Good morning, and welcome to the Norwegian Cruise Line Holdings Business Update and Third Quarter 2022 Earnings Conference Call. My name is Maria, and I'll be your operator today. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President, Investor Relations of ESG and Corporate Communications. Ms. John, please proceed.

Thank you, Maria, and good morning, everyone. Thank you for joining us for our third quarter 2022 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Mark 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 www.nclhltd.com/investors. We will also make reference to a slide presentation during this call, which may 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 would like to cover a few items. Our press release, the third quarter 2022 results was issued this morning and is available on our IR 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, Jessica, and good morning, everyone, and thank you for joining us today. I am pleased to report that we reached another significant achievement on our road to recovery this quarter, with a generation of positive adjusted EBITDA for the first time since the pandemic began. We have been clear about our intentional and methodical return to service strategy, consistently meeting or even exceeding the operational and financial milestones we have guided to. I am encouraged by our progress as each quarter has seen substantial sequential improvement in load factor with the shortfall gap continuing to narrow versus pre-pandemic levels, while our industry-leading pricing continues to hold strong. And while we are always looking for ways to capitalize on opportunities to accelerate our recovery, I want to reiterate that our primary focus continues to be maximizing profitability for 2023 and beyond in a sustainable manner by prioritizing our long-term brand equity and protecting our industry-leading pricing. While the macroeconomic environment heading into 2023 remains more uncertain than usual, we see several tailwinds and catalysts to sustain our current positive trajectory as outlined on Slide 5. First, the public health regulatory COVID-related protocols continue to improve. In the past 30 to 45 days alone, key countries like Canada, Bermuda, Greece and all of South America have removed COVID testing requirements for entry and many countries in Asia have begun reopening to cruising. These developments have paved the way for us to relax our own COVID-19 protocols, allowing us to reach a wider cruising population, as well as adding greater variety to high-yielding itineraries as more ports around the world become accessible to cruising. With the public health environment improving, in September, our three brands removed mandatory vaccination requirements. And just last month, Norwegian Cruise Line took another significant step forward with the elimination of all COVID-19-related guest protocols. That means no more vaccination, testing or masking requirements on any of the line's 18 ships, except in very few areas around the world that still have specific COVID rules. This is a long-awaited alignment of protocols with the rest of the travel and hospitality industries, which reduces friction, eliminates the number one reason for not booking a cruise and meaningfully enhances the cruise experience for our guests. Our sales safe program was always designed to evolve and the improvement in the public health environment along with the near elimination of intrusive protocols to remain in place allow us to uphold our number one priority of protecting the health, safety and well-being of our guests, crew and the communities we visit. Second, while there are heightened concerns surrounding an economic slowdown in the broader marketplace, the primary target cohort of our three brands, which is more upmarket and affluent than that of the cruise industry as a whole, continues to demonstrate its willingness to spend on travel and experiences. In fact, you may have heard commentary from credit card issuers this earnings season about continued strong spending on travel and experiences, especially by those in higher-income categories, reinforcing the continued strength and resilience of demand for cruising, particularly among Americans. Within the cruise industry, we believe our company is well positioned to outperform if indeed the macroeconomic environment weakens. First, and as Slide 6 illustrates our dominance in the upscale space, which we participate not only through our ocean and region brands, but also with our exclusive high-end ship-within-a-ship concept on Norwegian with the Haven is significant. And while this cohort is not totally immune to economic downturns, it has been very resilient historically. In addition, Slide 6 also demonstrates our favorable guest demographic mix which skews towards the higher end of the income spectrum, as each of our brands operate at the top of their respective industry categories. The vast majority of our guests have a net worth of $250,000 plus. Again, a more resilient cohort in the event of an economic downturn, particularly if the job market remains strong and the equity markets stabilize. With over 85% of our guest sourcing coming from North America, we will also benefit in the near term given our relatively low exposure to European sourcing, where the economic environment is already challenged. Long-term, this bodes well for our business as North Americans have historically been the guests who booked the earliest, garnered the highest ticket price and spent the most on board. Taken together, these factors contribute to our strong booking position despite current macroeconomic worries and a turbulent geopolitical environment.

