Norwegian Cruise Line Holdings Ltd. (NCLH) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Norwegian Cruise Line Holdings second quarter earnings conference call. My name is Samantha, and I will be your operator. [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, Sarah Inmon, VP of Investor Relations. Ms. Inmon, please proceed.

Thank you, and good morning, everyone. Thanks for joining us for our second quarter 2026 earnings call. I'm joined today by John Chidsey, CEO of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website. We will be referring to a slide presentation during the call, which can also be found on our 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 second quarter 2026 results were issued this morning and is also available on our Investor Relations site. 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. Unless otherwise noted, all references to 2025 and 2026 net yield and adjusted net cruise cost excluding fuel per capacity day are on a constant currency basis and comparisons are to the same period in the prior year. With that, I'd like to turn the call over to John.

Thanks, Sarah, and thanks, everyone, for joining the call. I'm joined today by Mark as we discuss our second quarter results. At a high level, we delivered solid second quarter results. Top line grew 5%, driven by increased capacity days, while we lowered unit cost 0.5%, leading to profitability ahead of guidance. At the same time, the team made substantial progress during the quarter to advance our turnaround priorities. I'm going to talk with you today about actions underway and why I am confident in our pathway to revenue recovery, which combined with our cost control capabilities, will drive meaningful growth and profitability and improve shareholder returns. Successful turnarounds are never linear and take time to demonstrate tangible performance improvements, which translates into financial success. Rest assured, our teams are moving with urgency and enhanced accountability across internal functions to continue executing on the initiatives we have underway and are building on our strong foundation. As you can see on Slide 4, during my first months as CEO, we have moved swiftly. We have made leadership changes across the brands, adding new revenue management and marketing leadership at NCL and building key commercial capabilities, all while remaining focused on improving our booking curves and delivering on critical initiatives such as Great Tides Waterpark on Great Stirrup Cay on time. At the same time, we have not let up on cost discipline and organizational efficiency. Mark will provide more detail later in the call, but during the quarter, we identified an additional $100 million of annualized savings and cash benefits. Combined with the $125 million of annualized run-rate savings we announced last quarter, this brings the actions announced over the past 2 quarters to approximately $225 million of annualized savings and cash benefits. Importantly, we are actioning these initiatives as demand for cruise and the long-term fundamentals for the industry remain strong as consumers are prioritizing travel and experiences. We have strong brands, attractive assets, and a product that continues to resonate with guests, but those advantages only matter if we execute with greater discipline and translate them into better financial performance. Turning to Slide 5. Our approach and priorities are consistent with what we outlined last quarter: build the team, culture, and capabilities required to execute, sharpen brand positioning and marketing effectiveness, rebuild demand and improve our booked position, and optimize pricing and yield through that strengthened demand base. This is the path to enhance our fundamental business model and operations to position NCLH for success. Among the top of our priorities list has been ensuring we have the right leaders, talent, and operating discipline in place to guide NCLH forward. This is foundational because the opportunity in front of us is not about strategy, as we have discussed previously, it is about changing how we operate. We recognize the need to work with a true one-team mindset across functions internally. During the quarter, we made meaningful progress by welcoming our new Chief People Officer, Heather Jacobs. Heather brings more than 25 years of global people and cultural leadership experience across travel and hospitality. We strengthened commercial leadership at the Norwegian brand with the appointment of Lee Applbaum as Chief Marketing Officer. Lee brings more than 25 years of experience building and transforming global consumer brands, including Patron, Bacardi, and Wheels Up. Additionally, we have continued to build out the teams in other critical areas, including NCL revenue management, digital commerce, casino, and itinerary planning. These appointments build on the leadership updates we have made over the past year across other key functions such as technology and strategy in addition to changes made at the brand level. In total, half of my direct reports are new in the role over the last year, and we have substantially rebuilt and strengthened the Norwegian brand leadership team. Having this experienced team in place is essential to implementing meaningful operational changes. With the team now in place, our next step is to build our operating rhythm and culture and translate that collective experience into better execution and ultimately, better results. I'll now turn to our plans to sharpen our brand positioning, particularly with respect to NCL's marketing engine. As seen on Slide 6, the starting point is important. We believe we have the right product and the right target consumer. We see that in our guest satisfaction scores, repeat rates, and CruiseNext sales, which reinforces that the product and service experience continue to resonate once guests are on board. We have also identified and sized our priority consumer, premium families and seasoned travelers, which represents over 35 million consumers. Additionally, we already have work underway to develop a clear understanding of what motivates them and determine how best to reach them. In parallel, we are inventorying our products and services to define what truly differentiates NCL and mapping those strengths against the needs of our target guests. The work thus far gives us confidence in the fit between the NCL offering and our target consumer. We provide a flexible premium vacation experience with something for every member of the family, while still creating shared moments together. The gap has been connecting the right consumer with the strength of our offering