Good morning, and welcome to the Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is John, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the session will follow at that time. And 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 of Investor Relations, ESG and Corporate Communications. Thank you, Ms. John. Please proceed.

Thank you, John, and good morning, everyone. Thank you for joining us for our fourth quarter and full year 2022 earnings and business update call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; Mark Kempa, Executive Vice President and Chief Financial Officer; and Harry Sommer, President and Chief Executive Officer of Norwegian Cruise Line. 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. We will also make reference to a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release with fourth quarter and full year 2022 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, Jessica, and good morning, everyone, and thank you for joining us today. 2022 was a year like no other in our company's 56-year history. As we successfully concluded our great cruise comeback, with the last vessel in our fleet reentering service midway through the year. Our team continually pushed forward in this challenging transition year, achieving several significant milestones on our road to recovery and preparing for the next chapter of our storied brands. With our full fleet back to the high seas, we significantly ramped up occupancy levels, carrying nearly 1.7 million guests, welcomed our newest ship, Norwegian Prima, to our world-class fleet, reached several critical financial inflection points, maintained our industry-leading pricing, and perhaps more telling, ended the year in a record booked position for 2023 and at record prices. These accomplishments are even more impressive when considering they were achieved against the backdrop of lingering COVID-19 impacts as well as ongoing macroeconomic and geopolitical uncertainty. I want to take the opportunity to once again thank our entire team, both shore-side and shipboard, for their hard work, dedication, and tenacity, which have propelled us forward as we strive to be the vacation of choice for everyone around the world. I'm incredibly proud, honored, and inspired to work alongside each and every one of you. And I also want to express our sincere thanks to our loyal guests, valued travel partners, lenders, shipyards, investors, and all of our stakeholders for their continued support and partnership. Shifting our attention to what is certainly a bright future for our company, let's turn to slide six, which outlines our current positioning and the key catalysts we have on the horizon. First, we are encouraged to see that our target consumer, which tends to skew more upscale in the broader cruise industry, continues to be financially healthy and resilient and is prioritizing consumption of experiences over the purchase of physical goods. We've talked previously about the two high-level indicators we carefully monitor to evaluate the willingness of consumers to spend on cruise travel. The first is the length of the booking curve, which is a forward-looking indicator, and the second one is onboard revenue, a real-time indicator of a consumer's actual spending, both of which continue to hold strong with no signs of fading. In fact, the booking window in the fourth quarter was well elongated compared to the same quarter in 2019. Onboard revenue also continues to be a bright spot, with gross onboard revenue per passenger cruise day in the quarter approximately 25% higher than the comparable 2019 period. The bottom line is our target consumer continues to be willing to spend on travel and experiences now and in the future. This gives us confidence that not only is the incredible value proposition for cruising resonating with consumers, but the unique and compelling offerings of our three brands are also appealing to their respective markets. Second, we are taking actions across our business to align with our strategic priorities and strengthen the foundation for sustained profitable growth. This includes a broad and ongoing initiative we began in the fourth quarter to improve operating efficiencies and to right-size our cost base so that we can rebuild and enhance our margins. You may ask why start this initiative now? While the past few years have been unlike anything we could have imagined. First, we were focused on taking the necessary measures to withstand a prolonged and unprecedented period of disruption by minimizing cash burn, raising capital, enhancing our health and safety programs to adapt to a rapidly evolving public health environment, and advocating for the industry to restart cruise operations. We then shifted our focus to relaunching our operations while providing our discerning guests with the same unparalleled vacation experience they expect from our leading brands. We also took this unique opportunity to raise the bar on pricing for the long-term. Now that our phased occupancy ramp is nearly complete, and our loyal guests know that cruising in our brands is back and even better than before, we are squarely focused on how to maximize profitability as we embark on a period of transformational growth. Every aspect of our business is being evaluated through the lens of how we can realize our full value potential for all stakeholders. We are exploring further opportunities, first and foremost, to reduce our cost profile and maximize revenue generation. You've likely seen some of the actions we've already taken to improve our cost structure, including normalization of marketing spend, corporate overhead reductions, itinerary optimization, supply chain initiatives, and thoughtful rationalization of product delivery. We will continue to leave no stone unturned as we identify and evaluate incremental opportunities. And, of course, we will not lose sight of our guests, the very heart of our business, and we will continue to prioritize delivering an exceptional guest experience and superior service levels. The last catalyst I want to touch on is our industry-leading newbuild pipeline. This year, for the first time in our history, we are gearing up to deliver one newbuild for each of our brands, as shown on slide seven, adding over 5,000 additional berths to our fleet, including an over 20% increase in our upscale berths. On a capacity day basis, this will result in approximately 19% growth in 2023 compared to 2019. As you can see on slide eight, we have made some modifications to our newbuild pipeline, primarily related to the last two shifts in the Prima Class. These ships have been lengthened in part to accommodate the future use of alternative fuels. We now expect gross tonnage for the third and fourth Prima Class to be approximately 10% larger and the fifth and sixth Prima Class ships to be approximately 20% larger than Norwegian Prima and Viva. As a result, delivery days have shifted a bit, and we now expect one larger Prima Class ship to be delivered each year from 2025 to 2028. We remain confident in our ability to profitably absorb this capacity with continued consumer demand for travel, our expansion into the many unserved and underserved markets around the world that our brands have not yet tapped into, and on the broader industry's vast under-penetration, particularly when compared to land-based vacation alternatives. Shifting our discussion now to our booking, demand, and pricing trends. As you can see on slide nine, in the fourth quarter, our load factor reached 87%, in line with guidance. This is approximately 20% below the comparable 2019 quarter, yet demonstrates another sequential improvement in closing the occupancy gap versus 2019. This ramp is continuing through the first quarter of 2023 as we have already achieved 100% occupancy in the quarter, leading to a return to historical levels beginning in the second quarter of 2023 and beyond. In terms of pricing, slide 10 illustrates another strong result in the pricing front with our net per DM growth in the fourth quarter of 2022, up approximately 14% on an as-reported basis and up 15% in constant currency over 2019. Turning to slide 11, at year-end, our cumulative book position for 2023 was within our optimal range of approximately 60% to 65%. We continue to believe this is our sweet spot as it strikes the delicate balance of encouraging guests to book early while also optimizing pricing. Full year 2023 book position is now ahead of 2019's record performance and at higher prices. Since we last spoke in November, we have been pleased to see positive booking momentum continue, including a very strong wave season that likely started two months earlier than usual. In fact, November was a record-breaking month for Norwegian Cruise Line as they celebrated a record day, record week, and record month of sales boosted by Black Friday and Cyber Monday holiday push. Subsequently, in January, a strong start to the traditional wave led the line to set another record booking month. Our Regent brand also experienced a similar positive reception to its 2023 wave offer launch, which resulted in a record launch day with net booking volume nearly four times last year's wave launch and 2019 pre-pandemic levels. Our current cumulative book position and the strong demand dynamics that we continue to experience across our brands give us further confidence that we can achieve our 2023 guidance, which Mark will discuss shortly in more detail. 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 and outlook. Mark?

