Good morning, everyone, and welcome to our Business Update Conference Call. I'm Arnold Donald, President and CEO of Carnival Corporation & plc. Today, I'm joined telephonically by our Chairman, Micky Arison, as well as David Bernstein, our Chief Financial Officer and Beth Roberts, Senior Vice President, Investor Relations.

Thank you all for joining us this morning. Now before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today's press release..

Thank you, Arnold. I'll start today with an update on booking trends, then I'll provide our monthly average cash burn rate along with a summary of our second quarter cash flows and then finish up with some insights into our financial position. Turning to booking trends.

Our booking volumes have been very strong given the circumstances and are clearly improving. Volumes for all future cruises during the second quarter 2021 were 45% ahead of booking volumes during the first quarter.

The increase was driven by both close-in bookings associated with the recent restart announcements as well as strong booking volumes for 2022. This is a clear demonstration of the pent-up demand for cruises as well as the long-term potential for the market.

Just as positive, our cumulative advanced book position for the full-year 2022 is ahead of a very strong 2019, which was at the high-end of the historical range. I would like to point out that our booking volumes and book position are very encouraging, given that they were achieved with minimal advertising and promotional activities.

Pricing on our full-year 2022 book positions is higher than pricing on bookings at the same time for 2019 sailings, driven in part by the bundled pricing strategy for a number of our brands, but excluding the dilutive impacts of Future Cruise Credits or more commonly known as FCCs.

This is a great achievement given pricing on bookings for 2019 sailing is a tough comparison as it was a high watermark for historical yield. Over the past year or so, we have offered, and our guests have chosen more and more bundled package options. In the end, we will see the benefit of these bundled packages in onboard and other revenues.

I just want to remind everyone that due to the pause in guest cruise operations, the company's current booking trends are being compared to booking trends for 2019 sailings and not the prior year. Now let's look at our monthly average cash burn rate.

For the first half of 2021, our cash burn rate was $500 million per month, which was better than the previous forecast of $550 million. The improvement was mainly due to the timing of cash received from ship sales just before the end of the second quarter and some other small working capital changes.

During the third quarter, we are forecasting positive cash flow from the 27 ships that will have guest cruise operations during the quarter. However, keep in mind that many of those ships do not begin operations until late in the quarter.

As a result, the Available Lower Berth Days or ALBDs as they are more commonly called for the third quarter will only be $3.8 million. However, as we have previously discussed, not all these ALBDs will be sold to our third quarter cruises..

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

Absolutely. We'll now begin the question-and-answer session. Our first question comes from the line of Robin Farley with UBS. Please go ahead..

Great. Thanks. Good morning. I wanted to ask about your comment on pricing for 2022 cruises being ahead, excluding Future Cruise Credits. It seems like Future Cruise Credits are about 15% of bookings and maybe only a 20% discount on average that it would basically be kind of a low single-digit impact to your pricing.

So I guess my question is, is pricing – the checks that we do is showing very strong pricing for 2022 and a lot of that's probably the bundling impacting that, but if you included that sort of 3% impact or so from Future Cruise Credits, would pricing not be up versus 2019 levels for 2022? And then sort of part B of that question is just given that you expect ships to be in service – all ships by the spring, maybe potentially not all at a 100% occupancy yet at that point.

Does that give you the ability to have a little more price if the sort of low as 10% of cabins on the ship don't get filled? Thanks..

Yes. Thank you, Robin. Good morning. I'll let David add some detail, but generally the pricing environment, as you point out, is strong in terms of the fleet returning. Yes, we're planning to have the fleet sailing before next summer, the full fleet. Of course, we have to see what evolves around the world.

There are still pockets of – and large pockets of still serious challenges with COVID-19. So we'll have to see how all that unfolds, but we expect to have the fleet sailing in full prior to next summer and the pricing environment is strong.

David?.

Yes. So Robin, when you think about 2022, as Arnold said, the environment is strong, but remember we only have a portion of 2022 on the books.

So the FCC rebookings represent a meaningful part of the overall bookings for 2022, and as a result of that, you're seeing that in the short-term, you mentioned 3%, the number is actually larger than that impact at the moment, given the number of bookings we have.