through our messaging and media. We have the right product and are focused on the right consumer. Now we are focused on effectively reaching that audience through the most impactful channels. Great Stirrup Cay is a clear example of this, and you can see that Great Tides Waterpark is coming together on Slide 7. Great Stirrup Cay has long been one of our highest-rated destinations. But historically, the island did not fully deliver the breadth of the experience that premium families are looking for. While we had elevated experiences like Silver Cove and our private villas, we also had an opportunity to create more for families to enjoy together. We are addressing that opportunity with Great Tides Waterpark, which is preparing for a preview period beginning next week ahead of the official grand opening on September 4. The nearly 6-acre waterpark will feature 19 water slides anchored by the 170-foot Tidal Tower, an over 800-foot high-energy river, and the industry's first cliffside jumps. These attractions complement the recently opened Great Life Lagoon, a 1.4-acre pool area larger than 2 Olympic-sized pools combined, as well as existing experiences such as ziplining and Silver Cove. Combined with the pier, which is also expected to open shortly, the island experience will be more reliable, easier to access, and better aligned with what our target guests want from a premium family vacation. Together, these investments should enhance the island's revenue potential by increasing guest throughput and expanding the range of paid experiences available to guests. I was on the island a few weeks ago, and what stood out to me is the breadth of the experience. Teens can enjoy the slides, cliff jumps, and Wandering River at Great Tides Waterpark, while adults have places like Vibe Shore Club, Silver Cove, and our private villas, where they can relax and enjoy the island in a more elevated way. It is exactly the kind of differentiated experience that allows NCL to create memorable vacations for guests across generations. Importantly, we are not waiting for the 2027 wave season to act. We are already changing the way we communicate Great Stirrup Cay and the broader NCL value proposition. In the coming weeks, we will introduce interim creative that more directly speaks to premium families, highlights the breadth of the NCL experience, and includes a clear call to action. The goal is straightforward: communicate more clearly why NCL is different, why that difference matters to our target guests, and why now is the right time to book. Improving our brand positioning and rebuilding demand are critical to returning to our optimal booked position. We are also strengthening how we manage that demand through improvements to our team, tools, and processes, as you can see on Slide 8. During the quarter, we began making changes to the way we sell cruises at NCL. As we evaluated our prior approach, it became clear that in certain areas, we were holding price too high, too far out, which limited early demand generation and left us more exposed to close-in discounting. We are now moving toward a baseloading methodology, which establishes more competitive pricing earlier in the booking curve to build demand sooner and support stronger close-in yields. This is not about discounting the product. It is about managing the full booking curve more effectively, building a healthier booked position earlier, maintaining better price integrity as we move closer to sailing, and being more strategic about our promotional activity. As part of this shift, we have taken pricing initiatives on select sailings in 2027 and open 2028 sailings. The greatest opportunity is on sailings further out in the booking window, particularly later in 2027, where we have more time to shape the curve. For new 2028 inventory and beyond, all NCL sailings will be managed using this methodology from the outset. Taking a step back, we are focused on managing inventory and price in a more disciplined way, maximizing yield over the full booking cycle, and reducing our exposure to close-in demand volatility, particularly in periods of external disruption like the one we are navigating today. With many of these operating changes already in motion, we are moving swiftly to ensure the company is better positioned to capture the revenue opportunity we know exists across our brands. It is important to remember that we are still early in this process, however, and we expect the financial benefits of the actions we are taking today to build over time. I have spent significant time discussing the NCL brand, but I also want to address the work underway across our luxury portfolio, as shown on Slide 9. The work here is focused on 3 areas: sharpening brand positioning, elevating the product and guest experience, and strengthening commercial performance over time. At Oceania Cruises, our focus is on aligning the fleet more closely with the brand's luxury positioning. That is why we are reimagining Oceania Nautica to Oceania Aurelia, creating a more intimate, suite-forward ship designed for fewer guests with enhanced service levels. Today, we are also announcing that we have entered into a binding memorandum of agreement to sell Oceania Sirena. The transaction includes a leaseback arrangement that will allow us to continue operating the vessel until the ship is transferred in spring 2028. This is a deliberate portfolio action to move the Oceania fleet toward a product offering that better supports the brand's positioning and long-term return profile. It also represents another step toward improving Oceania's product-market fit and simplifying the portfolio to more fully reflect the luxury experience our guests expect. At Regent, we are taking similar action to further strengthen the brand's position in the ultra-luxury market. Today, we are announcing a new suite category on the Seven Seas Explorer Class ships, where we will reimagine and expand our entry-level suites on these vessels. As a result, Regent will offer the largest entry-level suites in the luxury cruise industry while also improving 2 important luxury metrics: space ratios and guest-to-crew ratios. Taken together, these actions are about making the products match the positioning, creating clear differentiation for our guests, and improving the financial performance of our luxury portfolio over time. We've learned a great deal over the 2 quarters and made meaningful progress executing against our strategic priorities. While the financial benefits will take time to build, we are confident that the actions we are taking will support stronger performance over time. With that, let me turn it over to Mark.

