Norwegian Cruise Line - Q1 2023

Transcript

Operator (participant)

Good morning, and welcome to the Norwegian Cruise Line Holdings Q1 2023 earnings conference call. My name is Paul and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions for this session will follow at that time. If anyone should require operator assistance during the conference, please press star zero on your touchtone phone. As a reminder to all participants, this conference is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG, and Corporate Communications. Ms. John, please proceed.

Jessica John (VP of Investor Relations, ESG, and Corporate Communications)

Thank you, Paul, and good morning, everyone. Thank you for joining us for our first-quarter 2023 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings, Harry Sommer, President and CEO-elect 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 at www.nclhltd.com/investors. We will also make reference to a slide presentation during this call, which may also be found on our investor relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I'd like to cover a few items. Our press release with Q1 2023 results was issued this morning and is available on our investor relations website.

This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Frank Del Rio (President and CEO)

Thank you, Jessica, and good morning, everyone. Thank you for joining us. Today marks a significant milestone for me as it is my 34th and final earnings call as President and CEO of this incredible company before my upcoming retirement, which was announced just over a month ago. In 2015, I was given the opportunity to lead Norwegian Cruise Line Holdings into its next chapter, one where we brought together three of the industry's leading brands, Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises, to form the best cruise operator in the industry. After eight incredible years, it is now time for me to make way for the next generation of leaders who are ready and energized to take this company onto greater heights.

Before getting to the crux of the call, I wanna take a moment to thank all of Norwegian's team members around the globe, shipboard and shoreside, who are the backbone of this company and who are the main driver of its success. I also want to express my sincere appreciation to our loyal guests, valued travel partners, lenders, shipyards, investors, analysts, and all of our stakeholders for your continued support and partnership over the years. I'm incredibly proud of what we have been able to collectively achieve, especially over the past few extremely challenging years, but I know that the best days for this company still lie ahead, and I look forward to seeing what you all accomplish together. With Harry Sommer at the helm, I leave this company in the most capable of hands.

Slide five shows, Harry has a broad range and depth of experience that makes him one of the premier executives in the industry. I have worked with Harry in various capacities over the course of three decades, and I can assure you that he is a strategic and innovative leader who has the right talent, skill set, and energy to lead the company at this pivotal time in its history. A long-standing cruise industry and company veteran, he brings both continuity and a fresh perspective to this seat. We have been working together along with our board of directors and the rest of the senior management team for some time now to ensure a seamless transition, and I am confident that NCLH will not skip a beat as we continue to push forward and capitalize on the momentum we are experiencing today.

There is times when fate meets circumstances, and this happens to be one of those times, as my departure coincides not only with the 20th anniversary of the founding of Oceania Cruises, but also the delivery of the 7th ship in the Oceania fleet, the incomparable Vista, which you can see details about on slide 6. With great pride, we took delivery of this amazing ship just last week, bringing NCLH's total fleet to 30 vessels with over 60,000 berths. We are heading over to Europe this week, where Vista will be christened in Malta by her godmother, Emmy Award-winning food personality Giada De Laurentiis. At 1,200 guests, Vista is the first of two Allura Class ships for the line, with the second ship named Allura expected in 2025. These ships will further elevate and cement Oceania Cruises' leading position in the upper-premium cruise space.

I have to thank our partners at Fincantieri once again for bringing our vision to life and delivering a truly magnificent ship. What is even more exciting is that this is just the first of three new builds that we have in the pipeline this year with Norwegian Viva and Regent Seven Seas Grandeur joining the fleet later this year. New hardware introductions generate excitement from those new to cruise and new to brand as well as with our loyal past guests. Three ships in one year will mean that much more of a halo effect for our company to leverage. Given their very efficient financing structures made possible through the unique nature of the industry's interconnected financing ecosystem. New ships are able to contribute immediately and are expected to be meaningful drivers of the company's future earnings growth and margin expansion.

Now I'll turn the call over to Harry, who will be tasked with delivering on the significant potential upside we see ahead to provide an update on the current environment and the key catalysts we have on the horizon. Harry.

Harry Sommer (President and CEO-Elect)

Thank you, Frank. Before I get started, I have to say that I am honored and grateful to be given the opportunity to lead this iconic company. Growing up to immigrant working-class parents in the Bronx, I could never have dreamed to be at the helm of such a storied brand. Frank, you took me under your wings early in my career and have taught me so much over the last three decades. I know I speak on behalf of the entire NCLH team when I say thank you, Frank, for your countless contributions, not only to our company but also to the broader cruise industry. I look forward to building on this remarkable legacy, and I am committed to doing everything I can to best position this company for continued success.

Over the next few months, I will be speaking with travel partners, team members, destination representatives, the investment community, and a whole host of constituents while working closely with our executive team to fine-tune our plan and vision for the future. I look forward to sharing details with you. Shifting our attention to the backdrop that makes me so optimistic for what lies ahead. Slide seven outlines our current positioning and the key catalysts we see now and on the horizon. We covered our leadership transition already, which could not have gone smoother. I will skip ahead to what continues to be a healthy demand environment. Our target consumer remains resilient, with a persistent desire for travel and experiences. Our booking window, which is our best forward-looking indicator, remains strong.

