Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2024 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 First Quarter 2024 Earnings Call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International. Before we get started, I would 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'll 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 Investor Relations website and in our earnings release. 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 first quarter, the current booking environment and our updated outlook for 2024. 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 proud to share our robust first quarter results and the continued upward trajectory of our business. When we turn the page from an incredible 2023, with a record booked position for 2024 and numerous tailwinds related to the consumers' desire to vacation with us, we expect that this would be another great year. Well, as you saw in the press release this morning, what transpired over the past 3 months was even better than our already elevated expectations. Our brands are stronger than ever and demand for our vacation experiences continues to accelerate. We are leading the way in delivering a lifetime of incredible vacations for our guests with our exceptional and leading portfolio of brands, innovative and differentiated ships, exciting and exclusive destination experiences and leading commercial capabilities. The opportunity is very large and very exciting as we seek to take share from the rapidly growing $1.9 trillion vacation market. Our formula for success remains unchanged. Moderate capacity growth, moderate yield growth and strong cost controls lead to robust financial performance and long-term shareholder value. Before getting into the details, I want to recognize our incredible teams that are working together day in and day out delivering the best vacation experiences to our guests and doing so while driving exceptional results. Our business is propelled by our people, and they are the driving force behind our strategic vision for success. I'm so grateful for their commitment and passion. Now moving on to our results. As highlighted on Slide 4, the first quarter was tremendous, setting us well on our path to a year that is significantly better than we expected just a few months back. WAVE season combined with a record-breaking introduction of the revolutionary icon of the Seas resulted in…

Thank you, Jason, and good morning, everyone. I will start by reviewing first quarter results, which were significantly above our expectations. Adjusted earnings per share were $1.77, 36% higher than the midpoint of our most recent guidance of $1.30. 45% of the outperformance or $0.21 was driven by better pricing for our vacation experiences with the remainder driven by favorable timing of operating expenses. We finished the quarter with a net yield increase of 19.3% compared to the first quarter of 2023, 385 basis points higher than the midpoint of our initial guidance in early February. While our load factor recovery was a contributor, most of our yield growth was driven by rates that were up by 14% versus 2023. 55% of their outperformance compared to our initial guidance was driven by ticket pricing with the remainder driven by ship board revenue strength. Net cruise costs, excluding fuel, increased 4.1% in constant currency, 315 basis points lower than our initial guidance. Favorable timing was the driver that contributed to the better-than-expected results. Adjusted EBITDA margin was 31% and operating cash flow was $1.3 billion. On our last earnings call, we discussed the record-breaking start to WAVE season and widespread strength in booking, pricing and onboard revenue. The consistent strength in demand for our brands has led to a further amplification and pricing well beyond the levels we were expecting. Bookings have been outpacing last year by a wide margin on a weekly basis despite having less inventory remaining for sale. As a result, we continue to be in a record book volume position and our booked per [indiscernible] are now even further ahead of 2023 than they were as we entered the year. The Caribbean is our largest product group, representing just over 55% of our deployment this year. Overall,…

[Operator Instructions] Our first question will come from the line of Steven Wieczynski with Stifel.

Congratulations on the solid results and outlook. So Jason, you obviously gave a lot of color around how bookings are shaping up for the rest of this year. But look, if we think about bookings for next year, I'm sure that's where a lot of investor interest levels are going to go to pretty surely. So you're just wondering what kind of color you can give us for 2025 at this point. I'm wondering if the booking and pricing strength that you're seeing today is being transferred so far into 2025?

