Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and First Quarter 2022 Earnings Conference Call. My name is Rob and I'll be your operator. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. . I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed.

Thank you, Rob and good morning everyone. Thank you for joining us for our first quarter 2022 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings and Mark Kempa, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Mark will follow to discuss our financials 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.nclhltd.com/investors. We will also make reference 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 begin, I would like to cover a few items. Our press release, with the first quarter 2022 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 statement 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?

Thank you, Jessica and good morning everyone and thank you for joining us today. In the last few days, our company marked a significant milestone if not the most significant milestone thus far in our great come cruise back. This past Saturday Norwegian Spirit welcomed guests for the first time since our fleet wide pause in operations Back in March of 2020. And in doing so, she became the final ship in our 28 ship fleet to return to service making Norwegian Cruise Line Holdings the first major cruise operator to have all its ships operating again. The last two years and certainly the last few months have been challenging to say the least. But with each new challenge that arose to further complicate an already colossal undertaking, the team at Norwegian stepped up to the plate time and again to demonstrate our extraordinary resilience, dedication and passion. So I want to thank each and every team member across our organization from shipboard to shore side for all their efforts to reach this point in our Great Cruise Comeback and position our company to thrive in the years to come. Even more impressive was our team's ability to drive some of the high guest satisfaction scores ever, ticket revenue and onboard spend in our history, and this trend has persisted, even as we ramp up occupancy having more guests across all brands, all Itinerary and in all cabin classes. We have reached this milestone with a clear, consistent and focused strategy throughout our relaunch. And showing that we do not prioritize short-term gains at the expense of jeopardizing our long-term brand equity and industry leading pricing in the process. First, we have prioritized the health, safety and well-being of our guests, crew and the communities we visit above all else,…

Thank you Frank, and good morning everyone. Before I begin my commentary on our financial results and outlook, I would like to take a moment to express my sincere thanks to our truly top notch team for the successful execution of our return to service plan. Their hard work, collaboration and innovative spirit are unmatched and their efforts have been critical to getting us to the significant milestone with all ships now officially back to revenue service. Turning to the first quarter results, strong ticket pricing and onboard revenue spend drove positive contribution from the fleet that operated in the quarter despite headwinds we faced from the Omicron variant. During the quarter, we canceled approximately 60 sailings due to Omicron-related operational disruptions from additional travel restrictions, increased health and safety protocols and port closures. This impact, coupled with our focus on maintaining price integrity for the long-term resulted in slightly lower than anticipated load factors in the quarter. However, pricing remained robust in the quarter and onboard spend per person per day continues to be up meaningfully versus record 2019 levels. Looking ahead, load factors are also improving sequentially each month and we expect second quarter load factors to come in at approximately 65%. This will continue to build throughout the year and we expect to reach historical load factor levels in the first half of 2023, and at record pricing, staying consistent with our go-to-market strategy and protecting the long-term pricing strength of our brands. In addition, we are experiencing an uptick in bookings for close-in sailings which not only help organically boost near term load factors, but more importantly are a positive indicator that consumer confidence is building, as these bookings are typically within the cancellation penalty period. Turning to our financial performance, slide 10 lays out our…

Thank you very much, Mark. Before we wrap up our prepared remarks this morning, I'd like to provide an update on our global sustainability program, Sail & Sustain. And as Slide 17 outlines key accomplishments and milestones. We have made several significant advances since our last earnings call. First, we announced last month that we are pursuing net zero greenhouse gas emissions by 2050s. This ambition spans our entire operation and value chain as we aim to bring all of our key partners along with us on this important journey. To support our path to net zero we have also committed to develop short and near term greenhouse gas reduction targets. These new commitments broaden and strengthen our existing and continually evolving climate action strategy, which is centered around three key focus areas. First, reducing our carbon intensity. Second, investing in technology and exploring alternative fuels. And third, implementing a carbon offset program. We will continue to monitor investing opportunities to reduce emissions including and beyond our fleet, working closely with our vendor partners to accelerate decarbonization efforts. A key driver to achieve our net zero ambition is the development of alternative fuels along with the associated critical infrastructure at destinations globally to support the usage of these fields and to accelerate the use of shore power while in ports. We will continue to partner and research to identify appropriate alternative fuel sources that can also be sufficiently scaled. For example, we are currently actively engaging with partners, including shipyards, engine manufacturers and classification society in exploring paths for the development of additional technology including potential Hybrid Engine solutions and safe and effective methanol engine retrofits. Second, last month, we published our first task force on climate related financial disclosures or TCFD Report. As part of this process, we engaged…

Thank you, Frank. . Our first question comes from Steven Wieczynski with Stifel. Please proceed with your question.