Thank you, John, and good morning, everyone. I'll begin with our second quarter results on Slide 10, which were ahead of our expectations. Net yield in the second quarter was down 2.6%, which is 100 basis points above our initial expectations. Adjusted net cruise cost ex fuel of $163 was better than guidance, declining 50 basis points, driven by strong cost controls, which ultimately drove adjusted EBITDA of $666 million, exceeding our guidance by $34 million. Lastly, adjusted net income for the quarter benefited from several below-the-line items and was $222 million with adjusted EPS of $0.48, $0.10 better than our guidance. Turning to Slide 11. You can see our third quarter and full year guidance. Our outlook continues to reflect a challenging backdrop as we are in the early stages of the turnaround and continue to build our commercial engine, especially on the Norwegian brand. Starting with full year net yield, we now expect to be at the low end of our guidance range with net yield declining approximately 5%. This reflects the softer demand environment I just mentioned as well as the fact that many of the changes we are making to drive revenue higher, particularly on marketing and revenue management, will take time to translate into financial results. In the near term, the back half of the year remains pressured. The marketing and demand generation challenges John described have left us below our optimal booked position. The changes now underway, including new creative and media plans, are only beginning to roll out and have not yet had time to materially influence booking behavior. And given the proximity of many of these sailings, there is limited runway for those actions to benefit 2026 results. Looking at net yields in the third quarter, we expect a decline of approximately 8.9% with load factor of 104%. This reflects demand pressure across the portfolio with the most pronounced impact on our European sailings, which represent approximately 39% of our deployment in the quarter. This is particularly relevant as approximately 2/3 of our guests on these sailings are sourced from North America, where elevated airfare and broader macro conditions have put some pressure on demand. This implies that for the fourth quarter, net yields are expected to decline approximately 6.5% with a load factor of 99%. We are disappointed in this outlook, which is a reflection of our current booked position that is challenged due to the previously mentioned marketing and demand generation issues. Looking ahead to 2027, and as John noted earlier, our efforts underway on marketing and demand generation will take time to manifest themselves in revenue due to our elongated booking curve. As a result, we expect the first half of 2027 to have continued demand challenges with the most pressure in the first quarter. That said, we are confident that these actions underway are the right ones. As the year progresses and particularly as we move into the second half of 2027, we expect to see improvement as the booking curve better reflects the changes we are making across marketing, demand generation, and revenue management. Moving to cost. As John discussed earlier in the prepared remarks, we have continued to make meaningful progress in improving our cost structure and identifying additional cost savings. We now expect our adjusted NCC ex fuel to be down approximately 25 basis points for the full year as we carry some of the additional savings from the second quarter into the full year. As a result of softer-than-expected top line performance, partially offset by better cost performance, we now expect adjusted EBITDA of approximately $2.5 billion and adjusted EPS of approximately $1.50. Moving to Slide 12. You can see the cumulative impact of the savings and efficiency actions we have taken across the business. This quarter, we have identified another $100 million of annualized savings and cash benefits related to the consolidation of technology vendors and other employee compensation. Due to the nature of these savings, it is important to note that the vast majority of the benefits relate to capital expenditures, with the remainder tied primarily to salary and benefit efficiencies. These savings build on the $125 million of savings announced last quarter and the approximately $300 million of saving efforts identified from 2024 through 2026, which brings total savings over the past 3 years to more than $500 million. We expect these cost actions to benefit the business over time, supporting both margin expansion and free cash flow as the top line recovers. It is also important to note that our work here is not done. We continue to see additional savings opportunities across the business, both within SG&A and on the shipboard side, and we expect to build on these efforts going forward. These savings have been reflected in our unit cost growth, which is detailed on Slide 13. We began the year expecting NCC ex growth of approximately 1%. Last quarter, we reduced that outlook to approximately flat, and we are now reducing our guidance again to a year-over-year decline of approximately 25 basis points. This marks the third consecutive year of NCC ex fuel growth of 1% or less, underscoring the cost discipline we have embedded across the organization and the continued opportunity we see to operate more efficiently. Importantly, these efficiencies have not come at the expense of the guest experience. As John discussed earlier, guest satisfaction scores have continued to improve over the past several years even as we have maintained discipline on cost performance. Moving to Slide 14. Another important factor to keep in mind is that our order book should be viewed in the context of our broader fleet optimization strategy. While we have a strong order book with 16 ships on order across our 3 brands, the signed MOA for the sale of Oceania Sirena means we now expect 5 ships to leave the fleet over the next 3 years. This is important, because we are not simply adding capacity for the sake of growth. We are actively managing the portfolio to improve fleet quality, better align capacity and product offering with each brand's positioning, and support stronger returns over time. Turning to Slide 15. I want to highlight an important CapEx inflection. Over the last several years, we have invested heavily in our fleet, adding 2 to 3 ships annually and driving strong capacity growth, including an expected 7% increase in capacity days in 2026. While we take delivery of 2 ships in both 2026 and 2027, the cadence moderates meaningfully beginning in 2028 with only 1 ship scheduled for delivery in each of 2028 and 2029. As a result, our capacity growth will moderate meaningfully to a 2.5% CAGR from 2026 to 2029, and we expect gross newbuild and growth CapEx to decline by nearly $1 billion annually, materially improving free cash flow generation. This is especially important as our revised adjusted EBITDA outlook for 2026 increased our year-end net leverage expectation, and we now expect to end the year above 6x. Reducing net leverage remains a top priority. As top line performance improves and our newbuild delivery cadence moderates, we expect stronger free cash flow generation to support debt reduction and meaningful progress on deleveraging over time. As shown on Slide 16, our debt maturity profile remains manageable with no significant debt maturities until 2030. That gives us added financial flexibility and supports our ability to focus on deleveraging over the next several years. We have continued to simplify our balance sheet. In May, we announced our election of a cash settlement for our 2 exchangeable senior notes due 2027, which mature early in the year. This election allowed us to reduce our diluted share count by 2 million shares in the quarter and approximately 4 million shares for the full year. Overall, the actions we are taking on costs, capital expenditures, and the balance sheet are strengthening the company's financial foundation. While the near-term revenue outlook remains challenging, we are continuing to move with urgency on the areas within our control and remain focused on improving free cash flow and reducing leverage over time. With that, I'll turn it back to John for closing remarks.

