…gina, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Royal Caribbean Group Second Quarter 2023 and Business Update Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Good morning everyone, and thank you for joining us today for our second quarter 2023 earnings call. Joining me are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bailey, President and CEO of Royal Caribbean International. Before we get started, I’d like to note that we will be making forward-looking statements during this call. These statements are based on management’s current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rclinvestor.com. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our second quarter and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I’m pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. I’m thrilled to share with you this morning our strong second quarter results and another step change in the trajectory of our business. You may recall that we doubled our revenue yield guidance and increased our earnings expectations by 40% in May on the heels of a record wave period that drove strong booking momentum for our brands. Well, as we shared in this morning’s press release, it got even better since then. The combination of strong preference for our leading brands, numerous consumer tailwinds and the attractive value proposition of cruise contributed to strong and accelerated demand for our vacation experiences. Our brands continue to excel, and we not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full year earnings guidance by another 33%. I’m thrilled to share that we are now expecting double-digit yield growth for the full year and low teens growth rate for the remaining quarters. I want to thank the entire Royal Caribbean Group team for delivering another outstanding quarter. Their passion, dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. Last year, we laid out Trifecta, which set clear and ambitious targets. We have made tremendous progress towards those goals and now expect to achieve record EBITDA per APCD and record return on invested capital this year. We are well on our way to achieving Trifecta as we continue to execute on our strategies. As highlighted on Slide 3, we delivered another outstanding quarter that exceeded expectations. The robust demand environment we reported back in May continued throughout the second quarter and translated into strong booking volumes and meaningfully higher prices. During the second quarter, we delivered a record 1.9 million memorable…

Thank you, Jason, and good morning, everyone. I will begin by discussing our results for the second quarter. We delivered another strong performance with adjusted earnings per share of $1.82, 17% higher than the midpoint of our May guidance. We finished the second quarter with a load factor of 105% and with net yields that were up 12.9% versus 2019, about 260 basis points higher than the midpoint of our guidance. Overall, about half of the yield growth was driven by new hardware and half driven by a significant increase in rates on like-for-like hardware despite being a bit behind on load factors. Rates were up 17% in the second quarter compared to 2019. NCC, excluding fuel per APCD increased 9% compared to the second quarter of 2019. While our costs came in consistent with our May guidance, the increase in our share price and the significant increase in our financial outlook for the year resulted in higher stock-based compensation. This cost, which contributed 220 basis points to the quarter was offset by favorable timing that will shift into the third quarter. Our operational and commercial teams are doing an exceptional job driving strong top line growth and maintaining focus on operating expenses to expand margins. Our EBITDA margin in the second quarter has recovered to its 2019 levels and over 100% of the revenue outperformance during this quarter dropped to the bottom line, leading to significant earnings beat versus our guidance. As Jason mentioned, booking volumes since our last earnings call significantly exceeded 2019 for both North American and European consumers. Caribbean itineraries account for about 55% of our full year capacity and about 37% in the third quarter. Strong demand for Caribbean itineraries contributed to the strong performance in the second quarter and is one of the key…

[Operator Instructions] Our first question comes from the line of Steven Wieczynski with Stifel. Please go ahead.

Hey guys, good morning. First off, congratulations, another very, very strong quarter. So Jason, as we think about the Trifecta targets, it seems to us based on the trajectory of the business there now is probably somewhat of a high probability that some of these targets could be achieved possibly a full year in advance of our your current 2025 time frame. So based on the strong demand you’re seeing already for 2024, is it fair to assume that achieving some of these targets much earlier than you were expecting was a fair statement. And look, I know that’s kind of a call that [Ph] 24 guidance question, but just based on the current trends, it does just seem like you guys are on that path.

