Good morning, everyone, and welcome to our Business update conference call. I am Arnold Donald, President and CEO of Carnival Corporation & Plc. Today, I'm joined telephonically by our Chairman, Micky Arison; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release. Yes, I know, I'm certainly not alone when I say I'm glad to put 2020 behind us. Clearly, 2020 was unprecedented. On the other hand, it also proved to be a true testament to the resilience of our company.

Thank you, Arnold. I'll start today with an update on booking trends. Then I'll provide our monthly average cash burn rate, along with a summary of our fourth quarter cash flows and then finish up with some insights into our financial position. Turning to booking trends, at this point in time, our cumulative advanced bookings for the second half of 2021 are within the historical range. Even better, our cumulative advanced bookings for the first half of 2022 are ahead of a very strong 2019, which was at the high end of the historical range. Directionally, comparable pricing on these bookings for the second half of 2021 and the first half of 2022 are down just 1% versus pricing on bookings in the beginning of fiscal year 2019, if you exclude the negative impact of future cruise credits or more commonly known as FCCs. Pricing on bookings in the beginning of fiscal year 2019 is a tough comparison as that was a high watermark for historical yield. However, I must say, to some extent, this is an apples and oranges comparison, given the increase in bundled packages that we have offered and that guests have chosen more recently, making the underlying comparison more favorable than indicated. In the end, we expect to see the benefit of these bundled packages in onboard and other revenue. I would also like to point out that our book position is very encouraging, given it was achieved with minimal advertising and promotional activity. Due to the pause in guest cruise operations in 2020, the Company's future booking trends will be compared to 2019 and not the prior year. It is particularly reassuring to see that approximately 60% of bookings taken during the fourth quarter 2020 for fiscal year 2021 were new bookings, with the remainder being FCC rebooking. I am happy to report that this is a five percentage point improvement over the third quarter booking activity. And it's also promising to see that approximately 45% of the 2021 book position are guests that are new to brand, with the remaining 55% of guests being brand loyalists, which is just a little higher than the norm, a continuation of the positive position we had at the end of the third quarter.

Thank you, David. Operator, please open the call for questions.

And we have a question from the line of Steve Wieczynski with Stifel. Please go ahead. Your line is open.

So David, I want to begin with your last comments regarding your liquidity position. I'm a bit confused because you have mentioned in the release that you plan to engage in additional financial transactions, which you just discussed. However, Arnold, you also noted that you expect all your ships to be operational by the end of the year, which may seem ambitious to some. My question is why you would need to raise any additional funds at this time if you believe you will be fully operational by year-end. I hope that makes sense.

First of all, just to restate, for me, we hope to have all of our ships operational by year-end. Obviously, I'm hoping what's happened so far in early '21 here is just a hangover from 2020. But we're still navigating as a planet, this whole thing. So hopefully, we have them all operating by the end of the year. And then I'll let David respond to the rest of your question. Go ahead, David.

Yes. So Steve, some of the uncertainty relates to the resumption of cruise operations in the various brands around the world. Exactly when and how soon, and so we're just trying to keep people aware of the fact that we do have multiple billions of dollars of debt capacity and we can utilize that if and when needed. So we have choices, and we'll monitor the situation very carefully. And some of it also depends on, just like I said before, on the timing of the restart of the operation, which at this point in time, is a little bit uncertain.

Okay. Got you. And then, I guess, a bigger question would be just around the vaccines themselves. And I assume you guys have put some thought into, are there going to be requirements for whether it's the crew, whether it's passengers, whether it's both, that they would have to be vaccinated before they're allowed to sail?

We are currently at the early stages of the vaccine situation. We are closely monitoring developments and maintaining discussions with the CDC and various other organizations globally regarding different locations. As the situation progresses, we will make the most responsible decision when the time is right. Right now, distribution is somewhat challenging, and we will decide as circumstances change.

Okay. Can I ask one real quick housekeeping question for David? David, can you help us maybe just think about what you guys are thinking from an interest perspective for '21?

So interest expense on the existing debt that we have at the end of 2020 would be about $130 million a month or, call it, $1.6 billion for the year. So depending on liability and management and other things, it could be a little bit plus or minus from that number.

We have a question from Robin Farley with UBS. Please go ahead. Your line is open.

I wonder, if you could give us any sense of the timing or kind of the gating issue for your initial test cruises?

Robin, that's a work in process. Phase 1, we're in with what's been communicated by the CDC; the additional guidelines for future phases have not yet been issued by the CDC. We have weekly calls as often as we need with them. So that remains to be seen. But what I can tell you is that we're on track to be able to do whatever we need to do in a very timely manner to be able to resume cruises ultimately.

