Good morning, and welcome to the Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is John, 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. [Operator Instructions] And as a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Thank you, Ms. John. Please proceed.

Thank you, John, and good morning, everyone. Thank you for joining us for our fourth quarter and full year 2022 earnings and business update 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 Harry Sommer, President and Chief Executive Officer of Norwegian Cruise Line. 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 fourth quarter and full year 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. 2022 was a year like no other in our company's 56-year history. As we successfully concluded our great cruise come back, with the last vessel in our fleet reentering service midway through the year. Our team continually push forward to this challenging transition year, achieving several significant milestones on our road to recovery and preparing for the next chapter of our storied brands. With our full fleet back to the high seas, we significantly ramped up occupancy levels carrying nearly 1.7 million guests welcomed our newest ship, Norwegian Prima to our world-class fleet, reached several critical financial inflection points, maintained our industry-leading pricing and perhaps more telling, ended the year in a record booked position for 2023 and at record prices. These accomplishments are even more impressive when considering they were achieved against the backdrop of lingering COVID-19 impacts as well as ongoing macroeconomic and geopolitical uncertainty. I want to take the opportunity to once again thank our entire team, both shore-side and shipboard for their hard work, dedication and tenacity, which has propelled us forward as we strive to be the vacation of choice for everyone around the world. I'm incredibly proud, honored and inspired to work alongside each and every one of you. And I also want to express our sincere thanks to our loyal guests, value travel partners, lenders, shipyards, investors and all of our stakeholders for their continued support and partnership. Shifting our attention to what is certainly a bright future for our company, let's turn to slide six, which outlines our current positioning and the key catalysts we have on the horizon. First, we are encouraged to see that our target consumer, which tends to skew more upmarket in the broader…

Thank you, Frank, and good morning, everyone. My commentary today will focus on our fourth quarter 2022 financial results, 2023 guidance and the progress on our financial recovery. Unless otherwise noted, my commentary on net per diem, net yield and adjusted net cruise cost, excluding fuel per capacity day metrics is on a constant currency basis. Slide 12 outlines key metrics highlighting our fourth quarter results, nearly all of which met or exceeded guidance. Focusing on the top line, strong ticket pricing and onboard revenue generation drove total revenue per passenger cruise in the quarter, up approximately 24% versus 2019, with net per diems increasing approximately 15%, continuing the strong pricing performance we have achieved since our re-launch. Turning to costs, adjusted net cruise costs, excluding fuel per capacity day, was in line with expectations, with the second half 2022 decreasing approximately 10% versus the first half as our operations continue to ramp up. As our 2023 guidance indicates, second half 2022 is not representative of a go-forward run rate. For the second half of 2022, adjusted EBITDA was nearly breakeven. We did, however, achieve another significant milestone in the fourth quarter, generating positive adjusted free cash flow for the first time in three years. This represents another stepping stone as we return to a normalized operating environment. Looking at expectations for the full year 2023 on slide 14. We are pleased to return to our normal cadence of providing annual and quarterly guidance. Adjusted EBITDA is expected to be in the range of $1.8 billion to $1.95 billion with the high end of our targeted range, representing record adjusted EBITDA for the company. This is expected to translate to adjusted EPS of approximately $0.70 at the midpoint of our guidance. Taking a closer look at the components of this…

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which slide 19 outlines, a few key highlights. Since we last spoke, we have made meaningful progress to advance our commitment to pursue net zero greenhouse gas emissions. We successfully completed the testing of biodiesel fuel blends on three additional ships in our fleet, a promising potential lever to help reduce emissions on our existing fleet. In addition, we recently modified our contracts to the final two PRIMA Class Ships for Norwegian Cruise Line scheduled for delivery in 2027 and 2028 to reconfigure these ships to accommodate green methanol and as an alternative fuel source in the future. While additional modifications will be needed in the future to fully enable the use of dual fuel, both methanol and diesel, this action reinforces our commitment to decarbonization and represents an important and exciting step forward in our pursuit of net zero. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on slide 20. First, we believe we are well positioned in the current economic environment and our target upmarket consumer remains resilient. This is especially true for the all-import North American consumer from we enjoy an outsized benefit, given our strategic sourcing mix and focus on global versus national brands. Second, booking momentum is positive, buoyed by a strong start to the year with wave season, and we are pleased with our book position and pricing for 2023. Third, we are focused on strengthening the foundation for sustained profitable growth, and we will continue to take strategic measures to best position the company for its next era. And lastly, our cash generation engine continues to rev up which, along with our transformational new build pipeline provides a path to meet our liquidity needs and to restore our balance sheet in the coming years. We've covered quite a bit today, so I'll conclude our commentary here and open up the call for your questions. Operator?