Steve, thanks for the question. So one, I mean, all of our commentary around our bookings, the strength that we're seeing that not only relates to 2024, but also to 2025. And we're getting close to the point where we'll soon be taking more bookings for '25 than we are for 2024. And so when we look into the booking behavior, one, the booking window continues to extend. So guests are making their decisions much further out. When we look at the repeat rates that are going on and the dreaming that our guests are doing to make sure that they're getting the vacation experience that they want, is really all leading to very, very strong demand trends for 2024 as well as 2025. And by the way, we're also taking bookings into 2026. And we're also seeing very strong booking behavior pre-cruise, and again, making sure that our guests are -- have the ability to get their first day of their vacation back by planning their onboard activities or shore excursion activities well in advance. And that's also not only helping our ability to yield manage on the onboard experience, but it's also improving the -- our customer deposits, which is also rising due to that. So all in all, things just continue to accelerate and the thirst or hunger for our brands and their experiences just continues to grow. And you see that not in just the booking behavior, but also all of our survey data around, what propensity to cruise, but also propensity to cruise with us.

Okay. Got you. And then second question, probably a bigger picture question. But look, if I remember correctly, before the pandemic, you guys are always targeting, I think it was $20 a share in earnings by 2025. And look, obviously, you weren't prepared to give another long-term set of financial targets today. But I mean, look, if we start to think about your capacity yield cost algorithm, are we crazy to think that getting back to $20 even with the dilution and the higher interest cost that you guys took on during COVID, I mean, it seems like that's probably back on the horizon again. Are we kind of crazy to think that way?

Well, I won't get into how crazy you are, Steve, because that could take the balance of the call. But I think as you pointed out, which I think is an important component is we have a business that has really strong operating leverage. And what we have talked about is our formula for success, which is moderate yield growth, which clearly we haven't seen this year. We don't see that last year. We've seen elevated yield growth. Moderate yield growth good cost control, moderately grow your business, bring on new destinations, drive -- really very -- I mean, tremendous earnings power. You think about a 1% change in our yields is $120 million this year. A 1% change in our cost is about half of that. So grow your yields faster than your costs, bring in really strong, high-yielding capacity that has great inventory mix. You bring in new destinations like we did this year with Hideaway, bringing it into the Beach Club in Nassau, bringing in the Beach Club in Mexico, et cetera. These are all things that are driving very high margins for us and is improving our return profile as well as our earning profile. And of course, none of that takes into account, I mean, Naf and team have done an exceptional job already on the balance sheet. There will be more opportunity to continue to lower the negative carry, and of course, we haven't -- none of this contemplates capital returns, which is one thing that we were doing pre-COVID. So it's something that we think as we look at, how do we continue to improve shareholder return, those are things that could also improve our earnings outlook is by considering the dilution that occurred and returning capital to shareholders. All of this are things in which we will begin to address once we get to our Trifecta goals, which, as you know, we describe as base camp.

Your next question comes from the line of Ben Chaiken with Mizuho.

It sounds like demand is accelerating. It would be great to hear any color on demand for Paradise Island. And then I guess related, can you talk to about how you're differentiating the destinations from a marketing perspective of CocoCay, and then Paradise Island, Cozumel or maybe by ship class. Just any nuances you would call out? Like is this a CocoCay returning customer or a different person?

Ben, it's Michael. I mean, when we think of the Beach Club portfolio that we're planning on developing along with Perfect Day, they're incredibly complementary destination experiences, and they fit really in the sweet spot of the -- of our demographics and really in terms of what our guests are seeking looking for when they go on a Caribbean cruise, they really knock it out of the park in terms of satisfying that demand, that need. So a very similar type of product, different vibe, Perfect Day is a full day for thrill and chill, and the Beach Club is, as you imagine, it's just an incredible day at the beach, which is what most gas is seeking in the Caribbean, and it's curated by Royal Caribbean. It's a stunning experience. And of course, it's very authentically connected to the culture. For example, in the Bahamas or Mexico, and it really is a huge demand driver. When we look at the demand that we've seen for Perfect Day, this year, we'll take 3.2 million guests to Perfect Day. Last year, it was 2.6 million. And it really is a demand driver. People want to sail on the ships, they go to Perfect Day and they want to sail on the ships, they go to the Beach Club. And I think it's proven to be incredibly successful. When you wrap that up with the kind of hardware we've introduced, for example, Icon, which has been an unbelievable success, I mean, beyond our wildest dreams success, and you add on Utopia, which is a brand-new Oasis-class ship, which was going straight into the short product market out of Port Canaveral, the demand we've seen for, for example, Utopia sailing to Perfect Day has been extraordinary. So we think we've got the formula figured out, and our plan is to continue to evolve and develop that formula over the coming years.