Well, thanks, Steve, and good morning, and good morning to everybody. I hope everybody is doing well. So first, I would say Steve, as we pointed with, out Trifecta, Trifecta was, as we described it as base camp. We think there’s a lot value to unlock here in the company as we -- as our people and our brands just continue to execute as we grow our business. And so as you pointed out, the current trends that we have been seeing, especially in the booking environment points to many of these metrics being able to be achieved earlier than we had anticipated them to be. And of course, we believe very much as we have in the past, that setting coordinates and pointing the organization to those core nits is very important to make sure that we execute on them and beyond. As we get closer to those metrics, we will certainly look to talk about what’s the next base camp or base camp two that will be pointing the organization to. But as you said, when we look at these the other trends, the booking environment on how we’re executing the preference for our brands and us, again, being able to further close the gap here to what we see as really the competitive set with land based vacation, the outlook looks really bright. And so I think we would say that it looks -- these trends would point to an earlier arrival at base camp, but we’re not in a position that it’s too early for us to say exactly what that timing is going to be.

Okay. Got you. And thanks for that. And then second question I guess, just around your booking visibility today, which seems like it’s probably as good as it’s ever been. And I guess my question is, I think historically, you’ve turned the calendar year, let’s say, a 55%, 60% kind of booked range. And I know it’s still early on, but based on your current marketing plans, the current strong demand that’s out there, not only from the North American side of things, but now it seems like your European customers are getting stronger. Do you expect, if we kind of fast forward to the end of December moving into January, you could turn the calendar year at a higher book position versus where you’ve been historically?

Well, I think what -- so obviously, in our commentary about how us being booked, how we’re booked ahead on rate volume in our booking environment, especially -- and most of these bookings are relating to 2024. We feel really strong or really good about the demand environment, and that very much points to 2024. What I would say is it is very possible that we’re in a more -- more book position than we have been in the past. But I would just -- we’ve said this in the past, our goal is to optimize revenue. And so you could be plus or minus 5% on a book position standpoint as we kind of cross periods because we’re looking to optimize revenue, not just optimize how much you have on the books at a certain point in time. And I think our teams have demonstrated even as you see as we cross the here, your ability to utilize what we would say are state of the art tools to manage and optimize our revenue, not just on ticket, but also on onboard is what’s helping us lead to optimizing our yield profile.

Okay got you. Thanks guys, really appreciate it. Congratulations.

Yes, thanks Steven.

Your next question comes from the line of Robin Farley with UBS. Please go ahead.

Great, thanks. Obviously, really strong results. Just looking at your expense guidance outside of just the compensation that’s tied to your performance, it hasn’t really changed. It looks like despite a lot of higher expense out there in general. So I know it’s early to talk about 2024, but if your higher expense hasn’t sort of worsened over the last few quarters, does that give you the visibility that maybe 2024 expense could look kind of like a normal year in terms of the increase year-over-year, if the outlook hasn’t been worsening for you as it maybe has for some others. Thanks.

Hi Robin, good morning. So yes, first of all, all the expected guidance that we’ve shared today is really the result of all the actions that we talked about and really our team’s exceptional job of managing expenses and expanding margin as our yield is growing. And obviously, in 2023, we were comparing to 2019, that was four years ago. So as we look into 2024, there is anything -- nothing that is extraordinary. There are a couple of things that are going to be a little bit structural, for example, we are opening HydoWay Beach. But generally, it should be a normal year.

Yes. And Robin, I just wanted to add into it because I do think it’s important to recognize, if you kind of string together the calls through the pandemic and all the actions that we took to position ourselves to really kind of outperform and to grow our margins. A lot of all that work really helped absorb the vast majority of -- a pretty significant inflation that we saw across a lot of the items that impact our product. And so we were able to really absorb that and still produce significant Net Promoter Score. So very, very thoughtful of not impacting the product or the experience, which could be easily done to help something in the short-term. But in the long-term, but it has really paid off for us as there is clear and very strong preference on a vacation standpoint to travel with the group and the great brands that are inside of it.

That’s great. Thanks. And then just one clarification on -- you mentioned restarting China in April of 2024. Can you give us a sense of what that might obviously some start-up costs to that any way to sort of quantify the magnitude of that? Thanks and that’s it for me.

