Norwegian Cruise Line Holdings Ltd. (NCLH) Q1 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the Norwegian Cruise Line Holdings First Quarter 2019 Earnings Conference Call. My name is Andrew and I'll 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. [Operator Instructions] 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, Andrew, and good morning everyone. Thank you for joining us for our first quarter 2019 earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, Mark Kempa, Executive Vice President and 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 updated guidance for 2019 before handing the call back to Frank for closing remarks. 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. We will also make references to a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation 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 with first quarter 2019 results was issued this morning and it's 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 to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Well, thank you, Andrea and good morning everyone. I'm happy to be here today to report on our first set of results for 2019 and as I'm sure you saw from this morning’s earnings release, the results are very, very good. Performance in the first quarter exceeded what were already high expectations with a top line beat driven by strong pricing growth, robust close-in bookings and higher onboard spend. Combined our first quarter beat with a strong wave season that saw new bookings come in at the highest pricing ever at each of our three brand and the outcome is an increase to our full year net yield growth guidance and an increase to our full year earnings expectations. The mid point of our adjusted earnings per share guidance now stands well above the high end of our previous guidance range, an outlook that would result in our seventh consecutive year of double digit adjusted earnings per share growth, further extending our stellar track record of strong and consistent financial performance. In addition, during the quarter, we repurchased $200 million of our stock bringing our total capital returns to shareholders under our Full Speed Ahead 2020 Targets to $600 million as we continue to make progress towards achieving the shareholder return, net leverage, adjusted return on invested capital and adjusted earnings per share growth targets under the plan. As discussed in our prior call, we entered 2019 in a record book position and at higher prices. Our position of strength entering the year meant we were able to maintain our focus on driving prices and drive we did as wave season pricing came in at record level. For the balance of 2019, we are booking in similar load position to last year's record levels and at higher pricing on a comparable basis. Our load position is normalized for the significant difference in booking patterns of Norwegian Joy's charter sales model while deployed in China versus the traditional distribution and booking curve model in the west, along with certain changes in our 2019 itinerary mix, which includes a higher number of Caribbean and Bahamas cruises of less than seven days and which book closer to the sale date. Additionally, and much more importantly, the quality and stickiness of our book revenue has improved year-over-year resulting from the full effect of our earlier final payment date policy improved year-over-year booked deposit structure and a significantly higher proportion of 2019 business that includes our guest air travel booked through Norwegian's Air program. Keep in mind that year-over-year record book positions by definition cannot continue to expand indefinitely nor would we want them to. As someone who has been in this industry for over 25 years, there's always a nagging question that no matter how good your revenue management systems predict future demand or how effective your marketing campaigns push sales, perhaps some money was left on the table. And while that question can never be truly answered with absolute certainty. Fortunately in the case of Norwegian Cruise Line Holdings, if there is any money left on the table, it's on the margin as evidenced by our strong first quarter performance and increased net yield guidance for the balance of the year. Besides the momentum driven by the strength of our brands, our new hardware introductions and unique go-to-market bundling strategy, also benefiting the strong booking environment are macroeconomic factors that continue to buoy consumer confidence. As we have stated over the last few quarters, we continue to see a strong macro economic environment. One which most economists and market watchers not believe will continue for some time and the fears of a near term recession or downturn have greatly diminished, particularly in the United States as evidence by strong first quarter GDP growth and recent Fed commentary. Fears of industry oversupply have also now subsided as the industry overall and Norwegian Cruise Line Holdings in particular have shown their ability to successfully absorb new capacity coming online, but all of this would not be possible without a confident consumer willing to spend money on vacation travel. Consumers across the globe continue to have a strong appetite for cruise. This is especially true here in North America where we maintained an advantage, given our strong sourcing in the region and our focus on global versus national brand and our exit from the lower yielding China market. But that's not to say that we are narrowly focused on our home market. One of the advantages of operating a growing but still manageable 26-ship fleet is that we can focus on sourcing the best guests wherever they may reside. We have done this by making inroads into several sizable markets where growth is exceptionally strong, including Australia, Israel, Brazil and Mexico. Meanwhile, in more mature European markets like the UK and Germany, we have recently shifted the Norwegian brand's go-to-market offering. A year ago, we introduced Premium All Inclusive product in these markets, which has the desired effect of quickly and significantly raising prices to parity levels with those in North America. With the mission accomplished, we have now transitioned to the Free at Sea offering that has resonated so well in North America and in the rest of the world and which now provides consistency of brand messaging around the globe. Results over the first five weeks of Free at Sea in the UK and Germany is an encouraging double-digit increase in booking volume over the prior year and even more over the first quarter of this year at comparable net pricing from those two important source markets, despite the dampening influences of Brexit and other regional economic factors. And once onboard, our global consumers continue to exhibit their confidence in two ways: First, our onboard revenue performance to date has exceeded our expectation and has been outperforming last year's record level. Part of the reason is the enhanced stickiness of onboard revenue from increases in pre-booking offshore excursion and other offerings and the benefits in the Norwegian brand's Free at Sea go-to-market strategy. As an example, pre-booked onboard revenue is up solid double digits for the first quarter of 2019 compared to 2018. With the second half of the lease of the year essentially organic and capacity growth only coming from Norwegian Encore, whose ticket yield will likely be lower than the corporate average due to our introduction into low season Caribbean itinerary, onboard revenue is expected to be a key contributor to net yield growth. Second, guests continue to book their next cruise before even finishing