Thank you, Frank, and good morning, everyone. My commentary today will focus on our third quarter financial results and outlook and the progress we continue to make on our path to full recovery. Slide 14 outlines key metrics highlighting our third quarter results, all of which were at or above our previous guidance. During the quarter, our load factor improved 17 points over the prior quarter to 82%, in line with the guidance previously provided. This is consistent with our phased and methodical approach to ramping up occupancies while maintaining pricing discipline as we remain on track to reach historical load factor levels for the second quarter of 2023. Fourth quarter load factor is expected to be in the mid- to high 80% range, which, while on the surface, appears only modestly higher than third quarter, represents continued significant improvement when taking into account the seasonality of our operations. Strong ticket pricing and onboard revenue generation drove total revenue per passenger cruise day in the quarter, up approximately 14% versus 2019 better than our expectation for a high single-digit increase. This is particularly impressive given the impact in 2022 of the Russia-Ukraine conflict on premium-priced Baltic itineraries, which are heavily weighted to this quarter. In addition, crew-related capacity constraints on the high-yielding Pride of America were another headwind during the quarter. As we look to the fourth quarter, we expect this metric to increase by approximately 20% compared to 2019 levels.

Last quarter, we spoke about the two indicators in our business that we typically monitor to evaluate the extent and willingness of consumers to spend on cruise travel. The first being the booking window, which provides a peak into the consumer's psyche about the future; and the second being our onboard revenue generation, which is our best real-time now indicator. Both of these indicators continue to meet or exceed our expectations. In fact, our onboard revenue generation continues to break records as onboard revenue per passenger cruise day was approximately 30% higher than the comparable 2019 period. In addition, our booking window in the third quarter was approximately 245 days, nearly 10% ahead of the same quarter in 2019. This is important because an elongated booking window is preferable as it provides better visibility, which allows us to increase prices sooner while moderating marketing expense. The last catalyst I want to touch on is our industry-leading new build pipeline outlined on Slide 7, which we expect will enhance our brands’ profile and product offerings and most importantly, drive significant revenue, adjusted EBITDA, adjusted earnings per share and cash flow growth. Turning to Slide 8. In August, we celebrated the christening of our newest ship, Norwegian Prima in Reykjavik, Iceland, the first major cruise ship christening in this historic seafaring locale. Prima has been incredibly well received with extremely positive feedback from the guests, travel partners, media and the investment community who have participated in the ship's sailings so far. The addition of Prima and her upcoming five sister ships, along with Oceania Cruises’ new generation Vista Class Ships and Regent Seven Seas Splendor will undoubtedly reinforce the positioning of our brands as the leaders in providing upscale experiences in each of the major cruise categories. Looking ahead to 2023, we have three new builds, one for each brand entering the fleet with over 5,000 additional berths. These new ships are expected to attract new-to-brand guests, create excitement for our loyal past guests and contribute significantly to top and bottom line financial results. With the relatively small size of our current 29 ship fleet, we are confident that we can absorb this capacity growth. Not only do we have many unserved and underserved markets around the world, but we also continue to believe that the cruise industry at large is vastly underpenetrated, especially when measured against other land-based vacation alternatives. To put this point into perspective, as you can see on Slide 9, which we provided at our investor event last month, the total number of staterooms aboard our 29 ships across our three brands is less than one-fourth the total number of hotel rooms in Orlando, Florida alone, just one city and one single country. And even if you look at the entire cruise industry, there are fewer staterooms in the global cruise fleet of over 250 ships than there are hotel rooms in the top three U.S. cities for hotel capacity, which are Orlando, Las Vegas and Chicago. So the opportunity to grow demand is significant. And when you couple that with the supply side of the equation where we have a high degree of visibility and a limited pipeline of new ships due to shipyard constraints, the industry and Norwegian Cruise Line Holdings in particular, have a strong foundation for continued growth.