Yeah, hey guys, good morning. So Frank and Mark, want to ask about your ability to take price moving forward. One of the questions we get a lot from investors is the long-term pricing power of your company and the industry in general. And you guys obviously have remained underpriced relative to a lot of other vacation alternatives. And the fear is with disruptions like you're seeing with Russia, Ukraine having to redeploy those assets elsewhere, coupled with a decent amount of new supply those types of factors might keep your pricing ability more in check. So just trying to understand how you how you think about price ability or price action ability and how you going to combat those fears that are out there?

Thanks, Steve. I think it's a great question, especially because we rely on pricing to performance as well as we do both top line and bottom line. And one of the drivers of that future pricing out performance is going to be the nine new vessels we've coming online. We have the most growth coming online percentage wise. I think as Mark mentioned 50% in '23 over 2019. And as you know new vessels, especially the new generation of the Norwegian vessels, the new generation of the Oceania vessels and the last of the Regent vessels, they're all incredibly productive in terms of being able to raise prices. No question that the conflict in the Ukraine does have a damping effect on pricing. St. Petersburg, Russia was a star port. We probably won't be going there anytime soon. But coupled with the new vessels coming online, you know of our history. I think it's one of the slide of our history of outperforming the industry in net yield growth year after year after year. Go-to-market strategy of market to fill as opposed to discount to fill is not a slogan. It's something we do every day. We take it very seriously being the smallest of the three big cruise companies. We don't have the scale to control cost as well as some others might. We went our game based on our ability to drive top line revenue and the key to driving top line revenue is pricing. And so we have the best and the brightest in our company focused on that and we believe that we'll be able to continue to outperform in that area for years to come.

And Steve, to add to what Frank is saying, we can't overlook as we talk about the value proposition of Cruise. We've always said that Cruise is underpriced versus our true competitors, which are land-based vacations. And as you've seen consumers more and more willing to pay higher pricing for land based alternatives, that is additional demand and additional pricing that we can go after. And we expect to go after. We'll continue to chase that and that's an opportunity for the industry as a whole. If you look, go back and look at 2008 and 2009, what happened in pricing after the last recession, pricing rebounded quickly and I think we were the first in the industry. A couple of our brands never lost pricing power and our largest brand at the time was the first to rebound. So we're set up well. We think there is continued opportunity down the line. Consumers are willing to pay for value and cruise offers a compelling value.

That's great color. Thank you, both. And second question, probably a bigger picture question is something I've asked some of your peers as well, but it's probably relevant to what's going on right now with the equity markets and clearly there is a fear out there the U.S. is heading into some type of correction or recession or whatever you want to look at it. Just want to understand how you guys think you're positioned at this point, both from a, what we call kind of a financial and liquidity position, as well as your business general. And maybe help us think about how you guys have performed in the past during tougher economic times. And if you see any scenario on what you would need to raise additional liquidity? Thank you.

Steve, I'll take that. So, first and foremost, let's remember we have a few inflection points that we just hit as a company. Our positive cash flow from operations turned in March. We expect that to continue in the second quarter and throughout the rest of the year. As I showed in our slide, we expect free cash flow to turn positive in the fourth quarter. So all that plays in well, when we look at our liquidity position. We turned the quarter with around $3.1 billion. And as I talked about not only turning the corner on cash flow, but our advanced ticket sales engine is roaring. And so when you look at that and are we're pretty confident in our ability to fund our operations organically. When you look at the bigger picture against the economic backdrop, of whether it's inflation or recession talk, as you think about the cruise industry and our company as a whole, against an inflationary backdrop, we're relatively better positioned than many of our land-based competitors due to the fixed-cost nature of our business. So that gives us an advantage. And again I'll go back to what I said in the beginning of your question that combined with the value proposition of cruise, consumers look for that. So we feel like we're in a great position going forward.

Okay. Great thanks guys, I appreciate it.

Our next question is from the line of Vince Ciepiel with Cleveland Research. Please proceed with your question.

Great thanks. Helpful comments there and interesting goal on the '23 net yield, I think you had also mentioned a record year for EBITDA and I'm sure that unit growth's, part of that, but I wanted to get your perspective on profitability within that. Obviously there has been inflation across the business. A lot of companies are dealing with this now, but you guys have made some efficiency improvements through COVID, rolling out additional capacity to leverage some land-based fixed cost. So curious kind of how you're thinking about margins into next year in light of those moving pieces?