their current one in record numbers. Our strategy that captured guests will experience our award-winning vacation experiences has resulted in hefty record onboard cruise sales and the sale of future cruises tickets across our brand. The first quarter saw many highlights across our three brands. For the Norwegian brand, this quarter marked the first peak season of Caribbean sailings for our most successful newbuild to date, Norwegian Bliss. And just as she did in the last summer, her performance in the Caribbean this past quarter was nothing short of extraordinary. There's something about riding a golf cart on a double-decker 12-turn racetrack at 40 miles per hour under a beautiful blue Caribbean sky that makes guests want to sail on Bliss. The premium she is garnering compared to similar ships we deployed last year in the region and to other ships currently sailing similar voyages is impressive, powering the brand and the company to a very successful Caribbean season. In addition, the Norwegian brand was busy preparing Norwegian Joy for her debut in Alaska. As the vessel was virtually unknown in the North American marketplace as recently as nine months ago, the Norwegian sales and marketing teams were diligently, and may I say quickly, to increase awareness and introduce the vessels to travel partners and consumers in an abbreviated timeframe. As part of Joy's North America introduction, the team launched a successful giving Joy campaign to celebrate the intersection of travel and education and to recognize the contributions of educators in the United States and in Canada with a chance to win cruise vacation. The campaign drew 46,000 nominations from over 1.4 million votes with 30 winning educators being named from across North America. The team also took the opportunity to replicate the successful introduction of Norwegian Bliss with a slate of inaugural activities in the city – in key cities of Los Angeles, Vancouver and Seattle, introducing the vessel to nearly 5,000 travel partners and loyal past guests. I had the opportunity to visit Norwegian Joy in her first sailing to Vancouver, and I can absolutely attest that she is even a more impressive ship today than the day she was delivered new, with upgraded public spaces and other revenue-generating venues that are geared to Norwegian's broad audience. Norwegian Joy houses many of the same innovative features that make her virtually identical to her sister ship, Norwegian Bliss including a 25,000 square foot forward-facing observation lounge, perfect for indoor viewing of Alaska's world-famous vistas and the exhilarating top of the ship electric go-kart racetrack. She does, however, have several unique features that set her apart and likely makes even better than Bliss, including any five new Concierge Class staterooms that give the ship additional diversity and richness in cabin mix and offers guests an upgraded choice that sits above their traditional balcony stateroom but does not quite reach the exclusivity and luxury of the ever-popular Haven Suites. Joy also features the one-of-a-kind Galaxy Pavilion, a 100-person capacity gymnasium-sized space featuring immersive gameplay, raising simulators and a host of virtual and augmented reality experiences. The one-two punch of Norwegian Bliss and Norwegian Joy is the cornerstone of our deployment the high-yielding Alaska gives the Norwegian brand by far the largest, youngest and most innovative hardware in this premium destination bar none. In terms of performance in the region, we are extremely pleased that pricing for Norwegian Joy's Alaska voyages are easily surpassing those of Norwegian Pearl, the 2,200-passenger ship she replaced. And keep in mind two things. First, Joy is not only garnering better pricing than her predecessor but she also carries an additional 1,800 guests. Second, the onboard revenue opportunities on Norwegian Joy far eclipse those of her predecessor and is expected to drive meaningful improvement to the Norwegian brand's 2019 yield. Not to be outdone, Norwegian Bliss continues to garner historic yields in the region with certain lapping sailings continuing to price higher than her record-breaking inaugural season last year. Norwegian Cruise Line Holdings Alaska's deployment also leverages the investments we've made at the Port of Seattle in our development partnership at Icy Straight Point to deliver guests the best Alaska experience in the industry across our three brands. In addition, we are very proud to have been recently awarded a 10-year permit to sale Glacier Bay, Alaska cruising's most popular destination in both the peak and shoulder seasons through 2029. These permits are granted only once every decade by the U.S. National Park Service based on a very competitive and rigorous set of criteria. With Alaska now representing 9% of our annual capacity and with its expected continued growth as a key deployment region, our strategic investments to develop new destinations and ability to maintain access to premium attractions sets the foundation for further growth in this high-yielding region. Meanwhile, Oceania Cruises and Regent Seven Seas Cruises continue their stellar booking performance with both brands having little inventory to sell in 2019. The strong booking momentum is vividly on display as both brands are now approximately 40% sold for 2020, achieving this milestone record load factor earlier than ever before and at higher pricing. Oceania continues to rollout fleet and product enhancements under its Oceania NEXT program. Insignia underwent their first enhancements under the program in a comprehensive dry dock late last year and the feedback from guests and traveled partner has been extraordinary. And in keeping with its brand promise of offering the finest cuisine at sea, Oceania recently rolled out an expansive and diverse new selection of plant-based cuisine that reflects our guests evolving pallets and heightened focus on wellness. These enhancements continue to strengthen the Oceania’s brand industry-leading position as having the finest cuisine at sea, a definitive, competitive advantage. Our guests repeat rate of over 50% is as high as it's ever been and just last month the release of the brand's 2021 winter season deployment resulted in a single largest booking day in the brand’s 16-year history. As for Regent the construction of Seven Seas Splendor is well underway and we are eagerly awaiting the January 2020 arrival of the ship that embodies luxury perfected. Splendor will not only make history as the newest standard for luxury cruising when she debuts, but she will also be the first ship in the cruise industry to launch with a female captain at the helm. Captain Serena Melani joined Regent in 2010 serving in several roles before becoming the brand’s first female Master Captain in 2016. We are extremely proud to have Captain Melani leading the dedicated group of Seven Seas Splendor during her inaugural season. And demonstrating the strength of the Regent brand's popularity among wealthy consumers, the growth in the total value of its bookings for 2020 sailings is significantly outpacing the brand's capacity increase of 26% stemming from the addition of Splendor to the fleet and at higher prices. This is one of the reasons that advanced ticket sales for Norwegian Cruise Line Holdings were 18% higher at the end of the first quarter versus the end of the first quarter 2018, despite a sub-3% increase in capacity for the company in 2019. This indeed has been a stellar quarter for the company, so I therefore like to turn the call over to Mark to discuss our outperformance in the quarter and our improved guidance for the remainder of the year. Mark?