In fact, we were encouraged to see that even with the banking sector-driven financial market volatility in March, we did not experience any unusual booking or cancellation activity across any of our brands. Our onboard revenue generation, which is our best real-time indicator of how consumers are feeling financially, is also performing exceptionally well, and we are even more pleased with the depth and breadth of the strength across revenue streams, ships, and regions. During the quarter, gross onboard revenue per passenger cruise day was nearly 30% higher than the comparable 2019 period. This is driven in part by our focus on attracting the best guests and enhancing our market-leading bundled offering. We are also increasing quality touch points with our guests, starting with the time of booking, to capture even more revenue and prepayment prior to cruise.

Our pre-sold revenue on a per passenger day basis for Q1 of 2023 is approximately double the level in 2019, an important contributor to our onboard revenue strength, as guests who make pre-cruise purchases tend to spend significantly more than guests who do not pre-book onboard activities. Turning to our next catalyst, we continue to take strategic actions across our business to improve operating efficiencies and right-size our cost base to rebuild and enhance margins. The results of this initiative are already beginning to bear fruit, as demonstrated by our Q1 Adjusted Net Cruise Costs excluding Fuel per Capacity Day, which was not only 14% below the run rate in the second half of 2022, but also outperformed our guidance by $4 as certain savings were realized earlier than anticipated.

We expect this metric to continue to show modest sequential improvement each quarter for the remainder of 2023, as seen on slide 8. I want to stress that we recognize and acknowledge while this is a great start, we still have more work to do. This initiative is very much ongoing and will continue to be a top priority under my leadership. We are committed to identifying and evaluating incremental opportunities across every area of the business to help accelerate our margin recovery. This does not mean, however, that we will not continue to invest in our product or service offering to enhance our guest experience, but rather that we will be even more strategic and data-driven when making these decisions to ensure we are investing where we see the highest returns and most impact.

A good example of this is our recent announcement regarding the rollout of the Starlink low latency broadband Internet system in a phased manner across our fleet. This was a strategic and cost-effective initiative to help address a consistent pain point we hear from guests regarding the reliability and speed of Internet connectivity at sea. This is one example of our focus on finding the right balance, which is critical to keeping our brand's value propositions intact, maintain our incredibly loyal past guest base, and continually attract new cruisers to sail on our world-class fleet for what we believe is the best vacation experience in the world. The last catalyst to highlight is our industry-leading new build pipeline, shown on slide 9, which Frank already touched on briefly.

Capacity growth in 2023 is expected to be just shy of 20% compared to 2019 as we add over 5,000 berths to our world-class fleet. As we look out over the next five years, this increases to approximately 50% growth versus 2019. All three of our brands are well-poised to profitably absorb this elevated capacity growth given our relative size and under-penetration in many markets around the world. We are focused on better leveraging our scale as we embark on this period of transformational growth and translating this capacity growth into outside benefits to both the top and bottom line.

This makes for an attractive entry point for investors as the new build pipeline adds significant potential future earnings power compared to today's levels. Combined with our ongoing efforts to maximize profitability on our existing fleet, including by delivering consistent year-over-year moderate yield growth, we view this as a winning formula. Shifting our discussion now to our booking demand and pricing trends, you can see on slide 10, we reached load factors of 101.5% in Q1, exceeding our guidance and breaking triple-digit levels for the first time in three years, with some voyages exceeding occupancy of 115%. With this significant achievement, we have also nearly closed the occupancy gap versus 2019 levels. In Q2, we expect to average 105% occupancy, a return to normalized levels with cabins fully sold.

This average is slightly below 2019 levels as a result of our strategic shift to longer, more immersive itineraries at the Norwegian Cruise Line brand, naturally resulting in less thirds and fourths, which is what historically pushes passenger occupancy above the 100% mark, all while enhancing margin over time. Turning to slide 11, after a very strong wave season, our cumulative book position for the balance of 2023 remains ahead of 2019's record performance and at higher prices. Demand and pricing continues to be strong not only for 2023, but also as we look further out to sailings in 2024 and beyond.

To give you an example, bookings for Regent's 2026 World Cruise were nearly 70% higher than its 2022 World Cruise, which was the last World Cruise launched pre-pandemic at an average price point of over $230,000 per suite. Another strong indicator that our product continues to resonate with our guests is the performance of NCL's CruiseNext program, an onboard program in which we sell non-refundable future cruise certificates. In Q1, CruiseNext achieved its highest quarterly results in the program's history, surpassing the previous record. As we look to the remainder of the year, our substantial book position, coupled with the continued healthy demand metrics we are experiencing, gives us confidence in achieving our 2023 net per diem and net yield guidance, which Mark will touch on in more detail momentarily.

Before I turn the call over, I'd like to provide an update on our decarbonization efforts as part of our global sustainability program, Sail & Sustain, something that I am very passionate about and committed to advancing. As shown in Slide 12, coinciding with Earth Day last week, we announced new short and near-term greenhouse gas emission intensity reduction targets to help guide us on our pursuit of net zero by 2050. We are targeting a 10% reduction in GHG intensity by 2026 and 25% by 2030. The scope of these targets cover our direct emissions as well as the full well-to-wake impact of our fuel consumption. As we execute on this plan, we expect to see a dual benefit of not only emission reductions, but also cost savings from reduced fuel consumption.