The other thing to keep in mind is that there were a lot of rebookings into 2022 from 2021 as people – as we did pause and canceled some cruises. We rebooked people at the same price in 2022. So the impact is – for the FCCs is a bit larger than what you had indicated.

However, I will say, as we continue to book the remaining portion of 2022, those FCC rebookings will become a smaller and smaller portion of the total. And I do expect that when all is said and done, the FCC impact will just be a few percentage points on the ultimate final yield for 2022..

That's very helpful. Thanks. And so understanding the timing of that right, that the FCC portion will kind of move down as no more new bookings are taken. Is it reasonable to think that your pricing when – because right now what you have on the book, as you mentioned, is the rebooked – a lot of rebooked and a lot of FCC.

As those portions move down as a percent of total, is it reasonable based on the strength that you're seeing in new bookings coming in that price will be ahead of 2019 levels next year?.

So we're not really – it's early days and we're not in a position to give guidance. But as Arnold said, the pricing environment is very strong. Our brands have done a lot to raise price over time. There's a lot of pent-up demand out there and we feel very good about our overall position.

Booking volumes as we said have been increasing and so all these signs point in the right direction. But I do think it's premature for me to give guidance at this point..

Okay. Great. Understood. Thank you all. I'll hop back in the queue for my other questions. Thanks..

Thanks, Robin..

Thank you, Ms. Farley. And up next, we have a question from the line of Steve Wieczynski with Stifel. Please go ahead, sir..

Yes. Hey guys. Good morning. So first question would actually be a clarification, and I guess I think I – well, I feel like I'm hearing you guys a little bit two different ways.

And what I mean by that is, when you guys talk about getting your full fleet back in operation by the spring of 2022, does that mean the actual number of ships in operation or does that mean all of your ships are going to be operating at normal capacity levels? I think there is some confusion out there with a lot of investors that we are talking to..

Okay. Thanks for the question. First of all, definitely, we hope to have all of our ships and are planning for that. But we also are optimistic that we can be at capacity at that point in time. But we've got many months to go here to see. But we're hopeful that we'll be sailing at capacity and with full fleet..

Okay. Got you. Second question....

Steve, if I could add one thing. I will point out the fact that we have a number of voyages, different cruises out there, and keep in mind that the voyages that we have, that are for vaccinated guests. There are no social distancing requirements or capacity requirements on those voyages.

So just keep that in mind as you kind of round out and project the future..

Okay. Got you. Thanks, David for that.

And then second question, I guess, just maybe if you can give us an update on where you guys are with the state of Florida and the Governor at this point? Obviously, I think there is a little bit of confusion out there as well in terms of the way he wants kind of the state to work versus you guys wanting most of your passengers and crew to be vaccinated.

Can you just kind of give us an update in terms of where you guys are at this point?.

Sure. First of all, we're really looking forward to welcoming our guests on board. We as you know have had a few sailings over in Europe during this pandemic.

But it's really exciting for us and our people to be looking across not only here in Florida, but we have the Vista starting on July 3 in Galveston, The Breeze on July 15 in Galveston, Carnival Miracle in July 27 at Seattle, Mardi Gras will start sailing along with Horizon, Horizon starting on the 4, Mardi Gras, July 31 from Florida and then all of our other brands around the world.

So it's just a really busy time and an intense time, an exciting time and of course there is a lot of noise. There is lots of different jurisdictions and different perspectives on how things should go. So where we are is that we're looking to walk forward to welcome our guests on board. We continue to be in dialog with the Governor's office.

We continue to be in dialog with the CDC, as you know there is the court ruling that affected the conditional sale order and that's still in place, the conditional sale order from CDC through July 18. And at this point, we were prepared to sail under that order with primarily vaccinated cruises.

There will be unvaccinated people on those cruises, not a 100% vaccinated. And so we're very optimistic and working very hard to ensure that we can try to make everyone happy. But we are welcoming our guests on board Horizon on July 4 in Florida..