Yes. And Ben, I just want to add -- I had it in my remarks. I think one of the incredible things that we're seeing out of destinations like Perfect Day, and we'll see this in the world of Beach Club in Nassau, is how it's drawing in new-to-cruise and millennials. So my comment that 1 and 2 of our guests -- 1 out of 2 of our guests are millennial or younger. To me, it's a very powerful statement. The increase, we have an 11-point increase in new-to-cruise. And so -- and what we know is when they sail with us, they're 5x more likely to sail with us again. And the repeat rates that we're seeing are exceptional. And it's a lot because not only we are bringing that full incredible experience that our crew delivers on our ships, but we're enhancing the experience in the destinations. And I think that combination where Michael and his team have really been dreaming and innovating and delivery on Perfect Day and how -- there's 25,000 guests a day that come into Nassau. And we're going to take some of those guests, and we're going to bring them over to the Beach Club, which is great economically for us as well as it is for the Bahamas and deliver an incredible experience that's going to drive probably 90-plus NPS scores. And that's what people are seeking. They want those experiences that they can walk away from. And it's attracting a high level of demand.

Ben, not to continue on this, but to add to Jason's comments, Utopia is not by accident, Utopia is sailing out of Port Canaveral. It will be going to Perfect Day, it really is another product that's squarely in this competitive space of land-based vacations, and we're seeing huge demand coming for this product. And you think about the combination of a 3-, 4-day product like Utopia going to Perfect Day, and then in '25, it will go to Perfect Day and the Beach Club that's really a phenomenal game changer, and it really is drawing in a huge amount of new-to-cruise and it's beautifully positioned in Canaveral right -- fundamentally in Orlando.

Got it. And just a very quick follow-up on Paradise. I think, Jason, you mentioned 25,000 guests to Nassau. Am I interpreting that correct that this could be a kind of like a revenue generated for not just your cruise guests, but also other people who were going to Nassau or [indiscernible] ?

No. No, it's primarily for the Royal Caribbean brand. Our other brands will be have access to it, but the broader cruise market would not have access to the Beach Club.

But the beautiful thing is that the Royal Beach Club in Paradise Island is positioned pretty much at the entrance to Nassau. I think the point is, is that on a given day, there's 25,000 to 30,000 cruise guests coming in on multiple different cruise brands. And of course, when they sail into Nassau, the only thing they're going to see is the Royal Caribbean Royal Beach Club, which is going to be absolutely stunning. And they will be unbelievably jealous knowing that they can't go there.

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

And congrats on another nice quarter.

Thank you.

So Jason, coming off strongest WAVE season in history, could you elaborate on the continued near-term strength you have cited in April, both from demand and pricing, maybe if anything, by region. And to your comments earlier, how best to think about your market share opportunity in this $1.9 trillion growing global vacation market? And then just for Naftali, just as we think about the underlying guidance rate, where are you more confident today as we think about the back half, maybe relative to 3 months ago?