Yeah, good morning, Vince, it's Frank. Look, it all starts with record pricing. Today, we said that our 2023 book position meaningfully ahead of what we were last year. Pricing meaningfully ahead of where we are last year. We can hold meaning no more Black Swan events. We think that there will be margin expansion led not only by the pricing we're seeing. But by the introduction of four new ships. We were in a way lucky that we didn't take delivery of any new ships during the pandemic, but over the next 18 months, we take delivery of four. And so we think like we've seen historically, new ship introductions are real tailwind to net yield growth to profitability, the topline revenue. Inflation is an ugly word, but there is a pretty side, which is pricing power. And you've heard Mark's statements this morning along with mine, that we do have pricing power, not only in absolute terms but in relative terms compared to land-based resorts and other vacation options. So we think that in the absence of more Black Swan events, and we've had more Black Swan events in the last two years, than I think we've had in the prior 20. 2023, indeed, it could be the record year that we're seeing unfolding before us.

And Vince, we're not only unit growth, as we said in 2023 and we effectively have a 20% capacity growth over '19. We're going to drive the top line, but on the cost side, you have to remember, that if you look at our costs, we're not immune to inflation, but about 25% to 30% of our cost basket is exposed to that hyperinflation so to speak. That's a lot less than many are comparable type of that leisure industries, so of speak. So we have some protection against that backdrop. We're going to continue to push on price, we continue to gain scale as we grow, and all that's going to result in expansion of margin and increased profitability.

That's helpful. And curious I wanted to dig into the customer mix a little bit. I think there was a comment in the slide deck about loyalty guests driving a good portion of occupancy, but curious how do you have seen new cruise bookings transition in the last 60 days and if there's been any catch-up there?

Early in the pandemic recovery there was an overwhelming skew towards past guests booking. They were the most comfortable with cruising, most comfortable with particular brand. What we have seen really since the beginning of the year is a return to normal breakout between past guests booking with us, new to brand guest booking with us, and new to cruise bookings with us. So I think from that perspective, we've either reached or about to reach the normal break out of the different groups of passengers, which is good to see. Cruise lines can't live with the past guests alone. So it's good to see the return of new to cruise and new to brand to us.

Great, thank you.

Next question is from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.

Hi, thanks. Outside of the start-up costs, is there any way you can frame the impact of COVID related costs this year to sustain, whether it's social distancing testing, et cetera, and what you would look for to start easing some of these maybe as we get out to 2023?

Yeah, Steve, I think outside of testing we've effectively stopped for social distancing with the reduced regulations that were issued by the CDC recently. We're now going to be taking back some cabins over time that we had to put aside for quarantine or for isolation so that produces additional opportunities. There's going to be certain staff areas that we can reduce. So I think as we cycle through the second quarter and probably somewhat into the third quarter, you're going to start to see some of those kinds of what we'll classify as pandemic-specific related costs go away. I don't foresee any major cost components going forward from 2023 onward as a result of the pandemic. Just some things on the margin, but nothing significant.

And then maybe to harp on your answer to the questions on record net yields. I think some of the skeptics have been concerned that this bullish outlook six months out has been kind of success successively always six months out each quarter for about a year. So I guess what do you feel has changed this quarter to give greater confidence in those trends finally materializing.

Well, the reason why the phenomena that you just described has occurred because we keep having these Black Swan events. First, it was Delta, than it was Omicron and then there was the Ukraine, Russian situation. And so we have tempered all our remarks by saying, as long as there are no additional Black Swan events we're seeing fantastic pricing strength. It is meaningful over what our record 2019 pricing was. And therefore again in the absence of anything new, this will hold. In the past that hasn't held because of these Black Swan events. So promise me no more Black Swan events Steve and I'll promise you record net yields.

But let's balance that Steve with the fact that we did turn cash flow positive in March. We are confident we are going to be cash flow positive in the second quarter. It's been over 2.5 years as a company since we've been able to say that, and that's going to translate into EBITDA and then ultimately profitability. So the tide is turning and the future looks bright. So those are key milestones that we should not discount. I want to highlight that pretty strongly today.

On that point, have the closed in booking trends then flipped as well. It seems like it has from your commentary. I think, because that's what people are concerned by that you get to the close in and maybe there's just been some impact of people's willingness to get on cruises, get on the ships. So has that flipped where you'd say definitively, no, there has been no inherent damage to the consumers' behavior getting on the ships, so that close in looking at new to cruise?