Okay, got it. And David, can I ask you one quick housekeeping question? I guess, you talked about – I think you said that you're expecting $3.8 million ALBDs is in the third quarter.

And based on what you guys have announced today, I'm not sure you're going to answer this, but is there any way to help us think about maybe what the fourth quarter would look like as well?.

Yes. I don't have that calculation handy with me Steve. But if you call Beth, I'm sure she can provide it to you..

Okay. That's great. Thanks guys. Appreciate it..

Thank you..

Thank you for your question. And up next, we have a question from the line of James Hardiman with Wedbush Securities. Please go ahead, sir..

Hey. Good morning. Thanks for taking my call. So David, you sort of opened the door....

Good morning, James..

Good morning. This idea that obviously the voyages that have 95% plus vaccinated, you don't have the social distancing requirements or the capacity requirements that – but if you don't have that you do.

Can you maybe walk us through, at least based off what you currently know, obviously it is a fluid situation, what you expect your mix of both of those categories to be and how we should think about the occupancy ramp within ships that do not meet that vaccination hurdle?.

So it's very difficult to give you an exact mix of what we expect going forward, because this gets into the evolution of COVID and mitigation. We're very clear and we're out there with all the cruises we've recently announced what each ship will be and how it will work.

But as we go along, we do expect things to continue to evolve and change, and everything has been evolving in a very positive way and we're hopeful that that continues, and so that should put us in a better situation in the days and weeks and months ahead.

So because it is difficult to project, it's very hard for me to answer that question with great detail but my expectation is that we will be able to have higher and higher occupancy levels over time. And you know, there are lot of projections out there that talk about potentially 70% of the globe getting vaccinated by some point in early 2022.

If that's the case, then a lot of these protocols are potentially can start to be removed and we'll just have to see how things progress over time.

As Arnold mentioned in his prepared remarks, agility has been one of the greatest things that have gotten us to this point and we are going to have to remain agile to try to react to the circumstances moving forward..

I think I just would add that....

Understood. Go ahead..

I just would like to reinforce what David is saying is that things are moving in a positive direction. It is going to be – it is probably going to be a little choppy around the world and we're a global business and it's probably going to be a little bit choppy.

So we've said for quite some time the rest of 2021 or early 2022 will be a transition period. But we're on a path to getting to a great place the world is with the vaccines, the various vaccines, the advancements in treatments, et cetera, but it could be choppy.

But by 2022 and beyond, hopefully, with the advancements in science we'll be in a position to be able to sail, as one of the people asked, with full occupancy and full fleet..

That's really helpful. And then another – I did so, and it's similarly difficult to quantify with any specificity.

But if I think about spring of 2022 being some return to normality, I think one of the most difficult thing – one of the most difficult issues in terms of valuing your company and other cruise companies is just sort of figuring out what the balance sheet looks like at that point.

So I guess are we any closer to figuring out when we'll get back to maybe a cash flow breakeven number. I get that there is going to be some incremental restart cost here in the near term, but is there any color you can give us, any way to think about cash flow breakeven or sort of an interest expense number once we are on the other side of this..

Yes. So the difficult part, remember, so many variables that we just talked about. But if we do get back in the spring of 2022, we have the full fleet back in operation.

We're able to get to more normal type occupancy levels then we should be – have significant positive EBITDA, particularly in the summer months of 2022 and we'll move forward from there.

So I feel like we're in – it's very hard to project from where we are today with five ships in operation to 95 ships in operation next spring, we have 90 ships and our fleet today but remember we have five more newbuilds coming that will be back in service. So we'll have 95 ships in operation next spring.

And we do expect at some point during that process to get into a positive EBITDA. But with the seasonality of our business and a lot of the other restart expenses that we mentioned, it's difficult to project the exact months where EBITDA goes positive or cash flow goes positive.

But we're very hopeful, the spring isn't very far away and we are looking forward to that. And keep in mind that you know if you look at our historical results, everybody has always seen that the third quarter is our strongest quarter.

If you actually add in the month of May, the four months May through August represent just a third of the calendar year, but it represents two-thirds of our EBITDA or our operating profit. So we are focused on getting the full fleet back in service by next spring in order to capture a great summer of 2022..