So, it sounds like you're waiting specifically for the CDC to issue some specific guidance around the test cruise timing?

In response to your question about the timing of test cruises, we are currently in a waiting period. However, we are actively working on multiple fronts. We have begun to return ships to the U.S. and are making sure that they meet the necessary criteria to proceed with test cruises. To provide a specific timeline for the test cruises, we need further guidance from the CDC.

Great. And then just one other, and maybe this is for David, how should we think about the expense of a restart? And I guess what I'm asking specifically is you've talked about how even when the ship is in warm lay-up, you have some crew on board, you're running the systems and all of that, so is the actual cost of when that ship goes from being in warm lay-up to operating? And is it just sort of increasing the staffing levels? Or is there some other incremental expense? I mean, obviously, as a ship sails, it will start to burn fuel, you'll start to have to provision for people, but I'm talking about, is there any sort of onetime cost? Or is it just that you staff up and you go from these lower levels to being what a typical expense per passenger cruise day would have been prior?

Yes. I can share our experience with Costa and AIDA. The capital expenditure was minimal; however, we incurred costs for bringing the crew back, including plane flights, testing, and other protocols. There are also expenses for food and other ship inventory. While this will result in cash outflow during this period as we ramp up the ships, there will be cash inflow from customer deposits because we receive final payments for those voyages. In the past, I mentioned that the ongoing expenses related to protocols in Europe were a few hundred thousand euros per month for each ship. For the U.S. and the CDC, as Arnold mentioned earlier, we are still waiting for much of the technical guidance that was not part of their original conditional sail order. Therefore, it's challenging to determine if there will be any changes for the U.S. when we restart operations.

And our next question is from the line of James Hardiman with Wedbush Securities. Please go ahead. Your line is open.

David, you gave us the interest expense. Could you just help us out maybe with the share count where it stands today and what you expect it to be once you're making money again on a diluted basis?

Yes. So today, the outstanding share count at the end of 2020 was 1.087 billion shares. And the only other thing that I'll add is with the conversion of the remaining converts, it would total 1.14 billion.

As we approach the presidential transition in a few weeks, could you share your thoughts on potential risks or opportunities? Do you believe this will impact discussions with the CDC? Additionally, during the Obama administration, access to Cuba was beneficial for you. Have you discussed that recently? It seems like it could present an opportunity going forward.

I think, first of all, thanks for your question, and happy New Year. I think, first of all, look, we all stand together in trying to mitigate the spread of this virus. And whatever administration is in place, obviously, we're going to be totally in compliance, but we just want to be an ongoing part of the solution regardless. So in terms of incremental risks associated with one administration versus another, not thinking that way at all; either way, we have to do the right thing to serve the best interest of public health, and I think the size ultimately will guide us all to there. With regards to other matters, obviously, Cuba was a focal point for the Obama administration opening up Cuba, et cetera. We'll see what happens with the incoming administration. We obviously will be well prepared. We were very actively with the first ones to sail to Cuba. And we'll be well prepared to be able to operate in whatever the guidelines and rules and regulations are, but we'll be prepared to, again, help people who really want to go to Cuba, see it the best way we feel, which is arriving by cruise and then experiencing what Cuba has to offer when it opens.

Got it. And then maybe lastly for me. The different brands that you employ, as we think about sort of a post-vaccine environment, are you seeing major differences in terms of demand for those different brands? Obviously, depending on the country and their state in terms of the virus itself, that's going to change demand. But maybe just more broadly, are there some brands that are better positioned than others as we look to the second half of '21 and into '22?

Yes. As I mentioned earlier, overall demand has been very strong, which is encouraging for our business. There are no significant differences across brands. Costa Asia has closer booking patterns compared to our other brands, but aside from that, we don't see major variations in booking trends. There is plenty of pent-up demand for cruises, reflected in the booking patterns. We will have smaller fleets, and we'll be reintroducing them gradually. Our national brands are advantageous in this aspect, as well as our numerous brands that are easily accessible. Overall, we don't observe any dramatic differences across the brands, and we see substantial strength and a promising opportunity once cruising resumes.

Our next question is from Brandt Montour with JP Morgan. Please go ahead. Your line is open.

Just curious on bookings, hopefully, you could maybe flesh out some of the cadence in bookings qualitatively, sort of interested in knowing how bookings pace is faring now versus pre-vaccine? And if that's a meaningful different pace and sort of when did you might see that inflect?