Thank you, Frank. Unless and otherwise noted, my commentary compares 2019 and 2018 net yield and adjusted net cruise cost excluding fuel per capacity day metrics on a constant currency basis. I'll begin with commentary on our first quarter results, followed by color on booking trends and close with our guidance for the second quarter and full year 2019. Throughout my commentary, I will be referring to the slide presentation, which Andrea mentioned earlier in the call. I am pleased to report yet another record quarter, one where the company generated the highest first quarter revenue and earnings in its history. Adjusted EPS grew 38% over prior year to $0.83 and exceeded our prior guidance by $0.13. As you can see on Slide 4, the beat was driven by: $0.06 of revenue outperformance from exceptionally strong onboard revenue and strong, well-priced close-in bookings; a $0.04 one-time incremental net tax benefit in connection with certain tax restructuring strategies, which was recorded as a $0.07 benefit below the line, partially offset by the other tax related expenses of $0.03 in net cruise cost, ex fuel. It should be noted that this net tax benefit is incremental to the $0.10 that was already included in our February earnings guidance. Lastly, a $0.03 benefit from foreign exchange and other below the line items including a partial benefit from our share repurchase in the quarter. Turning to Slide 5, net yield increased 4.1% or 3.2% on an as-reported basis versus prior year, outperforming guidance expectations by 160 basis points. The beat was driven by exceptionally strong onboard revenue across all major streams and better than expected pricing on close-in bookings. Excluding the benefit from new Norwegian brand capacity, Norwegian Bliss, which garnered yields above the corporate average in the quarter, first quarter net yield growth would have been approximately 3.1%. Turning to costs, adjusted net cruise cost excluding fuel, increased 3.6% versus prior year and 3% on an as-reported basis. When comparing to guidance, costs were higher primarily due to the previously mentioned tax-related expenses of $0.03. Total fuel expense was in line with expectations as fuel consumption savings offset an increase in fuel price per metric ton net of hedges which came in at $461. Now let's discuss capacity and deployment for the second quarter. Our capacity is expected to increase approximately 2% primarily due to the addition of Norwegian Bliss to the fleet. I will direct you to Slide 6 to review deployment highlights. In the second quarter, our Caribbean mix is approximately 26% slightly higher than prior year due to Norwegian Bliss. Our deployment mix in Europe represents approximately 27%, a slight increase to prior year due to the addition of Norwegian Pearl sailing out of Amsterdam. With the repositioning of Norwegian Joy to Alaska mix in that region increases to approximately 13% and conversely the APAC mix decreases to 3%. Our expectations for the second quarter can be found on Slide 7. Net yield is expected to increase approximately 5.5% or 5% on an as-reported basis, primarily driven by strong performance from our core fleet. The benefit from Norwegian Joy’s redeployment to North America accounts for approximately 200 basis points of growth in the quarter. Excluding the benefit from our new Norwegian brand capacity, Norwegian Bliss, which is dilutive to the corporate average yield while sailing in the Mexican Riviera, net yield is expected to be approximately 6.5%. Turning to costs, adjusted net cruise cost excluding fuel is expected to be up approximately 5.25% or 4.5% on an as-reported basis, primarily due to direct costs from the dry dock repositioning and integrally events of Norwegian Joy, as well as the approximately 50 days Joy was out of service, which results in fewer capacity days to allocate operating expenses over, thereby increasing our unit cost basis. Looking at fuel expense, we anticipate our fuel price per metric ton, net of hedges to be $485 with expect to consumption of approximately 207,000 metric tons. Taking all of this into account, adjusted EPS for the second quarter is expected to be approximately a $1.33 or a 10% increase over prior year. Looking at expectations for the full year on Slide 8, net yields for the year is expected to increase 3.5% to 4.5% or 3% to 4% on an as-reported basis, which represents a 50 basis point increase at the midpoint versus our prior guidance issued in February. Excluding incremental capacity for Norwegian Bliss and Norwegian Encore results in only a marginal difference to our annual net yield guidance. As a reminder, Norwegian Bliss’ Caribbean sailings in Q1 garnered yields above the corporate average and are expected to be offset by below corporate average yields when sailing in the Mexican Riviera. Concurrently, Encore’s one month of revenue service does little to move the needle on a full year basis. Adjusted net cruise cost, excluding fuel, is expected to be up approximately 3.5% or 3% on an as-reported basis. The 25 basis point increase versus prior guidance is due to the previously mentioned tax related expenses. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $490 with expect to consumption of approximately 845,000 metric tons. We now expect adjusted EPS to be in the range of $5.40 to $5.50, which is above the high end of our previous range and would result in an 11% increase versus prior year at the mid-point. Excluding a $0.10 impact from unfavorable fuel prices and foreign exchange rates, our guidance would have been in the range of $5.50 cents to $5.60 or a 13% increase over prior year. On Slide 9, I'll walk you through the components of the $0.20 raise to our adjusted EPS outlook for the year. $0.14 of incremental net yield growth is made up of top line outperformance in the first quarter of $0.06, combined with a stronger outlook for the remainder of the year of $0.08, a benefit from fuel consumption savings and other below-the-line $0.05, $0.07 of accretion from share repurchases executed in the quarter, the previously mentioned one time incremental net tax benefit of $0.04, all of which are part partially offset by headwinds from higher fuel prices and unfavorable foreign exchange rates of $0.10. Our updated outlook represents double-digit adjusted EPS growth over the prior year, which would continue our track record of delivering double-digit annual adjusted EPS growth to seven consecutive years. As a reminder, this guidance excludes onetime expenses of approximately $25 million for enhancements to Norwegian Joy associated with her redeployments in North America. Looking at fuel and the upcoming change in regulations, we continue to refine our fuel strategy to manage a changing landscape and minimize volatility. In Q1, we sold the remainder of our Brent hedge positions for a gain and replaced them with gas oil hedges, which we believe gives us better correlation to the fuel we consume. In addition, we entered into costless collars for approximately 14% of our remaining MGO consumption to further reduce volatility for the remainder of 2019. The collars protect us from the risk of rising prices while at the same time allows us to benefit from potential price declines. Slide 10 provides a summary of our hedging program and our strategy in relation to the IMO 2020 regulations a strategy that combines the utilization of closed loops, exhaust gas cleaning systems and increased consumption of marine gas oil or other compliant fuel blends. We also minimize volatility around the interest rate environment with the addition of a three-year, $230 million interest rate swap, which increases our fixed debt ratio to approximately 75%. For the remainder of the year there were a few housekeeping items to keep in mind around the cadence of growth and net yield and net cruise cost excluding fuel. Net yield growth for the third and fourth quarters, are expected to be similar. And for net cruise cost excluding fuel per capacity day, we expect growth in the third quarter to be similar of that in the second quarter. Our progress towards achieving our full speed ahead 2020 targets continues on an upward trajectory. As you can see on Slide 11, in March, we repurchased $200 million in shares which increased the cumulative amount of shareholder returns to $600 million in connection with our target of $1 billion to $1.5 billion by the end of 2020. As previously mentioned, our goal is to have a balanced approach to capital allocation strategy while maintaining maximum flexibility. Any further capital returns for the remainder of the year would likely be skewed the latter part of the year and we continue to explore with our Board the possible initiation of a dividend. With that, I'll hand the call back over to Frank for closing commentary.