We also revamped our climate action strategy, which is now centered on three key pillars: efficiency, innovation, and collaboration. We are implementing solutions for efficiency today, innovating for future solutions, including with our investment to modify two of our future new builds to create methanol-ready configurations, and are committed to collaborating with our stakeholders and partners along the way. With that, I will now turn the call over to Mark for his commentary on our financial position and outlook. Mark?

Mark Kempa (EVP and CFO)

Thank you, Harry. Good morning, everyone. Before I dive into the financial results and outlook, I want to also thank Frank for all that he has done to propel this company forward, as well as his outstanding leadership. I look forward to continuing to partner with Harry in his new role as we work to capitalize on the momentum we are experiencing in order to maximize value for all of our stakeholders. My commentary today will focus on our Q1 2023 financial results, 2023 guidance, and the progress on our financial recovery. Unless otherwise noted, my commentary on Net Per Diem, Net Yield, and Adjusted Net Cruise Costs excluding Fuel per Capacity Day metrics, is on a constant currency basis. Slide 13 highlights our Q1 results, in which we are pleased to report that we met or exceeded guidance for all key metrics.

Focusing on the top line, total revenue per passenger cruise day in the quarter was up approximately 18% versus 2019. Net Per Diems increased approximately 7.7%, achieving the high end of guidance, while Net Yield of 3.6% was a healthy beat versus our expectations as load factor of 101.5% came in well ahead of projections. With significantly higher participation as a result of enhancements to our bundled offerings today when compared to 2019, the accounting allocation between ticket and onboard revenue has also changed, which can skew the comparison. Therefore, we focus on total Net Per Diem and Net Yield as a better holistic representation of our pricing power.

Turning to costs, Adjusted Net Cruise Costs excluding Fuel per Capacity Day averaged $161 in the quarter, better than expected and approximately 14% lower than the run rate in the second half of 2022. This reflects the rapid execution of cost savings initiatives identified and implemented last year, some of which were realized earlier than anticipated. This includes improvements in areas such as supply chain initiatives, back-office optimization, as well as crew costs and travel expenses. Adjusted EBITDA was nearly $40 million higher than our guidance at approximately $234 million in the quarter. In addition, Adjusted EPS loss of $0.30 also beat our guidance. Shifting our attention to guidance, our outlook for Q2 can be found on slide 14. As we have stated previously, Q2 will complete our occupancy ramp up.

In addition, comparisons to 2019 include certain premium priced Baltic and Cuba voyages in that year, which we did not operate in 2023. As a result, growth is in line with our expectations, with Net Per Diem increasing approximately 5.5%-6.25%, and Net Yield expected to increase approximately 2.5%-3.25%. Pricing and yield are both expected to increase in the second half of the year, with the Q4 exhibiting the strongest growth versus 2019. This is driven by our organic pricing power and in part by a favorable comp as the second half of 2019 included various headwinds like the rapid exit from Cuba and the close and resale of those sailings.

Q4 is also expected to benefit from our strategic shift to premium deployments with extended Alaska and European seasons this year, as well as a mix shift with more capacity operating for our Regent and Oceania brands. Given our robust book position for the second half of 2023, which is ahead of 2019, we have good visibility into the balance of the year, which gives us confidence that we can achieve the sequential improvement in year-over-year growth. Adjusted Net Cruise Costs excluding Fuel per Capacity Day is expected to be approximately $159 in Q2, a further improvement versus the prior quarter as additional savings initiatives are realized. We continue to expect modest sequential improvement each quarter in 2023 as occupancy increases and as a result of initiatives which have already been identified and implemented.

This should result in a lower run rate cost level exiting 2023 than our full year reported results. Taking all of this into account, Adjusted EBITDA for Q2 is expected to be approximately $485 million, which is roughly the same level as EBITDA in the same quarter of 2019. Another stepping stone to closing the gap versus pre-pandemic levels. I am also pleased to report that we expect to achieve another significant milestone in the quarter with Adjusted EPS turning positive for the first time since the pandemic at approximately $0.25 per share. Shifting our focus to our outlook for the full year 2023. Adjusted EBITDA is still expected to be in the range of $1.8 billion-$1.95 billion, with the high end of our targeted range representing record Adjusted EBITDA for the company.

This is expected to translate to Adjusted EPS of approximately $0.75 or $0.05 above our prior guidance, reflecting Q1 outperformance, partially offset by higher anticipated fuel costs and FX for the remainder of the year. Taking a closer look at the components of the full-year outlook, Net Per Diem growth of approximately 9% to 10.5% as compared to 2019, and Net Yield growth guidance of approximately 5% to 6.5% are unchanged versus our prior guidance. Moving on to costs. Adjusted Net Cruise Cost excluding Fuel per Capacity Day is expected to average approximately $159 for the full year, slightly better than our prior guidance and reflecting lower than expected costs in Q1.

This represents a 15% decrease as compared to the average of $187 in the second half of 2022. As Harry noted, we continue to evaluate all opportunities to accelerate revenue and improve operating efficiencies and are taking deliberate actions to improve our margins while maintaining the exceptional guest experience and superior service levels our brands are known for. We look forward to continuing to demonstrate this improvement over the coming quarters. Turning our attention to the balance sheet. Slide 15 provides our debt maturity profile, which includes approximately $800 million of scheduled debt service for the remainder of the year, the vast majority of which is related to our export credit agency-backed ship financing.