Well, I think, I think we in our commentary, I talked about that and we are seeing close in demand, which is good. And it's close and demand that's showing that consumers have confidence, they are booking within the cancellation period. We had not seen that during the pandemic. So we've been seeing that over the last few months, which is a good sign. We're still seeing strong demand for the longer term as well, but again that's a sign of confidence that consumers are willing to go and they're confident that the voyage is going to sail and there's proper protocols in place. So it's actually a very good sign in relation to where -- as we exit the pandemic.

Awesome. Thanks so much.

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

Hi, good morning everyone. A question for you, with the CDC last week, lowering the requirement for vaccination to 95% and 90%, does that change at all, how you folks think about your requirement? And correct me if I'm wrong, I believe you're still at 100% vaccination requirement. Thank you.

No. Patrick, that's not correct. We have -- we had reduced from 100% to 95% when the CDC allowed it, and now we are at least for the Oceania -- at least our Norwegian brand, which is the family brand in our company, we're going to be allowing 90% of the folks to be vaccinated, 10% not. That opens up the family market in a big way, just in time for the summer season.

Okay, thank you for the clarification. That was all the question I had. Thank you.

Thanks.

Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great, thanks. A bunch of my questions have already been answered. I guess one thing, you were talking about the second half, the strength in bookings meaningfully ahead. I think you mentioned that still includes itineraries going to Asia. And just wondering how -- sort of based on how things are now if it continued and those markets didn't open up to cruising. When would you make those changes? Just thinking about sort of when your bookings maybe sort of past the point of having any more disruptions for the year? How far in advance, anything Q4 going to Asia, would you make those changes? Thanks.

Yeah. Asia is really bookings strong for us and it's very, very high prices. But there is that risk. Robin. And so we will likely take some chips off the board in the coming weeks to balance that risk reward, likely at the Norwegian brand, which has more flexibility in where it can achieve good pricing and accelerate the bookings, much faster than Oceania region can because of the longer booking curve there. The good news is that you don't just today we heard from the Minister of Tourism in New Zealand that they expect New Zealand to open up no later than October to cruising. That opens up that whole Australasia area for us, Australia, New Zealand, Tahiti. And we hear good commentary coming out of some Asian countries, some Asian ports, not China. And we're not very big in China as you know. So we are hopeful but there is a risk there, no question. But we are hopeful that it will reopen. I know, South America, which also caused some issues this past winter looks like it's going to be open. Argentina has announced, Uruguay has announced, Chile has announced. So again, the world is reopening perhaps at different pace. But it is reopening. And that's good news for us.

Okay, that's great. Thank you. And maybe just a last follow-up, just going back to the close in booking question. I don't know if there's anything that you can share that you can kind of quantify with the close in, in another words like what percent of bookings are for departures in the next six weeks or anything like that. Just to see that, because it seems like that's the piece right that -- obviously that with the disruptions earlier this year, all the cruise lines have got lost a little bit of ground in terms of the recovery. And is there a way to quantify anything with a close in bookings, because that's sort of you -- as we head into the peak summer season, way to think about what strength may not be showing up in your numbers yet, but is there?

Robin, I'm not going to give you a number per se, but I will tell you that close in bookings, defined as bookings for the next 60 days are running significantly higher than history. Now part of that is because historically there typically is very little inventory to sell inside 60 days and that's not necessarily the case today. But it is strong, much stronger quite frankly than we anticipated two, three months ago and it's another positive green shoot as Mark mentioned, when we get momentum back and I'll take momentum anyway I get it, if that means bookings are strong for the next close in, that's a start. Just last week, the Oceania brand introduced late '23, all of 24 departures had one of its top three booking days in history. So we're seeing people booking way into the future. And now we're seeing very, very strong bookings, very close in. And so in time, if there is a gap between the long and the relatively short. It's going to be start -- it's going to start to fill in. And again another green shoot, as the summer rolls around top prime cruising season, it's going to continue to get better. So again I preface it no more Black Swan events, the industry is going to progressively get stronger, better going back to normalcy, reaching the normal high occupancies that we've always enjoyed.

Okay, that's great. Thanks very much.

Thank you. . The next question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Hey, good morning everyone and thanks for taking my questions. You guys have typically have higher pricing than peers and certainly that's the case today. I mean to what extent do you think that your pricing power right now is a reflection of maybe a skew to the higher end consumer and what have you seen kind of across your database and the different brands, in terms of booking and pricing strength?