Thanks, Mark. As we wrap up the call, there are a couple of subject matters I would like to highlight. First, is a topic which I'm sure is on the mind of anyone that follows the industry and that is Cuba. Current regulations continue to allow for people-to-people travel and we continue to follow and comply with any and all directors from the various agencies of the federal government. We expect more clarity sometime in the future regarding travel to Cuba, but in the meantime we will continue to offer cruises to the island as plan. The second topic is our commitment to the environment, which is highlighted on Slide 12. One of Norwegian Cruise Line Holdings’ core value is environmental stewardship. And on Earth Day of this year, we released our third annual Stewardship Report, which details our progress and sustainability goals and impactful initiatives underway. These include the elimination of plastic straws across our 26 ship fleet and our two island destinations in the Bahamas and Belize, our industry first partnership with the Ocean Conservancy's Trash Free Seas Alliance, and our Hope Starts Here All Hands and Hearts campaign, to rebuild schools and infrastructure on Caribbean islands impacted by 2017 record hurricane season. Most recently, Ocean and Regent announced their commitment to eliminate it combined five million plastic water bottles a year through a new partnership with Vero Water. I encourage everyone to view our online report which details many more of the actions we are undertaking to conserve resources and to protect our environment. Before turning the call over to Q&A, I like to leave you with a few key takeaways on Slide 13. We delivered another record-breaking quarter with first quarter results outperforming expectations. The solid demand environment and wave season drove an increase in our outlook for net yields and adjusted earnings per share, which is now above our previous guidance range. And we are well positioned to deliver on our full speed ahead 2020 targets and continue to return capital to shareholders. And with that, I'd like to open up the call for questions and answers. Andrew?