We've talked previously about the actions taken earlier in this year to address a large portion of our 2024 maturities. I won't go into further details today, but a summary is provided on slide 16 for your reference. Since we last spoke, we also signed agreements to increase our ECA-backed commitments by approximately EUR 1.7 billion. This was primarily to finance improvements and modifications to new builds currently on order across our three brands. This includes the previously communicated changes to the last four Prima Class ships to make them up to 20% larger than the first-generation ships, as well as the addition of the methanol-ready configuration to the last two ships to increase optionality and help future-proof these long life assets and reach our decarbonization goals.

The financing also covers owners' supplies associated with preparing certain new builds to enter service, as well as related financing premiums. We originally planned to fund this with our organic cash flow generation when the ships were originally ordered, given the very efficient and supportive financing we received from export credit agencies and the continued uncertainty in the macro and financial markets, we felt financing this was a prudent action to minimize cash outflows for the next few years. Turning to liquidity, our overall liquidity position remains strong at approximately $1.9 billion as outlined on slide 17. This consists of approximately $700 million of cash and cash equivalents, nearly $600 million of availability under our revolver, and our $650 million undrawn commitments.

This does not include the separate $300 million undrawn backstop commitment, which enhances our future liquidity, but is not currently available to draw. I want to reiterate our commitment and relentless focus on delivering value for all of our key stakeholders. We will continually evaluate options to accelerate our recovery while maintaining adequate financial flexibility to adapt to different macroeconomic backdrops. We feel optimistic about the direction of our business, and we believe we are taking the right steps today to create a more nimble and resilient organization for the future. With that, I'll turn it back to Frank for closing comments.

Frank Del Rio (President and CEO)

Thank you, Mark. Before turning the call over to Q&A, I'd like to leave you with some key takeaways which you can find on slide 18. First, we continue to see healthy and resilient demand from our target markets who remain willing and eager to spend on cruise vacation travel. Our brands continue to resonate with consumers, as demonstrated by our book position and pricing for the remainder of 2023. Our record book position also gives us high visibility into the back half of the year and beyond. Second, we are already starting to see the benefits of our margin enhancement efforts and will continue to take strategic measures to best position the company for its next chapter while ensuring that we keep the secret sauce that makes our brand so special, fully intact.

Third, we are excited to deliver on our industry-leading growth profile, which we are confident we can profitably absorb, providing a meaningful boost to our future earnings power. Lastly, we feel comfortable with our liquidity position and are committed to prioritizing restoration of our balance sheet in the coming years. We've covered a lot today, so I'll conclude our commentary here and open up the call for your questions. Operator?

Operator (participant)

Thank you. Thank you, Frank. If you have a question at this time, please press star one on your touch-tone phone. In order to get as many people through the queue, please limit your time to one question. If your question has been answered or you wish to remove yourself from the queue, please press star two on your telephone keypad.

Jessica John (VP of Investor Relations, ESG, and Corporate Communications)

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions for management. The top-voted question we received this quarter was: What are the 3 main action points the company will take to ensure growth in the year ahead? Harry, do you want to take that one?

Mark Kempa (EVP and CFO)

Sure, Jessica. Happy to, and that's a great question. We touched on this already in our prepared remarks, but we are laser-focused on delivering our 2023 guidance and financial goals. One of the drivers of growth this year is gonna be our robust newbuild platform, with us taking delivery of three new, and I might be biased, but I'm gonna add absolutely magnificent ships this year, including the incredible Vista, which starts sailing tomorrow. Those ships, along with some of our other recent additions, translate to a nearly 20% growth in capacity when compared to 2019. That's expected to provide a meaningful boost to our current and future earnings power.

We're also hard at work at our ongoing margin enhancement initiative and are continuing to identify new and innovative ways to get more efficient while also delivering best-in-class product and service offerings for our guests. We're pleased with the results so far, but we're not stopping there and will continue to leave no stone unturned. Lastly, we're gonna continue to capitalize on the robust consumer demand we're experiencing, which is translating into our record book position and strong pricing, including very robust onboard revenue generation. We feel good about our position over the next year, and we're gonna do everything in our power to deliver on all our goals.

Jessica John (VP of Investor Relations, ESG, and Corporate Communications)

Okay, operator, we can take the questions from the line now.

Operator (participant)

Thank you. Our first question is from Daniel Politzer with Wells Fargo. Please proceed with your question.

Daniel Politzer (Director and Senior Equity Research Analyst)

Hey, good morning, everyone. Frank, congrats on a storied career and wish you all the best luck in your future endeavors. Harry, congrats on the new role and look forward to getting to know you better. First question on Q2, the yields. I mean, I think they were a little bit lower than we were expecting. Just any more detail there between maybe the gross and the net? Was there any noise in the quarter on the Free at Sea program? I guess that would relate to Q1, just trying to zoom in a little bit on Q1 versus Q2 and the change there. Thanks.