Thank you, Frank. [Operator Instructions]

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions from management. The top question this quarter was what are our plans to bring in new customers and also reward brand loyalists to entice them to cruise. Frank, do you want to take that one?

Sure. I think both past guests and new guests are absolutely critical for our continued growth. We have a great base of loyal guests who love our product because each of our brands have incredibly high repeat rates running anywhere from 45% for the Norwegian brand to as high as 55% for region. And we're always looking for new ways to engage with them, including through our popular loyalty programs that each brand operates. We also have a robust new build pipeline as we just finished discussing. One new build being introduced for each brand this year alone and we all know new ships and above surrounding new ships have historically brought outsized attention to the brand. Just consider the buzz when Katy Perry performed as godmother of Norwegian Prima this past summer. And just recently, Giada De Laurentiis was named Godmother of Oceania upcoming Vista, which highlights the brand's focus on having the fun is to choosing it see. These announcements create excitement, not just among loyal guests, but also to new brand and even new to cruise guests. You've heard us say many times that the cruise industry as a whole is vastly underpenetrated, and we have significantly -- have a significant runway ahead to attract new to cruise guests, creating awareness, drawing buzz, partnering with a traveling community even having investors such as yourselves, deliver the message, of the value and unique experiences that cruises offer is a large part of what we do every single day, and we'll continue to do so to drive that message to as many possible guess as we possibly can.

Thank you, Frank. Our first question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Hi, good morning. Frank. Good morning, Mark. Thanks for taking my questions. I wanted to touch first on the balance sheet. Obviously, there's a lot of work that you guys have been doing there. How do you think about leverage this year, next year? And to what extent is your appetite to issue equity relative to debt? Thanks.

Hi, good morning Dan. Well, first and foremost, the discussion of issuing equity is a Board decision. So, I will leave it there, but what I can tell you is that, that has not been in discussion in any of our Board meetings. We've said time and time and again, we do not believe that it is prudent to issue more equity to de-lever the company. As we look forward and we look at our balance sheet, we have said that our internal goal here is we want to turn the year with a 5x handle. And for clarification, that does include an adjustment for the newbuilds that we take delivery of in this year since we do not have the full earnings potential. But that's what the company has rallied around, and that's what we're focused on. We've said before, it's not an easy task, but we're rallying against that, and that's what we're using as our stake in the sand. So, there's a lot of opportunity ahead in the industry and especially for our company for the year. We are in a dynamic environment, all signs that we see are looking good, and that's evidenced by our pricing power and our Q4 results as well as our guidance for the year. But nevertheless, there is some unknowns out there. So, we're feeling pretty good right now. We continue on our path of hitting our guidance that we've just issued and we feel good about our overall liquidity and balance sheet position where it stands today, but there's a lot of work to do.

Understood. And then just for a follow-up, bookings are obviously positive. You're putting through all these cost efficiencies. Do you have any expectation as bookings progress and you guys continue to recover when you can get back to that $100 EBITDA per APCD level? And also, along with that, if you could just maybe give a little bit more color on the cost efficiencies, total amount, the time that they're going to be achieved? And to what extent there could be further room in coming years? Thanks.

Great, that's a lot to unpack there. So, let me start with the EBITDA per capacity day. Look, this is going to take time, right? If we look at where this industry was not so long ago, we -- it was only last May of 2022 where we started operating all of our vessels. So, we are progressing. We are hitting our milestones that we've laid out for several quarters now. It is a progression. Bookings are doing well. Onboard revenue spend is trending well, but it will take time. It's not an overnight process. And so, as we think about that, part of that is enhancing our revenue, enhancing margins, obviously, and right-sizing our cost base. We've said that our strategy coming out of the pandemic was we wanted to reset the bar on pricing. We believe we've done that, which we believe will be a longer term benefit for all our constituents and now we are squarely focused on right-sizing our cost base. As we look to the future, we're on a period of transformational growth. We have almost 50% growth between now and 2028, with our scheduled pipeline of deliveries. So, we have to do better, and we are going to do better on leveraging our scale, and that's what we're focused on. So, it's going to come from a lot of different places. But we focused on the topline. Now, we're squarely focused on the cost, and that's going to translate to improved margins, which again will then translate ultimately into achieving that pre-pandemic EBITDA per capacity day.