Bookings were robust pre-vaccine and have been post-vaccine, so we haven't seen any dramatic shift in that. Again, we haven't experienced a demand challenge for cruise, all the reasons we pointed out, including the large base of previous cruise scores, repeat cruises, et cetera, where the demand is really getting pent-up because they've been many months without being able to satisfy their craving for a cruise experience. But I'll let David comment more granularly on some of the booking trends statement.

Yes. No. That's correct what you said, Arnold. And the thing that I would add to that is, we've seen good demand in all of the various cruise markets whether it be the Caribbean itineraries, Europe itineraries. We're seeing good demand for Australia, for world cruises, et cetera. So, it's broad-based and across, as Arnold said, all the brands.

That's helpful. And then one more for me is, on the CDC I was hoping that you could help us understand the relationship between maybe potentially as we move to the summer season and ships tend to sail more abroad, is it at all likely that you might look to get fewer ships outfitted and certified under the CDC guidelines, since there's not a whole lot of point to get certified for one month in the spring and then go sail elsewhere where there's not going to be the same restrictions?

We want the freedom to operate, period. And so, we'll be focused on, again, being in compliance with whatever the CDC regulates. Obviously, we give our inputs and offer up other like science, medical experts, their inputs and whatnot. But the CDC will make their determinations and we want the freedom to operate. Now having said that, as we mentioned earlier, the fact that we are global, that a large number of our sailings normally are outside the U.S. and so on. This gives us additional degrees of freedom, but we also have to secure the freedom to operate in other places. Now we've been doing a really good job so far in Europe with the limited startups of Costa and AIDA. But you're right, as you look around the world in different targeted markets, obviously, the summer is also an active time for U.S. sailings with holidays and vacations. Of course, all of that feels a little different now. But nonetheless, it is an active period. So, we're well positioned, we're differentiated. We have nine well-known cruise line brands, we have national brands. As things open up in staggered ways around the world, we can take full advantage of that. But we like to have the freedom to operate everywhere.

And I'll just add that if you look at the CDC website, you'll see that we brought 30 ships back into U.S. waters, one more is expected to come back, it's in transit, Carnival Mardi Gras. And those are the ships that we expect to sail in U.S. waters through the balance of the conditional sail order that the CDC issued this year, and the remainder of the ships would sail outside U.S. waters.

And our next question is from Assia Georgieva with Infinity Research. Please go ahead. Your line is open.

A couple of quick questions. Is there an inclination or ability to possibly restart some of the ships that are currently scheduled to start, let's say, May and June as opposed to at the end of March? How easy is that? Or is that something that is not going to change?

Yes, if it makes sense. First and foremost, we will always prioritize public health. Secondly, if we have the opportunity to operate sooner and there are viable itineraries, we wouldn't rule out introducing customized itineraries for brands before the scheduled periods, provided it makes sense and we can do it. So yes, there is a chance that even for brands currently on pause, if the right opportunities arise and it is logical, especially now in January, we could introduce some customized itineraries if it aligns.

And Arnold, you mentioned shorter cruises, which indeed make more sense. However, it's not the case with the longer voyages over seven nights for the higher-end brands. Again, do you think the CDC might be open to reconsidering their position and possibly allow longer voyages before November?

We'll have to see what evolves. And again, with the advent of the vaccines, with the acceleration of low-cost, more rapid testing, with advancements in treatments and so on, I think all of this is potentially in flux. That would definitely be the CDC's call to make. But again, things change all the time, and we have to see. So I wouldn't say it's impossible. I think again, everyone wants to act in the best interest based on science. And if the science and conditions made it possible, then they may change their position. And then there's other places in the world and whatnot, and they have their rules and regulations. And so there will definitely be opportunity in some places in the world to have longer cruise itineraries for certain and possibly here in the U.S. prior to that date, we'll have to see.

And lastly, given your very active communications with the CDC, do you have any sort of an expected timeline as to when you might be receiving further technical orders and guidance? Or are you just waiting for the day they come out, and that's when all that we'll find out?

I think, I learned a long time ago in different businesses, never try to predict regulatory anything because by its nature, it's not that predictable. So we provide the information, we're in active dialogue. They'll make their determinations in the timeframe that, obviously, they feel comfortable doing so, and we'll respond to that. So we don't have a definite day for future guideline release from them, but we'll be prepared to act on whatever comes, whenever it comes.

I think all of us will be waiting for further guidance as soon as it's available.