Good morning Robin, it’s Michael. And I happen to be very fortunate today because I’m calling you from beautiful Allure of the Seas sitting in our conference room. Using our StarLink technology to video conference with my colleagues and participate in the call. We’re on the President’s cruise. We have over 3,500 of our loyal guests along with 2,500 other guests on this great voyage. So I’m actually sitting here in my swimwear, but you can’t see that. But I have to tell you that only to say that it’s just an amazing thing to be back with our loyal guests on the product and the brand, and it’s quite amazing when you kind of immerse yourself with the customer, the kind of incredible feedback they give you in the loyalty so many of our guests have Royal Caribbean. It’s really -- it’s a beautiful thing. On China, yes, we’ve open for sale. We had a kind of a thoughtful process as it relates to bringing back our employees over time. So as we move through 2023, we obviously take on more SG&A expense, and we have accommodated that in the forecast obviously, and we also mitigated some of that expense. And then as we look into 2024, it will be a full year of typical operations for a one-ship operation with a lot of shared services provided by our Singapore office. I can tell you that the -- it’s early days yet, but the signals look pretty positive. We feel good about what we’re seeing in terms of bookings. And we feel pretty comfortable with operations and how we scale back our teams to sell and market and operate our China operation.

Yes. And just Robin, to your question, the increase between our May guidance and in cost and what you have today is entirely as a result of the stock-based compensation which is the majority of that increase and a little bit of that China expense that Michael was talking about.

Great. Thank you.

Your next question comes from the line of Brandt Montour with Barclays. Please go ahead.

Hey good morning everybody. An excellent quarter. So first on European consumer demand you mentioned it several times, and it was clearly one of the surprising positive takeaways here. Just maybe if you could give us a sense of how you measure the European consumers recovery versus how you measure the U.S. Consumers recovery in [Indiscernible]? Just trying to get a sense how far back the European consumer is so that we can kind of get a sense if there’s sort of further recovery from that source to go?

Brad, I think I would position in less about their recovery in terms of what their willingness is to spend because their willingness to spend was very competitive with the North American consumer. I think the difference is that they were delayed and kind of activating their vacation. And so they were as we talked a little bit about on the May call, we expected Europe to be a little bit lighter versus 2019 on in terms of load factor and it came roaring back. And that’s a story of one of the North American consumer just feeling that they needed to -- for certainly vacation in Europe, but also the European consumer kind of was very much part of that story. So I think it’s less about what they can afford to spend or what they are spending. I think it was more that they were they were delayed by call it, 45 to 60 days than what we typically would see in a normal booking window. And again, these are things that are on the margins because we are -- we were a substantially book, obviously, going into the summer for Europe.

Okay. That’s super helpful. And then on 24, you guys have an exciting docket here with the Icon and the CocoCay expansion in China reopening. How would you sort of stack up those 3 things in terms of a tailwind to yield in the year of 2024 if they’re all something meaningful, eventually quantifiable? And then is there anything dilutive to yields in 2024? I mean, China, I guess, could be dilutive because it’s sort of a restart year and then Utopia is a brand new ship, but it’s in a short market. So how do we think about that? Thank you.

Hi Brandt, this is Michael. We don’t see China as being dilutive. We feel very positive about China. And we certainly see Utopia as a big, strong game changer. And what we’ve seen so far from our bookings, both volume and rate are incredibly encouraging. And we’ve been very thoughtful. As Jason mentioned earlier about the strategy of putting really outstanding hardware combined with excellent destination into the short product market because it truly is the on-ramp for new to cruise and also first to brand. So or indications as it relates to new product lineup coming online in ‘24 and exceptionally positive. And I’d also like to add that Icon and Utopia and, in fact, wonder when you look at this gap between land-based resorts and land-based experiences versus some of our top products, particularly these products we’re talking about, there really is no gap. The gap has been narrowed quite significantly, and we feel very positive about where we’re going to go on that journey. So as we think about 2024, as we look at these products, as we see what’s occurring in terms of the booking activity both from a volume and rate perspective, the excitement we see for these products, we feel very positive about their impact in 2024.

One other just quick comment on the yield side of things and this just goes into the booking commentary. Clearly, there is incredible demand for our new ships and Icon will certainly break and has broken, I think probably every record in the book. But I think it’s important when we look at the data inside of our bookings that it’s not just the new hardware -- the like-for-like is also very strong and growing. And that commentary as I said is some of it is 2023, what we have left to book. So most of that commentary really relates to 2024.