Mark Kempa (EVP and CFO)

Good morning, Dan. This is Mark. First and foremost, there is no change. Both Q2 pricing and yields are exactly in line with where we thought they were going to be. Of course, as your amp occupancy ramps up, you do see a little bit less of pricing power on your lower meta, i.e. inside cabins. Overall, our NPDs remain very healthy and strong. Secondly, I think the other piece to look at is when you do the comparison versus a very strong Q2 2019, we're comping over some difficult comps with Cuba that we had back in 2019, as well as the full benefit of Baltic itinerary.

While on the surface it may appear that it is a bit softer than Q1, I assure you it is exactly where we expect it to be. As I said in my prepared remarks, the second half of 2023 is expected and we continue to expect very strong pricing and yield growth.

Daniel Politzer (Director and Senior Equity Research Analyst)

Got it. On the cost side, the cost guidance, obviously Q1 was better. I guess to what extent should we accept that to continue to step down throughout the year? How much is your guidance reflecting some conservatism there? I know that was a big part of the commentary last quarter just on the uncertain macro.

Mark Kempa (EVP and CFO)

Yeah. Sure. Let's address the cost side first. We did overachieve in Q1. As I had communicated on our last call, we were steadfastly going into a lot of our onboard, our margin enhancement initiatives. We simply executed some of those initiatives quicker than we had anticipated. While we did get a benefit in Q1, it doesn't necessarily translate to a benefit in the outer quarters simply because we already had that baked into our guidance. That said, we have not stopped, and we continue to look at opportunities to improve our cost structure. It's a bit early for us to give additional color on that.

All I can tell you is that we are razor-focused on that, and I think, we will continue to have a sequential improvement quarter-over-quarter. I think, I'm very confident. I think, quite a bit of you, were nervous last quarter whether or not we could achieve our cost savings. I think we've demonstrated that in Q1. We've demonstrated that in our, full-year updated guidance, and we will continue to push hard on that.

Operator (participant)

Thank you. Our next question is from Steve Wieczynski with Stifel. Please proceed with your question.

Steve Wieczynski (Managing Director, Senior Equity Research Analyst)

Hey, guys. Good morning. Harry, welcome. Frank, thank you for your service. Good luck in retirement. Hope you take up some golf now. I'm gonna ask Dan's question maybe a little bit differently. Mark, if we look at slide 13, I mean, look, you basically destroyed every guidance target that you laid out back in February for Q1. We think about that beat and the fact that you didn't really flow that through, that full beat through, to your full year EBITDA guidance.

look, I understand there's a fuel headwind there, but I guess, what I'm just getting at here is, if your customer base stays pretty much status quo from here, it would seem to us it would be tough not to get to the high end of your full year guidance and maybe even exceed that, the top end of your guidance. What am I missing there, Mark?

Mark Kempa (EVP and CFO)

Steve, first of all, i, I appreciate the adjective you used of destroyed our guidance, but I would like to say we healthily beat our guidance. Look, Steve, I think first and foremost, we have to look at the underlying fundamentals of the business. Our NPD and yields continue to be strong, continue to be in line with our expectations. The consumer is still strong. The consumer is buying cruise tickets. The consumer is spending more on board. The consumer is pre-buying more before they get on board. We're very pleased with that.

If you just took Q1 in isolation and you said, "Okay, we beat the quarter by $0.15," and you look at the rest of the year, almost half of that is being eroded by fuel and FX headwinds. The remainder of it, we are carrying through. While we're not ready to, necessarily, change the rest of our guidance metrics, I think we're trending well and we're trending healthy, and I think our guidance reflects that. We said last quarter that we wanted to be prudent in terms of our guidance. We want to deliver and, hopefully beat. We'll continue down that path, but things are looking very, very healthy from our perspective in terms of the overall consumer demand for cruise.

Steve Wieczynski (Managing Director, Senior Equity Research Analyst)

Okay. Gotcha. Thanks for that, Mark. then, Mark, probably for you as well. If we go back to your initial guidance back in February, you noted that you turned the year, I think it was around 62% booked, which was in your historical range. Now as we've, essentially exited Wave, can you maybe help us think about where you are booked now for 2023 and then maybe also kind of give us a look at 2024? If you don't want to give exact numbers, I understand that, but maybe some qualitative commentary would be, would be helpful there.

Mark Kempa (EVP and CFO)

Sure. I'll take that one. Steve, I thank you for the kind words at the initial start of your question. , we've stated before that our goal is to be between 60% and 65% booked at year-end for the following 12 months. I think that range applies to the end of wave season as well, that we like to be between 60% to 65% booked for the following 12 months at the end of wave season. I can say that we are hardly within that range, pretty much exactly where we wanna be. We were very happy with the way wave season turned out and our book position both on a basis of itself and compared to 2019 is doing very well.

Steve Wieczynski (Managing Director, Senior Equity Research Analyst)

Okay, great. Thanks, Harry. Thanks, Mark. Thanks, Frank.

Operator (participant)

Thank you. Our next question is from Vince Ciepiel with Cleveland Research Company. Please proceed with your question.

Vince Ciepiel (Senior Research Analyst)

Thanks for taking my question. I wanted to dig a little bit more into the regional setup. Can you discuss what you're seeing? I think first half of the year, you weighed a little heavier Caribbean.

How pricing and close-in demand is looking for the region. Now that you've kind of moved through Wave season and have more of Alaska and Europe for this summer filled out, kind of talk about how you're feeling about pricing for the summer.