Sure. Well, thanks for the question, Matt. First off, I think just -- I mean, WAVE was absolutely exceptional. It was -- it's kind of mid-teens better than what we saw in the previous year. Interesting enough, though, April was almost double that in terms of the level of demand that we were seeing. So that's why when I talk about demand is accelerating, it's not just what we saw when we last spoke to everybody in early February. It's not just when we updated at the end of February. But that acceleration has picked up the speed. And of course, at this point, we only have about 12% load factors left to build for the year. And so that will provide opportunity for us to a degree this year. But what that, I think, means in terms of the opportunity into 2025 and beyond is very appealing. I think when you frame that -- the $1.9 trillion travel space. And of course, that's a growing number. Cruise is $65 billion of that $1.9 trillion. So we're a very, very small fraction. And I think something we've talked about before, is a 1% shift is worth 11 Oasis-class ships to us. And so for us, when you look at things like Perfect Day, when you look at things like the Royal Beach Club, when you look at things like Utopia, when you look at things like what we're doing on Edge and Nova, it's very purposeful, less about what's happening with other cruise operators. It's more how do we take further share? How do we compete with Orlando? How do we compete with Las Vegas, how do we compete with other land-based alternatives to grab that share where as we know today, currently trades at least at a 25% or 30% premium to what we're getting. So that value -- we want to close that gap to land-based vacation, and we want to take share. And we believe by waking up and being just obsessed at delivering the best vacation experiences in the world puts us in a position to win.

Matt, it's Naf. Just to add one other thing to Jason, also if you kind of look at '19 versus we are today, we have been taking share again. You don't have to believe much. And as Jason said, 1% is 11 Oasis-class ships, that's it's a pretty significant rise. But we've continued to focus on it and make progress there. I think just in terms of the strength that you kind of heard in our prepared remarks, the strength is across all our key itineraries. And of course, the Caribbean continues to be performing very well, but as much as others, Alaska, Europe and obviously we're coming back to China. So we feel pretty good of where we are standing today with our book position, where the pricing is for the rest of the year.

Congrats. Best of luck.

Thank you.

Your next question comes from the line of Sharon Zackfia with William Blair.

I think on the last call, you had talked about 80% of passengers being North American this year. I'm just wondering if there's any update on that, if there's any change. And then as we think about next year, kind of where would you expect North America to go? It's kind of been unusually large the last few years, and if we see kind of China or Europe ramp-up in the passenger base? How do we think about that impact on onboard revenue?

Yes. Well, thanks for the question, Sharon. I hope you're doing well. So I think just starting off, we need to just to frame that we have global brands, not nationalistic brands, and these global brands are supported by a very significant commercial apparatus with leading yield management tools and teams around the world. And so the sourcing is really a reflection of the demand patterns that we see to optimize our ultimate revenue. More China next year as we add that second ship into China, we'll -- can move this number a little bit to be less North American-centric. But we're going to follow the demand patterns. And that is how we've done it for a very, very long period of time. And of course, that could potentially shift the mix of onboard in ticket. I don't think it's going to materially shift it because I do think that we'll probably be relatively close to the sourcing that we saw this year. Maybe it moves a little bit, but it's not going to move a lot. But we're focused on optimizing our revenue. And so if we're getting more in ticket from a customer than a little bit less on onboard, we're perfectly okay with that as long as the answer is higher yield profile and higher margin profile for us. And that's how we've run the business for a very long time. And I think we're very fortunate to have thought long time ago to make sure that our brands are positioned to be globally desirable and sourcing from many different markets.

Jason, can I ask a follow-up? The 1 out of 2 passengers being millennials at this point. Do you find that, that customer is more inclined to pre-book onboard versus kind of their elders like me? Or is it -- are you seeing pre-booking success kind of across the demographic gamut?

I mean, it skews a little bit younger, but I think Sharon, one, if we can pick any positiveness out of COVID, was that the consumer, a young or middle aged, et cetera, got very used to booking and buying things online. We also really improved our ability to take friction out of the booking experience for ticket price as well as the booking experience for onboard by curating, taking a lot of steps out of the process, et cetera. And that's really what is driving that better behavior. The installation of a proper commerce system that we can yield manage, that we can curate. We're still very in the early innings on is really what's benefiting that. And you just think about just shopping behavior. In the first quarter, we had 100 million visits to our websites, 100 million. That's twice what we had pre-COVID. And so we have really upped our game, not just on a marketing basis but also to make that -- our websites helped our customers dream about what they want to do and help them get to the experience that they're looking for and then making sure that they have all the onboard experiences that they want to have and being able to resolve all that well in advance of them getting on the ship.

