Good morning, and welcome to the Norwegian Cruise Line Holdings Second Quarter 2025 Earnings Conference Call. My name is Maria, and I will be your operator. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.

Thank you, and good morning, everyone. Thanks for joining us for our second quarter 2025 earnings call. I'm joined today by Harry Sommer, President and CEO of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website. We will also make reference to a slide presentation during the call, which can also be found on our 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 second quarter 2025 results was issued this morning and is available on our Investor Relations website. This call includes forward-looking statements and involves 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. Unless otherwise noted, all references to 2025 net yields and adjusted net cruise costs, excluding fuel per capacity day are on a constant currency basis and comparisons are to the same period in 2024. With that, I'd like to turn the call over to our CEO, Harry Sommer. Harry?

Thank you, Sarah, and good morning, everyone. Welcome to our second quarter 2025 earnings call. I am happy to share that we achieved another record quarter, meeting or exceeding our guidance across all metrics. This allowed us to reaffirm our full year guidance, driven by strong customer demand and record bookings over the past three months. These results underscore the ongoing strength of our brands and our disciplined strategy execution. While we are pleased with our performance in the first half of 2025, we remain focused on delivering long-term value through our charting the course strategy. This strategy prioritizes a balance between return on investment and return on experience, ensuring we provide exceptional vacations while also strengthening our financials. Recently, we have made significant announcements and reached important milestones that will influence our company's future. Highlights include the successful delivery of Oceania Cruises Allura, our eighth vessel, and confirming the order for two additional next-generation Sonata Class Ships for Oceania, bringing the total to four ships in the future order book. We also announced the new Great Tides Waterpark at Great Stirrup Cay, which is an important initiative to maximize the potential of our private island in the Caribbean. I will discuss these highlights in greater detail shortly, and then turn the call over to Mark for insights into our financial performance and outlook. Let’s review our second quarter performance, which shows record results and continued momentum across all metrics. We met or exceeded all guidance provided at the end of April and achieved record Q2 revenue. Notably, net yield exceeded expectations with a growth of 3.1%, driven by strong demand and onboard spending. This, coupled with certain cost timing benefits, pushed adjusted EBITDA to $694 million, which is $24 million above guidance. Consequently, our trailing 12-month margin now stands at 36.3%, reflecting over a 300 basis point year-over-year improvement and moving us closer to our margin target. Adjusted EBITDA for the quarter was $0.51, consistent with guidance, despite a $0.08 impact from foreign exchange rates related to our advanced ticket sales balance. Moving to one of our exciting announcements for Norwegian Cruise Line, we introduced plans for Great Tides, a 6-acre water park set to open in summer 2026. This water park will include a 170-foot tower, 19 water slides, an 800-foot dynamic river, cliff jumps, and a kids' splash zone, redefining the experience on our private island and enhancing its appeal for families and travelers across generations. We are launching a consumer campaign called Escape to the Great Life to build excitement around the Great Tides Waterpark, featuring immersive pop-ups in New York City and Miami. If you're in New York, visit 104 Grand Street for a preview of what’s coming. This campaign coincides with an overall refreshed image for Great Stirrup Cay aligned with the various upgrades planned for the island. By the end of the year, we will have