you go to our balance sheet and you'll see that year-over-year our advance ticket sales liability on the balance sheet is up 26% on a 9% increase in capacity. So we can talk all we want of how good things are, but that is a black and white auditable number, that has to pass those scrutiny of the auditors if you will, that sits in the balance sheet, which I think is proof positive that the future of business is very strong, stronger than ever – hard to grow that advance ticket sales up 26% if it wasn't.

So just as a follow on to that if we look at 2019, which is certainly a function of what you're talking about. And obviously that's strong, you've laid that out in the press release and in your comments, just wondering since your last call, what's changed? How much more booked are you than you were last quarter for 2019? How much more visibility were you able to gain in the quarter?

Well, I'm not going to give you the delta between where we were three months ago, where we are today. I will tell you that compared on a year-over-year basis, we are better booked today at higher prices than we were 90 days ago. So that positive trend that I mentioned in my opening comments is manifesting itself in the number of bookings we're taking and at higher prices.

Okay. Thanks. And I do have a technical question for Mark. The $0.10 impact from itinerary optimization that you're going to see in the second half, is that fair to split it 50-50 between the third quarter and the fourth quarter? And is it fair to assume that if you adjust for the $0.10, one half of that being affecting revenue yield or revenues, would it be fair to say that the 50 basis point increase that you reported in the second half would have really been 100 basis points?

Yeah, great question. So, yes, the $0.10, it is split evenly between revenue and cost both in the third and fourth quarter. In the third quarter though, you do have a bit more revenue impact and conversely in the fourth quarter there's a little less and the impact is more expenses around the marketing initiatives. So then going back to our full year guidance what we've said is if we raised our full year guidance 75 basis points or if we excluded the impact of that, we would have raised our yields 100 basis points. So we're seeing significant strength. We saw it in Q2 back half is building well and we have great expectations for it.

Okay, great. Thank you so much.

Our next question comes from Steve Wieczynski with Stifel. Your line is now open. Steven Moyer Wieczynski - Stifel, Nicolaus & Co., Inc.: Hey guys, good morning. Congrats on the strong second quarter. So I guess the question is around the Norwegian fleet enhancements and the itinerary changes, Frank you talked about this morning and brought up a couple of weeks ago. You mentioned these are going to change – or these changes will drive about $0.30 in additional earnings in 2020. I was wondering if you can help us think about maybe how you came up with that estimate or maybe what are some of the drivers going into that $0.30 number? Thanks.

Hi Steve, it's Mark. Yeah, so, on a net basis it's roughly $0.30. If we looked at it as just moving the Norwegian Joy into the North American market, that's obviously a higher number than $0.30. But then you do have a domino effect of taking out certain ships and redeploying them into other markets. So you do have some puts and takes. There is a bit more marketing expense that we have to incur. And then there's a little bit of incremental depreciation. So all in all, we think the $0.30 is a good number, but you have to keep in mind that there is some domino effect as you redeploy the other ships in the optimization. Steven Moyer Wieczynski - Stifel, Nicolaus & Co., Inc.: But your assumptions behind whether it's yield increases or onboard spend are fairly essentially in line with what you're seeing today, is that kind of fair?

Yeah, I mean we're putting Joy in Alaska because Alaska on the heels of Bliss's extraordinary introduction is the place you want to put more capacity and Bliss and Joy are near identical vessels. So we think the market will really enjoy seeing additional capacity there. And the fundamental driver of that $0.30 is higher yields; primarily higher onboard yields compared to where that vessel is operating today. Steven Moyer Wieczynski - Stifel, Nicolaus & Co., Inc.: Okay, great. And then Frank, second question, as you decide to pull Joy out of the Chinese cruise market, clearly, you guys do remain committed to that market by putting Spirit in on a seasonal basis. But, I guess, as you look back what are some of the biggest things you have learned from being in that market with Joy. And I guess at the end of the day, is this move just the fact that given your smaller fleet size putting Joy in there wasn't the right ship, as you are leaving money on the table or are there other things like the Korea issue or other things like that that weighed more on this ultimate decision?