Thank you, Frank, and good morning, everyone. My commentary today will focus on our fourth quarter 2022 financial results, 2023 guidance, and the progress on our financial recovery. Unless otherwise noted, my commentary on net per diem, net yield, and adjusted net cruise cost, excluding fuel per capacity day metrics, is on a constant currency basis. Slide 12 outlines key metrics highlighting our fourth quarter results, nearly all of which met or exceeded guidance. Focusing on the top line, strong ticket pricing and onboard revenue generation drove total revenue per passenger cruise in the quarter up approximately 24% versus 2019, with net per diems increasing approximately 15%, continuing the strong pricing performance we have achieved since our re-launch. Turning to costs, adjusted net cruise costs, excluding fuel per capacity day, were in line with expectations, with the second half of 2022 decreasing approximately 10% versus the first half as our operations continue to ramp up. As our 2023 guidance indicates, the second half of 2022 is not representative of a go-forward run rate. For the second half of 2022, adjusted EBITDA was nearly breakeven. We did, however, achieve another significant milestone in the fourth quarter, generating positive adjusted free cash flow for the first time in three years. This represents another stepping stone as we return to a normalized operating environment. Looking at expectations for the full year 2023 on slide 14, we are pleased to return to our normal cadence of providing annual and quarterly guidance. Adjusted EBITDA is expected to be in the range of $1.8 billion to $1.95 billion, with the high end of our targeted range representing record adjusted EBITDA for the company. This is expected to translate to adjusted EPS of approximately $0.70 at the midpoint of our guidance. Taking a closer look at the components of this outlook, net per diem growth is expected in the range of approximately 9% to 10.5% as compared to 2019. This translates to net yield for the year expected to increase in the range of 5% to 6.5%. This stellar top-line performance is reflective of our go-to-market strategy and emphasis on price discipline. Moving to costs, adjusted net cruise cost ex fuel per capacity day is expected to average approximately $160 for the full year. This represents a nearly 15% decrease as compared to the average of $187 in the second half of 2022. The key drivers of this expected decrease include the scaling back and normalization of marketing investments, which were elevated in the second half of 2022 as we focused on resetting expectations and raising the bar on pricing during our re-launch; moderation in hyperinflationary pressures in certain areas, including food and logistics; normalization of capacity days as a result of the elimination of previously acquired protocols; timing and optimization of scheduled drydocks; and finally, the results of our operating efficiency and cost minimization efforts as part of our broad and ongoing margin enhancement initiative that Frank touched on. Keep in mind that costs are expected to sequentially trend lower over the course of the year as occupancy increases and reduction initiatives are realized, which is expected to lead to a lower cost run rate as we exit 2023 compared to our full-year guidance. As we have consistently communicated, our costs will be elevated when compared to 2019 baseline, both due to normal and hyperinflation over the past three to four years as well as a mixed headwind as we add higher operating cost capacity, which we do expect will gain a premium on the top-line. I want to reiterate that we are committed to right-sizing our cost base and are taking deliberate actions across our business to best position us for the future as a stronger and leaner organization. There is no silver bullet, but we will continue to evaluate all opportunities to accelerate revenue and improve operating efficiencies while continuing to deliver an exceptional guest experience. Our goal is not only to rebuild our margins but over time, continue to enhance them, and we look forward to demonstrating this improvement over the coming quarters. Now, let's take a look at our expectations for the first quarter. Compared to 2019 levels, net per diem is expected to increase approximately 6.75% to 7.75%, while net yield is expected to increase approximately 1.25% to 2.25%, primarily as a result of our continued occupancy ramp, with pricing expected to be higher for the remaining quarters of 2023. Adjusted net cruise costs excluding fuel per capacity day is expected to be approximately $165 or approximately 12% below the second half of 2022. The first quarter is expected to be the highest cost quarter due to lower occupancy and as actions taken in recent months to reduce costs will not yet be fully realized. When looking at our implied guidance for the remaining quarters of 2023, the expected decrease in cost is approximately 16% compared to the same period in 2022. Taking all of this into account, adjusted EBITDA for the first quarter is expected to be approximately $195 million, and adjusted EPS is expected to be a loss of approximately $0.45. Moving to our balance sheet, slide 15 demonstrates the results of our deliberate and opportunistic measures to optimize our debt maturity profile. In 2023, we have approximately $1 billion of scheduled debt service, the vast majority of which are related to our export credit agency-backed ship financing. In recent months, we also addressed a large portion of our 2024 maturities. First, we completed an amendment of our operating credit facility and extended approximately $1.4 billion of this facility by one year to January 2025. Earlier this month, we took advantage of significant improvements in the bond markets to complete a refinancing transaction of the remaining non-extended term loans under the operating credit facility. We issued $600 million of new senior secured notes due 2028 and used the proceeds to repay these term loans, allowing us to de-risk and replace near-term debt maturities with longer-dated debt at only a marginally higher cost. As you can see, with these actions, we have a manageable maturity profile over the course of the next few years. When you look at the totality of our debt, approximately 40% is ECA-backed debt. This is a unique differentiator of the cruise industry, which is part of a broader connected ecosystem, which includes, among others, the operators, the shipyards, and the governments and export credit agencies, all of which rely on shipyards and suppliers for significant economic and employment-related benefits. As all of our interests closely align, these partners are incredibly supportive, as demonstrated by the very efficient financing we are able to secure for our new-builds as well as the support they provided during the pandemic. For additional detail on the breakdown of upcoming debt payments, we also provide a detailed schedule on our Investor Relations website. Turning to liquidity, our overall liquidity position remains strong. And just last night, we announced two transactions, which further enhance our liquidity and outlined on slide 16. First, we revised and extended our existing $1 billion undrawn backstop commitment as part of the agreement to secure a second year extension option on the commitment; the company issued $250 million of notes due 2028. At the same time, we revised the undrawn commitment to reduce the amount to $650 million, with the agreement now extending through February 2024, with the option at our sole election to extend through 2025. We do not currently intend to draw on this commitment. And in total, the combination of these two actions provides the company approximately $900 million of liquidity to the bottom line. Second, we also entered into a new $300 million unsecured and undrawn backstop commitment. This facility will be available to draw beginning in the fourth quarter of 2023. Securing this facility provides a backstop for the remaining portion of the non-extending operating credit facility, which matures in January 2024. Pro forma for these recent transactions, our liquidity position at year-end is approximately $1.8 billion, which includes approximately $650 million under the available commitment. For housekeeping, this does not include the enhancement to future liquidity we obtained with the $300 million undrawn commitment as it is currently not available to draw. Before handing the call back to Frank, I want to reiterate our relentless focus on executing on our medium- and long-term financial strategy. We will continue to be opportunistic and are committed to delivering value for all stakeholders. But most of all, we are excited to be back in full operation and once again delivering incredible vacation experiences on our three brands to all corners of the globe. With that, I'll turn it back to Frank for closing comments.

