Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Fourth Quarter Full Year 2021 Earnings Conference Call. My name is Maria, and I'll be the operator today. I would now like to turn the conference over to your host, Mark Kempa. Mr. Kempa, please proceed.

Thank you, Maria, and good morning, everyone. Thank you for joining Frank and me for our fourth quarter and full year 2021 earnings and business update call. Frank will begin the call with opening commentary, after which I will follow to discuss our financials before handing the call back to Frank for closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at 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 the presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release with the fourth quarter and full year 2021 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?

Thank you, Mark, and good morning, everyone, and thank you for joining us today. And as always, I hope that all of you, as well as your loved ones, remain healthy and safe. Before going into my main commentary, I'd like to address the recent geopolitical issue, which escalated last night. The tense situation in Ukraine is regrettable. And our hopes are that the conflict ends quickly with minimal impact to the safety and welfare of those in the region. We are following the situation carefully as it impacts our voyages in the area. We have no vessels in the region until late May and we will be updating guests on our plans and about affected itineraries as needed. We have quite a bit to share with you today, ranging from our resumption of operations to the impacts of the Omicron surge to recent developments with the CDC. We'll also cover the booking and pricing landscape in our plans for the return to service of the balance of our fleet. So let's get started. It seems like just yesterday that we launched our Great Cruise Comeback in late July of '21 after 500 days of no cruise operations. In the 5 months that followed through the end of 2021, we safely carried over 230,000 happy guests around the globe, everywhere from Europe to Alaska and points in between, delivering the unique and upscale vacation experiences that only our three award-winning brands can provide. This is evidenced by our brands having achieved the highest customer satisfaction scores in our history and a reflection of the deep commitment from our crew members, who are as energized as ever to be back on the high seas serving our guests. In addition, onboard spending by guests during the quarter continued to exceed all expectations and reached all-time highs. We delivered these unparalleled vacation experiences in the safest manner possible with protocols that are unmatched by any other area of the hospitality sector. I'll repeat once again that our #1 priority is and always will be the health and safety of our guests, crew and the communities we serve. This commitment has never been more evident than in the month since our return to service. With over 230,000 guests sailing on our vessels in 2021, our COVID positivity rate was minuscule and certainly a fraction of what has been the case in the population at large. Our science-backed protocols, centered on vaccination and pre-boarding testing, provide a safe vacation experience that is not duplicated anywhere in the world. Today, because of the rapid decrease in prevalence and severity, the prospective view of the pandemic is rapidly changing across the globe. Municipalities, cities, states, countries, schools, institutions of all kinds and private businesses alike are all moderating protocols as the public health environment improves. In the past, protocols were usually pared back slowly and only when cases had receded. But we have seen many instances, Denmark and Iceland being one of the best and recent examples, where protocols and restrictions have been moderated despite high or even increasing caseloads. This latest normal now takes into account the diminished severity of the virus and balances the extent of necessary protocols with the need to resume daily life. The confidence for society to take these actions is mainly due to the availability and widespread uptake of vaccines, new therapeutics and broad immunity. An NCL cruise ship is one of the few places in the world where you can be assured that at least 95% of the people around you are fully vaccinated. We are pleased to report that the rapidly improving public health environment has allowed us to follow the easing of COVID-related protocols occurring in broader society. You can see on the return-to-service plan on Slide 4, a new phase, returning to normal, that reflects those changes and advances. Our brands recently announced that effective March 1, masking for guests across our fleet will be optional while taking into account local guidelines, if any. Also, beginning March 1 and in conjunction with the new CDC guidelines, which I'll discuss in a moment, the Norwegian brand will begin allowing all guests under the age of 12 to sail on our fleet-wide. These two steps greatly expand the addressable market for our largest and most family-oriented brand by allowing families to travel together regardless of age and without the mandate of wearing a mask. This announcement was scheduled to provide plenty of time and opportunity for families to plan their summer vacations with us. All this comes at a time when last week, we had the lowest number of positive pre-embarkation cases per 1,000 guests by far since launching service last July during the Delta surge. Recently, we were happy to see significant regulatory progress being made as we received clarification from the CDC on updated protocols for sailing originating from the U.S. ports. Back in January, our three brands were the first in the industry to opt into the CDC's voluntary COVID-19 program for cruise ships operating in U.S. waters. When our brands first opted in, the program had not yet been finalized. However, last week, as protocols to the program were confirmed, our brands reaffirmed their commitment made in March and mid-January of opting into the program, demonstrating once again our industry-leading and unwavering dedication to health and safety with protocols that appropriately reflect the public health environment. The program our brands have opted into calls for at least 95% of vaccine-eligible guests and crew to be vaccinated. Given the differences in demographics of our brands, a vaccination requirement will differ somewhat with Norwegian requiring guests aged 12 and over to be fully vaccinated while Oceania and Regent will continue to require all passengers to be fully vaccinated. Regardless, we will continue to require that 100% of crew across our fleet be fully vaccinated and are working towards having all crew members boosted by April 1. The new updated protocols also allow for mask-wearing to be optional as is the case with more and more societal activities. All the industry has ever asked is to be treated the same as other areas of society. The CDC's new voluntary