Got it. I think that makes sense. And just to clarify, we should not be then, based on everything you just said, assuming that you get to that breakeven level significantly before that spring of next year. It's tough to say at this point..

Well, I wouldn't say – I'm not giving guidance because it's tough to say because of so many other factors with restart expenses and everything else involved. It is tough to say..

Okay, fair enough. Thanks guys..

Thank you..

Thank you for your question. Up next, we have a question from the line of Jaime Katz with Morningstar. Please go ahead..

Hi, good morning..

Hi, Jaime..

I actually want to – thank you of James' question in that we have some visibility into what capital markets look like right now and you have been able to refinance some of this debt.

And so as we think about the full year is there a way that we should think about debt service costs if you are able to make the changes that you would like to make?.

So I do apologize but you broke up for me about halfway through to the question.

So I do apologize, if you could repeat, I'm not sure why?.

Sure, no problem. I said, since we know what the debt capital markets looks like right now and the ability to refinance has been fairly easy, I guess.

Is there a way that we should be thinking about debt service costs for the current year given that you probably have some intended plans for refinancing over the last six months of 2021?.

So if you're talking about interest expense, the interest expense, our current forecast is $1.6 billion for 2021. Last quarter, I think I had said $1.7 billion. So we do expect a decrease as a result of our refinancing efforts.

And I think if you look at the principal repayments, in the business update we did give the principal repayments but keep in mind that those principal repayments were prior to what we expect to close in the third quarter, which is the $1 billion debt deferral with the Debt Holiday two. So those numbers will come down as well..

Right. And then, I know the U.S. is really leading the way out of the COVID period. But if you have any color on European or Asia Pacific demand, I would love to hear that at this time. Thanks..

So just in general, in terms of the environment. Obviously, the U.S. is ahead of many places although there are pockets in Europe that have done well as well with vaccines. And again, we encourage everyone to get a vaccination. It's the best way to keep yourselves safe and your loved ones safe.

And so in that regard, there is more movement here in the U.S. from an environment standpoint collectively, although there are good pockets up in Europe and elsewhere. I'll talk about Asia and Australia and then I'll let David comment on the general booking situation abroad.

But Asia and Australia are – and in particular China and Australia are still pretty much on lockdown when it comes to travel. And so we continue to be in constant dialog with appropriate players there. And eventually, it will open up and we'll be ready to go when it does. Dave, you want to give some comments on the booking environment..

Yes. So I guess the best way to phrase it, we said that the 2022 book position was ahead of a very strong 2019 and that's actually the case both for our NAA brands as well as our EA brands. So we are – as Arnold indicated, we are seeing good strong bookings on both sides of the pond as things continue to rebound..

Thank you..

Thank you..

Thank you for your question. Up next, we have a question from the line of Patrick Scholes with Truist Securities. Please go ahead..

All right. Good morning, everyone..

Good morning, Patrick..

Good morning. For the sailings in 3Q and 4Q, can you give us an update on limitations on occupancy and/or what occupancy you are targeting for those ships? Thank you..

Sure. So broadly right now, as David mentioned earlier, for those sailings that are under, one for the conditional sail order for primarily vaccinated people, the way things are today; there aren't any restrictions, there is no physical distancing et cetera.

And so we are slowly ramping up our occupancy on sailings of that type to, first of all, give our crew a chance to get oriented because we are still having enhanced protocols on board from a crew management standpoint and other things. And so those cruises at that point in time can get pretty close to full occupancy by that point.

To the extent we have cruises and we do have some outside the U.S.

and other places that are under a separate set of protocols because there – we have a lot of unvaccinated people on board, then their – some of their occupancies had to be limited by the physical distancing requirements as long as they persist and again that can all change and evolve as community spread lessens and heard immunity increases.

And so it's a hodgepodge, and at this point, as David already kind of reference, it's hard to predict exactly where we're going to be on those because we have to look at the specific itineraries, the destination requirements, the home port requirements, and what the environment is at the time.