We are a for-profit organization. So at the end of the day it has to do with the profit contributions of that vessel. And you hit the nail on the head, Steve. With only 26 vessels, we aim for quality, if you will, versus quantity. We don't need unit growth. We're always looking for higher and higher profitability. And the delta between the performance of what that vessel was generating in China and what we expected to generate in Alaska and in Mexico, Panama Canal cruises in the wintertime, was significant. And so, we do believe that China still holds significant potential and we will participate in that potential with a vessel that doesn't have the same opportunity cost gap that Joy has. Steven Moyer Wieczynski - Stifel, Nicolaus & Co., Inc.: Okay, great. Thanks guys. Appreciate it.

Our next question comes from Jared Shojaian with Wolfe Research. Your line is now open.

Hey, good morning, everyone. Thanks for taking my question. Frank, I want to go back to your targets that you laid out at the Analyst Day. And specifically, if I look at your long term EPS target of double-digit CAGR, is your expectation that each year should be double digits? And specifically, as I look at next year, you're starting at the year at a pretty great position, just based on the booking commentary you've given, but it's also a lower capacity growth here. So, I guess, specifically, is your expectation that you could be at double-digit growth next year?

Good morning, Jared. 2019 is going to be a challenging year to achieve that double-digit. We firmly believe that over the three-year period the CAGR will exceed the double-digits but whether we will be able to generate double-digit in year 2019, that's going to be a yeoman's effort. We're going to do everything we can to do that. We certainly acknowledge the optics behind that. But, you know that, it's challenging to do so purely organically, especially, given the fantastic year that we're going to be printing in 2018. So we're going to give it everything we've got. 2019 is starting out very strong. It gives us encouragement that we have a shot at it, but it's going to be more difficult than in any other year that certainly I've been here.

Okay. That's helpful. Thank you. And just a quick follow up for me. Now that you've done the $200 million on the buyback, does that change your appetite for participating on a possible secondary? And seemed like some of the language was more favorable towards capital returns. Have you changed your thinking in terms of your long term 2.5% to 2.75% leverage targets?

No. No, we haven't. No, we haven't. The only thing that we will have to see how things turn out is whether we decide to return capital via continued share buyback or dividends and a lot of that will have to depend on the prices of stock, which, certainly, by the time we get to the point of deciding that, the stock should be back to more rational levels than it is today. It's ridiculous that a company with our growth history of circa 20% year after year after year, with the visibility that we have in this business, that our stock trades sub-10 times next year's estimate. So we certainly hope that the rationalization comes back into the market and that the stock price will reflect our performance because today there's a grotesque disconnect.

Okay. Thank you.

Our next question comes from David Beckel with Bernstein Research. Your line is now open.

Hey. Thanks for the question. So I just wanted to touch a little bit on IMO 2020 and the effects you guys will feel from that. At your Investor Day, you were giving guidance that about 60% of your fleet would be exposed to lower sulfur fuel. Could you I guess start by explaining the extent to which you didn't install scrubbers on some ships and why? And then also as a quick follow-up to that, has your 2020 guidance, does that account for what some forward curves expect is a pretty dramatic increase in low sulfur fuel and a decline in bunker?

Yeah. So I'll take the 2020 curve question first. Yeah, our estimates do look at the curves and we do take into account the potential drop in HFO pricing. On the flip side, we are also accounting for what we expect is going to be an increased pricing on MGO. So that is all taken into account in our estimates and we watch that carefully every quarter. In terms of installing scrubbers on our fleet, it really comes down to – it's a couple of issues. So some of the ships, if we take our smaller fleet in the Oceania and Regent vessels, it becomes a question of real estate versus the cost to burn the cleaner fuel. And with the size of those ships, we just didn't feel like it was a wise investment to take away from the public space areas and potentially cabin revenue generating areas.

Yeah. And in some cases, they simply don't fit. These are smaller vessels, the stack on the vessels is just too small given today's technology and the way scrubbers are built and installed, they simply don't fit. And in some cases, the ROIs don't make sense either because of deployment or because of the size or the age of the vessel. So we look at this very, very closely and we still believe that there are other options. We've heard analyses that there may be blends of certain fuels that will be available, that will reduce the cost of the less sulfur fuel. So it's still early, but I assure you that we've done everything we can to minimize the impact of the new IMO regulation and that that impact is fully reflected in our forward guidance.