program is a positive step in that direction, which we expect will lead to further easing of protocols as the pandemic continues its retreat. In the meantime, we will continue to maintain best-in-class protocols centered on vaccinations and testing for the health and safety of all onboard and to offer guests the safest vacation experience possible. The resumption of service across our fleet was not without its challenges. As difficult an endeavor as it was to pause and find safe haven for our entire fleet back in the spring of 2020, it is an even greater feat to smoothly bring back the fleet into operation and to deliver the world-class level of hospitality and service our brands are known for. I want to thank team members across our organization, from shipboard to shoreside, for the hard work, dedication and passion they displayed in returning our fleet to service. I also want to thank our loyal past and new-to-brand guests for entrusting us with what, for many, has been their first taste of travel since the pandemic began 2 years ago. And a special and heartfelt thanks to the travel agency community, which has weathered the pandemic like no other. We stuck together through the industry's toughest times and are now re-engaged to bring us all back stronger than ever. Finally, thanks to our shareholders, lenders, shipyard partners and the broader financial community for your support and confidence in our company, supporting our growth story and the opportunities that lie ahead. The story of the past quarter was obviously all about the Omicron wave. Unfortunately, Omicron did not appear at the best of times to make its presence felt. Just as we were experiencing a solid rebound in bookings during October and November after the Delta wave began to wane, buoyed by a very successful Black Friday and Cyber Monday promotions, the impact of Omicron began to appear in early December. First, a Norwegian vessel, whose itinerary featured multiple calls to South African port, had its operations paused as Omicron quickly spread there and additional travel restrictions were imposed. Canceling targeted sailings on certain vessels operating in the Caribbean and South America during the quarter also became necessary as an addition to travel restrictions, ports began implementing difficult, sometimes onerous requirements for docking. Concurrently, booking volumes slowed and cancellation of existing bookings increased. While Omicron did impact our business in the near term, primarily for close-in sailings in the first and second quarters, it did provide the opportunity to once again demonstrate our resilience as a company and as an industry. Our ethos throughout the pandemic has emphasized being nimble and ready to adapt. Our management team has maneuvered to what no other industry has ever had to do and has done a remarkable job doing so. The silver lining to this pandemic is that it has brought our team even closer together and fortified the strong collaborative culture we already enjoyed and that we truly believe is one of our competitive advantages. As we return to normalcy, that positive culture will only grow stronger. Now for some good news. The impact of Omicron is waning week-by-week. While the short-term has been impacted, the following points illustrate the strong underlying consumer demand that gives us confidence about the trajectory of our business in the future. First, of the guest cancellations that occurred during December and the January period, the majority were for sailings in the first and second quarters of 2022, demonstrating sustained consumer confidence in sailings further out. Second, beginning in mid-January, net booking volumes began improving and continue to do so, accelerating sequentially week-over-week. Third, the booked position for each quarter in 2022 when compared to 2019 sequentially improved over the prior quarter. Fourth, despite the erosion in booked position due to the Delta and Omicron surges, as of today, the second half of 2022 booked position is in line with what was an extraordinarily strong 2019, while 2023, compared to the pre-pandemic 2020, is in an even better position, in fact, a record booked position. Fifth, again, as of today, pricing for 2022 and 2023 sailings remains higher for the full year versus 2019 and pre-pandemic 2020, respectively, even when including the diluted effect of future cruise credits. Our core go-to-market principle of marketing to fill versus discounting to fill is performing excellently as we have not and will not chase short-term occupancy by sacrificing price, which results in long-term and perhaps even permanent damage to brand equity, as we have seen over the years in other situations. Sixth, despite sailing cancellations and slight changes in our return-to-service plans due to Omicron, all of our vessels are expected to sail by early May and in time for the peak summer season. Lastly, we are seeing our largest and most important distribution channels coming back to full strength. Every day, we are seeing more and more business being booked by our travel partners in a shift which bodes well for the industry as the vibrant travel agent community is vital and amplifies the reach of our message to consumers, translating into more and better bookings. I want everyone to recall that in the past, our industry was accustomed to successfully managing through bumps in the road. Whenever there was a natural or geopolitical or some other black swan-type event that impacted bookings, you could almost count like clockwork that after 8 to 10 weeks of quiet, booking patterns would rebound. We've seen this pattern occur twice already during the pandemic, once last spring after the initial variant ceded and vaccinations became prevalent, and most recently, last fall, right after the Delta surge began to wane. With the public still a bit shellshocked by the sudden emergence and equally dramatic decline of Omicron, what our business needs now is a few weeks of quiet with no new variants or surges for confidence to return and momentum to take hold. Our experts in the SailSAFE Global Health and Wellness Council, headed by Dr. Scott Gottlieb, believe we're at that point right now. While Omicron did have an immediate but short-term impact on our business, it was an impact that simply shifted expectations and the timing of our recovery by about 3 months. That shift in timing is coinciding with the shift in societal attitudes mentioned earlier from avoiding the virus at all cost to living with it. It's something we really didn't see after the Delta wave but is gaining more and more momentum post-Omicron. We are seeing more and more living of life, and we once again began hearing the term revenge travel being thrown around. These shifts bode well for our company as vacationers look to once again explore the world but to do so in a safe manner. I'll be back shortly with closing comments. But for now, I'll turn the call over to Mark for his commentary and the progress of our financial action plan.