Shifting our discussions now to our bookings, demand and pricing trends. As you can see on Slide 10, in the third quarter, our load factor was approximately 82%, in line with our guidance and demonstrating continued and substantial improvement over the prior quarter of 65%. We expect load factors to continue improving sequentially to the mid- to high 80% range in the fourth quarter, despite the fourth quarter historically being a seasonally lower occupancy quarter than the third quarter. And looking at our quarterly load factor in terms of the gap with 2019, third quarter occupancy was approximately 30% below the comparable 2019 period, and we expect continued sequential improvement in closing this gap to about 20% during the fourth quarter. The steady occupancy ramp-up is expected to continue until we reach historical 100% plus levels beginning in the second quarter of 2023. In terms of pricing, as you can see on Slide 11, our net per diem price growth in the third quarter when compared to the third quarter of 2019 was up approximately 5%. This is particularly impressive when considering the hit pricing took with the absence of premium-priced Baltic itineraries in the quarter due to the Russia-Ukraine conflict. These strong results demonstrate the effectiveness of our strategy of holding firm on our core go-to-market strategy of market-to-fill versus discount-to-fill and maintaining price integrity by emphasizing high-value over low price, which you can see on Slide 12. I've said this before, and I will reiterate again today, given its high importance that we strongly believe that this strategy is the optimal path to continually deliver high-quality and sustainable profitability once we return to a fully normalized post-pandemic environment, which again, we expect will be in the early second quarter of 2023.

Turning to Slide 13. As expected, our fourth quarter 2022 booked position remains below that of 2019. That said, pricing continues to be significantly higher when compared to 2019 even when taking into consideration the dilutive effect of future cruise credit. Dilution from future cruise credits will not carry forward into 2023, as the bonus or value-add portion of certificates issued during the pandemic will expire at year-end. Focusing in on 2023, our full year book position is equal to 2019's record performance, and our ongoing net booking pace is at the level needed to sail full beginning in the second quarter of 2023. We believe our cumulative book position is at the optimal level when balancing our desire to encourage guests to book early in order to be approximately 65% booked by year-end for the following year, while also maximizing our industry-leading pricing so as not to leave yield on the table. This volume versus price dynamic is a delicate balance that we have fine-tuned over the years using historical itinerary-specific data and our sophisticated revenue management system and is key to our success. Pricing is also significantly higher for 2023 versus the comparable 2019 period with strength seen across all three brands. As we have said previously, pricing naturally will level off as we fill out our book for 2023, but we continue to expect to achieve record pricing for full year 2023. As we look to the future, our entire team is mobilized, energized and ready to flawlessly execute, our eyes are wide open, and we are preparing for multiple scenarios given the current heightened uncertainty in the macroeconomic environment, and we are ready to adapt and pivot if needed. Our company and our industry has demonstrated its resilience time and again in the past. And I'm confident that if necessary, we will do so again. We are also encouraged by the relaxation of protocols in the regulatory and public health environment, which paved the way for us to return to normal operations, and we are excited to welcome the eight additional ships to our fleet we have on order through 2027. We will continue to be disciplined and strategic as we work to set our company up for long-term success and to maximize value for all stakeholders. I'll be back with closing comments a little later, but for now, I'll turn the call over to Mark for his commentary on our financial position.

Thank you, Frank, and good morning, everyone. My commentary today will focus on our third quarter financial results and outlook and the progress we continue to make on our path to full recovery. Slide 14 outlines key metrics highlighting our third quarter results, all of which were at or above our previous guidance. During the quarter, our load factor improved 17 points over the prior quarter to 82%, in line with the guidance previously provided. This is consistent with our phased and methodical approach to ramping up occupancies while maintaining pricing discipline as we remain on track to reach historical load factor levels for the second quarter of 2023. Fourth quarter load factor is expected to be in the mid- to high 80% range, which, while on the surface, appears only modestly higher than third quarter represents continued significant improvement when taking into account the seasonality of our operations. Strong ticket pricing and onboard revenue generation drove total revenue per passenger cruise day in the quarter, up approximately 14% versus 2019, better than our expectation for a high single-digit increase. This is particularly impressive given the impact in 2022 of the Russia-Ukraine conflict on premium-priced Baltic itineraries, which are heavily weighted to this quarter. In addition, crew-related capacity constraints on the high-yielding Pride of America were another headwind during the quarter. As we look to the fourth quarter, we expect this metric to increase by approximately 20% compared to 2019 levels.

Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which Slide 23 outlines key accomplishments and milestones. Since we last spoke, we continue to advance our commitment to pursue net zero greenhouse gas emissions. We successfully completed the testing of a biodiesel fuel blend on Regent's Seven Seas Splendor launched in October, and we announced the signing of a Memorandum of Understanding with MAN Energy Solutions to conduct a feasibility study and retrofitting an existing engine to operate with dual fuels, diesel and methanol. We will continue to evaluate a variety of alternative fuels and share learnings with other companies as we collectively try to find a viable long-term solution. In September, after Hurricane Ian had a devastating impact on our neighbors in Southwest Florida, we responded as quickly and as generously as we could and donated $100,000 to the American Red Cross to assist in emergency relief efforts. We also committed to matching donations from team members, business partners, travel agents and concerned guests and others in our network up to an additional $100,000. And before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 24. First, we believe we are very well positioned in the current economic environment given NCLH's unique drivers, which have allowed us to excel financially in the past and will continue to do so in the future. Second, we are hitting our targets and reaching key milestones in our path back to normalcy. We are focused on laying the foundation for long-term sustainable profitability for 2023 and beyond. Third, our target upmarket consumer continues to hold strong, which is reflected in our excellent book position and significantly higher pricing for '23 as well as our impressive onboard revenue performance. And lastly, our cash generation engine has ramped up, which, along with our new build pipeline provides a clear path for return to meaningful profitability and a deleveraging of our balance sheet in the coming years. We've covered a lot today, so I'll conclude right now with our commentary and open the call for your questions.

Our business remains robust, as indicated by our strong book position and much higher pricing for 2023, alongside our impressive onboard revenue performance. Additionally, our cash generation has increased, and combined with our new building plans, we have a clear path to achieve significant profitability and reduce our debt in the next few years. We have discussed a lot today, so I will now wrap up my remarks and invite your questions.

Before we get to the questions on the line, we first want to address a top question from our new online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions for management. Several of the top questions we received this quarter were centered around the same key theme, which was our comfort around our current financial position and liquidity, particularly if we face an economic slowdown or recession. Mark, do you want to answer that one?

Sure. Thanks, Jessica. And it's very exciting to have this new engagement platform being utilized by our broad shareholder base. So nice step forward. Look, we feel good about our liquidity position today, which is north of $2.2 billion. And as I said, that consisted of cash of $1.2 billion and the $1 billion undrawn commitment. As I said in my prepared remarks, based on our current projections and trajectory, we do believe we will be able to meet our liquidity needs organically. So far, despite the heightened concerns around the economy, we have not seen any signs of a pullback from our target consumer. We continue to believe that we are relatively better positioned in the event of an economic downturn given our brands skewed to the higher end of their respective market categories. And that results in a more upmarket consumer, which typically has been very resilient to weaker economic environments. So we'll continue to monitor the evolving landscape, and we're preparing for multiple scenarios. But overall, we feel confident that if faced with challenges, we will demonstrate our resilience as we have done so many times in the past.

I have a couple of questions about commissions. There has been a lot of news regarding your recent changes, and I’d like to know why now is the right time for those adjustments. Additionally, it seems like this is something your competitors could implement as well, which might lead to a situation where the effect is neutral if everyone does it. What competitive advantage do you believe you have by making these changes at this time? I have one more follow-up question after that.