Thanks, Mark. Before we open the call for questions, I want to close with a few thoughts. As you heard today, we are moving to make meaningful change across the business. We have strengthened the leadership team, identified additional savings, began changing how we market and price the NCL product, and taken steps to sharpen the positioning of our luxury brands. I also want to recognize the team. Across the company, our team members are working incredibly hard to move the business forward while continuing to deliver great vacation experiences for our guests every day. The changes we are making are not small, and they require focus, accountability, and a willingness to operate efficiently and effectively. I appreciate the way the organization is leaning into that call to action. As I touched on before, we also recognize that the actions underway will take time to fully translate into financial results. Rebuilding demand, strengthening the booking curve, improving marketing effectiveness, and embedding a more disciplined revenue management approach will not happen overnight. That said, we are confident that we understand where we need to improve and are making the right changes now to position NCLH for long-term success. It is important to note that all the changes we are implementing today are against a backdrop in which the demand for cruise and long-term fundamentals for the industry remain strong. At NCLH, we have strong brands, attractive assets, and a product that continues to resonate with guests. There's more work ahead, but our priorities are clear, and we are moving with greater discipline to translate those advantages into improved financial performance. With that, operator, please open the line for questions.

[Operator Instructions] Our first question is from Lizzie Dove with Goldman Sachs.

So Mark or John, I appreciate all the color here and the comments that you gave on 2027. I know it's still early, but could you maybe elaborate on how you're thinking about the setup for 2027 on the net yield side, I guess, particularly in terms of maybe how booked you are for next year, at what price? And with that in mind, when do you think that we can start seeing some of these green shoots on the net yield side of things?

Lizzie, thanks for joining us this morning. So to reiterate what you just said, of course, it is early to be talking about 2027. But as we think about it, when we look at our current company-specific execution issues, we do expect that to weigh more on the first half than the second half of 2027, and really primarily in the first quarter. We do expect that our first half yields will be negative, again, primarily as a result of the first quarter. But as we think of it going forward, we expect yields to accelerate in the back half of 2027, primarily as a result as we see the benefits from the changes we're making in the business today.

And Lizzie, I would just throw in one other thing, just sequentially -- I mean I know the back half of '27 is not as booked, so it's a little hard to tell. But you can sequentially see improvement. Just where we sit today, you can see second quarter better than the first quarter. So it's building in the right direction. So I mean, early days, but it's encouraging.

Our next question is from Steve Wieczynski with Stifel.

So I know I'm supposed to ask one question. I'm going to do that, but it's going to have 2 parts to it. So okay, first of all, if we look at the change in your second half guidance, basically, you've lowered your occupancy levels by just about 200 basis points. So I guess my first question is, is that the decision to essentially start to hold price now moving forward and willing to let that occupancy kind of drift a little bit? You kind of outlined that a little bit on Slide 8. Or is there something else in the fourth quarter that's limiting those load factors? And then second question, John, it seems like you essentially have your whole team in place or mostly in place at this point. This turnaround is not going to happen overnight. So as Mark kind of just talked about, I'm guessing 2027 is still going to be somewhat of a transitory type year. Is it fair to think as we kind of move more into '28, that should be the first so-called what we would call kind of a normalized year? And based on the recent cost cuts that you guys have identified, at that point, could you see your margin profile start to get back into that low 30s type range?