Thank you, Frank. As mentioned earlier, going from a complete standstill to having over 70% of our capacity sailing by year-end, through not one but two COVID variants, has been an impressive effort in coordination and logistics. I give my thanks and kudos to our operations and hotels teams, both ship-side and shoreside, for executing on this truly herculean endeavor. We have been deliberate and disciplined in bringing our fleet back gradually and have kept self-imposed load factor limitations in place to ensure the safety of our guests and crew members. I am pleased to report that strong ticket pricing and onboard revenue spend drove positive contribution from the fleet that operated in the quarter, despite the headwinds we faced from the remnants of Delta as well as the onset of the Omicron variant. This result reinforces our belief in the fundamental strength of the business as we reach 85% of our capacity back in operation during the first quarter, and the entirety of our fleet back in service in the second quarter to capture demand for the peak summer travel season. Based on our current trajectory, we expect to reach a key milestone in our recovery as the net cash provided by operating activities is expected to turn positive in the second quarter. In addition, we expect the second half of 2022 to be profitable for the company on an adjusted net income basis, marking an important transition for managing the daily business primarily around liquidity needs to shifting our focus back to maximizing profitability as we exit these unprecedented times. That said, we remain keenly focused on maintaining a strong liquidity position through this transition period. Moving to Slide 8. Our cash and short-term investments for the quarter decreased by approximately $200 million on a net basis to $1.75 billion. This includes $1 billion of cash burn associated with operations, including interest and capital expenditures, partially offset by nearly $600 million of advanced ticket sale collections and other working capital changes. Our quarter-ending cash and short-term investment balances were also boosted by an incremental $260 million associated with a series of balance sheet optimization transactions we executed in November. More importantly, our liquidity at the end of the fourth quarter was $2.7 billion, including a $1 billion commitment through August 2022, which remains undrawn. In addition, our latest transaction earlier this month puts us in a strong position to manage the resumption of principal payments that had been deferred during the pandemic. Furthermore, as the environment improves, our own cash generation engine will be fully up and running, which will further strengthen our balance sheet. A key part of that cash generation engine is our advanced ticket sales build. In the fourth quarter, gross advanced ticket sales increased by 40% to $700 million versus a build of $500 million in the prior quarter. On a net basis, this was partially offset by revenue recognized for sailings in the quarter and refunds and cancellations associated with Omicron. We continue to be encouraged by the strong and accelerating advanced ticket sales build as it reflects robust demand for our product as we bring the fleet back to service. Turning to cash burn. Our monthly burn in the fourth quarter was $345 million, which was slightly better than our guidance of $350 million, despite some cost pressures from the global supply constraints. As we look ahead to the first quarter, we expect cash burn to increase to approximately $390 million as we ramp up to 85% of our capacity in operation by the end of the quarter. This cash burn includes costs incurred for ships coming online in the second quarter, such as crewing the fleet ahead of the restart, restocking of inventory and repositioning of certain ships to their initial home ports. As a reminder, and consistent with our prior commentary, cash burn does not include cash inflows associated with current or future bookings nor contribution from ships that have already restarted service. However, it is important to note that we expect cash inflows to accelerate as our fleet continues to come online, resulting in our cash flow from operations expected to turn positive in the second quarter. Moving to the balance sheet. You may recall last quarter, we talked about pivoting to a more offensive approach as part of our financial recovery plan as shown on Slide 13. Since last quarter, our team has executed a series of transactions in November and February to begin the journey of optimizing our balance sheet. Let me share some key highlights with you, which are summarized on Slide 10. In November 2021, we completed a series of balance sheet and cash flow optimization transactions, which reduced the company's annual interest expense, decreased leverage, extended the debt maturity profile and may lower diluted shares outstanding. Incrementally, in February, the company raised approximately $2.1 billion through a series of debt transactions. Proceeds from these transactions were used to redeem the remaining outstanding balances of the 12.25% senior secured notes due 2024 and the 10.25% senior secured notes due 2026 and will also be used to make principal and interest payments on scheduled amortization due in the near term. This transaction extended our debt maturity profile and released certain collateral consisting of certain vessels, private islands and intellectual property. The combined benefit of these transactions reduces our annual cash interest expense by approximately $75 million. As is evident from the transactions I just covered, our treasury, accounting, finance and legal teams, amongst others, have been extremely busy. I want to recognize and thank them for their tremendous amount of work and effort they put in for us to complete these transactions. Turning to inflation. Similar to all other industries, we are experiencing upward pressure on costs in certain areas such as food, perishables and other supplies that are impacted by the global supply chain constraints. Recent geopolitical developments have also pushed fuel curves higher. However, as you can see on Slide 20, approximately 40% of our total consumption for 2022 and approximately 25% of our consumption for 2023 is hedged and affords us partial protection from the recent spike in prices. In addition, some of our major costs such as labor, also have long-term agreements, which provide predictability in our operating cost structure. While inflationary pressures persist, the most recent consumer spending numbers remain robust. At a more micro level, we have seen clear evidence of this in the onboard spending from guests aboard our ships and pricing for future cruises that Frank touched on earlier. In fact, onboard spending per person per day continues to be up meaningfully versus record 2019 levels. We've also provided incremental guidance on certain key metrics like depreciation and amortization, interest expense, fuel consumption and capital expenditures, all of which can be referenced on Slide 21. As I look ahead, I am encouraged by the continued positive news we are seeing, including the decline in COVID cases, the new guidance provided to the cruise industry by the CDC and the steady march back to normalcy in wider society. We are confident that the demand for our fantastic brands and unparalleled vacation experiences will continue strengthening back to pre-pandemic levels. This strength is clearly reflected in our forward booked position for the second half of 2022 and full year 2023. Our growth profile over the coming years is as robust as ever as we take delivery of 9 spectacular and margin-accretive ships across all 3 brands between now and 2027, increasing our capacity by 50% compared to 2019. More importantly, this management team has time and again generated outsized returns on incremental capacity. We look to continue this trend as we focus on rebuilding and growing our business. Lastly, Frank touched on this, and I couldn't agree more, that a business is only as strong as the people behind it. Our team has demonstrated incredible resilience working through these unprecedented times. We are undoubtedly stronger today than we were before entering the trenches of this pandemic. As we look to the future, our team is focused on managing the controllable and staying nimble. As the landscape evolves, we will continue to adapt and create value for our shareholders, team members and communities we serve. Our management team is ready and eager to return our business back to pre-pandemic levels of significant cash flow generation and profitability combined with a strong balance sheet. With that, I'll turn it back to Frank for closing comments.