Understood. Thanks so much for all the color. Operator: And the next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Yes. Hey guys. Good morning. I want to ask, Frank, this is probably for you. I want to ask about how you guys think about cutting costs versus balancing the customer experience? And I guess, what I'm getting at is, we've read out there, you guys have taken some action on board, whether that's cutting things like entertainment or servicing cabins, things like that, which I assume is being done to reduce costs. But do you worry about the customer experience that starts to be impacted and you eventually start to hurt the long-term perception of your product? Just trying to figure out how you balance those two things.

Good morning, Steve. It is a balance. Obviously, you don't want to kill the goose that lays the golden egg, which is the customer. We believe that the -- we're trying to balance what customers pay, what they actually pay for and what they receive. So, for example, we did not cut the turndown service that you mentioned across all brands or across all cabin categories. It's only in the lower cabin categories that equate to a lower per diem. So, look, it's management's responsibility to optimize revenue and minimize costs. That's economics 101, and that's what we're doing.

Steve, I think, the other way to think about it is, we're simply aligning ourselves to what others in the hospitality sector have done as well. So, this is nothing new. I think customers in today's society are used to getting a different level of service. We're not degrading the product. We're squarely focused on making sure that the guest experience is wholly intact, but we're going to align ourselves to what is the new normal for the hospitality sector. I think, it's the right thing to do.

Okay. That makes sense. And then, second question, Mark, this is probably going to be for you, and it's kind of a quasi-accounting question, which I'm not an expert in. But we've seen you guys also -- at least, I think, I've seen you guys kind of increase your service fees or acuities by a pretty decent amount. And I would assume that some portion of that has to -- does that hit your -- half of it hits your yields and then the other half hit cost? I'm just trying to figure out, if you guys could help us think about what that impact is on that yield side? And I guess what I'm trying to get at here is, I don't want to -- I'm hoping that expectations for yields don't get too ahead of themselves, if all that kind of makes sense.

Well, Steve, you're taking a big chance asking me an accounting question, but I think I'm going to go for it. Look, absolutely, when we increase the service fees, it does get rolled up as part of our gross revenue, but there's also a cost to that. And there's obviously some direct cost to that, but there's also the employment costs, which go against that, which hit in our net cruise cost. So, service fees, again, the vast majority of that, all goes to our dedicated crew and employees who are working on the ship, but there is a revenue component to it and there is a cost component to it. But, again, that's something that's been consistent for us over the years. No change in the accounting or no change in the comparability.

Okay. Got you. Thanks, guys. Appreciate it.

And the next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.

Hi, everyone. Thank you for the time. Just in terms of the cost initiatives that you're talking about, can you just frame up the buckets and where you're expecting the biggest improvement and maybe like a potential upside there? And then, maybe just unpack a little bit about when it's going to hit. I would assume that a lot of it is second half weighted, but if you could just give a little bit more detail, that would be helpful. Thank you.

Yes, certainly. So, on the cost, as I said in my prepared remarks, Q1 will be the highest cost quarter. And then as we look forward sequentially, we expect those costs to decrease each quarter as some of our initiatives gain hold and take place. And I think the way to think about it is as you look toward the back half of 2023, that's going to be a little bit more representative of what our exit rate would be as well on a go-forward basis. There is one thing I want to remind you as well as we are taking on a more -- we have a more pronounced mix effect with the operating capacity that we're bringing online as well. As you guys know, we are bringing on an Oceania class vessel in May of this year and a Regent vessel at the tail end of the year. Those, by default, have a much higher operating cost than the NCLH average. So, there is some impact in that overall cost guidance as a result of the mix. So, keep that in mind. And then when you think about the overall buckets on the cost, it's everything you can think of. We've said before, we spent a lot on marketing in 2022 going after the customer, creating that demand, elevating pricing. We believe we've been successful there. So, we're going to scale start scaling that back. But it's everyday things -- everything we do on our corporate side, on our ship side, whether it's optimizing our supply chain initiatives, optimizing our itineraries so that we're getting the best fuel consumption. There is no silver bullet in this industry, but it's a lot of little things that can add up and that's what we're squarely focused on going forward.