And then the last comment would be this, that obviously, we're in this business for the long term. And while we all want to resume cruising as soon as possible because cash generation and cash maximization is clearly the order of the day for us as a business at this point. The reality is we want to do it in the right way and make certain that we're well prepared to be in compliance with whatever the rules and the regulations are. But whether we start sailing in April or March or June or whenever, the real value in this business, obviously, makes sense for many years and eventually, will all be back to the great days of growth in our industry and growth in earnings, growth in cash generation, et cetera. And when you look at it over time, a matter of a month here or a month there, a couple of months here or there, are not determining the future value of the industry or our company.

I agree, but I've been following the pricing for all voyages for close to two decades now and kind of itching to start getting actual moving ships as opposed to just the forward pricing. Yes. Okay. Good luck. Thank you.

Thank you.

We have a question from Patrick Scholes with Truist. Please go ahead. Your line is open.

Correct me if I'm wrong here, but I believe there was an industry meeting early last week with the CDC. And if that is correct, I'm wondering if you can share any details from that meeting.

No, we wouldn't share any details. There are multiple meetings with the CDC at different levels. There's technical levels. There's medical levels. There's all kinds of things. And so at this point, what I can tell you is that we're in constant communication, as are the other cruise lines. And also, our industry association, CLIA, is also having dialogue as appropriate. And everybody is working together focused on the resumption of cruises in a way that fits with overall what CDC is determining is best for our society.

Okay, fair enough. Regarding the 19 ships that are leaving or have left your fleet, can you provide an estimate of the net cash income and cash flow from those?

I'll give you that, David?

Yes, you're talking about the sale price?

The 19 ships we plan to exit.

We do not disclose the sales price of any ship, as that would put us at a disadvantage in future negotiations. However, I can say that before COVID-19, we often sold ships for around $50 million to $70 million each. In the current situation, we are selling ships for less than those historical prices post-COVID-19, but it is not significant in the overall context of our company size.

Okay. Great. That gives me some rough ballpark idea. Thank you very much.

Thank you.

We have a question from Ben Chaiken with Crédit Suisse. Please go ahead. Your line is open.

So, you talked about lower cruise costs from ships leaving the fleet. And then I think incremental to that insinuated, I believe, some lower cost as a result of more efficient shore-side. Can you touch on what those improvements are? And then maybe any way to think about sizing that opportunity? And then just one more from there.

Yes. As I mentioned, with the ships leaving the fleet, we accelerated the exit of less efficient ships since there was no opportunity for them to generate cash in the near-term due to the current pause. This results in a 2% decrease in base costs linked to those ships leaving, along with a 1% fuel advantage. Regarding our onshore operations, during this pause, we have furloughed staff and made various adjustments to reduce our cash burn rate. This situation has also allowed us to review all our shore-side operations to identify ways to enhance efficiency and effectiveness across the business. For instance, while we're currently not advertising, we are evaluating our marketing structure and expenditures. We had been pursuing continuous improvement previously and had seen success through our sourcing initiatives, as well as refining our operating procedures to eliminate unnecessary costs. We will continue to do this, and this pause has enabled us to closely examine all aspects of the business, uncovering further opportunities for greater efficiency.

I understand. That's useful. David, regarding your comments on pricing, I think you mentioned that the forward pricing includes bundles, which suggests a difference in listing pricing. You noted that it’s not a direct comparison. Could you provide a direct pricing comparison between what you're seeing in your forward books and the 2019 figures?

When we offer the bundle, we allocate a portion of the bundled product to onboard and other revenue. The price we're using for comparison reflects only a part of the total amount paid by the guests. This approach aims to create a comparison as similar as possible. However, due to the allocation, we will observe benefits in onboard and other revenue. That's why I mentioned that the comparison might appear more favorable than suggested, especially since I noted a 1% decrease when excluding future cruise credits. That's as close as I can get because we've accounted for onboard and other revenue. You would anticipate a significant increase in onboard and other sales as a result of the pre-purchase. I hope that clears things up for you.

We have a question from Jaime Katz with Morningstar. Please go ahead. Your line is open.

I was wondering, if there were any interesting insights or takeaways from the 45% new-to-brand bookers that you guys are seeing? Are they skewing younger? Are they maybe longer lifetime customers than, or if there's anything different than some of the new-to-cruise in the past?