Thank you Mr. Del Rio. [Operator Instructions] Our first question comes from the line of Jared Shojaian with Wolfe Research. Your line is now open.

Hi, good morning, everyone. Thanks for taking my question. So I want to ask you the 4.1% yield growth in the first quarter. I mean that's obviously a pretty impressive result. And last call you were saying first quarter would be the lowest growth quarter, partly because you don't have the mix benefits from Joy until the second quarter. And as I look at your revised guidance, you're only assuming about 3% yield growth in the second half, which is about a point below what you did in the first quarter. So can you talk about why that dynamic changed with the first quarter, which was supposed to be the lowest rate quarter and now looking like the back half is a little bit lower and should we interpret that the back half potentially having some conservatism baked in for whatever reason, whether that's Cuba or something else. Thank you.

Thanks Jared. Hi, this is Mark. So first quarter, look, we had a stellar quarter. We had exceptionally strong performance from our onboard revenue streams on all ships. Bliss continued to knock it out of the park in Q1. So we just had a great quarter and it came from all geographical areas, which is very encouraging. In relation to the second half, I think you had mentioned that our implied guidance is roughly 3%. I think our implied guidance on a constant basis is about 3.5%. And look, nothing has changed since our last call. Our core fundamentals have not changed and they continue to be strong. Q2 is coming in much better than we anticipated. And as we rolled back into the back half of the year, look, we know there's always variability around onboard revenue. So it’s continued to be strong quarter after quarter. We expect it to continue to be strong, but we've taken a measured approach. We have years of data which says where we should expect it to come through, but we've taken a bit of a measured approach here and I don't want to bank on that for the back half of the year. So that could be potential upside. But more importantly, the core fundamentals for the back half of the year have not changed.

Great. Thank you. And then just one quick follow-up. Hey, can you help us think about the yield premium on your itineraries that have a stop at Cuba, and is it full flow through or is Cuba also a higher cost market for you? Thank you.

It's not a higher cost market. We've always said that the pent up demand and the relatively tight supply of birth capacity in Havana both drive higher prices. And so we are hopeful that the administration finds a way to keep the cruise industry being able to sail to Cuba.

Okay. And care to talk about the yield premium at all?

We've said it's substantial and it was substantial on day one and it's continued, but we're not going to give you destination by destination, pricing guidance more than we already do.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Harry Curtis with Instinet. Your line is now open.

Good morning everyone. So Frank, in the press release you guys referenced the revitalization of Sky. How many more ships are still yet to be renovated and once that's completed, does it – what do you do with the incremental free cash that lower CapEx might imply? Thanks.

Yes, Harry, so through 2019, we have a couple of more ship revitalization programs. At the end of last year, we launched the Oceania NEXT program. So at the end of this year, three of those four vessels will be done. So looking ahead 2020, we really only have one major ship to undergo the knife, so to speak. And that's Norwegian Spirit which will be deployed out to the Far East. So yes, it brings up an interesting question. We've been investing quite heavily on our fleet, revitalizing all three brands and I think today those fleets are in the best condition they've ever been. We continued to invest in other land-related initiatives, whether it's in our islands, the terminal, in Miami, what I mentioned in my prepared comments about Alaska, but clearly given our yield guidance, our earnings per share, growth guidance and more tempered non-new ship CapEx going forward, you'd expect the company to have more free cash flow available for distribution to shareholders. And as Mark mentioned a minute ago, we've already paid out roughly a $1 billion to shareholders in the last four or five quarters and hopefully that will continue. And as Mark also mentioned, we're continuing to look and assess the timing and the amount of a dividend.

So, thank you, and the follow-up to that is, when you think about the incremental investment that you're making on land-based facilities, what's the return on that? Does it enhance your ROIC? Does it get you at or above the 12% target that you have?