Okay. And then to follow-up maybe on pricing. There's still some -- I mean, you guys still sound great on pricing, but there's still some concerns weakening consumer overall. So, I was just curious if you could unpack your current bookings a little bit. The only reason why I ask is deployments have shifted a little bit, and I don't know if there's been something on the margin that implies weakness somewhere. So, any help there would be helpful. Thank you.

Yes, this is Frank. We simply don't see any weakness. As I mentioned in my prepared remarks, we've seen very, very strong record -- new record booking levels dating back to November. And it's our view that as long as consumers have a job and the labor markets remain strong, that they'll continue spending on the things they normally spend their money on, including vacations. So, we simply don't see a weakening consumer. If you look at our forward bookings, each quarter in 2023 is better booked than the comparable quarter in 2019. And even if you start looking into 2024, it's never too early to talk about next year. 2024 bookings are running ahead at higher prices than they were at the same time in 2019 for 2020, which before the pandemic. So, we simply haven't seen any indication that the consumer is shying away from taking cruise vacations, at least not with our three brands.

Great. Thank you.

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

Hi. Good morning, everyone.

Good morning.

Good morning.

Going back to some comments from last -- I believe last summer and last fall, you had talked about expectations or you seem pretty confident in record EBITDA for this year. However, when I look at the range, certainly at the midpoint and below, if I'm comparing apples-to-apples would not imply a record EBITDA. And then additionally, it looks like if I'm getting this correctly, your expectation since last earnings for bookings are now ahead, I think previously it was in line. What's changed in how you think about hitting that record EBITDA target as it relates to the guided range? And I hope that makes sense, what I just asked.

Yes, we think we got it. So, Patrick, nothing has changed. I think if there's anything we've learned as a management team and society over the last year or two is that the -- we're in a unique environment. On one hand, we have a very strong consumer. We have very strong wage growth and employment. And on the other hand, we have economists telling us that we're -- there's a high chance of recession. So, you take your pick. We're -- I like into this is we're in uncharted territory in the world. So, nothing has changed. But we think by being -- we want to be conservative. We want to make sure we're hitting putting out reasonable targets, but nothing should be implied from that. We're confident of where we are, but we think a range is the most appropriate way to go at this point, given all the factors that are in front of the world as a whole.

Okay. I just have a couple of, hopefully, quick follow-up questions. Can you just explain again why you dipped into the Apollo financing? It sounded like last summer or last fall, that would not have been the intention at that time, but that's changed. Can you just review with us the rationale there?

Certainly. So first and foremost, it was $250 million, which when you look at our overall debt structure, it's really minimal. But the most important reason we did that is we wanted flexibility on the facility. And as you recall and if you look in the past, we were getting -- we had six months options. We had eight-month options, 12-month options. We wanted a two-year option. And the price to do that was our counterparty wanted a small draw on the overall facility. So, when you look at the totality of that draw, which is relatively minor in the broader scope of our debt, versus having a two-year flexible backstop, we thought that was the prudent course of action to take at a relatively reasonable cost on the overall facility.

Okay. And then last one, this question actually might save Mark, you and Jessica a number of callbacks later. Just I do see your share count is going up for the full year to $460 million. Is -- I assume that's from the convert or exchangeable notes converting sometime in the year. Can you just remind us, which -- I think it's the May 2024 and August 2025 and how many if that's correct? And what -- how many shares are added from each of those, if those are the correct ones and roughly at what quarter might you expect that to occur?

Yes, Patrick, I think we'll take some of those details offline on our post call. But what I can tell you is that we've been telegraphing that we expect our average fully diluted share count to be approximately about $470 million, which I think believe we have in our slide deck for a couple of calls now. And that assumes that the 2027 convertibles are converted in cash, which we've been saying from the get-go. But it really is just a reflection of where the convertibles, the 2024 and 2025 convertibles, which will be equitized. We do not have a choice there, but that is really just the accounting for it. So, on average, I would use about $460 million for the fully diluted share count for the year.