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, which slide 19 outlines a few key highlights. Since we last spoke, we have made meaningful progress to advance our commitment to pursue net zero greenhouse gas emissions. We successfully completed the testing of biodiesel fuel blends on three additional ships in our fleet, a promising potential lever to help reduce emissions on our existing fleet. In addition, we recently modified our contracts to the final two Prima Class Ships for Norwegian Cruise Line scheduled for delivery in 2027 and 2028 to reconfigure these ships to accommodate green methanol as an alternative fuel source in the future. While additional modifications will be needed in the future to fully enable the use of dual fuel, both methanol and diesel, this action reinforces our commitment to decarbonization and represents an important and exciting step forward in our pursuit of net zero. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on slide 20. First, we believe we are well positioned in the current economic environment, and our target upscale consumer remains resilient. This is especially true for the all-important North American consumer from whom we enjoy an outsized benefit, given our strategic sourcing mix and focus on global versus national brands. Second, booking momentum is positive, buoyed by a strong start to the year with wave season, and we are pleased with our book position and pricing for 2023. Third, we are focused on strengthening the foundation for sustained profitable growth, and we will continue to take strategic measures to best position the company for its next era. And lastly, our cash generation engine continues to rev up, which, along with our transformational new build pipeline, provides a path to meet our liquidity needs and restore our balance sheet in the coming years. We've covered quite a bit today, so I'll conclude our commentary here and open up the call for your questions.