introduced a new pier, a new welcome center, a new expansive pool area, and additional amenities, all aimed at increasing revenue while enhancing guest enjoyment. In 2026, we expect around 1 million guests to visit the island, with projections of 1.2 million guests in 2027 from various home ports across our vessels. Our efforts at Great Stirrup Cay epitomize our strategy to help guests experience more during their vacations. I’m also proud to announce that we recently celebrated the delivery of Oceania Allura in Italy, which is the eighth ship in Oceania's fleet and the second in the Allura class. Built in Genoa, Oceania Allura represents our vision for the future of luxury cruising, combining immersive destinations, refined design, and exceptional service. The ship is not only Oceania's most luxurious, but it also signals our commitment to the luxury sector. Improvements on Allura include replacing solo cabins with higher-yielding Penthouse Suites and Concierge Veranda staterooms. We are also enhancing our dining options, including the return of our popular French restaurant and an expanded menu at Red Ginger. Additionally, we confirmed orders for two more Sonata Class Ships, bringing our total next-generation ships to four, indicating our confidence in the luxury cruising segment. This quarter, we launched sales for Seven Seas Prestige, our ultra-luxury vessel, which achieved a record booking day for a new build. The unique Sky View Region suite sold out for nearly all its first sailing at an impressive nightly rate, showcasing the strength of the luxury market. Our growth strategy remains measured, with 13 ships ordered across our three brands through 2036, closely tied to our strong market positions. Norwegian will receive seven new ships, Oceania will receive four, and Regent will have two. This deliberate approach has historically brought high returns, and we expect this trend to continue. As we move forward, we continue to focus on areas that enhance pricing and net yields. We are closely analyzing our itinerary mixes and optimizing deployments to meet guest demand while improving profitability. We are also upgrading our revenue management systems and aligning marketing efforts with new branding for Oceania Cruises. I am excited to welcome Kiran Smith as our new Chief Marketing Officer, whose experience will elevate our marketing initiatives. Onboard revenue remains important, and we are continually working on improving guest experiences to support this. I am thrilled that Daniel Henry joined us last week as our new Chief Digital and Technology Officer, bringing valuable experience in enhancing guest interactions and driving onboard spending. Looking ahead to 2026, we are on track to achieve our charting the course targets. We expect net yield growth in the low to mid-single-digit range, with the opening of Great Tides Waterpark expected to enhance demand beginning in Q4 2026 and throughout 2027. Additionally, we have made significant strides in managing costs. In 2024, our costs remained flat, and we anticipate the same for 2025. By year-end, we expect to deliver over $200 million in savings, aligning our initiatives with improved guest experiences. For instance, we have been able to invest some of our savings into upgrading our fleet’s culinary offerings. We are committed to maintaining sub-inflationary unit growth in 2026, focusing on record guest satisfaction scores and onboard sales. Our strategies to drive top-line growth while controlling costs support our financial targets for the year. We aim to expand margins significantly by year-end, demonstrating successful execution of our strategy. Before I turn it over to Mark, I want to mention the release of our 2024 Sale and Sustain report, which highlights our progress in various sustainability efforts, including fuel efficiency and our commitment to sustainable operations. We have also been recognized by Forbes as one of America's Best Large Employers for 2025, reflecting the hard work and dedication of our incredible team members. Now, I’d like to hand the call over to Mark for further discussion on our financial performance.