Yes, I don't think we would do it, if we didn't think it was accretive. The industry is a competitive one. And we're seeing, for example in Alaska where we now have 9% of our capacity, it's the highest-yielding destination we have. We think we have a competitive footprint there. And we need to continue to invest to make sure that we keep that competitive advantage. And being able to secure those Glacier Bay permits for the next 10 years is really a feather in our cap. Those were highly sought after and our ability to maintain what we had and actually increased some, certainly fees into out premise at Alaska is going to a future growth destination for us.

And Harry, we've been very, very vocal. When we invested in Harvest Caye over the last few years. We've said that our Western Caribbean itineraries are garnering a premium versus what they used to get. So I think as we continue to invest in various land-based strategic investments, I think it's going to be complementary to our targets.

Yes, I’ll just add to that, Harry, when we added Harvest Caye to the Western Caribbean that was the first time the Western Caribbean achieved the premium over the Eastern Caribbean. So it really made a substantial measurable difference to the performance of the Western Caribbean itinerary.

Well, thank you. These are terrific results.

Thank you.

Thank you.

And our next question comes from the line of Felicia Hendrix with Barclays. Your line is now open.

Hi, thank you, and good morning. So Mark, you gave us some really good color in your prepared remarks to understand your organic fleet growth versus kind of like how things are growing driven by your new hardware versus your organic fleet growth. But what I'm wondering is, can we peel the layers back a little bit farther, just looking at the organic Norwegian fleet, are you seeing similar upside to ticket pricing and onboard as your overall guidance in commentary would imply? Or is it just being driven by stronger pricing on organic Oceania and Regent?

No, so I'll peel back the onion on the yield side in a sec. But I want to make it very clear, we are seeing strong pricing in both our ticket and onboard pricing and it's across all three brands and it's across all geographies. So there's not one brand that's buoying another, I want to be very clear about that. In terms of our organic core fleet, I think that the best example in showing its strength is Q2. So we're guiding to 5.5% yield growth and Bliss is dilutive in the quarter, so – by about 100 basis points. So that would imply that we're growing at 6.5%. Of that 6.5% Joy redeployment to North America is contributing about 200 basis points. So that's telling you our core fleet is doing 4.5% in the quarter. So that's very strong, we're very happy with that. And we continue to see that strength throughout the year. The fundamentals are have not changed and we're seeing it across the board.

That's great. And then just with the onboard, so you're seeing the strength in ticket pricing coming from demand and then you're obviously seeing kind of more stickiness and demand on the onboard side. Now that the app is up on 16 ships. I'm just wondering, maybe beyond the next few quarters, how we should think about the onboard revenue trajectory. Can that be incremental to what you're already seeing?

Yes, so I'll start with the trajectory part. As I've said before, we typically model somewhere in the zone of 1% to 2% of onboard revenue growth. And as we see more of the onboard revenue getting presold prior to the consumers stepping onboard, we get a little bit more visibility on that and again, we are able to focus on more very fresh wallet concept. But again, we like to take a measured approach on that. And in terms of the app, I'll flip that over to Andy for some commentary.

Yes, as you said, Felicia, we've got the app across the fleet now. We've been very, very happy with it. It really seamlessly connects the pre-cruise experience with the onboard experience, putting tremendous energy into presales for dining, entertainment, shore excursions and having a lot of success with that. And now in everybody's hands, we've got an app that allows them to continue with that process right up to the sailing and then onboard the ship, buy all of those things through the app. We've seen a 20% increase in usage of the app since we launched the new app versus iConcierge as we've seen a 26% increase in the take up of packages related to chat and voice over IP on the ship. And the app’s got a 4.7 rating in the App Store. So guests like it, they're using it, it's effective driving revenue, we're very happy with it.

Great, thank you for that color.

And our next question comes from the line of Steven Wieczynski with Stifel. Your line is now open.

Hey guys, good morning. Mark, just probably be for you but when you announced those fleet deployment changes, almost a year ago at this point you guys indicated you expected to earn kind of a $0.30 uplift in 2020. Given what you've now seen from some of these changes and it still might be a little bit too early. I guess what I'm asking here is, do you think that $0.30 estimate might be conservative now?

Yes, I think you hit it on the nose. I think it's still a bit too early. We are seeing great progress on the Joy and we're seeing a significant good sales momentum on the Pearl as well that we're involved in the deployment changes. But again, those ships had a very compressed sales window of nine months versus typically a 24 months sales window. So I would sit here today and say we are comfortable with our $0.30 and as we coursed out through the year, we'll take a look at that and if we think there's going to be a meaningful difference, we will certainly update you on that, but we're comfortable with what we had said.

Okay, great. Thanks. And then second question for Frank – and I don't – Frank, I don't think you're going to answer this, but I think there has been a rumor out there that sounds like yourself and some of your cruise CEO colleagues did head to D.C. at some point about the Cuba situation. And I don't know if that's true. It's not true, but if it is true, can you give us any color in terms of potentially what came out of that and maybe how you feel about the current Cuban situation?