Thank you, Frank.

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upvote questions for management. The top question this quarter was regarding our plans to bring in new customers and also reward brand loyalists to entice them to cruise. Frank, do you want to take that one?

Sure. I think both past guests and new guests are absolutely critical for our continued growth. We have a great base of loyal guests who love our product because each of our brands has incredibly high repeat rates running anywhere from 45% for the Norwegian brand to as high as 55% for Regent. And we're always looking for new ways to engage with them, including through our popular loyalty programs that each brand operates. We also have a robust new build pipeline as we just finished discussing. One new build being introduced for each brand this year alone, and we all know new ships and the buzz surrounding new ships have historically brought outsized attention to the brand. Just consider the buzz when Katy Perry performed as godmother of Norwegian Prima this past summer. And just recently, Giada De Laurentiis was named godmother of Oceania's upcoming Vista, which highlights the brand's focus on having the fun of choosing it to see. These announcements create excitement, not just among loyal guests, but also to new brand and even new to cruise guests. You've heard us say many times that the cruise industry as a whole is vastly under-penetrated, and we have a significant runway ahead to attract new-to-cruise guests. Creating awareness, drawing buzz, partnering with a traveling community, and even having investors such as yourselves deliver the message of the value and unique experiences that cruises offer is a large part of what we do every single day, and we'll continue to do so to drive that message to as many possible guests as we can.

Thank you, Frank. Our first question comes from the line of Dan Politzer with Wells Fargo. Please proceed with your question.

Hi, good morning. Frank. Good morning, Mark. Thanks for taking my questions. I wanted to touch first on the balance sheet. Obviously, there's a lot of work that you guys have been doing there. How do you think about leverage this year, next year? And to what extent is your appetite to issue equity relative to debt? Thanks.