Thank you, Harry, and good morning, everyone. Let me start with our second quarter results on Slide 14. We delivered record results coming in at or ahead of guidance across all metrics. Occupancy was slightly above guidance at 103.9%. Net yields grew 3.1%, 60 basis points better than our guidance on strong pricing growth of 5.1%. The beat on net yield was largely driven by strong close-in bookings and pricing across all deployments as well as strong onboard spend. On the cost side, adjusted net cruise cost ex fuel was flat at $163, coming in better than expected. The beat was primarily due to the timing of certain expenses that are now expected to be incurred later in the year. As a result, adjusted EBITDA for the quarter was $694 million, higher than our guidance of $670 million. Adjusted net income came in at $257 million, net of $37 million of foreign currency losses related to the revaluation of our advanced ticket sales. Adjusted EPS was in line with guidance at $0.51, net of an $0.08 impact from foreign exchange losses. Excluding this, our earnings per share would have been meaningfully higher than guidance this quarter. Moving on to third quarter and full year guidance on Slide 15. We expect occupancy to be approximately 105.5, which is about 2.5 points below the prior year. As we noted last quarter, this is primarily driven by some softness in bookings that we experienced in early April related to our long-haul European sailings. That said, we saw demand improve as the quarter progressed, and our disciplined approach to pricing allowed us to maintain solid pricing growth in the period. As Harry mentioned, we saw record bookings over the past few months, and our ATS balance reached an all-time high of $4 billion. As a result, net yield is expected to grow approximately 1.5% in the quarter, driven by very healthy pricing growth of 4%. Keep in mind, this is coming off prior year net yield growth of 8.7% in the third quarter of 2024. Turning to costs. Adjusted net cruise cost ex fuel is expected to be essentially flat in the quarter. I am extremely proud of our team members across the entire organization who've been the driving force in executing against our cost savings program for over a year now. And it is encouraging and a true testament to our overall execution as we continue to harvest savings and efficiencies and to see those results reflected in our guidance while still delivering an exceptional guest experience. We expect third quarter adjusted EBITDA to be just over $1 billion and adjusted EPS to be $1.14, an approximate 11% increase year-over-year. Moving to our full year outlook. We expect occupancy to average 103.3%, a more than 560 basis point improvement from the end of 2023. This is being driven by a combination of strong top line performance growth and a more efficient and lean cost structure. Looking ahead, we expect our 2025 margin to reach approximately 37%, and I am confident that with continued top line growth and sub-inflationary unit cost growth, we are on track to achieve our 39% margin target by the end of 2026. Turning to Slide 17. I'll walk through our balance sheet and debt maturity profile. At quarter end, we expanded our revolving credit facility by almost 50% from $1.7 billion to nearly $2.5 billion, further strengthening our liquidity profile and enhancing our financial flexibility. This is another testament to the strength and confidence our lenders and stakeholders see not only in our current performance, but more importantly, in our future growth trajectory. Looking ahead to 2026, we have approximately EUR 1 billion in scheduled maturities, reflecting a balanced and manageable maturity profile. On a housekeeping note, one important change in our debt profile that should be noted for your models is that with the delivery of Norwegian Aqua, our total euro-denominated debt on the balance sheet is approximately EUR 1.3 billion. In addition, our euro debt increased in July with the delivery of Oceania Allura by approximately EUR 570 million. As a reminder, our euro debt is subject to mark-to-market remeasurement, which may result in noncash gains or losses below the line due to FX movements. For purposes of adjusted net income and adjusted EPS, we are excluding the impact of this remeasurement. Turning to net leverage on Slide 18. I want to reaffirm that reducing leverage remains our top financial priority. In the second quarter, we reduced net leverage to 5.3x, down from 5.7x in the first quarter. We expect a slight uptick in the third quarter, reflecting the debt associated with the delivery of Oceania Allura in July. At year-end, we expect our net leverage to be approximately 5.2x, which is over 2 turns lower than 2023. This modest revision from our prior guidance is solely due to the fluctuation in our euro debt and does not reflect any change in our underlying fundamentals or earnings expectations. In fact, one important but often overlooked element of our current earnings profile is that when adjusting for the annualization of expected EBITDA contributions from our 2025 newbuild deliveries, year-end net leverage would be at approximately 4.9x. This represents a meaningful step forward as we continue to improve our balance sheet and financial profile. With the solid progress we have made, we remain firmly on track to reach our 2026 goal of net leverage in the mid-4x range. Wrapping up, our strong execution in the first half of the year, combined with the momentum of our cost reduction program has enabled us to make meaningful progress on our top financial priorities, deleveraging the business, expanding our margin profile and the resulting strengthening of our balance sheet. With that, I'll hand the call back over to Harry.