Thank you. I'll check out the slide deck on that. Thank you.

And the next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.

Hey guys. Thanks for the question. Can you just touch on the plans or changes to the premium class? It sounds like those are going to be a little bit bigger than the first few iterations. I know that you guys were excited about offering a smaller ship size initially when that was introduced. So, what exactly changed? Was it the cost, the guest experience, something else?

Yes. This is Harry Sommer. Listen, we were really excited about the performance of Prima. She's come out of the gate is our best book ship, great yields, great onboard revenue, and most importantly, great -- I guess, experience, excuse me, great satisfaction scores. When we looked at the platform now that it's in operation, we think we can take that great guest experience, great financial performance and get slightly better economies of scale by driving the ships a little bit bigger, hence, the slight increase for Prima 3 and 4, which will be delivered in 2025 and 2026. The last two is really a combination, as Mark mentioned in the prepared comments, making them methanol ready, which we think is very important for our decarbonization goals over time. We're very excited about the technology. We work with a lot of different experts in the field to hold in on ethanol being the future for ships being built in the later part of the 2020s. But in addition to having to ship larger at the house, the methanol tanks, we're able to get more scale on those as well, more passenger counts. So again, the key is to deliver a fantastic guest experience and see what we can do to leverage scale and become more decarbonized along the way.

Makes sense. And then just on the marketing spend that you guys had talked about for a while in the back half 2022, could you maybe give some qualitative feedback on whether that met your expectations? Did you get the pricing benefit that you had expected? Was the consumer feedback in line with sort of what you were hoping for when you earmark that spend or not?

Our basic go-to-market philosophy as we market to fill, we don't discount to fill throughout the pandemic period and coming out of the pandemic period. Being able to keep our industry-leading net per diems and yields was of utmost importance. We've seen what happened to others when the discounting goes too far, it takes years, if not decades to be able to climb back up that slippery hill. So, if marketing was the cost of maintaining our industry-leading yields and it was well worth it. And we turned the year in our best book position ever. Mean to be able to say that at the end of 2022, we were better booked than at any time in our history, given what this industry has just gone through, where the full fleet was not in operation until the mid-year is an incredible statement to make and at higher prices. So, yes, unquestionably, it was the right strategic decision to make for our company. Now, we believe that we've got momentum back. We had to create momentum. The industry was on its knees. We hadn't operated the full fleet in two years, zero revenue for 500 days. So, we had to stimulate the market. And you can do it one of two ways in my estimation, you can discount and you can give away the product or you can market and we choose to market. And now that we've done so and have regained momentum and bookings continue to be strong and we're better booked today than we were a year ago over 2019 at the same period. We think we can now start paring back on that marketing spend. Now at the same time, we're adding three new ships and those have to be filled. So, on a per capacity day basis, I think marketing costs will come down. On a gross basis, I'm not sure the exact number, maybe Mark knows that number. But on a PCD basis, marketing costs will come down as a result of the dynamics that just laid out.

And this is Harry again. It's not just a theoretical comment. When we look at in the metric that Frank described, marketing costs divided by capacity days sold, which I think is the right metric for marketing, we've seen decreases, material decreases in Q4 versus Q3. So, we're already starting to realize that. But as Frank mentioned, we have more capacity days to sell with three new ships coming across the brands this year.

Great. Thank you.

And our next question comes from the line of James Hardiman with Citi. Please proceed with your question.

Hey, good morning. Thanks for taking my call. So, I just wanted to make sure I understand sort of the trajectory on per diem. Really strong rebound here in the fourth quarter. I think we went from on a net basis from plus 5% to that 14% to 15% growth range versus 2019. I guess, as I think about the first quarter, it's going to be up 6.5% and for the year in that 9.5% range. I guess, why the detail, I'm assuming there's some mix involved here, but I know that you're launching an Oceania ship and a region ship, which I would think would be accretive to per diem. So maybe just walk us through sort of the undulations of that per diem number?