I think we're seeing pricing strength. I know we're seeing pricing strength across all three brands. Certainly the upscale brands are doing terrific because of the nature of their itineraries or customer base. Their booking curve is always further out than the closer in Norwegian brand and that is certainly playing out again for the back half of '22, and into '23. I just mentioned, one of the upscale brands just announced '24 itineraries, and had a near record day, one of the top three days in the company's history. So we're not seeing any isolation of one brand versus another in terms of pricing. Pricing is strong across the board and that's very encouraging for us partly because all three of our brands have the same go-to-market strategy where we focus on marketing and the value proposition over pricing. It's not one brand does one thing and one another brand does another. We harmonize, add and curate it and that's why we have such a strong historical performance in year-over-year yield growth and have the highest yields in the industry by a very wide margin.

Got it. And then in terms of just markets. I mean is it safe to assume it's your North American markets that are really driving that pricing power, or are you seeing any stabilization for outbound in Europe?

No, I think Europe has come back very, very nicely. I was just talking to one of our brand Presidents this morning and he tells me that European sourced business is strong and you can't believe how strong it is, especially in Europe. UK is doing well. Australia is still lagging a bit. That country as you know has been closed for a while. But again these are all green shoots. We're waking up to bear. Look, it's been 26 months since we were shut down on March 10. It took us 26 months to get our fleet back operating at full strength. And so it's going to take some time to get all the pieces right, to get consumers thinking in the right direction, getting the ports open around the world and it all starts with a moderation of COVID. And I think we've seen that even when there are spikes here and there. Society is learning to live with COVID and we have to do that. It's not going away. No vaccine is going to make it disappear. It is now one of the many novel Coronaviruses that affect our lives every day and I'm glad to see that we're all learning to live with it. But learnings take a while. And so that's what we're seeing. We're seeing green shoots. We're not 100% back to where we need to be, but certainly we are approaching the levels we need to sail full, to generate highest net yields in the company's history. The highest EBITDA in the Company's history in the coming quarters. With that, we have time for one more question and then we'll conclude today's presentation.

Thank you. That question will come from the line of James Hardiman with Citi.

Hi, this is Sean Wagner on for James. Just kind of within that 28% total per diem growth versus 2019, is there any color you can give on the ticket NPDs and onboard spend in the quarter and sort of how they've trended sequentially, just may be on a kind of comparable ship basis as more ships have gotten under the water and ships are getting kind of closer to normal occupancy?

Yes, Sean. So look, we continue to see strength in both ticket and onboard revenue. As we've talked about in our last few calls, the strength of the consumer is resonating well on the ships. Obviously if you look at our financials and realize we do have our bundling strategy which sort of it somewhat artificially inflates our onboard revenue by a couple of percentage point, nothing major. So even if you isolate that out, the onboard revenue performance is just strong. But more importantly, it starts with the ticket. It starts with getting that right customer that high quality customer booking far out in advance. Those are the customers we target. We get a -- we offer them a significant value, and that in turn they spend on board. So it's coming across in all areas. And that's what we're glad to see that. That's what we want to see. That's what we're targeting. That's what's behind our go-to-market strategy. So it's not just one or the other, it's a combined effort.

Okay, that's very helpful. And just real quick, you mentioned in the slide deck, returning to historical load factors in 2023. Is there any specific time you expect to kind of get to maybe normalized historical occupancy levels?

I think it's going to be in early -- in the first half of 2023, like we said, we continue to build. Q2, we expect is going to be in the 65% range. Obviously when you look at the third and fourth quarter that's going to continue to build. But we're going to maintain our price discipline, our pricing integrity. We are not going to chase short term load and damage the brand for the long term, we do not believe that's not our strategy, and that is not the right strategy for our company. So we will maintain that price discipline. We expect over the first half of 2023, we're going to be back at those 105, 110 load factors that we're used to seeing, but more importantly at high pricing.

Perfect, thank you very much guys.

Before we go we'd like to remind everyone that our Annual General Meeting is coming up on June 16th. This year we have a number of very important proposals on the ballot. We are extremely appreciative of the support we received from our shareholders during this extraordinary time, and we are asking for our shareholder's continued support. On behalf of every shareholder account that votes we will make a $1 charitable donation to American Cancer Society, up to $100,000. Please vote and support our Board's recommendations for our Annual General Meeting proposals, so that we can continue to deliver on our mission to provide exceptional vacation experiences delivered by passionate team members committed to world class hospitality and innovation. Thanks everyone for your time and support. As always, we will be available to answer your questions. Have a great day.

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