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

So maybe for Michael, China restarted this month, I was wondering if you could give us maybe even qualitatively a sense of sort of initial load factors, initial pricing or initial expected onboard spend. Obviously, you can't give us that specifically, but just sort of better or worse than you were forecasting. And clearly, the follow-up is you decided to take Ovation there next year. That's obviously a good sign. But why Ovation, I think that comes out of Alaska and Australia, why that ship and why not a ship necessarily out of the Caribbean or somewhere else?

Brandt, yes, good question. I think the fact that we've already deployed a second ship into the China market gives you an indication of how well the first ship is doing in the China market. So we're pleased with Spectrum bookings. Our comparison, of course, is back in 2019, which we've used a lot over the last couple of years. Overall, volume and rate for the China product in '24 is significantly higher in both volume and rate from '19, which is a great indicator of the kind of demand that we're seeing for the product. And we feel good about '24, going into '25. That's why we've got the second ship, both Quantum class. Both have done very well in the China market. They seem to be really well suited for that market. And of course, Ovation both in Alaska and Australia is perfectly suited for the China market in terms of its geographical positioning. One will be in Tianjin, which we've operated out of many years before the pandemic and of course, Shanghai, both great markets for us. The onboard spend, obviously, it's only the couple of days into the season. But it's looking really positive. We have high expectations, and I think they're going to be realized. The other thing that's changed quite a lot in terms of the market dynamics in China is the change in our direct business versus the traditional trade business. There was quite a transformation during the pandemic in terms of a lot of the retailers that dropped out of the business. Fortunately, pre-pandemic, we started to invest significantly in resources, technology, people to develop that direct business, and we continue through the pandemic, and we've accelerated when we came out of the pandemic, and it's proving to be very productive for us. So overall, our distribution strategy is proving to be successful. Demand seems very, very strong. Of course, Korea opened up, which is great. So that gives us a better itinerary product to offer to our guests. And we're feeling good about how this will play out. Of course, we've been in China for a decade before. So we've all been through the ups and downs, but currently, it's looking pretty positive.

Okay. That's really helpful. And then maybe one for Naf. The higher guidance for the year helps bring credit metrics, at least in our model, perhaps a little closer to IG, perhaps a little earlier than we had before. And so I guess, maybe it's worth you refreshing us on what you think the Board needs to see to reestablish capital returns? And if today's report maybe help that picture at all.

Yes. So just on the balance sheet. So you're right. Obviously, with the acceleration of performance, we're focused on basically 3 things, right? We're focused on reducing leverage. And I said in my prepared remarks, we will -- we expect to get to below the 3.5x leverage by the end of the year. So that's very positive. Obviously, we continue to pay down debt. EBITDA increases are helping with that leverage. So we're feeling pretty good about that. And then reducing cost of capital, you saw us take an action this quarter, reducing on one bond more than 500 basis points or almost $60 million of annual interest expense. And we'll continue to find those opportunities to lower the cost of capital and use both cash and opportunistic refinancings. I think there's much more to do there. And lastly, it's just an unsecured balance sheet. We want to get back that capacity on the balance sheet like we had pre-COVID, and we basically have 3 bonds left that if we pay them back or we refinance them, the whole structure collapses, and we're back to unsecured balance sheet. So that's our focus. We'll continue to execute on that. Our focus is on metrics, not ratings. We were very pleased with the upgrades that we got from the rating agencies, but our focus is getting to the balance sheet.

No, I was just going to say, obviously, you're getting to base camp and getting to those metrics as an important line for us and as well as for our Board in terms of consideration of capital returns. But I would just point to that pre-COVID, we certainly -- that was very much part of our formula was having a competitive dividend and also buying back shares opportunistically.