Hi, good morning, Dan. Well, first and foremost, the discussion of issuing equity is a Board decision. So, I will leave it there. But what I can tell you is that that has not been in discussion in any of our Board meetings. We've said time and time again, we do not believe that it is prudent to issue more equity to de-lever the company. As we look forward and we assess our balance sheet, we have said that our internal goal here is to turn the year with a leverage ratio around 5x. For clarification, that does include an adjustment for the new builds that we take delivery of this year since we do not have the full earnings potential. But that's what the company has rallied around, and that's what we're focused on. We've said before, it's not an easy task, but we're rallying against that; and that's what we're using as our stake in the sand. So, there's a lot of opportunity ahead in the industry, especially for our company this year. We are in a dynamic environment; all signs we see are looking good, as evidenced by our pricing power and our Q4 results as well as our guidance for the year. But nevertheless, there are some unknowns out there. So, we're feeling pretty good right now. We continue on our path of hitting our guidance that we've just issued and feel good about our overall liquidity and balance sheet position where it stands today, but there's a lot of work to do.

Understood. And then just for a follow-up, bookings are obviously positive. You're putting through all these cost efficiencies. Do you have any expectation as bookings progress and you continue to recover when you can get back to that $100 EBITDA per APCD level? And also, along with that, if you could just give a little bit more color on the cost efficiencies, total amount, the time that they're going to be achieved? And to what extent there could be further room in coming years? Thanks.

Great, that's a lot to unpack there. So, let me start with the EBITDA per capacity day. Look, this is going to take time, right? If we look at where this industry was not so long ago, it was only last May of 2022 where we started operating all of our vessels. So, we are progressing. We are hitting our milestones that we've laid out for several quarters now. It is a progression. Bookings are doing well. Onboard revenue spend is trending well, but it will take time. It's not an overnight process. And so, as we think about that, part of that is enhancing our revenue, enhancing margins, obviously, and right-sizing our cost base. We've said that our strategy coming out of the pandemic was we wanted to reset the bar on pricing, and we believe we've done that; which we believe will be a longer-term benefit for all our constituents. Now we are squarely focused on right-sizing our cost base. As we look to the future, we're in a period of transformational growth. We have almost 50% growth between now and 2028, with our scheduled pipeline of deliveries. So, we have to do better, and we are going to do better at leveraging our scale, and that's what we're focused on. So, it's going to come from a lot of different places. But we focused on the top line; now we're squarely focused on the cost, and that's going to translate into improved margins, which again will then translate ultimately into achieving that pre-pandemic EBITDA per capacity day.

Understood. Thanks so much for all the color.

And the next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Yes. Hey guys. Good morning. I want to ask, Frank, this is probably for you. I want to ask about how you guys think about cutting costs versus balancing the customer experience? And I guess, what I'm getting at is, we've read out there that you guys have taken some action on board, whether that's cutting things like entertainment or servicing cabins, which I assume is being done to reduce costs. But do you worry about the customer experience that starts to be impacted and you eventually start to hurt the long-term perception of your product? Just trying to figure out how you balance those two things.

Good morning, Steve. It is a balance. Obviously, you don't want to kill the goose that lays the golden egg, which is the customer. We believe that we're trying to balance what customers pay, what they actually pay for, and what they receive. So, for example, we did not cut the turndown service that you mentioned across all brands or across all cabin categories. It's only in the lower cabin categories that equate to a lower per diem. So, look, it's management's responsibility to optimize revenue and minimize costs. That's economics 101, and that's what we're doing.

Steve, I think the other way to think about it is we're simply aligning ourselves to what others in the hospitality sector have done as well. So, this is nothing new. I think customers in today's society are used to getting a different level of service. We're not degrading the product. We're squarely focused on making sure that the guest experience is wholly intact, but we're going to align ourselves to what is the new normal for the hospitality sector. I think it's the right thing to do.

Okay, that makes sense. Mark, I have a question that is somewhat related to accounting, an area I'm not an expert in. I've noticed that you've increased your service fees or acuities quite a bit. I'm assuming that part of that affects your yields while the other part impacts costs. Could you clarify the impact on the yield side? I'm trying to ensure that expectations for yields remain grounded and don't get too ambitious.

Well, Steve, you're taking a big chance asking me an accounting question, but I think I'm going to go for it. Look, absolutely, when we increase the service fees, it does get rolled up as part of our gross revenue, but there's also a cost to that. And there's obviously some direct cost to that, but there are also employment costs that go against that, which hit in our net cruise cost. So, service fees, again, for the vast majority of that, all goes to our dedicated crew and employees who are working on the ship, but there is a revenue component to it, and there is a cost component to it. But, again, that's something that's been consistent for us over the years. No change in the accounting or no change in the comparability.