Yes. Let me take a stab at the first, and Mark can give you -- and I'll certainly answer your second. But yes, in terms of what you're seeing in the fourth quarter, a conscious decision on pricing, we try to balance everything here between load factor, pricing, whatever, just to optimize overall net yield and revenue. So it's not a conscious factor one way or the other. I think it's just more a function, as we said in our remarks, that really our demand generation is where we really have to work hard, and that's sort of where our marketing -- that's why we made all the changes in the marketing group at the NCL brand. So we've really got to drive the top of the funnel. And I think all the stuff we're doing around revenue management and a new person running casino, new itinerary team, all that will pay dividends, but you got to start writing more names down through the top of the funnel. So that would be my answer to that. Anything you want to add to that piece, Mark?

Yes. No, I think that John is right. And I think, Steve, as you think about the margin profile and the margin expansion, you're certainly going to start to see that accelerate towards the back half of '27, especially into 2028, not only from the continued cost efficiencies that we're proving to effectuate. But again, as our demand and marketing engine starts to get rightsized and we start to create that flywheel. Going back to, I think, your first part of your question on the load factor for the back half of the year, yes, load factors are down 200 to 300 basis points. And I think as John said, we're not just looking at price and load in isolation. We're really trying to balance the entire equation for the best overall net revenue and yield. And again, it's primarily a result of we've got to correct our demand-generating engine. We've got to get more names in the top of the funnel. As we think ahead, as we said in our prepared remarks, we do have new marketing, new branding campaigns that are about to launch. That and combined with the opening of our island, actually previewing next week, officially opening in early September, again, we're hopeful that, that's going to start to create more awareness and names at the top of the funnel.

And then to your sneaky way, Steve, to get a second question in, I'm joking with you. The answer, yes. I mean, so we do have the whole team in place, although I would point out that the Head of Marketing and the Head of Digital, they literally started, I think, July 6. So we've had the team together all of 3 weeks, basically the whole thing built. So as I said, it will take a little bit of time for us to learn how to work together. And again, the culture journey is really just beginning. So I think you're right to say that '27 is a bit of a transitory year. As I said, it's certainly -- we're expecting better things in the back half of '27 than where we see today, because I think a lot of these things will have time to sink in. So yes, I think you would call '28 probably the first normalized year. And then I guess, lastly to point out, I would say, really, again, it's all around Norwegian. If you look at Oceania and Regent, it's not like we have 3 brands that have issues. So I would say we clearly are running 2 brands well, and that obviously gives me a lot of confidence we can sort out our issues in this brand. So I think it's a fair assessment the way you looked at it.

Our next question is from Ben Chaiken with Mizuho.

Maybe another one on '27, but specifically as it pertains to the North American to Europe customer. And I guess this is obviously separate from baseloading. I guess what does the pace look like today? Has it recovered since the beginning of the conflict? And then maybe part 2, should we expect a drag as those customers are presumably booking '27 at a lower price or at least historically given the conflict?

Yes. I think -- again, as you think about 2027, as John said earlier, we are seeing better trends. We're seeing sequential improvement each quarter in 2027. I think it's very early to determine how North Americans are going to Europe, but I can say that the business on the books, again, in the latter part of '27, continues to improve. And in terms of the back side of your question, in terms of a drag customers booking 2027, look, I think when we look at what happened this year, we were clearly behind the booking curve for our European 2026 season. That forced us to do some more -- have a more promotional environment combined with the higher airfare. But I think it's very early to make any sort of assertions on 2027 in Europe other than to say that it is continuing to improve.

And who knows where the conflict will be 3 months, let alone 6 months down the road.

Our next question is from Brandt Montour with Barclays.

I was hoping, John, you've been obviously studying what your competitors are doing, and you've been talking for a few months now on converting to a more traditional baseloading revenue management style. Have you guys thought at all about how your consumers and your travel agents will react to this new strategy from Norwegian, obviously, sort of trying to convince them that not to wait for a lower price and that the price is not going to go lower into sailing date, which, again, they probably have been used to from the Norwegian brand over the past decade. So I guess the question is, do you expect them to sort of adjust to this new plan?

Yes. I mean I think we talked about that on our last call that when you do this, you don't really know how long it will take to retrain, so to speak, the guest and the travel community. But I think given again that this will align us more with where the industry is as a whole, I don't think this is a multiyear thing. Does it work instantly right out of the chute? I guess we're going to find that out. But I also think we have some plans and ideas, which we need to like further develop them that will help expedite this process. So I think there are things we can do to ensure that it goes quicker rather than longer. It's clearly the right thing to do over the long run. And again, when you look at our other brands, you see that it works better, no great surprise. So no, we have a lot of confidence in this. So the right thing to do.

Our next question is from Matthew Boss with JPMorgan.