Yes. And Brandt, I’ll just add two more things. One is, obviously we have this year, we are not returning to normal load factors, but the first half of the year was a little bit lower. So that should also contribute to yield next year. On the other hand, we are now in the planning process obviously for 2024 and we’re considering all the talks that we need to do next year, and that could be more elevated than this year, which obviously will impact some of the cost a little bit on the yield.

Yes. And the elevation on the dry dock is just a reflection of ships that came out of COVID that had missed those windows. And so it will be a little bit more elevated in in 2024, but just a point.

That’s it for me. Congrats, again.

Your next question comes from the line of Vince Ciepiel with Cleveland Research Company. Please go ahead.

Thanks and nice to see on the results. I wanted to dig into the yield upside a little bit more. I know you mentioned it was a mix of onboard and ticket but when you think about, I think, 1Q by 4 points, 2Q beat by almost 3 points. And when you consider the volume of business kind of on the books going into the quarter, it seems to speak to price maybe on a leading-edge basis, really exhibiting a nice trajectory. So curious if you could kind of comment on that and how that informs kind of your approach to 2024 as you’re thinking about kind of finding the balance in the booking curve.

Well, hey Vince good morning. I hope you’re doing well. As Naftali commented in his opening remarks, as we look at what kind of drove -- or one of the key drivers of the difference from the May guidance till today is really all price, right? So load factor for the back half of the year, we had expected to be normalized. And so I think what has been a surprise to us has just been our ability to continue to raise price and demand continuing to come in at higher levels, significantly higher levels than we have seen in previous periods. And so I think it just talks to, I think, one, just preference for our brands. I mean how well -- our commercial teams have been executing and also keeping our customers more and more in our ecosystem has been a huge tailwind for us. And I think that kind of just a broader combination of things when you add that to just the value gap to land based vacation is driving our ability to raise prices. And so as we said earlier, our APDs for the full year are up over double digits for the back half of the year, they’re going to be in the low to mid-teens in terms of rate increase relative to 2019. That is significantly better than we had anticipated when we gave guidance earlier this year. And it’s really a reflection of even as we take on the bookings and as we increase pricing, we’re not really seeing that point where price is impacting our demand. And then the other component of this is just onboard spend, which is obviously a combination of -- to a degree of price. But really, the main driver of that has been our ability to be much more effective to curate and take friction out of the process for our customers to book their activities on the ship. And of course, there’s a great commercial reasons of doing that. There’s also an incredible guest experience benefit of doing that as our ultimate goal here is to try to give a day back to our guests to come on our ships and instead of them having to spend a day booking their restaurants and booking their spa appointments and short surgeons [Ph], they’re able to do that ahead of time. And we are really in the early innings of that, especially curating -- there’s still a lot of friction points for us to resolve, but our teams have really just done an exceptional job of moving that forward, which can also see supporting an even more elevated customer deposit balance as we’re able to take on those onboard spend bookings.

Great. That’s really helpful color. And I wanted to zoom in a little bit more on CocoCay. I think that you guys were on track to take about 2.5 million passengers there this year. kind of with a path towards $3.5 million in 2025. Curious kind of where 24 maybe falls within that window if it’s closer to 25% or 23%. And then -- just what you guys are seeing in terms of customer feedback around desire to repeat visits to CocoCay and maybe how you think about the decision to send Utopia Icon to CocoCay as well?

Well, Vince, thank you for the question. I mean 1 of the reasons we call -- Perfect Day. Perfect Day, is it it really is perfect. And it is driving a lot of the demand and people are booking the ships and the itineraries that sell to Perfect Day. It really is delivering an exceptional customer experience and people value that immensely. And we see the repeat rates going back to -- Perfect Day accelerating. As we look at the volume of guest, we’ve got a Perfect Day in 2023, 2024, 2025. Obviously, we’ve planned to open Hideaway Beach at the end of this year in time for Icon and Utopia that’s going to increase our ability to add more gas to Perfect Day by about 3,000 people, and that will come online literally in December of this year. So that allows us then to continue to increase our capacity into Perfect Day. We’ve also got the Royal Beach Club in Nassau, which is moving through its various approval processes, environmental and governmental permits and what have you. That’s looking as if it’s promising and we’re planning on opening the Royal Beach Club in summer of 25%. So when you add that experience, the Royal Beach Club, along with Perfect Day, we feel like we genuinely have the ultimate big weekend. And that’s, of course, why we’ve got Utopia coming online and going straight into the short market. So it’s a great product. It’s combined with incredible assets, the ships that we’re sailing to Perfect Day. I don’t think Perfect Day without these ships would be the complete perfect vacation, but we really do feel like we’ve got it right. And we continue to focus on delivering excellent guest experiences. It’s somewhat of an obsession within the team. And of course, more recently, Celebrity announced that they’re also sailing to Perfect Day, so that’s great for the celebrity brand as well. So we see it as a great success, and we continue to refine it and to develop it, and we continue to plan to bring our guest to Perfect Day.