Okay. Got you. Thanks, guys. Appreciate it.

And the next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.

Hi, everyone. Thank you for the time. Just in terms of the cost initiatives that you're talking about, can you just frame up the buckets and where you're expecting the biggest improvement and maybe like a potential upside there? And then, maybe just unpack a little bit about when it's going to hit. I would assume that a lot of it is second half weighted, but if you could just give a little bit more detail, that would be helpful. Thank you.

Yes, certainly. On costs, as I mentioned earlier, the first quarter will be our highest cost quarter. Looking ahead, we anticipate those costs will decrease each quarter as our initiatives take effect. As we approach the second half of 2023, that period will likely be more representative of our future exit rate. I also want to note that we have a more noticeable mix effect due to the operating capacity we're adding. This year, we are introducing an Oceania class vessel in May and a Regent vessel at the end of the year, both of which have significantly higher operating costs compared to our average. This will influence our overall cost guidance. Additionally, our cost categories cover everything you can imagine. We previously invested heavily in marketing during 2022 to attract customers and boost demand while increasing pricing, which we believe has been effective, so we plan to scale that back. However, costs also comprise everyday operations, both on our corporate side and on our ships, such as optimizing our supply chain and itineraries to improve fuel efficiency. There isn't a single solution in this industry, but it's a combination of small improvements that we are focused on moving forward.

Okay. To follow up on pricing, you seem confident, but there are concerns about a weakening consumer overall. Could you elaborate on your current bookings? I'm asking because deployments have shifted slightly, and I'm unsure if there's any indication of weakness somewhere. Any insights would be appreciated. Thank you.

Yes, this is Frank. We simply don't see any weakness. As I mentioned in my prepared remarks, we've seen very, very strong record new booking levels dating back to November. And it's our view that as long as consumers have a job and the labor markets remain strong, that they'll continue spending on the things they normally spend their money on, including vacations. So, we simply don't see a weakening consumer. If you look at our forward bookings, each quarter in 2023 is better booked than the comparable quarter in 2019. And even if you start looking into 2024, it's never too early to talk about next year. 2024 bookings are running ahead at higher prices than they were at the same time in 2019. So, we simply haven't seen any indication that the consumer is shying away from taking cruise vacations, at least not with our three brands.

Great. Thank you.

And the next question comes from the line of Patrick Scholes with Truist Securities.

Hi. Good morning, everyone.

Good morning.

Good morning.

Going back to some comments from last summer and last fall, you mentioned expectations or seemed quite confident in achieving record EBITDA for this year. However, when I examine the range, particularly at the midpoint and below, it doesn't suggest a record EBITDA if I'm making a direct comparison. Additionally, it appears that your expectations for bookings have improved since the last earnings call; previously, it seemed to be in line. What has changed in your outlook regarding meeting that record EBITDA target in relation to the guided range? I hope that makes sense.

Yes, we believe we understand. Patrick, there are no changes. Over the last year or two, we've learned as a management team and society that we're in a unique environment. On one side, consumer strength, wage growth, and employment are very strong. On the other side, economists warn of a high chance of recession. It's a difficult situation to navigate. We view this as uncharted territory. However, our approach remains cautious. We aim to set reasonable targets, and nothing should be inferred beyond that. We are confident in our position, but given the current global factors, we feel a range is the most appropriate strategy at this time.

Okay. I just have a couple of, hopefully, quick follow-up questions. Can you just explain again why you dipped into the Apollo financing? It sounded like last summer or last fall, that would not have been the intention at that time, but that's changed. Can you just review with us the rationale there?

Certainly. So first and foremost, it was $250 million, which when you look at our overall debt structure, is really minimal. But the most important reason we did that is we wanted flexibility on the facility. As you recall, we had six-month options, eight-month options, 12-month options. We wanted a two-year option. The price to do that was our counterparty wanted a small draw on the overall facility. So, when you look at the totality of that draw, which is relatively minor in the broader scope of our debt versus having a two-year flexible backstop, we thought that was the prudent course of action to take at a relatively reasonable cost on the overall facility.