Thank you, Mark. And before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which Slide 14 outlines key accomplishments and milestones. We are committed to driving a positive impact on society and the environment through the advancement of this program. We reached several important milestones this past year, including releasing our first ESG report announcing our long-term climate action strategy and goal to reach carbon neutrality. We also made several advances since just our last earnings call. We took the opportunity during the voyage suspension period to accelerate the installation of exhaust gas cleaning systems or scrubbers nearly 2 years ahead of schedule. We successfully completed our nearly $200 million multiyear investment that covered 13 ships, representing approximately 70% of our operational capacity with these state-of-the-art systems, which improved our environmental footprint by significantly reducing emissions, including sulfur oxides and improving air quality. In fact, ships equipped with this technology can reduce SOx emissions by up to 98%, allowing the ships to operate these systems within compliance in expanded areas throughout the world. Investments in technology such as scrubbers are an integral part of our climate action strategy. We were also proud to be recognized as a leader in sustainable cruise terminal construction as we were the first in the world to receive the LEED Gold New Construction certification for our flagship terminal at PortMiami. The team designed our 188,000-square-foot terminal, which welcomed guests for the first time last year, with innovation and sustainability at the forefront, creating a platform that optimizes the terminal's energy performance, indoor air quality, water efficiency, utilization of local materials and resources, and much more. We will continue to innovate towards our sustainability commitment, including further investment at our PortMiami terminal, where we are partnering with Miami-Dade County to add short power capabilities by fall of 2023. We know that initiatives such as these are important in supporting our goals. Our Board of Directors recognizes that ESG is a critical driver in achieving our corporate goals and long-term success. For this reason, our Compensation Committee included an ESG metric in our annual short-term incentive plan for the first time. This metric involves the company making sufficient progress in setting greenhouse gas emission reduction targets during 2022 as determined by the Technology, Environmental, Safety and Security, or TESS, Committee of the Board of Directors. Our Board believes that this step towards shared accountability across the organization reinforces our commitment and ultimate goal of reaching carbon neutrality. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 15. First, we remain focused on our voyage resumption plan with 85% of our fleet operational at the end of the quarter and the full fleet ready for the important peak summer season in May. Despite the impacts of Delta and Omicron, we are pleased with our cumulative booked position for 2022 and 2023 and the strong corresponding pricing that comes with it. Lastly, our priority remains to execute on our medium- and long-term financial recovery plans and to capitalize on our attractive growth profile over the coming years. We've covered quite a bit today in what has been an incredibly busy quarter and year. So I'll conclude our commentary now and open up the call for your questions.