Now, we're all pretty optimistic right now and hopefully that trend will continue. So directionally, we think we'll be moving more to higher and higher occupancy and then full occupancy. But we're not forecasting at this point.

David?.

Okay..

And I think that was well said, Arnold..

Okay..

Thank you..

Okay.

Just I guess to think of as a starting point for the limited capacity that did go out last quarter what was the occupancy on that?.

So it was very limited, like $440,000 ALBD. There was one ship that started in March and then there were four other ships that started in May.

The occupancy started, they improved as the quarter went on and we were seeing ships that were at 50% or above by the end of the quarter but you do have to understand the background because I'll give you a great example.

One of the ships for AIDA was sailing in the Canary Islands, and so the Germans that went on this ship because of the restricted travel requirements in Germany, the people had to quarantine when they came home.

But then, once the quarantine and the travel restrictions started to reduce, you started to see better and better occupancies, and better and better cash flows on the ship. So while we did invest early on, we did see positive cash flows on the ships later in the quarter. So we were very pleased with the overall experience..

Yes. And we proactively managed on the occupancies early on because again, we had – at that case, we had extensive protocols, universal testing, enhanced medical screening, physical distancing, mask wearing, enhanced sanitation, enhance air handling.

So there was a whole lot of the different protocols and so initially on those we really were pretty stringent and really tapped on the occupancy ourselves..

And we're expecting to see better occupancies as time goes on for all the reasons that we talked about..

Sure, that's great. Thank you, David. Makes sense and certainly good luck for – certainly in Florida coming up. Thank you..

Thank you..

Thank you for your question. And up next we have a question from the line of James Ainley with Citi. Please go ahead..

Yes, good morning everybody. Thanks for taking my questions..

Good morning..

Good morning. I'm interested in just digging into your ESG commitments a bit more, the kind of 40% reduction in carbon emissions by 2030.

Can you just flush out a bit more about the tools and mechanisms you need to get there and can you help us with what the potential cost implications might be and I'm thinking maybe you might need to buy carbon credits and things like that. So any color on that would be very helpful..

Sure.

We've been on a concerted march on reduction of carbon emissions for some time and we've already effected a 30% reduction since our baseline of 2006 and we achieved that in a number of different ways for more basic things like just really being rigorous in tuning our engines and carefully planning itineraries and so on to much more investment required or in a ways of – through lighting schemes and technologies and handling waste and density on the ships.

And then, of course, we made a hard commitment early before there was even an infrastructure in place on liquefied natural gas. So we were the first with an LNG ship with our AIDA brand. We did that – frankly, we made the commitment to do that, we weren't even sure how we were going to fuel the ship.

But we had time during the construction phase and whatnot to work out a deal with Shell and now we've got infrastructure in place and then such that we have 11 ships in total now either sailing or under construction. As you know LNG is the cleanest burning fossil fuel.

It also gives us a 20% smaller footprint from a carbon emission standpoint and so those are the ways we have gotten there and plan to get there.

But ultimately, our goal is a net zero emission platform over time and to do that we're going to have to have size and technology work with us in the form of better and combinations of lithium-ion battery technology, fuel cell technology, biofuels et cetera. But we are on a hard march and we have a line of sight for the 40% reduction.

We're going to need some technology advancements to get to the net zero. I hope I answered your question..

Yes, thanks.

So the LNG ships on their own, how much of that 40% reduction will come from them on their own?.

Well as I'd say, we're already at 30%. So as we move forward, we'll continue with – new ships inherently are more efficient because everything is engineered from day one to be that way but the LNG ships will represent, once we get to the 11th one about 20% of our fleet.

So they will be a significant contributor to us being able to achieve and hopefully beat the 40% target..

Okay, great. Thank you..

Thank you..

Thank you once again. And we now have a question from the line of Greg Badishkanian from Wolfe Research. Please go ahead..

Hey guys, it's actually Fred Wightman on for Greg. As we think about the possibility of the full – hey, guys. If we think about the possibility that the full fleet is back in the mode next summer. David, touched on some of the seasonality considerations just looking at the third quarter specifically.