That makes sense.

Your next question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Great, thanks and congrats on another nice quarter. So maybe to elaborate on the acceleration in trends that you’re seeing in both passenger ticket and onboard spend relative to 2019. I guess how best to think about sustainability multiyear as you break down trends between new to crews that you’re seeing versus existing cohorts? And are there any lead indicators at all that point to any future softening on any metrics?

Well, thanks, Matt. Well, first, I would say that I think the acceleration that we’re seeing is on a few points. One I think we’re getting more share of the wallet because we’re helping better kind of curate and take friction out of the experience. And you can see that in just the volumes of guests that are that are willing to book directly with us online -- because we’re able to curate the actual cruise booking, also all the things that we’re doing pre-cruise to get them to book ahead of time. And so a lot of it -- some of it is price but a lot of it is just the friction that we’ve taken out of it and the commercial tools we put in place to make it easier for them to book those experiences. And so I think that’s a big kind of part of the acceleration. The other part I think of the acceleration is that we have. We really do feel that we have the best brands, the best ships, the best destinations kind of in play here which we think is really excelling -- or accelerating the preference for the vacation experiences that we’re offering to our guests. So I think that’s also a very important thing. But really in everything that we’ve talked about today and what we said in our release in the storyline, there are no indicators of softness there’s really only indicators of acceleration in what we’re seeing as we continue to have the ability to raise pricing. And when we -- of course, when we put out our guidance, it’s really based off of what we’re seeing today in the booking environment. And of course, we’ve seen a continued set of acceleration from period to period. So I think just -- I think a lot of what you’re seeing is execution -- and I think a lot of what you’re seeing is long-term strategies coming into play versus just kind of necessarily riding the market -- and so I think that’s important. But I just want to emphasize at this point, whether it’s in the booking environment, on the ticket side, whether it’s on the onboard side, we don’t see any indicator of weakness.

Matt, I’ll just add yes. Yes, I’ll just add also, obviously, we made great progress on closing the gap to land based vacation, but the value gap is still there, and we see this as a is a great opportunity to continue to grow yields? And then just taking market share from the global leisure market, right? And you can see some of that success with new to cruise, that’s really core to our strategy.

Great. And then just on the bottom line as a follow-up. So as we think about EBITDA margins multiyear and just looking back at prior peak levels, is there any reason to consider that Trifecta plan as a ceiling? Or just any unlocks to consider, which would point to this model as accretive relative to pre-pandemic profitability levels?

Yes. So as you know, Trifecta for us, as Jason said, was base camp. And if you kind of look at the triple EBITDA per APCD, triple-digit EBITDA per APCD, which obviously is at least 100. It does have a margin expansion beyond 2019 but as we continue to grow that, we see a lot of opportunities on multiple levels right, growing yields, lower acquisition costs, just scaling the business as we grow and our ambitions are above 2019 levels, that’s for sure.

Yes. But I would just add, there is nothing structural that I’d say puts that at risk. I think what we need to focus on, and we know this about our business model is moderate yield growth which I would not, again, call this year moderate, but moderate yield growth, good cost control leads to expanded margins as we grow our business. Every 1% change in our yield is $110 million plus and a 1% change in our cost is about $50 million. So to grow your yields faster than you grow your costs and you’re going to continue to expand your margins.

I will now turn the call back over to Naftali Holtz, CFO, for closing remarks.

Well thank you everyone for your participation and interest in the company. Michael will be available for any follow-ups. We wish you all a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.