So John, on your current booked position, which you cited as below optimal for the next 12 months, how much of this do you attribute to macro or items out of your control? And then, Mark, just relative to the 4Q exit rate for net yields now expected down 6% to 7%, could you just help bottoms-up bridge the opportunity you see in the back half of '27 versus the baseline, it sounds like negative yields in the first half?

Yes, Matt, as to the first part, I would say being below the curve is -- I mean, maybe on the margin, it's slightly due to macro events, but the vast, vast majority of our problems, as I've said all along, are self-inflicted, which, again, we love the industry, we love the environment. They're just execution issues, which we can fix because that's totally in our control. I think, hopefully, we've proved that to you guys by -- I've been here all of 5 months, but 2 quarters in a row, $200 million-plus quarters of cost takeouts, you'll see more to come there because there's more to go. So we just have to execute, work as a team, and we can fix this. So no, I'd say it's mostly on us, not the macro.

Yes. And Matt, in terms of the exit rate on yields for Q4, obviously, as I've said in my prepared remarks, we are expecting the first half to be negative, but that's primarily as a result of Q1. So we are expecting to see sequential improvement in the quarters over the course of 2027. So we're seeing improving trends. I think when you think about load factors, there's opportunity for load factors. There's opportunities to get better base business on the books. And of course, just managing our overall revenue management funnel better. So certainly a lot of opportunities. And I think it's going to come down to, again, getting our team -- we have our team in place, executing and making that slow change. But we are starting to see that in the latter part of 2027.

But it is early.

Yes, I want to caution everybody, it is early.

Our next question is from Conor Cunningham with Melius Research.

We've kind of danced around this, I think, a bit the past few quarters. When you talk about being behind on the booked position, I was hoping you might actually put a number on what that might mean. Like how far behind are you on the first half of '27 versus a normal year? And I'm not trying to spin this as a positive, but it seems like it's actually good that you are behind as you let your changes to your RM strategy kind of take hold. So I was hoping for an actually more granular discussion around it. I just think it's important given the expected inflection in the second half of '27.

Conor, well, I certainly don't think we're dancing around it. I think it would behoove us. We don't provide that level of granular detail. I will remind everybody on the call, generally speaking, our targeted range is around between 60% to 65% as a system at the holdings level. And obviously, when you look at our performance, both in Q3 and Q4, and expected in Q1, that is a reflection of us being behind the booking curve. So we are improving that. That is part of our overall strategy to get back on a normalized booking curve, which will just pay off in many different ways. But I think to get granular between quarters really is not going to serve a great purpose.

Our next question is from James Hardiman with Citi.

So John, you've now been at the helm for a little while now and obviously doing a lot of sort of background work here. I've asked this question a million times in a million ways, but I'll give it a shot again. And it's a product-related question. Just given the magnitude of the yield declines that we've seen not only this year, but not keeping pace with the rest of the industry in previous years. I'm curious if you could dig in a little bit on sort of how you see the Norwegian product from a competitive perspective. You talked in the prepared remarks about how customer satisfaction scores are, if anything, they're up. But it seems to me like the whole industry is just getting better in terms of their product offerings. And so I guess it's a long-winded way of saying, is it possible that even if you've kept pace with sort of historical Norwegian standards, maybe you just haven't kept pace with an industry that's growing their ship offerings and their private destination offerings? And if that's the case, how is that going to work as you try to remove $225 million of annualized costs and $1 billion of CapEx moving forward? Is there the potential that ultimately, you're going to fall further and further behind from a competitive perspective?

Yes. So you're right. I've been here all of 5 months, but I'll tell you what I think. No, I don't think it's a product offering issue. And when I talk to lots of people in the trade, big travel agents and consumers, I think people generally say our hardware is definitely competitive and you have great ships, you have great crew, you have good experiences. I think our island, I'm hoping as many of you will see this new island that, as Mark said, has its soft opening next week. I think our island is top notch. I think our waterpark is going to be unbelievable. So no, I'll come back to -- I really think our issue is all in how we've marketed or not marketed. I think it's a combination of both. We clearly spend way too much money at the lower end of the funnel, not at the top of the funnel. So when we all came in here and I was like, okay, let's go do media mix models, which sounds very basic, and no great surprise. We weren't really spending money where we needed to, and we weren't being very efficient. So in my mind, it's all about marketing and getting the product back in front of the consumer, because when we get them there, like we said, the scores are great, repeat visits are great. So it's just driving that demand. I really don't think that we have a product issue at all. I think we just got to get the top of the funnel going faster and better.

And James, just to elaborate on that, when you think about the customers who are on board, we continue to see very solid trends in terms of their overall onboard spend. So it just reinforces the fact that we've got to sharpen our marketing message on the Norwegian brand. And just one follow-up. I think you had mentioned somewhere in your question around the cost and the impact on product. I want to reiterate that the items that we've announced this year over the last 2 quarters, none of that touches product. That's all behind the scenes, efficiencies, corporate back office. So I just want to be very clear about that. In terms of going forward, we expect similar things, again, not impacting the product and in many cases, enhancing it.