Our first question is from Steve Wieczynski from Stifel.

So Frank and Mark, I guess, if I look at your daily — your per diems, they were up, if my math is correct, somewhere around 20% relative to the fourth quarter of 2019. If I compare those to some of your competitors, which again I might — I know it's not directly apples-to-apples. But your competitors seem to be more in that low to mid-single-digit range. So I guess, the question is what drove those per diems so much higher, not only over 2019 but also versus your competitors as well?

And thanks for the question. Look, it goes back to our core go-to-market principle of marketing to fill and not discounting to fill. At this stage of recovery, having 4 or 5 more points of occupancy at the expense of lower pricing, which could have a very negative long-term effect on the brand's equity, is not the right move. It was not hard for us to resist following others and dropping prices to levels I've never seen before. We were happy to see a year-over-year or '21 compared to 2019 improvement in ticket NPDs by roughly 10%. Onboard spend was over the top. Yes, on a combined basis, our total net revenue on an NPD basis was up over 20%. Some of our competitors had flat improvement. So we're very pleased with that. We think that if you're a long-term investor, and certainly we're a long-term management team, you would prefer maintaining that pricing structure, that pricing power that we've demonstrated, not just now during a pandemic, but year-after-year. As you know, we lead the industry in ticket yields and in onboard revenue yields in exchange for a couple of points of occupancy in a period where even the best operators are performing at roughly half of what they normally would. So we'll take that trade any day.

Okay. Got you. And then second question, I'm going to ask this in a way I hope isn't offensive or get you in trouble. But honestly, I think if we look at some of the changes the CDC has made relative to the cruise industry versus other forms of travel, I mean, to us, they honestly still seem somewhat archaic and outdated relative to what you guys are already doing from a protocol perspective. So the question is, I guess, why did you opt into this program as it still seems somewhat outdated? Or is there a confirmation from them that you guys are on the right path and they're essentially going to leave you guys alone moving forward?

It's not going to get me in trouble at all, Steve, because I've been very vocal throughout the pandemic as to the disappointment that we've all suffered at the hands of the CDC. The CDC didn't shut down any other industry for nearly 18 months. They continue to have policies towards us that are not seen anywhere in the industry, but we are making progress with them. It was not an easy decision to opt in. But we think that overall, given where we are now with the prevalence, where we are with the pandemic and the CDC's commitment to continually look at protocols, much more online, real-time basis, so to speak, gives us hope that this first step of a voluntary program where masking is no longer required and a few other guest-facing improvements, will get us to where we need to go. There will be another date in the near future where the CDC will once again evaluate the protocols that we're now volunteering to comply with. We've always exceeded whatever the CDC's guidelines are. I don't need the CDC to tell me how to operate a safe cruise line. Our protocols have always exceeded theirs and continue to do so. At the end of the day, we need to build consumer confidence, and I think we're doing that. As I mentioned in my prepared remarks, the pandemic is waning in several areas, vaccinations are up, and the severity of cases is down. We as a society are learning to live with this, and I think the CDC is mindful of that and wants to get away from being seen as discriminatory towards the cruise industry and being behind the times. I think that in the near future, we're going to see a much more friendly environment towards the cruise industry from the CDC.

Our next question is from Stephen Grambling with Goldman Sachs.

With the new protocols, how should we think about the path to higher occupancy? As we look out to 2023, will you generally be all the way back to kind of the typical over 100% occupancy? Or could you still see some lingering social distancing or other measures that you would want to kind of continue?

Look, I think that it's too soon to know exactly. I think we're moving in the right direction with COVID overall. We've had to endure two surges, Delta and Omicron, back-to-back. That certainly shook the confidence of society as a whole. If you recall last June, when the vaccines were readily available and the case count was really dropping, business was booming. I remember calling my brand presidents into a meeting and asking them to raise prices, stop marketing, do whatever they have to do to slow down the sales volume because we were going to end up the year without having an inventory to sell. Then Delta came along. Just when we were getting out of Delta, Omicron came along. But as we said in our prepared remarks, the back half of '22, in spite of Delta and Omicron, is in line with the record year of 2019 and 2023 is meaningfully ahead both in price and load factor. If you believe that the Omicron is the last major surge that's going to cause upheaval in everyday life, then that healing period that I referred to has begun. I suspect that unless there is another surge — and by the way, the experts that we talk to, including Dr. Scott Gottlieb, the former FDA commissioner, don't believe that there will be another major surge. There will be variants. There will be mutations, but frankly, they will be more endemic than they are pandemic. I believe that 2023, based on the numbers that I have in the books right now, both load factor and pricing further based on the assumption that we will not see another major Delta or Omicron-type surge, 2023 can get the industry and certainly our company back to pre-pandemic levels.