Well, thank you again, Mark. Looking at Slide 19, I want to take a moment to once again highlight the significant progress we're making against our key charting the course financial targets. By year-end 2025, we expect adjusted operational EBITDA margin to expand by more than 600 basis points versus 2023, adjusted EPS to grow approximately 3x, net leverage to decline by 2.1 turns and adjusted ROIC to continue its upward trajectory. While these results and the momentum we're carrying into 2026, we remain firmly on track to achieve our long-term targets. More than ever, I'm confident that our strategy is working and our execution is delivering. There's real excitement across the organization from the new ships that entered service in the first half of the year to the meaningful progress we're making towards creating the greatest private island experience in the Caribbean. I'm looking forward to what the second half of 2025 and the years ahead will bring as we continue charting our course to sustainable long-term value creation. And with that, we will now move to the question-and-answer portion of the call, and I will hand the line back to our operator. Thank you all.

Our first question comes from Steven Wieczynski with Stifel.

So Harry or Mark, first of all, congratulations on the quarter. So I want to understand maybe your comments about the increase in demand over the last couple of months across all 3 brands. You guys obviously had some issues here with your longer European itineraries for this year. So I guess my question is maybe what have you guys done for 2026 in terms of changing the European deployments, whether that's in terms of length or asset classes that are going to be sailing over there? And then look, I fully understand it's still early on, but maybe what has been the response so far to those changes? And then also if you could help us think about maybe what pricing looks like right now for '26 relative to '25?

Steve, I appreciate your kind words. I see several questions in your inquiry, and I'll do my best to address them all. On the technical front, for 2026, we have made some adjustments, particularly with our Norwegian brand and our luxury lines, Oceania and Regent, by shifting to slightly shorter itineraries in Europe. Additionally, we have reduced our fleet deployment in Europe compared to this year. In the second and third quarters of this year, approximately 31% and 44% of our fleet were in Europe, respectively. However, next year, those figures will decrease to 26% and 38%. While it’s not a drastic reduction, it is a modest adjustment, alongside the shorter itineraries, which we believe better aligns with current consumer demand. As for the response to these changes, I want to emphasize what we mentioned in our prepared remarks: we are in an optimal booking position for next year, particularly in Europe, which we find very encouraging. This year, as noted in our previous call, there were some unique issues affecting our European itineraries in the third quarter. Additionally, we faced headwinds due to the decline in consumer confidence in April. However, I'm pleased to report that after a suboptimal start, we experienced a rebound in consumer demand in May, leading to stronger than expected results for the third quarter, even exceeding our implied guidance for that period. While we didn’t specifically provide guidance for the third quarter, our performance surpassed our earlier expectations for the latter half of the year.

And Steve, regarding the changes to the itineraries, it's important to mention that we put our itineraries on sale 2 to 3 years ago. Therefore, the decision to redeploy our vessels in 2026 was made 2 to 3 years ago as part of our overall strategy change, and it was not a reaction to the challenges we experienced this year. I think we’ve received some questions about that, so I wanted to clarify.

Yes, it's an interesting point, not to spend too much time on our very first question, but the summer '26 itineraries launched in summer of '24, just to give you a feel for what our planning cycle was at least at that time.

Sure. Okay. And second question, Mark, this will be much more concise. As we start to think more about 2026, can you help us maybe think about some of the puts and takes for next year, both on the yield and the cost side? Just want to make sure we're thinking about things the right way and aren't missing any of these potential puts and takes as '26 comes a little bit more into focus at this point?

Well, Steve, I appreciate your second take us trying to give us some 2026 guidance. But look, I think when we step back and we look at 2026, I think the first thing, obviously, is we should expect to see some tailwind from our Q3 dip that we did see this year in 2025. Beyond that, again, all of our itineraries were well planned in advance. I think us getting back into the more fun in the sun will, over time, help us get back to historical load factors. I wouldn't expect to see that overnight, but I think that's something obviously on the horizon. And then that combined, I think, with the excitement and the halo effect that we'll start to see around our Great Stirrup Cay announcement, I think will drive positive momentum. So we look forward, again, we're focused on driving low to mid-single-digit yield growth. And when there's opportunity, of course, we're always looking to outperform that.

Congrats on a great quarter and guidance. I guess just to ask Steve's question in a little bit of a different way about 2026. You've got this really strong Q4 exit rate, a lot of headwinds this year for the reasons that you flagged. But how are you thinking about then as you get into 2026, the setup, especially potential ROI yield benefit from Great Stirrup Cay? And as you're moving more into fun in sun, I think maybe 12 percentage points higher for Bermuda and Caribbean. That's where the growth is, but it is generally a little bit lower on a dollar basis. Like how to think of those puts and takes?