James, it's Mark. So, look, I wouldn't classify anything as a deceleration. And I think when you look at our yield growth for the full year, you were spot on 9% to 10.5% pretty strong number given the value proposition of where the cruise industry vis-à-vis the broader vacation market. But when you look at Q1, you go from Q4 to Q1, it's really a mix impact of where our fleet is operating. We have a much higher weighting of exotic itineraries in Q1, which were slightly impacted on the slower restart or the slower opening of the world. So, whether it was cruises in Japan or Australia or that area of the world, there was a little bit more hurdles than we anticipated getting those back to operation, and there was a little more hesitation on the consumer. So Q1 was really just impacted by that. I would characterize it as the last normalization quarter, so to speak. But when you look beyond that and you look at our implied guidance for the remaining three quarters, I think you're seeing very strong growth there of 9% to 10% based on our guidance. So, we're feeling good where the pricing is today.

Okay. And just maybe a point of clarification, you talked for the fourth quarter, you talked about how revenues and net cruise costs ex-fuel or in line with your expectations with EBITDA was a bit short. What sort of was the hang up there sort of seems to point to fuel, but I thought fuel generally -- at least the spot prices seem to get better since October. So, what led to that unless on the EBITDA line?

Yes, it was very slight, James. And it was really just truing up some of our year-end accruals and making sure that going into the year, we were fully stock, so to speak, to ensure that we had no lagging issues affecting our 2023 performance. So, nothing material. It was just all items on the margin.

Got it. Thanks guys.

And our next question comes from the line of Paul Golding with Macquarie. Please proceed with your question.

Thanks so much. My first question is around just a comment. I think Mark, you just made around the exotic destination. So, could you give us any qualitative background on how the destination mix right now compares to last year given the geopolitical disruptions last year? In other words, from just a Baltics and Eastern Med disruption last year, how the timing of these more exotic higher-yielding destinations line up to fill that gap on a year-over-year basis? Thanks.

Yes, certainly. So, I think when we look at the year overall, we do have more -- we are leading to a more exotic deployment mix. But that's not really concerning to us, because as we cycle through Q1 and we look toward the latter part of third quarter and fourth quarter, we see accelerating demand for those products. We do have more European capacity this year. We have slightly less Caribbean capacity and more Alaska capacity. So overall, we are trending to a, again, a bit more exotic or longer itinerary based deployments, but that's shaping up well for us, absent this what we would call a one-time Q1 anomaly with the overall restart.

Great.

Okay. We have time for one more question, operator.

Okay. Thank you. And the final question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thank you. I have two expense questions. One is you talked about how the exit rate by Q4 for expense would look a little bit more normalized. With the full year kind of up 18% and Q1 up 22%, does that imply the exit rate sort of going forward would still be in kind of the low to mid-teens increase versus 2019? Is that kind of what we should think of as sort of a normalized run rate for you? And then my other expense question is on the $1.3 billion in higher newbuild CapEx. And I know you talked about upsizing a number of the Prima ships and adding some alternative fuel to two of them. It seems like maybe there are some other things contributing to that $1.3 billion than just those additional bursts and alternative fuel just based on the numbers, it seems like there may be other things in the higher new build CapEx number? Thanks.

Hi, Robin, I'll take that. I think there was two questions in there. So, I'll start with the last one because that's the one I can remember. Regarding newbuild, look, the -- we're increasing the size of four vessels pretty significantly by, I think, it's more than 10% on three and four and almost more than 20%. So, there is a cost to that. There's -- it's not just adding cabins, it's lengthening the vessels, widening the vessels, but also more importantly, on five and six, we are getting them -- those vessels to be methanol ready. I always say, going green is not free. There is a cost to it, but we think this is a good cost. We think it's the right cost. I would hesitate or caution you to just simply take the additional burst and look at it as costing $1.2 billion, because there is a lot of technical aspects behind that in relation to making the vessels bigger. So, I would just caution you on that note. And I think the -- your first part of the question was on the exit rate of our costs. I think you're thinking about it correctly, somewhere in the low teens is probably where we would look vis-à-vis 2019, but again, we are squarely focused on. We have to do a better job of leveraging our scale. And I think as we continue to prove that quarter-after-quarter this year, you're going to see improvements on that front.

Great. Thanks very much.

As always, thank you, everyone, for your time and support today. We will be available to answer any of your questions throughout the day and we wish you a good day, and please stay safe. Thank you.

And this concludes today's conference call. You may now disconnect your lines. Thank you, and have a great day.