You've never been more right Steve. I'm not going to answer the question, not directly at least. Look, we as an industry, are together, we're cohesive on this issue. This is not a competitive advantage, where one company or one brand wins and the other one loses. We're all in the same boat, so to speak. So we're all working together to try to maintain what we have. We think it's good for the industry. We think that this is not the best way to pressure on the politics side, which I don't want to get into at all. But look, we just don't know at this point what we don't know. It's business as usual until it's not. And I don't even want to tell you whether I expect it to be different in the future or not because it's just so simply too early to know. This is government at work, it's not business and so we just have to wait and see.

Okay, great. Thanks guys. I appreciate it.

And our next question comes from the line of Brandt Montour with JP Morgan. Your line is now open.

Good morning everyone. Thanks for taking my question. So Frank, you talk about the book position not being able to grow indefinitely, which we all appreciate, and it also sounded like volumes on your book position would be up year-over-year, if not for mix. So I guess the question is when do you kind foresee reaching that tipping point when you start to leave volume on the table to get price?

There's a delicate balance between price and load, always has been. And if we're doing our jobs right, our booked position, at any given point in time, can't always be in an ever increasing position or we're just not trying hard enough to push prices higher. It's my opinion, my view that if you don't ask for higher prices, you're never going to get it. Nobody every volunteers than what you asked for. So today, we're very, very pleased at the balance between pricing and load. For example, we've not yet set our year-end load factor targets for 2020. But given what I know today, I doubt that we'll want to be better booked than we were at the end of 2018 for 2019 sales.

Alright, that’s helpful. Thanks. And then you gave some good color on Oceania Regent's booked position for 2020 this quarter versus last quarter. But what type of booking behavior in seen on your further out booking cohort for the Norwegian brand? And any similar stats you can give there would be helpful. And that's it from me, thanks.

Yes, the Norwegian brand is on par with Oceania and Regent in terms of performance into the outer quarters and even into 2020. As Mark mentioned, all three brands are doing their part. And certainly for 2020, at this early stage and it's earlier for the Norwegian brand than it for booking curves. The longer more exotic, more expensive sailings tend to book earlier than the shorter ones. But all the – directionally, all three brands are pointing in the same direction.

Great, thanks again.

Your next question comes from the line of Thomas Allen with Morgan Stanley. Your line is now open.

Hey, good morning. So you talked about in your prepared remarks having more less-than-seven-days trips in the Caribbean and the Bahamas. And you obviously shifted over to how much more are you exposed to last-minute bookings now or how much more of an opportunity you have there now versus last year? And then can this import net yield growth? Thanks.

Yes onshore cruises are up significantly year-over-year. Shore cruise capacity is up with 30 additional short savings. So it's a slight increase in exposure to closer in bookings but it's not material. That's just the natural booking window for those sailings that will closer in and we plan for that through our revenue management system. So it's a small increase to exposure.

Yes, and Thomas I wouldn't characterize it as being last-minute bookings It's just new normal, more compressed booking window pattern of those voyages. So it falls within our normal parameters of our revenue management system as Andy said.

That’s helpful. Thank you. And just on fourth quarter bookings for the Caribbean. Any incremental color you can give there may be between East and West Caribbean or anything else? Thank you.

We’re seeing very strong fourth quarter bookings in particular for the Caribbean. We had tremendous response to Norwegian Bliss in the Caribbean. We're adding Norwegian Encore to the fourth quarter Caribbean for the Norwegian brand. And a new ship is always a real asset in driving demand into the region you launch it into the region you launch it into. So Norwegian Encore starts in November in the Caribbean. Very, very strong early start load and pricing and that really is the engine that will continue to drive a very strong Q4 Caribbean for us. So we’re encouraged with where we are today.

Encore is the best booked Caribbean introductory ship ever.

Yes. We're very, very happy and expect to see that continue.

Thank you.

And our next question comes from the line of David Beckel with Bernstein Research. Your line is now open.

Hey there, thanks for the questions. So there's been a fairly large and high-profile entry to private island space in the Caribbean. And just given the similarity of your product versus one of your competitors, I'm wondering if you're seeing any pressure on pricing given the success pressure on pricing given the success that they've had with that product. Or is it more of a situation where a rising tide sort of lifts all boats, so to speak?

.: So I think the investments across islands, is good for the industry. These destinations drive tremendous guest satisfaction. We see that. I'm guessing the others see that too. And we think this will be another engine for growth as consumers see it as exciting destinations with a lot of activities, a lot of things to do, great feedback coming back. It's just going to be one more engine that continues to expand the industry.

That’s great color, thanks. And as a quick follow-up to that, what is your cruise passenger capacity to that island? And do you envision expanding that in the region at any point in the future? Thanks.

Yes, I don't have the specific number but we're definitely expanding our capacity into the island. We've added a number of sailings on Norwegian Sun this year. As she’s expanded into three-day and four-day market out of Port Canaveral. So calls in to Great Stirrup Cay are expanding. And I would expect that to continue as the fleet expands, the destination is getting the highest guest satisfaction across all of our destinations will receive more calls.