This is Harry. It's always a pleasure to hear from you, Lizzie. I'll address the second question and then pass it to Mark for the first part. You are correct that the overall yields from the Caribbean, including Bermuda, are not necessarily higher than those from Europe. I want to share some insights into how we approach our deployment plan for the year. Our focus is not solely on yield optimization, but rather on maximizing profitability. While the yields in the Caribbean and Europe may be similar or even slightly lower on a ticket basis, we expect to see improved profitability, which will be reflected in our revenue and cost spread for next year. However, profitability isn't our only consideration; we also prioritize balancing short-term gains with long-term brand health. We aim to provide itineraries that yield the highest guest satisfaction and repeat rates. We believe that our new deployments in the Caribbean and Bermuda will enhance these metrics. Additionally, both Caribbean and Bermuda itineraries score highly on operational feasibility. When considering these three factors, we arrive at what we believe is the best mix for achieving both short-term profitability and long-term returns, which remains our team's primary focus.

Lizzie, in response to your initial question, our Q4 exit rate is promising. We are projecting guidance of around 4% for both pricing and yield, which positions us well for the upcoming year. More importantly, as highlighted in our prepared remarks, we are maintaining our optimal booked position for 2026, which is our primary focus. As we observe the positive effects and growing excitement, we will stay committed to pricing strategies. Additionally, we aim to gradually increase occupancy. Overall, we believe we are well-prepared for 2026 and will continue our efforts.

Great. That's helpful. And then shifting gears just on to the cost side. You've been doing such a great job there. I see on Slide 10, it says sub-inflation. It looks like the bar chart is basically flat. As you think about looking to the extra $100 million that you're targeting next year, just curious where the key opportunities of the different cost buckets are and how to think about that.

I'm just going to make one technical comment before I pass this one over to Mark. Please don't take out your ruler and measure the exact number of pixels that one bar is above the other. With that, I turn it over to Mark.

Lizzie, we've been very focused on this, and I believe we've communicated this consistently every quarter. We are continuing to excel in our waste removal and improving efficiency on the cost side. For the last two years, our performance has been essentially flat year-over-year. However, we are committed to delivering unit costs that are below inflation. If we can exceed that, it will be an added benefit, and we'll work diligently to achieve that. Regarding categories, I'm pleased to say we're taking a disciplined and methodical approach with our transformation office. Most importantly, we are doing this while maintaining the guest experience and protecting our brand. Our repeat rates are increasing, and our guest satisfaction scores remain high. This methodical approach is purposeful, and we intend to sustain it. Lastly, while we've always referred to this as an initial three-year program, our efforts won't stop there. We will keep focusing and strengthening this approach over time.

I want to reiterate the point that Mark made because I think there was some misunderstanding maybe in the last 1 or 2 earnings calls that in some way, shape or form, we were diminishing the guest product. It is the furthest thing from the truth. I want to be as clear and articulate on this as possible. We look at every single expense if we believe it will even modestly decline the guest experience, we just simply won't do it. We are focused on purchasing, efficiency, economies of scale, and the other things that Mark mentioned across the entirety of the P&L. But I get the guest satisfaction scores every Friday afternoon of the week's cruise, and we meticulously ensure that there's nothing we do certainly on an intended basis, but even on an unintended basis, that impacts that score. And we are looking to constantly improve record numbers. We're not going to end there. We want record numbers again next year for guest satisfaction scores, for guest return rates, for future onboard sales. For us, those metrics are just as important as the ultimate quarterly earnings because that is what sets us up for a successful future.

Our next question comes from Conor Cunningham with Melius Research.

Congratulations on your achievements. Let's focus on deployments for a moment. In the past, you haven't discussed the close-in booking opportunity much. As you shift towards shorter-term durations and more Caribbean destinations, could you explain how the close-in opportunity fits into your revenue management strategy and its long-term implications for your company?

I'm not quite sure how to address that question. It is clearly true that a booking curve for a 3- or 4-day cruise is very different from that of a 7- or 9-day cruise. We have advanced revenue management algorithms. I think we mentioned in our prepared remarks that we're developing a new generation revenue management system, clearly focusing on the differences in booking patterns. Part of what you're seeing now in record bookings is the result of having more and stronger close-in sales. However, I want to emphasize that we're also experiencing very good sales for 2026 as well. This does not come at the cost of achieving a strong and optimized booking position for 2026.