It's Frank. There are a couple of reasons for this. Firstly, the travel agency community hasn’t fully returned to pre-pandemic levels, particularly in the cruise sector. While we were away for nearly 500 days, travel agents needed to continue making a living, and they shifted their focus toward selling more land resorts and vacations than ever before, and they are still doing so. We need to find a way to attract them back to the cruise industry, as competing against land vacations is our biggest challenge, rather than other cruise brands. We believe we can achieve this. Over the summer, we conducted an experiment with a significant sample and discovered that travel agents who were paid commissions on these non-commissionable fares significantly increased their business with us. This was substantial enough that the revenue generated over time outweighed the increased commission costs. Therefore, we see this as a move focused on return on investment. Ideally, our competitors will adopt this strategy, as it would benefit the entire travel agency community, which is crucial for us. Ultimately, it's less about saving on commissions and more about generating additional revenue and filling the vessels that are entering service for us and the industry. Companies make their impact through revenue growth, not just cutting costs, which is the intention behind this move. What’s your second question, Patrick?

Patrick, this is Mark. I touched on that last quarter. So if you recall, as part of our overall Free at Sea and part of our broader bundling package we introduced a significantly new air program. So we started to see some of the cost of that flowing through in the second quarter. And then, of course, if you look at the third quarter, that's where most of our ships are on often the more premium and exotic itinerary. So you do see a higher cost of air component within that. That said, on a net-net basis, it does drive better overall net revenue per diems, and that's certainly evidenced by our performance in the last 2 to 3 quarters.

Great. I wonder if you could sort of put a range for us around when you talk about price being up significantly for 2023 to get a sense of what range that may be? I know you had given a range with Q2 results and indicated that that would come down as load moved up. But wondering if you'd sort of give a similar ballpark.

Robin, it's Mark. I'm going to hold Frank back on that one because we mentioned last quarter that it would be a one-time data point. So I have to be the bad guy here. Our pricing, as we indicated 30 days ago, is significantly up, and we reiterated that in our release today. I can't provide a specific range. We shared the one-time data point and noted that we expect it to level off, but it is up significantly. This is all part of our phased ramp-up strategy. We're protecting price, and we want the consumer to pay more. Yes, we are sacrificing a small amount of load factor in the very short term, but that is part of our strategy. We anticipate returning to normalized load factors in the second quarter of next year. We are right on path and track with our intentional actions. All I can say is that pricing is up, and that continues to be reflected in our actual results.

So Mark, I just wanted to follow up in terms of the spend cadence. I know you mentioned down mid-single digits versus that second half run rate for net cruise costs in 2022. But as we think about for 2023 and I guess the cadence over the course of the year, it sounds like it's going to be certainly front-end weighted. Is that mostly the elevated marketing cost? And then as you kind of exit 2023, how should we think about the net cruise costs?

No, I believe it will be an exceptional wave season. It has already begun; 10 days is not enough to indicate a trend. However, during the past 10 days, the Norwegian brand experienced its best 10-day period ever. I expect this momentum to continue through the fourth quarter and into the wave season. Wave season is a significant consumer event, and travel agents are enthusiastic about it. They have not participated in a wave season for three years, and their excitement is palpable. When I see that excitement among travel agents, I feel inspired to share in it. Therefore, I genuinely believe the next four to five months leading up to the end of March, which usually marks the close of the wave season, will see exceptionally strong booking periods.

Congratulations on another great quarter and the ongoing progress.

We're seeing it in experiences. So our casino is doing really, really well. We're going to give Vegas a run for their money. People are enjoying the destinations. We have industry-leading itinerary. So shore excursion business is up. Our cuisine is second to none, and people are enjoying cuisines. But even our spa, our spa is doing very, very well. And so I'm happy for the folks over at One World Spa.

Yes, Ivan. We continue to observe that certain categories are declining and are beginning to reach their historical averages. We are certainly not where we would prefer to be or where we need to be, but there is ongoing momentum in that area. I do wish progress was faster, but we are affected by global conditions. Nonetheless, we are seeing positive momentum in that regard.

Thank you, operator, and thank you, everyone, for joining us this morning. We ran a little bit over time, but those were all great questions, and we were happy to have the opportunity to answer them. As always, our team will be standing by to answer any of your questions. Have a great day, everyone.

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