That's helpful. And then you had some helpful details on the change in itineraries by region, I think focusing on more Europe and Alaska. I guess, how will that impact net yields, kind of all else equal, looking at 2022, especially the second half versus 2019? And how are you planning for places like Australia and the Asia Pacific, given some more stringent COVID policies?

Yes. Look, as you've heard me say many, many times, the #1 driver of yield is itineraries. We strive every day to position our 28 vessels, soon to be 29, in the highest and best use for them. So constantly, year-after-year, we lead the industry in ticket yields and onboard revenue yields and in total yields. We think that will continue. In the back half of '22 compared to 2019, for example, we will have Encore for the entire year compared to 1 month in 2019. We'll have Regent Splendor for the full year versus 0 months in 2019. And we will have the new Norwegian Prima for about 5 months in 20 — back half of '22 compared to 0. Those three vessels, all very high-yielding, as Mark mentioned, improvements to margin, will continue to give us the ability to drive higher and higher industry record yields. In terms of Australia and Asia, in general, as you know, those are the last geographic areas to come online after the pandemic. We believe that they will be online. Certainly, I believe Australia and New Zealand will be, I'm not sure about China. China, quite frankly, is an insignificant area for us. But we are hopeful that the likes of Thailand and Singapore and Vietnam do reopen in time for the winter '22/'23 season. We still have 9, 10 months to go before that season begins. Hopefully, as the pandemic winds down and finds its way through that Asian geographic area, those countries and those ports will reopen to us.

Steve, this is Mark. As we look to 2023, it's also important to remember that we're set up extremely well. As Frank said, we have essentially almost 5 additional vessels that will be operating the full year or roughly 20% more capacity than 2019. If we look at those vessels and the economics of those vessels, we know they're a big driver of bottom-line profitability and margin accretion. So again, assuming a normal year, we are set up extremely well in terms of our profile.

Our next question comes from James Hardiman with Citigroup.

This is Sean Wagner on for James. I guess, on the topic of how should we think of the per berth net cruise costs, excluding fuel, as we ramp the fleet over the course of the year? And is there an opportunity to match or improve on those numbers as we look to 2023? Or is there any way to think about kind of margin potential at similar yields or similar revenue levels?

Sure. This is Mark. So look, we're thinking about that every day, like any business, and as I said in my prepared remarks, we, too, have pressures like the rest of the world. That also comes along — comes together with a stronger top line. But this is a relatively fixed cost business. We're lucky that we're afforded some protection on that front. That said, as we look at a comparable base back to 2019 and you think about it on a per-unit cost basis, we do have more efficient capacity coming on. We do have more growth. So that's going to give us some opportunity there. To the extent some of that is offset by continued inflationary pressures, that remains to be seen. We were starting to see some settling on the cost side prior to today or yesterday, so we’ll have to see how this recent geopolitical event impacts that. All else equal, we should be gaining efficiencies. That said, keep in mind, we have not gotten rid of any of our older vessels during the pandemic. We have a relatively young fleet. At this time, we have no plans to shed any of that capacity. So we won't have that optical benefit, so to speak, versus some of our competitors. I highlight the word optical on that front, but again, we've always run a lean company. We will get scale as we continue to bring on efficient capacity. And it’s in our DNA to look at every cost, every line item and drive efficiencies where we can.

That's very helpful. And I guess, on the yield end of it or the per diem specifically, how much of that premium that you're seeing — and I guess the industry as a whole is seeing, is due to not having to kind of fill up ships to capacity? And how much of that — what do you think about your ability to maintain that strength as you do get closer to historical levels of occupancy?

As I mentioned earlier, the phenomenon that you mentioned is not new in Q4. It's something that we've been able to achieve year after year after year. We lead the industry in yields, ticket yield, onboard revenue yield and we continue to do so, primarily because of our go-to-market strategy, where we believe in marketing to stimulate demand. We believe in the product; you pay for what you get. We have three industry-leading brands, the highest luxury brand in Regent, the highest-yielding premium brand in Oceania, and what we believe to be the highest contemporary yielding brand in Norwegian. We are just going to continue doing what we always do because it’s a winning strategy.

And Sean, I think it's a bit of a fallacy to think that we're just getting these premium per diems as a result of lower capacity. Yes, there's some of that mix that impacts onboard revenue. Yes, we've said that in the past. But core, fundamental, solid ticket revenue, pricing is strong. We’ve maintained pricing. That’s our strategy, market to fill. We're going to continue to do that. So it's not by accident that we're getting those premiums as a result of our self-imposed capacity limits.

Our next question is from Fred Wightman with Wolfe Research.