That's helpful. Thanks and a quick follow-up. Can we assume that your NCL ships all have scrubbers or will by 2020?

The vast majority will have them. There are a couple of ships, the older vessels, the Sky and the Spirit most likely will not. And that was accounted for in our estimates when we gave the 60:40 percentage split on Investor Day.

Great. Thanks so much.

Our next question comes from Robin Farley with UBS. Your line is now open.

Robin, are you there? Operator, perhaps we can move to someone else.

Robin, your line is now open.

Great. hopefully, you can hear me now?

Yes. Hi, Robin.

Hi. Thanks. Two topics. One is with the firm order of the Leonardo, I guess, I think that may be a record ordering a ship nine years in advance making it a firm order. I'm just wondering what was the reason for committing so far in advance. Was there something much more attractive in the order price for that? And then just the second topic I wanted to ask about was with the change in China of the Joy, I'm just trying to understand, what is the lost revenue this year since that deployment change is for starting in April of next year? And then also expenses, it looks like outside of the Joy, that $0.05 you called out, are also going up and just looking for some color there? Thanks.

Yeah. So on the – I'll start with it Joy. So it's a $0.10 impact this year, which is evenly split between revenue and costs. The costs are really just related to incremental marketing expenses as we have to market the new itineraries. And there is a bit of revenue dilution as we – when we made the announcement we did have a bit of market disruption from some of our operators – so we thought it prudent to lower our estimates, but we believe that's a short term blip in the radar. And then in terms of our remaining cost increase, we did increase our costs by about 50 basis points. And that's primarily due to overperformance on our financial results, so we've increased our accruals for management incentive compensation.

And in terms of the Leonardo order, there's a couple of factors at work. Number one that there is strong competition between the cruise companies or the very limited construction slots at the shipyards. That's why the order book is as long as it is. And second, we were able to lock in, as you suggested, favorable pricing. As you know in this business, you typically order a series of vessels and that averages out the high cost of the engineering. We're very excited about the Leonardo Class. We think that it's just perfect for what we're trying to accomplish at the Norwegian brand: a product, a brand that is priced on the very high end of the contemporary space. And this vessel, as I mentioned in my opening remarks, is going to have all the bells and whistles that customers are just in love with on Bliss and a few others that we will announce at the right time. So being able to secure the actual slot and being able to have a known quantity of supply growth coming at secured known prices was the primary motivator. I think we might have lost Robin again.

Our next question comes from the line of Joseph Greff with JPMorgan. Your line is now open.

Hey everyone. Can you hear me?

Yeah. We can hear you Joe.

Great. This is actually Brandt Montour on for Joe. So I was hoping you could give us some incremental color on the Caribbean in the first half next year. What kind of pricing dynamics you're seeing maybe from your competitors? Specifically with older tonnage given the capacity growth, any excessive promotional type activity or any other kind of reactions from them?

Yeah, (sic) Brandt, it's Andy. I'll take that, as Norwegian has the lion's share of the Caribbean products. I'll touch on where we are first just to give you a sense for how we're doing. And bear in mind, everything I'm going to give you is pre- the pretty active storm season we had last year. So for 2019, we're up on both load and pricing in the Caribbean. We're seeing positive trends. We're really happy with the momentum that we're seeing. And the other thing you should think about on Caribbean is that we're coming up to what was last year's active storm season and a period of time where bookings were somewhat depressed. So, given the strong position we had this time last year, to be ahead of that on load and pricing, and assuming we don't have a similar storm season, the likelihood that we – with the momentum we've got – continue to accelerate past that, we're feeling pretty good about Caribbean for next year. As far as the competitive activity, we really don't see anything unusual out there. We feel very much that we're past the concerns that were driven by last year's storm season and are pretty happy with the momentum that we're seeing and I would say nothing unusual.

That's great color. And then as a follow-up, the Freedom program starts getting implemented later this year, I was wondering if you could give us some incremental color on kind of details on what that's going to look like? And is it more of a testing type rollout or what kind of financial benefits, if any, do you think you expect early on?