Conor, what you might be getting at is that we are adhering to our optimal booking curve. This takes into account all our deployments, whether for longer or shorter itineraries. We are not excessively holding back capacity or inventory waiting for a last-minute surge in demand. We are optimizing and managing according to our booking curve. If close-in demand continues to be strong, we will factor that in, but it's more crucial that we stay aligned with our overall booking curve.

Okay, that's helpful. I think we can all agree that you're not earning as much as expected in 2025. You had a busy first quarter and then faced challenges in the third quarter. I'm trying to gather insights about the company's earnings potential. As we look ahead to 2026, could you discuss what opportunities might have been missed had the redeployments not happened in the first quarter and without the challenges in the third quarter? I'm interested in what the numbers could have been for the year because we want to understand the underlying strength you have established here.

Conor, looking ahead to 2025, our earnings guidance indicates about 16% EPS growth. I want to emphasize that without the foreign exchange headwinds, our growth would have exceeded 20% on an earnings per share basis. One and a half years ago, we set our targets for 2026, and we remain confident in achieving those goals. This includes aiming for EPS in the $2.45 to $2.50 range, along with our margin performance and deleverage, and we are committed to that. Every year has its challenges and opportunities, but we are certainly confident in the business and, more importantly, in our strategy moving forward.

Our next question comes from Matthew Boss with JPMorgan.

Congrats on a really nice quarter. So Harry, on the demand rebound that you cited, any change in momentum here in July with bookings or pricing trends? And on the combination of the structural increase in fun in sun itineraries and then the recently announced investments, could you speak to early indications of demand for Great Stirrup Cay and maybe the opportunity on the premium yield side?

So thank you, Matthew, for the kind words on the quarter. So to address the 2 parts of that question, listen, we talked about May through July being a record period. July certainly did not decelerate. July will be a record July in the history of the company as an individual month. So it gives you a little bit more insight than maybe Sarah and Mark wanted me to. Past that specific to GSC, been 48 hours. So this is truly the early innings. First couple of days, we saw a material increase in our website visits. Our leads, which is a thing that we measure, people actually becoming a little bit more involved with us in conversations have doubled in these last 2 days. 2 days, I'm not extrapolating to Infinity, but certainly, those are positive signs.

Matt, as I've mentioned previously, we expect to see improvements in load factors due to the one-time anomalies we experienced in the third quarter. More importantly, as we focus on our fun in the sun itineraries, we anticipate naturally higher load factors on these routes. It's important to emphasize that this won't happen overnight, but we believe it represents a near to midterm opportunity for us. Additionally, with our new venture in the Caribbean and the Bahamas, particularly the newly announced island experience, we expect this to further enhance our load factors. Notably, the Waterpark we announced recently will launch in summer 2026. While there's significant excitement around it, we believe true growth will be seen once consumers visit the island and experience it for themselves. We have some time before then, but as Harry mentioned, two days isn’t indicative of a trend yet, but it is very promising, and we're eager to explore the opportunities ahead of us.

Our next question comes from Brandt Montour with Barclays.

I wanted to follow up on the discussion about the recent growth in bookings. Could you take us back to March and April and discuss the tactical or promotional tools you implemented? How aggressive do you think you were in hindsight, or did the reacceleration feel more organic? Have you been able to assess those activities and share how your strategy has developed?

So listen, Brand, it's never a single thing that drives the change that we saw from a choppy April to a record May through July. But I'd say the primary driver was the improvement in the macroeconomic environment. I mean, I don't want to take away from the hard work that everyone did, but I'd say that's driver number one. I will also say that I'm incredibly proud of the work that David on the NCL brand and Jason on the Oceania and Regent brand are doing on redefining the brand to make it more relevant for consumers. Perhaps in the past, our focus had been a little bit more on what we would call lower funnel marketing efforts, things like direct mail, e-mail, digital ads and things like that. We are now shifting our focus to be more brand-oriented and top of the funnel in order to drive more real demand and love for the brand that isn't necessarily as focused on price. So I'd say, number one, improving macroeconomic environment; number two, a shift to making the brands more compelling in the consumer environment. Of course, the benefits we're seeing with record guest satisfaction scores, the fact that guests on the ship today are having excellent experiences resonates when they come home and talk to their friends and family. Yes, we change promotions from time to time, but I wouldn't say we did anything unusual in the May to July that you don't necessarily see in the normal course of business.