Great, thanks.

Thank you. And our next question comes from the line of Vince Ciepiel with Cleveland Research. Your line is now open

Great, thanks. Mark, you walked through the 2Q yield guidance pointed to 4.5% like-for-like yield, which looks pretty much in line with the first quarter and maybe a little bit ahead what you were experiencing in 2018. So on a like-for-like basis, things remain impressive. But be curious on the 50 basis point raise to your full year yield, is that broad-based or would you just point to Joy or Bliss or like-for-like as being a bigger or lesser contributor to that 50 basis point raise?

Yes, Vince, generally, it's broad-based. But I think we're seeing the growth coming from our core fleet. Again, we are starting to reap the benefits of our significant investments and revitalizing the fleet over the last two to three years. We're seeing that starting to pay off in dividends. So it's really coming from our organic fleet while at the same time, our new capacity is doing well. We told you in the last call that the Joy redeployment to North America was contributing about a point of our total yield growth for the year. And we feel that it's still performing in that zone. So the uplift is really coming mostly from our organic fleet but across the board.

Great, thanks. And then maybe another one on yield now that you have a bit more visibility into both Encore and Splendor for 2020. I know it's still early, but historically, you've mentioned adding a Norwegian branded ship, maybe have some dilutive aspects to it just through the math of it but Encore early reads pricing quite well. So there maybe some questions to that and you've also alluded to Splendor touching nice premiums but being small as a percentage of the total capacity. So just curious as you think about the combined impact of those two ships heading into 2020, how you think that will relate to headline yield next year?

Yes I think Splendor is selling well and it's – the revenue that we have on the books is we're very pleased with. So that could be a slight tailwind to our yield growth next year. However, it is only 1% of our total capacity. And as both Frank and Andy mentioned, Encore is doing well. And she's on track to be our best-booked Caribbean ship. But in all honesty, it's still a bit early. So my guess is maybe the two of those could be a slight push or a slight tailwind. But as we again cycle for the course of the year and we get more visibility on that, we will update you.

Encore will be, for 2019, slightly below the corporate average we expect. The great unknown [ph] will be her onboard revenue production, which hasn't occurred yet. Certainly, Splendor partly because of ultraluxury status and because of the all-inclusive nature of the brand, her yields are the highest of any of our ships, highest in the Regent brand. And like I said earlier, she is booking – the brand overall is booking way ahead of the 26% increase in capacity in 2020. So we like what we see the set up that we see for Splendor and Encore being major contributors to the yield and earnings per share growth.

We’ve got time for one more question operator.

Thank you. And our last question comes from the line of Jamie Katz with Morningstar. Your line is now open.

Just squeezing me in, thank you so much, nice quarter. I'm curious about UK and Europe. The commentary you guys have offered regarding your booking increases have been a little bit different than the uncertainty we've been hearing from the peer set. And so I'm curious whether you guys have also been maybe turning back your focus on sourcing in or whether you're still really forward for more geographic sourcing diversification, given your disproportionate tilt to the North American consumer? Thanks.

Yes Jamie as I mentioned in my prepared remarks, five weeks ago or so, we changed the go-to-market offering at the Norwegian brand in the UK and Germany from what we called Premium All Inclusive to the Free at Sea that we have throughout the world, and that's had a huge increase in our overall volume at comparable prices. So we've seen a nice tailwind coming out of the UK and Germany over the last five weeks, which overall has contributed to our business over the last eight weeks to be up in both volume and up significantly in pricing. So I'm glad to see the UK and Germany contributing a bigger piece of the pie to our overall business. And we think it ought to continue as we deploy more of our ships to Europe. We have six vessels, the Norwegian brand has six vessels in Europe this summer, and we think that will continue to be a catalyst for more business out of the UK and Germany.

We have time for one more. I think we do. We have three minutes to go. Anybody wants to make a quick question?

Okay. Our next question comes from the line of James Hardiman with Wedbush Securities. Your line is now open.

Lucky me. Thanks for fitting me in here. So I had a quick question on costs, net cruise costs. Obviously coming into the year, we have the Encore and Splendor timing dynamic that hurt that net cruise cost number. Now sounds like there's some taxes, incremental taxes that are in that number. I guess how much of these costs go away it seems like most of those should go away next year? And as I think about that 1% to 2% normal rate, any indication of what that would look like for 2020?

Yes, as I said in my remarks last call, we generally model 1% to 2% on an ongoing basis. In 2019, we're facing significant hurdles on cost. We’ve incurring launch cost around Encore which we have no associated revenue. We have launch costs around Splendor, which debuts in January of next year. And then we have significant marketing costs around the redeployment. So I would expect some of those costs to drop off, and we should find ourselves in more of a normalization period in 2020, again, within that 1% to 2% band would be the expectation.

Well terrific. Well, thanks everyone, for your time and support today and as always, we'll be available to answer your questions throughout today. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.