Should we expect some yield headwinds just from reduced access to international travel or do you think that we could be in a more normalized sourcing and deployment mix by then?.

Again, we're not trying to give any guidance or anything at this point. But what I would say is, we've exited 19 ships or will. And so as I said in the remarks earlier, that's a significant reduction in capacity. Now we are adding new ships, which we're very excited about.

And therefore, we'll get to capacity comparable to what we had in 2019 eventually. But the reality is that we're at a much lower growth rate as an industry and as a company than we were before.

With a lot of pent-up demand, keep in mind by next spring a lot of repeat cruisers still may not have the opportunity to cruise again, and we have a huge base of repeat cruisers across our various brands.

And so there will still be a considerable pent-up demand that has been largely unsatisfied at that point in time and that's the environment that we're anticipating we'll be operating in. But we aren't going so far as to try to predict. David, I don't know, if you wanted to add any color..

Yes. No, the only other thing that I'll add is on travel restrictions, travel restrictions are being reduced and changed every day. So the summer of 2022, I mean we're talking 11 months away, 11, 12 months away.

So there is a lot of opportunity as we – as things continue to evolve and improve to see many if not most or all of those restrictions disappear before the summer of 2022. I know I booked my cruise in December of 2022. I expect to go to Turkey, Greece and Italy, and I'm really looking forward to it and looking forward to reduced travel restrictions..

And David definitely gives the friends and family premium when he….

Exactly..

There is no big price, right, for David. Yes..

Good. Glad to hear that for you, David..

Thank you. And up next we have a question from the line of Ali Naqvi with HSBC. Please go ahead..

Hi, thank you for taking the question.

Just wanted to ask, in terms of your views on leverage longer term, would you look to deploy equity to maybe increase the pace to get to investment grade?.

Real quickly, look, we have good liquidity in place now, we feel, to get us back to full sailing of the fleet. Cash generation is the way and cash maximization is the way we're going to accelerate repayment of debt. We're going to do some refinancings to lower the interest burden along the way. But basically, that's the path we're on right now..

Understood and do you have a view as to what happens to pricing when the sort of pent-up demand for cruising normalizes? Does happen in 2023 or beyond that?.

I think for our plans, as I said on the call, we were on a growth trend of 4.5% pre-COVID through 2025 with the moves we've taken in the newbuilds, we already have coming in, we'll be at a growth rate annualized of 2.5%.

So that's a much lower growth rate, and I think that, again, continued pent-up demand, people have spent a lot of time in isolation and lockdown, people really want to experience things.

I think that's going the last a while, and so we're – obviously it's hard to predict the future but we're logically optimistic that there will be a good environment for some years for me here..

Understood. Very clear..

So operator, given the time, we'll take one more question..

Thank you, sir. And the final question therefore comes from the line of Sharon Zackfia with William Blair. Please go ahead..

Hi, I'm convinced you guys go in alphabetical order. So next time we come in first and do these first. But I guess I just wanted to clarify something, David, the CapEx for the year, are you raising the expectation or is it just weighted to the second half of the year on timing..

Oh, it's weighted to the second half of the year timing. We have – because as part – of during the pause, we delayed a lot of dry docks. We have quite a few ships going into dry dock in the second half of 2021, and so you will see capital associated with those ships and so the timing is weighted towards the second half..

Perfect. And then one other question. This may be hard to ascertain just given the bundling aspect of what's being offered.

But what is the appetite or what are you seeing in pre-booking for on-board spending?.

So the trends, when you try to dissect them, we're seeing similar trends to what we have seen historically on the on-board spend side but it is, as you say, it's very, very difficult because – and I'm talking about people who are not booking the bundled packages.

When you talk to the various brands around the globe, they are still pushing as they always have on-board other on-board packages and things associated with the cruise and no significant changes in that front..

Okay. Thank you..

Okay. Thank you, everyone. Really appreciate your time. It's a great feeling to have an expanded opportunity to welcome guests on board here in the coming months and we're very excited about it. But thank you very much. Thank you, operator..

Thank you. And that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your line. Thank you, once again. Have a great day, everyone..