That's helpful. Congratulations on the announcement regarding Phase 2 for GSC two days ago. Can you discuss the competitive positioning for the island compared to your nearby competitors? It would be great to understand what sets you apart. Clearly, you are targeting more families, and it seems that attracting more families may be essential to achieving the longer-term occupancy goals you mentioned earlier. Please help us understand your positioning relative to CocoCay.

So I'll just start out by saying I'm not here to comment on our competitors' strategy or their amenities. You can certainly speak to them about it. I will focus my comments on us. Our goal is to create the greatest island experience in the Caribbean by building out a series of amenities that our customer base, our demographics will love. We think this combination of pier, huge pool, kids splash area, relaxation areas, Hammock Bay, the Horizon Park, the adults-only beach area, Vibe Shore Club, then, of course, this massive water park, Dynamic River, Grotto Bar, Cliffside Jumps, things like that and a second splash zone for kids and even this new Jet Kart race thing, which is going to be an innovative and new thing to the industry, I think you put those things all together, and I think we unquestionably have the greatest private island in the Caribbean, which is our goal. We are focused on our demographic. We think our demographic will find this combination of beautiful relaxing areas plus active areas plus family areas plus adult areas. Our footprint on the island is massive, so we can have all of those things on it. We believe our demographic will find it compelling. Early indications as they do.

Our next question comes from Robin Farley with UBS.

Could you provide some insight into the recent acceleration since your last guidance? It seems that this might indicate the possibility of reaching the higher end of your guidance range, or potentially exceeding it, given the improvement. Can you explain why the top end of the range was reduced? Also, could you clarify whether the acceleration was driven by volume rather than price, or vice versa? How should we think about the decision to lower the top end of the range?

It's interesting. I actually look at it in a different way. I actually look at it that we brought the bottom end of our range up, but I guess one could also say that position it the way you did. So look, our guidance is based off what we know today and what we have visibility on. As we've said, we've seen an acceleration in demand. But keep in mind, I think when we go back to April, May, we did imply that we saw a bit of a lull. And I think we classified it as choppy bookings. So number one, catching up from that, I think, gives us more confidence. But as always, our guidance is based off the best visibility we have today and the biggest variable at this stage typically becomes the onboard revenue component. So we feel good where we are, and that's our best look today.

Okay. I’m wondering if there’s any information regarding the relationship between price and volume moving forward. My follow-up is a quick question about the capital expenditures. You recently announced the waterpark, which appears to be a significant investment. However, your capital expenditures didn’t change. Perhaps the explanation is straightforward, as it might have been included in your budget even before the announcement. Is there anything else that has changed in your capital expenditure plans?

Let me just circle back to your comment about volume versus price, and then I'll let Mark talk about CapEx. Listen, on the volume versus price, our price has been amazingly consistent throughout the 4 quarters of the year. I think if you look at our results for Q1, Q2, our guidance for Q3 and implied guidance for Q4, we're basically delivering a 4%, 4.5% price increase year-over-year in all 4 quarters. So we're happy with that consistency. It's a fundamental principle of this company that we are not going to sacrifice price for occupancy, so we don't because we believe that sets us up once again for the best long-term performance of the brand. Other fundamental principles is we constantly improving the onboard product for our guests, this focus on cost, all the other things that we've talked about in this call that lead to our long-term algorithm of low to mid-single-digit yield growth, sub-inflationary growth, et cetera, et cetera. I think on that regard, we have performed well for this year, and I'm happy with all 4 quarter performances. Turn it over to Mark for CapEx.

Regarding CapEx, I want to emphasize that our future CapEx outlook remains unchanged. This is due to two main reasons. First, this was already included in our plans, even though we had not made a public announcement. Secondly, it's essential to note that we are not investing excessively in this experience. While there is some investment, we believe we are achieving an excellent return, in the teens. As we look ahead to future years, we will continue seeking other monetization opportunities where it makes sense.