Harry Sommer (President and CEO-Elect)

Sure, Vince. It's Harry, I'll take that one too. Listen, we were very pleased with the results in Q1. We're trying with our new premium, itineraries to be as booked a little further in advance so that close-in bookings does not represent such as large a % of our overall business as it used to. That being said, we were very pleasantly surprised with close-in demand for Caribbean in Q1. Of course, Caribbean doesn't matter all that much for us in Q2 and beyond as we shift our deployment to Europe and Alaska. A little less close-in demand there as we are booked further in advance. We're happy with both occupancy and price, especially for the key summer period.

Vince Ciepiel (Senior Research Analyst)

Great. Thanks. any, color just on the cadence of bookings that you've seen year to date, maybe relative to, pre-COVID levels. I think that, there was kind of the wave of pent-up demand following some change in COVID restrictions at the mid to late part of last year. Obviously, it sounds like wave has been healthy, but would you say things are stable, accelerating or decelerating kind of on a core basis when you adjust for those factors?

Harry Sommer (President and CEO-Elect)

Listen, we have about a 20% increase in capacity for 2023 versus 2019, of course our bookings need to be 20% higher. We've absolutely seen or exceeded those levels during Q1 booking period compared to Q1 of 2019. I think, the best indicator for us is our advanced passenger ticket sale revenue on our balance sheet is up, I think 60%, compared to the end of Q1 2019, which I think gives you a very robust indicator of how our book position looks.

Vince Ciepiel (Senior Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question is from Brandt Montour with Barclays. Please proceed with your question.

Brandt Montour (Director and Senior Equity Research Analyst)

Hey, good morning, everybody, congratulations to both Frank and Harry. My first question is on the cost side. Mark, you sort of gave a quick update and sort of sequential improvement on a dollar basis throughout the year. I'm just trying to obviously if we try and back into what's implied for the full year, it's, it would seem like it's very modest improvement, almost flattish from a pretty high level. I'm just trying to reconcile that with the seasonality that we used to see in your business, with the 3Q costs usually being pretty elevated given, more exotic itineraries. Can you kind of help us understand why that's different now?

Mark Kempa (EVP and CFO)

Yeah, Brandt, good morning. I think what you think about is looking at our new build deliveries that we're taking this year as well. We are taking deliveries of ships obviously now in Q2. We'll be taking delivery of a ship in the Q3 and Q4. What's unique about that, in the third and Q4, obviously, we have the higher operating cost brands of Oceania and Regent. That does somewhat elevate your unit cost, although we do receive benefit on both the top and bottom lines from that. I wouldn't skew too much that the premium itineraries are going to be a big driver of cost.

overall, our cost levels tend to remain the same. It's really around our promotions and advertising variable costs that would have any sort of influence. look, I think bottom line, we continue to sequentially improve our cost structure. I said last quarter, we need to do a better job of leveraging our scale. We're on that journey. We've hopefully demonstrated confidence to the market that we've achieved step one of that. We'll continue to optimize around that. hopefully, over the next few quarters, we can continue to prove that and further build confidence that we're leveraging our scale to the best of our ability.

Brandt Montour (Director and Senior Equity Research Analyst)

Great. Thanks for that. Then just as a follow-up, great to hear that you guys are happy with your book for the all-important sort of summer in the Mediterranean. I'm just curious if flight prices broadly is acting as a headwind. If you think about your book or your strategy this year for the summer, is it, is flight prices being bundled in for the consumer? Is that sort of more, is that more of a factor now than it was in 19? How should we think about that?

Mark Kempa (EVP and CFO)

Yeah. Brandt, I think you've hit it, right? We've all experienced, whether it's traveling for business or consumers traveling, flight prices are elevated. of course, with our bundling strategy that we've embarked on, over the last few years, and that's really taking full throttle in 2023, that does have some headwinds to our overall Net Yield. that simply is a matter of, when we sell the ticket to the consumer, we sell the air at what we believe are going to be the best projected prices. Our consumers are booking very far out in advance, which is a good thing.

There's always gonna be some puts and takes until when you actually purchase the flight, where you may have some variability in there. Overall, we believe that our air strategy is the right thing to do given our strategic itinerary deployment. There's always gonna be some variability in there, but nothing that overly concerns us.

Harry Sommer (President and CEO-Elect)

I just wanna add to Mark's comment. That our guests have to fly to get to a cruise. There's two choices. They either make their own air arrangements or they make their air arrangements through us. Of course, as we buy air tickets for over 1 million guests a year, we have some really good systems and efficiencies to leverage the best prices out there. We use all types of tools in terms of automation, even AI, to predict when the best time to book a flight is. With those tools, we think bundling actually provides us, in this uncertain future environment, a competitive advantage. Something that absolutely it impacts us, but if we do it right, we can turn it to our benefit.

Brandt Montour (Director and Senior Equity Research Analyst)

Oh, that's great color. Thanks so much.

Operator (participant)

Thank you. Our next question is from Conor Cunningham with Melius Research. Please proceed with your question.

Conor Cunningham (Director and Senior Equity Research Analyst)

Hi, everyone. Thank you for the time. Congrats, Frank and Harry. Just on the second half, Net Per diem, it's implied a decent step up in the second half. Just trying to get comfortable with how you get there. Are you basically booked above that right now and then as you get closer in, the trends kind of soften a little bit? Just any color on how you're expecting onboard trends in the second half would be helpful. Thank you.