Yes. I was about to point out. In some cases, we've actually enhanced. So it's a good point.

Our next question is from Robin Farley with UBS.

I wanted to ask, you've talked about, in 2025 and 2026, how some itinerary plans in Europe were not ideal in terms of like the length of the itineraries and the amount of open jaw cruises. And I know that itineraries can take a while to turn around. So the 2027 maybe was planned before a lot of other changes that you've been making. So is there anything that you would call out for 2027 that we should be aware of in terms of itineraries that like might not quite be ideal? Or would you say that 2027 is going to be a change compared to I think, some of the issues you've called out in prior years. And then I don't know if you're allowing part 2 of question 1, but Mark's comment about the first half of '27 negative yields being mostly due to Q1 and then sequential improvement, does that actually mean Q2 would not be down? That's kind of what it sounded like that maybe that would be not negative in Q2. So just to clarify that, if you're allowing that sort of part 2.

Yes. So Robin, I'll just jump on the last part of the question in terms of first half. We've said we expect it to be negative, primarily from Q1, but I'm not going to parse it out between quarters. But other than the rest, we do expect sequential improvement.

Yes. And on the question about the open jaws, yes, obviously, now that we're working better as a holistic team, we're working to see what changes we can make in '27 and '28 so that we don't have as many open jaw itineraries going forward. But I think as you sort of indicated in your question, some of that is dependent on when you can find slots in different ports. So it's not like if you could flip a switch and change everything today, you would. So some of this just takes more time, because it's not all in our control when we can make some of these changes. But each year, it should get better and better and sort of revert back to what we saw 4 or 5 years ago is our norm. So I would just say you'll see sequential improvement over the years as we head back in the opposite direction there.

Our next question is from Vince Ciepiel with Cleveland Research Company.

You talked about improving trends as you look at the '27 position moving through the year. Just curious if you could comment on what you've seen in bookings more recently in terms of the cadence over the last few months. And if this conflict kind of reigniting that's been noticeable, or if you think cruise bookers are kind of looking through it into next year and putting those sailings on the books regardless?

Yes. Vince, look, yes, when you look at where we are today and we look at the geopolitical landscape, there's certainly been a lot of volatility. When you look at what we just did with our semiannual sale, we did see some improvements there. So generally speaking, I think going back to what John said, this industry is still very strong. I think the macro environment, while sometimes volatile, still is very productive for cruise demand. So I think as we can continue to execute and change -- improve our demand-generating engine and, of course, get the right marketing message out there to the targeted customer, I think that's just going to continue to help us. But again, that takes time. That doesn't happen overnight. And I think we're going to continue to see, as we've said, continued improvement sequentially in 2027.

And I wouldn't say -- because you used the word, I think you said noticeable impact. I would say maybe the booking curve on certain things has moved in a little bit closer just due to the global uncertainties, but I don't think that's material. But I think you see that on the margin.

Our next question is from Richard Clarke with Bernstein.

If I look on your Slide 11 about your implied 4Q guidance, obviously, a fair shift in the NCC ex fuel guidance from down 0.9% in Q3 to up 1.1% in Q4. Just anything one-off in why costs start growing again in Q4, and maybe how we should think about, therefore, the exit rate on cost growth into 2027?

Yes. No, great question. So look, I think that's primarily around timing in terms of some of the quarterly cadence and as well as, as we think about doing some of our new marketing initiatives and creative that obviously we would expect to start hitting in Q4. But nothing structurally that would indicate that carries over into 2027. Again, as we continue to reemphasize, we continue to push hard on the cost front. We've announced $225 million in the last 2 quarters. We continue to believe that there's going to be more efficiencies to be had. So we're going to continue to make solid progress on that front.

Our next question is from Anthony Berni with Jefferies.

This is Anthony on for David Katz. Sticking with that cost bit, how do you feel about the $100 million cost savings you noted? Should we be expecting more 9-figure programs in the future? Are the remaining cost takeouts you've mentioned a little bit more incremental? And could you give us any color on where we should expect to see those?

Well, I would say -- Mark can jump in here. I would say, yes, we continue to see meaningful cost opportunities. I'm not really going to size them, but I would say they're meaningful. Again, as Mark said, they're not guest focused at all. I mean it's just inefficiencies and ways we can use technology better. I think we've talked in the past that we have lots of tests underway, whether it's AI-based, whether it's offshoring. So no, I think there's plenty more we can do on that. So I would say, I think we said on the last call, a lot of these cost cuts, we can get done in the next 2, 3 quarters. So we'll just keep marching quarter-by-quarter and reporting back to you. But I think you'll see meaningful improvements as we move down the road.