Okay. Lastly, this question might help avoid multiple callbacks for Mark, Jessica, and you. I noticed your share count is projected to increase to 460 million for the full year. I assume this is due to the convertible or exchangeable notes converting at some point during the year. Could you confirm which notes this refers to—perhaps the ones maturing in May 2024 and August 2025? How many shares would be added from each of those, assuming that information is accurate, and in which quarter do you anticipate this happening?

Yes, Patrick, I think we'll take some of those details offline on our post-call. But what I can tell you is that we've been telegraphing that we expect our average fully diluted share count to be approximately about $470 million, which I believe we have in our slide deck for a couple of calls now. That assumes that the 2027 convertibles are converted in cash, which we've been saying from the get-go. But it really is just a reflection of where the convertibles, the 2024 and 2025 convertibles, which will be equitized. We do not have a choice there, but that is really just the accounting for it. So, on average, I would use about $460 million for the fully diluted share count for the year.

Thank you. I'll check out the slide deck on that. Thank you.

And the next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.

Hey guys. Thanks for the question. Can you just touch on the plans or changes to the premium class? It sounds like those are going to be a little bit bigger than the first few iterations. I know that you guys were excited about offering a smaller ship size initially when that was introduced. So, what exactly changed? Was it the cost, the guest experience, something else?

Yes. This is Harry Sommer. Listen, we were really excited about the performance of Prima. She's come out of the gate as our best booked ship, with great yields, great onboard revenue, and most importantly, great satisfaction scores. When we looked at the platform now that it's in operation, we think we can take that great guest experience, great financial performance and get slightly better economies of scale by driving the ships a little bit bigger, hence, the slight increase for Prima 3 and 4, which will be delivered in 2025 and 2026. The last two are really a combination, as Mark mentioned in the prepared comments, making them methanol ready, which we think is very important for our decarbonization goals over time. We're very excited about the technology. We work with a lot of different experts in the field to hone in on ethanol being the future for ships built in the later part of the 2020s. In addition to having the ships larger to accommodate methanol tanks, we're able to get more scale on those as well, more passenger counts. So again, the key is to deliver a fantastic guest experience and see what we can do to leverage scale and become more decarbonized along the way.

Makes sense. And then just on the marketing spend that you guys had talked about for a while in the back half of 2022, could you maybe give some qualitative feedback on whether that met your expectations? Did you get the pricing benefit that you had expected? Was the consumer feedback in line with sort of what you were hoping for when you earmarked that spend or not?

Our basic go-to-market philosophy as we market to fill is that we don't discount to fill throughout the pandemic period and come out of that period. Being able to keep our industry-leading net per diems and yields was of utmost importance. We've seen what happened to others when the discounting goes too far; it takes years, if not decades, to climb back up that slippery hill. So, if marketing was the cost of maintaining our industry-leading yields, it was well worth it. We turned the year in our best booked position ever. To be able to say that at the end of 2022, we were better booked than at any time in our history, given what this industry has just gone through where the full fleet was not in operation until mid-year, is an incredible statement to make and at higher prices. So, yes, unquestionably, it was the right strategic decision to make for our company. Now, we believe that we've got momentum back. We had to create momentum. The industry was on its knees. We hadn't operated the full fleet in two years, zero revenue for 500 days. So, we had to stimulate the market. And you can do it one of two ways: you can discount and give away the product, or you can market, and we choose to market. Now that we've done so and regained momentum and bookings continue to be strong, and we're better booked today than we were a year ago over 2019 at the same period, we think we can now start paring back on that marketing spend. At the same time, we're adding three new ships, and those have to be filled. So, on a per capacity day basis, I think marketing costs will come down. On a gross basis, I'm not sure of the exact number, maybe Mark knows that number. But on a per capacity day basis, marketing costs will come down as a result of the dynamics that just laid out.

And this is Harry again. It's not just a theoretical comment. When we look at the metric that Frank described, marketing costs divided by capacity days sold, which I think is the right metric for marketing, we've seen decreases, material decreases in Q4 versus Q3. So, we're already starting to realize that. But as Frank mentioned, we have more capacity days to sell with three new ships coming across the brands this year.

Great. Thank you. And our next question comes from the line of James Hardiman with Citi. Please proceed with your question.