Mark Kempa (EVP and CFO)

Regarding our second half NPDs, I think we labeled that on our slide. We're expecting roughly 11% or 12% if I recall correctly. Number one, that's on the back of very strong, just good old-fashioned core growth. It's also on the back of bringing on some of our premium brand vessels. More importantly, when you look at the comparisons in the back half of 2019, we're rolling over much easier comparisons. It's the inverse of what's happening in the first half versus 2019. We had to rapidly exit Cuba in, I believe, June or July of 2019. We had to sell those voyages close in for, very efficient pricing.

Then, of course, as you look at the brand mix, that's also a tailwind. Also in Q4, where we expect quite a substantial amount of our pricing power, we are actually in the Alaska season longer this year, as well as in the European season longer this year. I think it's somewhere in the neighborhood of we have 3% more deployment in Q4 of Alaska, I believe 7% more deployment in Europe for Q4. When you combine all those factors together, that's what gives us good, great confidence in where our pricing is. I think the tail end of your question was whether or not we're booked there currently.

Look, we're our book position, Harry touched on it earlier, we're exactly where we need to be to hit our goals and our, and our guidance. I won't give too much color on that, but other than we're exactly in the position we need, where we need to be.

Conor Cunningham (Director and Senior Equity Research Analyst)

Okay, that's helpful. On the shift to longer cruises and more immersive cruise, the 3-point gap in overall occupancy, is that basically reflective of that change in Q2? I'm just trying to figure out the limits to a rebuild in occupancy into 2024, assuming no change to your footprint overall. Thank you.

Harry Sommer (President and CEO-Elect)

In terms of 2024, I'll take the second part of your question first. Listen, I think there's still a little rebuilding that can be done in Q1. I think Q2 to Q4 basically represents what we're gonna see in future periods as well. , Q1 finished up at 101.5%. We can do better than that going forward when we have these the more advanced lead time we need to book some of our exotic itineraries and also have the fully over the overhang of the difficult years that we talked about beforehand. In terms of this gap of 3%, does that reflect what we're going forward? Pretty much close to that after the Q1 commentary I gave you already.

We think this shift to premium itineraries, primarily Europe and Alaska, but a little bit in Asia as well, allows us to get the type of customer that we need to get to support our revenue goals and our revenue growth for the future.

Conor Cunningham (Director and Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question is from Stephen Grambling with Morgan Stanley. Please proceed with your question.

Stephen Grambling (Managing Director)

Morning, thanks. Harry, congrats on the new role, and Frank, best wishes in retirement. I have a sneaking suspicion you were a contributor to the stellar booking and pricing on the around the world sailing. Following up on the strategic shift to longer, more immersive itineraries, should we be thinking about any other financial ramifications of this shift other than the occupancy? I mean, is there any net cruise cost changes or net yield changes that we should be thinking through? Thanks.

Harry Sommer (President and CEO-Elect)

I just wanna comment that when Frank goes on cruises in retirement, he doesn't pay, so he won't be contributing to that World Cruise number you saw earlier. I'll turn it over to Mark to talk about financial ramifications.

Mark Kempa (EVP and CFO)

Hi, Steve. I would actually phrase that as financial benefits. Obviously, while there is a slight impact to load factor, the whole reason we're going to more longer premium itinerary intensive destinations is, number one, to get a better guest, to get higher pricing, and to maximize the value that we're getting out of each of our assets. While there's always a, both sides of the coin, overall, the economics on going to those itineraries obviously favors the company, or we would not be doing that. I wouldn't get caught up too much on the slight impact to occupancy.

Stephen Grambling (Managing Director)

Got it. That's helpful. Then, changing gears a little bit, can you just remind us of how much of your new ship spend is already financed and locked in as we think about rates? Have you seen any impact to export credit rates given the broader credit crunch?

Mark Kempa (EVP and CFO)

All of our new build orders, I'll remind everybody that we do not execute any new build orders without committed financing. That is just a complete no-no in our organization. We have very efficient fixed-rate financing for all of our new builds that are on schedule to delivery through 2028 at an average rate of anywhere from 2% to 2.5%. There is no opportunity for the export credit agencies to change those rates. As I said, those are fixed. We have very efficient financing going forward. I see no risk around that because there's just simply not an opportunity for the institutions to do that.

Stephen Grambling (Managing Director)

That's great. Thanks so much.

Operator (participant)

Thank you. Our next question is from Robin Farley with UBS. Please proceed with your question.

Robin Farley (Managing Director and Senior Equity Research Analyst)

Great. Thanks. Congratulations to Frank and Harry, to both of you with the changes. I had a question, if we could circle back just for a moment to the occupancy in Q2. A quarter ago, you talked about it returning to historic occupancy levels and you're talking today about some of the, the shoulder period itineraries are being expanded. Was the change less reported? Was it just sort of a decision to say, "Hey, we're happy with the pricing that we're getting, and so we're gonna Occupancy may not be coming in exactly what we thought, but we're it makes more sense to hold price for those." Just trying to think about because I think the itineraries themselves didn't change since you last reported.