Your next question will come from the line of Robin Farley with UBS.

One clarification on your really excellent guidance. It sounded like you were suggesting that there were some fall Red Sea cruises that are still on your schedule. But did I understand your comment to mean that if they were to change, that's already factored into your guidance. So if we see that -- see any changes in those, it wouldn't change your guidance? I just want to make sure I understood that part of your commentary, right?

Yes, Robin. That's correct.

Okay. Great. And then just my other question is on capacity and capacity growth. And you mentioned that moderate capacity growth has been your goal. Others out there -- some have been more aggressive lately with ordering ships out into the future. And I wonder if you could just give us your thoughts on whether you feel that, that changes anything with availability of slots at shipyards? Or if that changes in any way what you have been thinking about capacity or would think about needing to do in the future?

Sure. Robin, so first, I think it's important that when we talk about our order book, these are ships that are actually on order. We're not talking about options. We're not talking about slot reservations. We're talking about things on order. And of course, we don't have any orders going out to, I think, 2035 or 2036 at this point in time. What we do subscribe to is that we are -- we believe that we are in the right -- that we are in segments that have a lot of growth potential to them. We believe we have the right brands in those segments. And we believe that we should be moderately growing our brands over time. And so that's kind of what we're committed to. And I think we feel very good not only about our current order book and about the potential of that order book to grow moderately, but also our access to build those ships over an extended period of time. So it's -- I think we feel very good about it all around. And I think we're showing that the investments we're making in our brands or at the investments we're making in the destinations are yielding very high returns for our shareholders and continuing to expand our margins.

I guess maybe to clarify, do you feel that you would need to order ships more than 5 years in advance in the current environment? Or is that sort of 5 to 6 years out?

Yes. I think it depends on the circumstances. We've ordered -- I mean, Icon was being designed and in terms of obviously, COVID delayed some of those orders. But somewhere typically in that kind of 5- to 6-year range is where you make those orders. But keep in mind, and that's what I think my comment is, is that doesn't mean you don't have options and you don't have slot reservations and so forth that you could also -- which is why we typically order in that kind of 5- to 6-year type of range. We don't announce things unless they are fully contracted, and we know the price and we have the financing in place.

We have time for one more question.

Our final question will come from the line of Vince Ciepiel with Cleveland Research.

Great. Earlier in the call, there was some commentary on loyalty. And I just wanted to get your sense for what you're seeing within that across your brands and varying products. What you see in terms of overlap of customers? And then maybe finally, within that, have you ever thought about getting into river cruising, thoughts on that segment of the market? And is there much overlap with your current customer base?

Yes. Well, first, just to kind of build off of what I had said earlier is we have been very thoughtful about having the right brands in the right segments. And we have done such an incredible job at delivering a vacation of a lifetime. And we're focused on making sure we're set up to deliver a lifetime of vacations. And our guests, there is overlap between Royal and Celebrity and Royal and Silversea and vice versa, because you could have a set of grandparents on Silversea that next month are going on a cruise with their kids and grandkids on the Royal Caribbean brand. That happens all the time. And our ultimate -- one of our ultimate goals here is to make sure that we keep our customer in our ecosystem. And so we do that whether that's through awareness of our brands, whether that's through loyalty programs, whether that's through cross-selling, et cetera. And those are things that we have an opportunity to get better and better at, especially as our travel platform technology-wise is more flexible. The comment on river or other experiences, we're always evaluating opportunities. River is an area where we do see some overlap, not a lot of overlap, but we do see some overlap occurring. And that could be something that we would consider at some point in the future. But at this point in time, we're very focused on excelling in our core, growing our core and also further building out our destination platform. All of that, as we're clearly seeing is working to deliver a very high ROIC profile and producing strong shareholder returns.

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

Well, thank you all for your participation and interest. Michael will be available for any follow-up. 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.