Yeah, Cruise Freedom is very much in process. As we've talked about we've partnered with a company who we view as the leader in proximity and location technology. And we're very much on track with that program. Our intent is every new ship that we roll out from now will have components of this technology on board. We will be testing elements of it on Norwegian Bliss starting with her Alaska season and through to delivery of Norwegian Encore. And Norwegian Encore will come out with elements of it. We're really not ready to talk about any detail yet. There's no doubt in my mind it's going to drive improvement to the guest experience; we think that's a great opportunity. And we also believe it's going to drive opportunity in onboard revenue but we're really not ready to talk about any details of that yet.

Thanks. Great, quarter. Thanks for the time.

Our next question comes from Tim Conder with Wells Fargo Securities. Your line is now open.

Thank you. Just to clarify, your organic net yields this year, any way if you strip out Joy and Bliss in the second half here, what those would be? And then it seems like on the fuel side with the increased concerns with your fuel mix in 2020, on the IMO 2020, that you've largely negated that here now with the itinerary changes based on current prices. Just any comments there and then how that would seem to position you better just then go along with what's continued yield moves in 2020?

Yeah, we don't really look at the Joy changes or the other itinerary changes as a way to negate fuel prices. We look at ways to maximize our profitability, maximize revenue. Fuel is a necessary evil and we do everything we can to minimize it, both in our very aggressive hedging program and all the investments we've made over the years to install technologies. They are really paying off. And so, I guess, you can look at it that way that one negates the other, but quite frankly when we are looking at how to manage our business, that's not the motivation for doing what we did. And I'll let Mark discuss your question regarding organic net yield.

Yeah, on the organic net yield, so as I said in my prepared remarks, we are estimating roughly 3.5% for the year which includes the 25 basis points for Joy. So excluding that, we're in the 3.75%, and that's both excluding Joy and Bliss just for clarification. So we're very happy with that.

Okay. And gentlemen, if I may, one last clarification here, seeing you guys had great on-board performance and seeing a little bit of deceleration there, is that largely Joy related? And maybe we'll see that until we get it repositioned into the North American market and then – or maybe another way to ask it is, if you pull out Joy, what would those on-boards be?

Yeah, so number one as we've been saying, now that we've been selling our product on a bundled basis, GAAP requires us to allocate the revenue in ways that don't necessarily reflect the true performance when you look at the numbers on the financial statement. So I think our on-board revenue is showing us up 0.5% for the quarter, but if you stripped out the GAAP allocation and you stripped out the Joy that number would be closer to the 3% zone.

And then, you expect some reacceleration once Joy is changed over Mark?

Certainly because I think that's where – that's part of the big opportunity. That's where we see the gap today with the Joy versus being in the North American market. So we definitely expect improvement on that front.

Okay, thanks for confirming it.

We've got time for one more question operator.

Our last question comes from the line of Greg Badishkanian. Your line is now open.

Great, thank you. So second quarter net yield came in well ahead of guidance 4% versus 2% guidance, so just maybe qualitatively in terms of what drove the improved close-in bookings, whether it's destinations that did particularly well or sourced passenger business that outperformed relative to your expectations?

Yeah, second quarter was great, much better than we anticipated. It's really a number of things. So the Bliss really outperformed our high expectations which we're very pleased of. But we also saw very strong onboard revenue in the rest of our fleet, which is a great indicator for the health of the business. And then with our remaining inventory that we had, we had very strong pricing on our close-in demand, so it was really coming from all fronts, not one particular area.

Okay. And then you also mentioned the easy compares that we're going to see when we lapped the hurricanes from last year. So what are you assuming at least for 2018? Are you assuming an acceleration in your guidance in terms of bookings so there's easier compares or are you just assuming kind of a continuation of trend even though the compares get really easier?

Yeah. I think, again, what we're seeing today versus our booked position where we were last year as Andy had mentioned, we are still comparing pre-hurricane last year. So as we cross over into that in the next few weeks, we should definitely see a further spread in our booked position this year versus same time last year, so we're definitely expecting to see that improvement.

Okay. Thank you. Thank you very much,

Thank you, Greg. And thank you everyone for your time this morning and your continued support. As always we will be available this afternoon to answer any questions you may have. Thank you.

This concludes today's conference call. You may now disconnect.