Just kind of wondering if it was what it was in the yield management that approach that changed. My other question is just on the EUR 1.7 billion in additional ECA financing. I know the EUR 1.2 billion are for those ships that are a couple years out. Is the additional EUR 500 million, is that for 2023 specifically, or is that spread out over different years?

Mark Kempa (EVP and CFO)

Robin, this is Harry. I'll take the first half, and I'll let Mark discuss the ECA financing. Listen, in Q2, our and in all future quarters, our focus now is on having our cabins as close to 100% full as possible. I can definitively say that in Q2, we will be at or ahead of our Q2 cabin load occupancy across the entire fleet. To get the passenger load occupancy is a function of what we talked before, having less third and fourth guests on board. As Mark just discussed, we believe over time this actually is gonna be EBITDA and margin-accretive. We're very happy with that with that strategy. Yeah.

Robin, just to add to that, we did try to communicate last quarter and over the course of many investor meetings that when we said historical occupancies, we didn't say that they were gonna be exactly the same. We said we expected them to be within a couple points, especially on the overall year run rate. So I just wanna point out that that's not necessarily a change from last quarter. In terms of the export credit agency financing. Yes. We obtained financing work for EUR 1.7 billion. In our last earnings release, we had called out that we had increased our contractual commitments by EUR 1.2 billion.

The differential simply is that, as I said in my prepared remarks, we've now included certain things, financing for owner supply and other related items that are required as part of the ship delivery. The thought process there was, it is very efficient and very extremely beneficial financing. In order to preserve cash for the long term at and given the very efficient rates, we simply decided to finance more. Does not represent a further half a billion increase in the overall ship cost. It is simply a different mechanism for financing some of the existing costs that were already expected. I think that's why when you look at our capital commitments on our new builds for the next 3 years, it's actually decreased overall in terms of cash out of the system.

Robin Farley (Managing Director and Senior Equity Research Analyst)

It's definitely favorable terms to, and the fact that they're willing to finance the, that additional EUR 500 million, absolutely a positive. I was just wondering, though, if that EUR 500 million was for 2023, or is that for the later deliveries that the EUR 1.2 billion applies to, or is it spread out over a number of deliveries between them?

Mark Kempa (EVP and CFO)

It's really spread out over the course of the next 3 to 5. It's spread out, I don't wanna say ratably, but relatively ratably across all of the remaining new builds, excluding Norwegian Viva and Vista, which we just took delivery of course.

Robin Farley (Managing Director and Senior Equity Research Analyst)

Okay, great. Thank you.

Frank Del Rio (President and CEO)

Paul, I think we have time for one more question.

Operator (participant)

Thank you. Our next question is from Patrick Scholes with Truist Securities. Please proceed with your question.

Patrick Scholes (Managing Director and Senior Analyst)

Great. Thank you. Frank, well, congratulations on absolutely an amazing career. Harry, welcome to the hot seat, as they say. My questions are for Mark. The last time we spoke, regarding the debt maturities, the intention was to use cash flow from operations this year to pay off the ECA, the existing ECA loans. Secondly, if I have my notes correctly, for the $1.4 billion Term loan, it's going to be either pushed out or amend-and-extended. Is that still the intention, and did I get that correct? Thank you.

Mark Kempa (EVP and CFO)

Hi, Patrick. Good morning. definitely, we are funding all of our existing debt maturities this year from cash on hand and organic cash flow. You're spot on there. Then the $1.4 billion of term loan and revolver that was extended to January 2025, we will start addressing that later this year. Whether or not we refinance that on a more holistic approach or we do another amend-and-extend, obviously we'll look at what the markets are doing, what the environment looks like. We'll do the most obviously the most economically feasible option out there.

That's something that, you'll see us out in the marketplace in the latter part of this year.

Patrick Scholes (Managing Director and Senior Analyst)

Okay. Thank you. Just a related follow-up question. Mark, over the past year, you've given some longer term net debt to EBITDA target ratios for various years. Do you see yourself still on track to hit those targets? Thank you.

Mark Kempa (EVP and CFO)

Yeah, Patrick, we're firing on all cylinders. As I've said, internally, our target is to turn 2023, with a very high 5 handle on a pro forma run rate leverage basis. Now, that's not a necessarily easy task, but that's one of the things we're marching to as a management team and of course with our board of directors. That's gonna come on the back of, again, strong pricing and yield growth which we've talked about, as well as right sizing our cost base and leveraging our scale. We are marching towards that. There's never a guarantee, but that is what we're rallying around.

We hope to deliver on that, and we're feeling good with what the outlook looks like today.

Patrick Scholes (Managing Director and Senior Analyst)

Okay, great. Thank you.

Frank Del Rio (President and CEO)

Well, ladies and gentlemen, once again, I wanna thank everyone on this call. Whether you're a travel partner, a vendor, a lender, or an analyst, you've supported us, you've challenged us, but most of all, you've made us better. Personally, I couldn't have asked for a more fulfilling and more successful career in this incredible industry, and everyone here contributed to that. Now, for one last time, thank you for your interest and your support. I have full confidence in the management team and their ability to take this company on to its next chapter. Harry, Mark, and Jessica, and the team will be available to answer any questions you may have once this call is over. Have a great day. Stay safe and all the best. Thank you once again. Bye-bye.

Operator (participant)

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