There was a comment that some vessels could potentially be impacted just from geopolitics starting in late May. I'm wondering if you could maybe frame the potential impact either on a capacity basis, if that's easiest.

Sure, Fred. When we look at — obviously, we're talking about the Baltic region, more specifically, St. Petersburg. We have roughly about 5% of our total capacity that calls on St. Petersburg over the course of the summer season. This is heavily weighted more towards our Norwegian brand than Oceania or Regent. But all in all, it's about 50 sailings. We are looking at alternative ports as we speak. This is something we've been thinking about. Worst-case scenario, if we're not able to call on St. Petersburg or the surrounding areas, there are plenty of other ports in that Scandinavian region that we have the ability to call on. So not a huge impact, obviously a bit disappointing because that is a premier port, but there're other viable, very attractive ports that are available.

Great. And then I guess, just conceptually, is this current situation something that you've seen actually reflected in booking trends over the past few days? Or is it still just sort of up and to the right post-Omicron?

Yes. Look, I think it's way too early. I mean, we definitely did not see anything as of close of business yesterday. This morning, I haven't received — we haven't received any red flags. But like anything, you'll probably see a little bit of slowdown here and there around margins. That's normal. It's definitely too early to indicate if there are going to be any longer-term effects. Europe is a big continent, too. So this is affecting a very small portion of Europe. There are a lot of other areas that we can operate in, especially the Med, where we have a significant capacity as well.

Our next question comes from Vince Ciepiel with Cleveland Research.

Could you talk a little bit more about brand performance, maybe what you're seeing luxury high-end versus contemporary, anything, differences in booking patterns? And then your recent change that, I think, goes into effect March 1 regarding age under 12 allowed to be unvaccinated, I think that's a change from previously being 100% vaccinated. And on the contemporary brand, I'm curious how that change is being received, if that's generating any new interest. Any thoughts there?

Vince, it's Frank. Look, all three brands are performing very, very well. As you know from normal times, if you've been following this industry for a while, the upscale brands, Oceania and Regent, by the nature of their itineraries and their psychographic demographics, the customer base tend to book earlier than the more contemporary Norwegian brands. In this business, everything else being equal, the longer the itinerary is, the more exotic the itinerary is, the further out people book. We’re certainly seeing that. We have great visibility into the second half of '22 and into '23 from especially those two brands. The news is just fantastic. As I said, we are in line with 2019, and 2019 was a heck of a year, significantly ahead for 2023 and at higher pricing. The upscale market is very much alive and well as is Norwegian. As far as Norwegian goes, we believe that the combination of allowing children under the age of 12 and no longer having to wear masks is a big boost to demand. We just announced it in the last couple of days. As I said earlier, business has been trending upward sequentially now for about 4 weeks. We believe that this announcement will add fuel to that sequential improvement week-over-week in terms of net bookings.

Great. And then I had a follow-up question on costs, specifically fuel. You talked earlier about installing more scrubbers. And I'm thinking back to pre-COVID times with IMO 2020, the thought that the percentage of fuel that was MGO that you burn would have to step up, I think it was to like 60% or something like that, which was pretty high. Now that you've kind of digested some of these changes and installed more scrubbers, what percent of fuel in 2022 do you think will be MGO?

Yes. Roughly, we've now completed our exhaust gas scrubber installation recently. When we look at our mix, we're settling out at about 50% HFO versus MGO, so right down the middle of the path, slightly better than what we were anticipating, which is good news.

Our next question comes from Robin Farley with UBS.

Great. I wanted to ask about pricing. You showed your itinerary mix, which would be driving price increases with the higher mix in Alaska and Europe. Can you help us sort of think about the same-store increases in the Caribbean, just given the resort hotel rates on land, the types of increases we're seeing and how that may be looking for your kind of same-store Caribbean? And then just a follow-up, too, on the potential changes with Baltic ships. So just to clarify, are you saying that Baltic ships would not be moved to the Med just thinking about potential impact, if there was that kind of change in the Med closer in? So you're saying that's not where Baltic ships would go? So I just want to clarify that, too.

Robin, it's Frank. No, the Baltic ships will stay in the Baltic. The Med ships will stay in the Med. What we said was if we cannot go to St. Petersburg, there are many alternative ports to visit in the surrounding countries. We also have the opportunity to overnight in another port so that we don't have to affect the length of the itinerary, nor the embark or disembark. It is disappointing because St. Petersburg is one of the crown jewels of the Scandinavian itineraries. But certainly, there are alternatives. In terms of the Caribbean, look, we've seen strong pricing in the Caribbean. As we move certain capacity out of the Caribbean and into higher-yielding itineraries, whatever is left for us, by definition, provides a lift to yield because we have less competition among ourselves. We are also seeing that with cost pressures affecting all businesses; it's also affecting the land resorts. They're having to charge more. Our cruise, as the industry's presence in the Caribbean theater, we believe we're more competitive than ever. It’s allowing us at least to raise prices in the Caribbean. So we like the Caribbean, especially in the winter. But we're always tweaking our deployment such that we can move our vessels to what we believe are higher and higher yields, not just ticket yields but also onboard revenue yields. For example, a vessel that might generate the same ticket yield in the same month in the Caribbean versus Alaska, you would probably want to move that ship to Alaska because we know historically Alaska generates more onboard revenue.