Yes. Just to add a bit more color. As we've talked about before, our global sourcing initiatives program, that's still at its early stages. So we certainly believe that there's broader opportunity around that. But again, our aim, as we've done the last 3 years, is really to deliver sub-inflationary or better unit cost performance. So that's our goal, and we continue to march along that path, and we're pretty confident that we will achieve that.

Our next question is from Trey Bowers with Wells Fargo.

Just a couple of questions on the island and the waterpark. I see that the waterpark went on sale in May. Just if you guys could put some numbers around what kind of early action you're seeing on buy-in, what you're kind of embedding in your guide starting in Q4 and into next year in terms of utilization, how much yield impact? I don't know to what extent you're willing to do that, but if we could just get some numbers for a feel for what the benefit of the island could be. And then I guess related to that, with the new Head of Marketing on board, when should we expect to see a real marketing push around Great Stirrup Cay?

I'll do the island. I mean, you're right, we're not going to go into granularity, which you kind of guessed that. I would say the new marketing, interim marketing will literally roll out in the next week to 2 weeks. I mean you've started to see some, but I think what I would really call the sort of marketing that I think of or you probably think of will roll out literally in the next couple of weeks. When you think about the soft opening is next week, I think once that word of mouth gets out there, you got a lot of social marketing people that will hit the island over the coming weeks and certainly for the grand opening. So I think once all that sort of starts to blast out, I think we'll see a much bigger impact. But in terms of granularity, it's too early.

Yes, I agree with John. It's just too early. We do have a lot of good activations that are coming up in not only the grand opening, but some other activations. So we're hopeful that that's going to be a momentum driver, but a bit early to make any assertions in terms of what that's going to flow through to '27. We obviously do believe that the island will be an enhancement, not only to our guests, but obviously, at the end of the day, bottom line. But it's very early. We just really haven't hit it hard on the marketing front yet.

Our next question is from Andrew Didora with Bank of America.

So in the presentation this morning, you outlined your 2027 deployment strategy. I know nothing has really changed too much on an annual basis, but there was some shifting in the Caribbean, maybe a little bit more growth in the seasonally weaker 3Q. Just curious what is driving that? And I guess, bigger picture, how do you think about your deployment strategy next year as it relates to just your overall booking strategy?

Andrew, look, I think as you think about 2027 and our deployment mix, when you look at it holistically, you're right, you're not seeing any broad swings or broad major strategic changes. As we've said before, we believe in the strategy. You do see some marginal on the margin changes. And I think your reference to the Caribbean in Q2 and Q3, it was probably about a 1 to 2 percentage point shift between quarters and things of that nature, that would just be natural redeployment of certain vessels or certain assets. So nothing indicative of a larger change.

Our next question is from Kevin Kopelman with TD Cowen.

I just had a follow-up. You talked about Q1 being pressured a few times. I was hoping you could just level set us putting a little bit of finer point on that. Q1, should we be thinking of it as similar to Q4? Or any other color you can basically give us on how you're seeing today beginning of next year shape up?

Yes. Again, we're not really going into any sort of granularity like that. But if you think about what I said in the prepared remarks and in my answers to questions, again, if you just think about demand generation, a new group of people, changing how you're doing baseloading, which obviously will take time, that's going to have much more of an impact in later quarters in '27. And as I said, really that piece '28, the baseloading, all those things take time. So again, half of our team showed up in the last 2, 3 weeks. So really impacting Q1 is just very difficult. So it's not that the macro environment changed or anything like that. It's sort of all these pieces that we're putting in place, as they come together, they're going to benefit us, I guess, is the right way to say as we move through the year. And I think as we said, given that sequentially each quarter looks better, I think you can already start or we can start to see some of this falling into place, but it's just going to take a few quarters here. I think we have time for one last question.

Our last question is from Chris Stathoulopoulos at SIG.

So I appreciate the graphics here on Slide 8 with the new RM tactics. I just want to understand why the, I guess, for lack of a word, not delay, but the new tactics here in the baseloading pricing strategy, so later in '27, '28. Is that really a function of testing? Or is there some required IT or stack build-out there? I'm just curious why that can't be accelerated. And I also understand that how that might work with more of the contemporary Norwegian brand. Curious if part of this build-out requires some further back testing and evaluation across the more premium brands like Oceania and Regent, and how that might be received in the marketplace?

No, those are very different things, and there's no test. We're not saying we're delayed. We are going forward right now. Just if you think about the '27, the first quarter, it's obviously much more booked, the second quarter to a certain extent. So we're starting now. I'm just saying the impact will obviously be much more consequential in the back half because there's less stuff booked in '27. But no, there's no delay. I mean, we've already begun to work on all this in terms of changing pricing in select markets. So we're doing it sort of from the ground up, market by market, sailing by sailing, because you can't crop dust here. So no, if I gave you that impression, that's not right. It's really more when will the impact happen. It's underway as we speak. All right. I think that's it. Thank you guys very much for joining us, and thank you for all the questions, and we look forward to following up with you in the coming days.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.