Hey, good morning. Thanks for taking my call. So, I just wanted to make sure I understand sort of the trajectory on per diem. Really strong rebound here in the fourth quarter. I think we went from on a net basis from plus 5% to that 14% to 15% growth range versus 2019. I guess, as I think about the first quarter, it's going to be up 6.5%, and for the year in that 9.5% range. I guess, why the detail? I'm assuming there's some mix involved here, but I know that you're launching an Oceania ship and a Regent ship, which I would think would be accretive to per diem. So maybe just walk us through sort of the undulations of that per diem number?

James, it's Mark. So, look, I wouldn't classify anything as a deceleration. When you look at our yield growth for the full year, you were spot on: 9% to 10.5% is a pretty strong number given the value proposition of where the cruise industry sits compared to the broader vacation market. When you look at Q1, you go from Q4 to Q1, it's really just a mix impact of where our fleet is operating. We have a much higher weighting of exotic itineraries in Q1, which were slightly impacted by the slower restart or the slower opening of the world. Whether it was cruises in Japan or Australia or that area of the world, there were a little more hurdles than we anticipated getting those back to operation, and there was a little more hesitation on the consumer. So Q1 was really just impacted by that. I would characterize it as the last normalization quarter, so to speak. But when you look beyond that and you look at our implied guidance for the remaining three quarters, I think you're seeing very strong growth there of 9% to 10% based on our guidance. So, we're feeling good about where the pricing is today.

Okay. I would like some clarification regarding the fourth quarter. You mentioned that revenues and net cruise costs excluding fuel met your expectations, but EBITDA fell a bit short. What was the issue there? It seems to relate to fuel, but I noticed that spot prices have improved since October. What caused the shortfall in EBITDA?

Yes, it was very slight, James. It was really just truing up some of our year-end accruals and making sure that going into the year we were fully stocked to ensure that we had no lagging issues affecting our 2023 performance. So, nothing material; it was just all items on the margin.

Got it. Thanks, guys.

And our next question comes from the line of Paul Golding with Macquarie. Please proceed with your question.

Thanks so much. My first question is around just a comment. I think Mark, you just made around the exotic destination. So, could you give us any qualitative background on how the destination mix right now compares to last year? Given the geopolitical disruptions last year? In other words, from just a Baltics and Eastern Med disruption last year, how the timing of these more exotic, higher-yielding destinations line up to fill that gap on a year-over-year basis? Thanks.

Sure. Looking at the year overall, we are favoring a more exotic deployment mix, but we are not concerned about this. As we move through Q1 and approach the latter part of Q3 and into Q4, we anticipate an increase in demand for these products. This year, we have increased capacity in Europe, slightly reduced capacity in the Caribbean, and more capacity in Alaska. Overall, we are shifting toward more exotic or longer itineraries, and this is developing positively for us, aside from a one-time anomaly in Q1 related to the overall restart.

Okay. We have time for one more question, operator.

Okay. Thank you. And the final question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thank you. I have two expense questions. One is you talked about how the exit rate by Q4 for expense would look a little bit more normalized. With the full year kind of up 18% and Q1 up 22%, does that imply the exit rate sort of going forward would still be in kind of the low to mid-teens increase versus 2019? Is that kind of what we should think of as sort of a normalized run rate for you? And then my other expense question is on the $1.3 billion in higher newbuild CapEx. And I know you talked about upsizing a number of the Prima ships and adding some alternative fuel to two of them. It seems like maybe there are some other things contributing to that $1.3 billion than just those additional berths and alternative fuel just based on the numbers. Thanks.

Hi Robin, I'll address that. There were two questions in your inquiry. I'll begin with the last one since it's more clear in my memory. Regarding newbuild, we are significantly increasing the size of four vessels by more than 10% on three and four and almost 20% on the others. This involves costs beyond simply adding cabins; we're lengthening and widening the vessels and importantly, making vessels five and six methanol ready. I always mention that going green incurs costs, but we believe this is a worthwhile investment. I would advise caution in viewing the additional berths solely as costing $1.2 billion, as there are many technical factors involved in enlarging the vessels. Your first question was about our cost exit rate. You're thinking about it accurately; we expect it to be in the low teens compared to 2019. However, we are focused on improving our ability to leverage our scale, and as we demonstrate progress quarter after quarter this year, you should see enhancements in that area.

Great. Thanks very much.

As always, thank you, everyone, for your time and support today. We will be available to answer any of your questions throughout the day, and we wish you a good day. Please stay safe. Thank you.

And this concludes today's conference call. You may now disconnect your lines. Thank you, and have a great day.