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

Frank, can you maybe help us understand the booking curve a little bit more? When you say back half of '22 and 2023 bookings are ahead of 2019, I guess, how much of your budgeted kind of back half of the year and forward year is typically filled right now? Just trying to get a sense of how much there is left to fill between now and the sell date. How has that looked historically?

Well, there's still a lot to sell. As you know, we always say that we'd like to turn the year somewhere between 60% to 65%. Certainly, we didn't turn 2021 into '22 at that level because of Omicron and Delta for the full year. But as I said, in line for the back half. Today, based on what the booked position is for '23, reaching that 60%, even 65% for 2023 at year-end '22 looks very, very doable and at higher prices. Again, it all boils down to if you believe, as we do, that the pandemic is receding, that the healing process has begun and that momentum is picking up. We saw momentum pick up late last spring when the Alpha variant was beginning to die down, only to be thwarted by the arrival of Delta in early July. Just when we thought Delta was over in October and November, we were cranking again. Then Omicron came. If you believe it's over, then we're at the cusp of that momentum, a hockey stick type of growth in net bookings arriving on the scene. That’s what we believe. It’s not because I believe it, but those who know better — our SailSAFE panel, the experts around the country — believe that the combination of Omicron receding, more and more people being vaccinated, more and more immunity in society, both in the U.S. and worldwide, the new therapeutics coming online, that the pandemic will soon turn into an endemic. In fact, there are countries now, Iceland and Denmark, who declared the end of the pandemic and an endemic arrival. At this stage — again, not because I think, I'm giving you what the numbers are showing — 2023 could be a fabulous year, to be a record year.

Mark, just a clarification on the operating cash flow guidance. When you say cash from operations will inflect positively in the second quarter, does that include your estimate for cash in from customer deposits? Because I think that does differ from your cash burn definition in terms of excluding any deposits. Am I thinking about that right?

Yes. Cash burn — we give the cash burn guidance to help you guys model. But cash flow from operations takes all that into account, all of your working capital changes, essentially write off your cash flow statement, cash flow from operations. So that's what we're referring to. There is no other definition of it, just a straight GAAP interpretation.

Our next question is from Jaime Katz with Morningstar.

My first question is on marketing ROI and how you guys are planning on your marketing spend over 2022, given the lift obviously that you have seen in spend so far. Then just a clarification, I think in your prepared remarks you had articulated that some of the refinancing had maybe given you availability to tap into the secured debt markets again if you chose to do so. I just wanted to make sure I heard that correctly.

Jaime, yes, you are correct. With completion of our recent transaction, the series of debt transactions that — where we raised $2.1 billion, we did free up collateral on two of our vessels as well, as I said, all of our islands and, of course, the all-sacred intellectual property. So going forward, we do have secured capacity in addition to what we just issued in the course of the last 2 to 3 weeks. I think your first part of the question was on marketing spend. Look, as we've always said, we market to fill. That's demonstrated in our pricing. We demonstrated it in Q4. We will market where needed. We're always looking for an ROI on our marketing, of course. There's a portion of marketing that is agnostic, where you just have to spend, where you can't necessarily pinpoint an ROI, right? You have to get a certain amount of load on the ships. But beyond that, it's very pointed. Our marketing groups are sophisticated in that aspect. If we can spend $1 of marketing and get a 5 to 10x return, we'll do that all day long. We watch that. We look at that. Our brand presidents from each area do that day in and day out. Again, we will market to fill. That’s the important strategy.

One thing I'll add to what Mark just said, Jaime, is that we recognized very early in the Omicron wave that consumers were not — cruising was not top of mind in consumers' minds in December and January. So we pulled back our marketing spend considerably at the end of '21 and early '22, believing that it would not have been as effective as it would in other times. We’ve got plenty of dry powder that we're going to be deploying over the next few weeks and months ahead as we rev up the marketing machine to get to the booking levels we need to generate the booked position we want. We did two very smart things. We were a lot more lucky than smart, but we didn’t drop prices. And that’s by design because that’s just not what we do. Number two, we were able to recognize that Omicron was going to have an impact on consumer behavior. We reduced our marketing spend during that 8-week period or so. We come out of it with plenty of dry powder to deploy now in a more favorable environment. Thank you, everyone, as always, for your time and for your support. We will be available to answer any questions you might have throughout the day. I wish you a good day, and a healthy and safe stay. Thank you so much.

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