I would be remiss if I didn't shout out Patrick Dahlgren and his entire team for the incredible work that they've done, obviously working very closely with David and the brand to create an amazing experience for our guests at a reasonable cost of construction.

Our next question comes from Benj Kim with Mizuho.

First, I want to clarify something. Regarding yields and costs for 2026, I'm not asking for guidance, as you've already mentioned some details. Simply put, the increased enjoyment in sunny destinations is beneficial for occupancy but could negatively impact pricing. Does this mean the overall effect on yields will be neutral or flat in 2026? Similarly, for costs, higher occupancy naturally increases net cruise costs. Last quarter, you mentioned some significant cost savings related to sunny destinations. So, just like before, could you tell me if these factors are acting as headwinds, tailwinds, or if they're neutral for both yields and costs?

I think you're on the right track. We're not providing specific guidance for '26, so we won't. However, when considering the underlying factors, I believe you've mostly outlined them correctly. Our focus is to achieve the algorithm. We're committed to a low to mid-single-digit yield growth for '26, sub-inflationary cost growth, measured capacity growth, disciplined capital allocation, and achieving our charting the course targets. At this point, I can only emphasize that we stand by these principles. We believe all of them will be integral in '26.

Yes. To elaborate, we are prioritizing profitability, which for us today translates to margin expansion. For 2025, our guidance indicates we anticipate enhancing our margin by nearly 700 basis points compared to 2023. Looking ahead to 2026, our focus remains on margin expansion. This will stem from both revenue growth and cost management, as it is a combined effort. Ultimately, it is margin expansion that will drive our cash flows and reduce our leverage.

And then operator, I think we have time for one last question.

Okay. Our last question is from David Katz with Jefferies.

I am patient, if nothing else. When we look at the industry, one of our main focuses is on attracting new-to-cruise and new-to-brand travelers. I'm curious if you could provide any insights into the strong bookings you've mentioned and what percentage of those are from new-to-cruise and new-to-brand customers.

It's a good question, David. I would say that we haven't really observed many changes when adjusting for itineraries. In a 3- or 4-day cruise environment, we see a slightly higher proportion of new-to-brand customers since those new to cruising are more inclined to try a shorter trip before committing to a longer one. Similarly, in Europe, a 7-night cruise tends to attract slightly more new-to-brand customers compared to a 9-night cruise. Overall, when we factor in itineraries, it remains stable. Ideally, we do want to attract more new-to-cruise and new-to-brand customers, but with record guest satisfaction scores, we also see record repeat rates, which helps balance things out. So, overall, we aren't seeing any strong trends. We are satisfied with our current position.

Okay. If I can just follow up quickly. I think part of our thesis and part of the work that we've done suggests that there is a meaningful new-to-cruise discovering the value proposition, right, and trading up in value. Is it fair to assume that somewhere in your numbers, there is a presence of that? Or are we overstating that?

I appreciate your comment because we share your belief. Looking at this holistically, I forget the exact number, but around 35 million people cruise each year, with a disproportionate number being North Americans. We think this reflects about 2% of the overall vacation market both locally and worldwide. Additionally, cruising is generally less expensive than a typical hotel or resort stay, while offering what we believe to be a more comprehensive and superior product. When you combine all these factors, we believe that long-term, this is an excellent industry to be in. The growth is somewhat limited, however, since there are only four shipyards in the world building ships, which restricts overall industry capacity growth to about 4% to 5% annually, unlike hotels that have almost unlimited growth potential, particularly with undisciplined players. Gathering all these insights, we concur with your thesis that this industry has strong long-term prospects. While it may be challenging to observe the impact from quarter to quarter, we do see those trends year-over-year. Thank you all for joining us today. For those in Manhattan, I encourage you to visit our GSC pop-up in Soho at 104 Grand Street. We’re offering free mocktails and you can get a glimpse of what the future of Great Stirrup Cay will look like. Thank you, and goodbye everyone.

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