So it's been... No, we have not seen any dramatic trend difference in new bookers or new cruisers than we have in the past. But David, it's like you wanted to make a comment. Go ahead. Yes. I wanted to add that overall, whether it’s the 45% or the 55% who are loyal to the brand, we haven’t observed any significant changes in the demographics of people booking cruises. We see a mix of individuals in their 20s and 30s alongside those in their 50s, 60s, 70s, and 80s. Recently, I spoke with some brands about various voyages, and they shared that for some longer voyages in early 2022, there was a notable presence of passengers aged 70 and older. We speculated that these might be retirees who can plan further in advance without being tied to a work schedule. Overall, we’re not noticing any significant demographic trends globally; people of all ages are booking across various products and brands.

Excellent. And then just a quick housekeeping follow-up. For depreciation for 2021, I know a lot of the ships that have come out of the fleet are probably largely depreciated, but can you give us an idea of like what the delta year-over-year might be in that figure?

So 2021, we're looking at roughly $2.2 billion, which is similar to what we saw in 2020. But it is a preliminary number. The difficulty in that is trying to estimate our CapEx for 2021. We obviously haven't made all of our decisions for 2021 yet. Some of it depends on the timing of the restart. So that is a preliminary number. But at this point, that's a good ballpark-ish figure.

And we have a question from Vince Ciepiel with Cleveland Research Company. Please go ahead. Your line is open.

I wanted to come back to the FCCs. I think as of the last call, roughly two-thirds were still outstanding. So curious, is that kind of roughly held? And what you think it's going to take for more of those to start to convert? And then the next part of that is, I think you previously alluded to a mid-single-digit type of negative impact from the FCCs coming in on the pricing side. And curious if that impact kind of has held and should continue to hold as more of those convert?

So the last time, when I was talking about the mid-single digits, I was talking about the back half of 2021. When you start looking at the time period that we're talking about, the back half of '21 and the front half of '22, you're still in the same ballpark in terms of including the FCCs in terms of the pricing. And as far as the FCCs, probably, it's about 45% of our customer deposits at this point are still unapplied FCCs. So we still have quite a few FCCs that have yet to rebook. But that's not really very surprising. A lot of times you get families that are booking, multiple families with kids. And you've got to coordinate vacations with supervisors at work and time frames. So we would expect these FCCs to turn into bookings over the next 6 or 12 months as people plan their vacation opportunities.

Great. That's really helpful. And maybe I wanted to think a little bit about the longer-term margin opportunity. You've talked about sales of less efficient ships, probably taking out some overhead, the arrival of newer, more efficient ships, just curious what type of EBITDA margin opportunity do you think is ahead of you as revenue more fully recovers probably in '22, '23?

Yes. I'd be reluctant at this point to kind of give you that margin opportunity that would be providing guidance, and we're not in a position yet. I think by Arnold's comments, indicating the efficiencies that we expect is alluding to an improvement, but give us some time to resume guest cruise operations, get back in service, and we'll be in a much better position later this year, perhaps to give you more guidance and details into that. But at this point, all of the cost metrics would lead you to a better margin opportunity in the future.

Great. Operator, we'll take one more question, please.

We have a question from Stuart Gordon with Berenberg. Please go ahead. Your line is open.

Yes. I was wondering if you could give us an approximate net debt number at the end of 2020, and ideally calendar because I think there was some export credit facilities drawn down in December, but if not, on the fiscal side.

At the end of November 30, 2020, our debt will be $27 billion. You are correct that shortly after that, we took delivery of two additional ships and utilized the export credits related to them. That was probably an additional amount of about $1.5 billion in December related to the Carnival Mardi Gras and Costa Firenze.

Okay. And just to follow up. I mean, you've obviously given us some visibility on the delivery schedule in 2021. Have you given any thoughts on whether you could cancel any future ship deliveries? And also, what would be your anticipated fleet size in 2022 versus 2019, given the changes with the ships leaving?

In terms of ship deliveries, we renegotiated the delivery dates, resulting in delays for all ship deliveries. However, there are no cancellation clauses in our new building contracts, so I do not anticipate any cancellations of our new builds. We started the year with 14 ships on order and have already taken delivery of 2, leaving us with 12 more to receive in the coming years. Regarding capacity, at the end of 2022, we expect our capacity to be approximately 5.6 percentage points higher than in 2019. This translates to less than 2% annual capacity growth from 2019 to 2022 due to new builds, while taking into account the ships that left the fleet, which offsets the growth.

Yes, thank you, everyone. We really appreciate your interest, happy New Year. Be safe. Be responsible, I'm sure you all are. And together, we look forward to what hopefully, will be a very nice 2021 leading to many future years of success. So, thank you. Thank you so much.

That concludes the call for today. We thank you for your participation and ask that you please disconnect your line.