Good morning, and welcome to the Norwegian Cruise Line Holdings Fourth Quarter and Full-year 2018 Earnings Conference Call. My name is Liz, 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.

[Operator Instructions] As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Vice President of Investor Relations and Corporate Communications. Ms. DeMarco, please proceed..

Thank you, Liz. Good morning, everyone, and thank you for joining us for our fourth quarter and full-year 2018 earnings call.

I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; Mark Kempa, Executive Vice President Chief Financial Officer; and Andy Stuart, President and Chief Executive Officer of Norwegian Cruise Line.

Frank will begin the call with opening commentary, after which Mark will follow to discuss results for the quarter and full-year as well as provide guidance for 2019 before handing the call back to Frank for some 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 Web site at www.nclhltdinvestor.com. We will also make references to a slide presentation during this call, which may also be found on our Investor Relations Web site.

Both the conference call and presentation will be available for replay for 30 days following today's call. Before we discuss our results, I'd like to cover a few items. Our press release with fourth quarter and full-year 2018 results was issued this morning, and is available on our Investor Relations Web site.

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 statements contained in our earnings release. Our comments may also reference non-GAAP financial measures.

A reconciliation of 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, Andrea, and good morning everyone. The team at Norwegian Cruise Line Holdings delivered what can only be described as a breakout year in 2018, with several key milestones and notable accomplishments achieved. The highlights of which appear on slide four of the accompanying presentation.

I'd like to take just a few moments to recognize and thank the 33,000-plus team members across our organization and around the world for their remarkable contributions to our record results, and for their dedication and passion in providing exceptional vacation experiences and world-class hospitality to the 2.8 million guests who sailed the seven seas aboard our 26 ships last year.

We started 2018 in a record book position. And while I don't want to get too far ahead of myself, I am pleased to report that we started 2019 in a book position that is even better. I'll discuss more about 2019 later in my commentary.

For 2018, stronger than anticipated demand and robust onboard spend across all these brands and across all source and destination markets, along with the launch of the most successful new build in Norwegian's history propelled adjusted earnings per share and net yield growth well past what were already high expectations at the beginning of the year.

Norwegian Bliss was indeed a major driver of this outperformance. When we launched her in April, the expectation was for strong performance and pricing premiums on par with other new build introductions.

But instead, we have experienced performance that can only be described as extraordinary, with demand, ticket pricing, and onboard revenue metrics that have all shattered records and surpassed our highest expectations.

And if you worry that Bliss might only be a one-year wonder, please note that in month where 2019 last for 2018 debut, her ticket yields are equal to and in some months slightly higher than her inaugural season. A follow-up performance seldom is ever seen in our industry.

In 2018, we achieved record highs in several key financial metrics, including revenue, which surpassed $6 billion, and GAAP net income, which was just shy of reaching the $1 billion milestone, along with adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, and most notably, a net ticket and net onboard revenue yield where we continue to lead the industry by an extraordinarily wide margin.

As you can see on slide five and six, we not only led the industry in net ticket, net onboard, and total net yield in 2018, but also in revenue growth, which had 12.2% on capacity growth of just 8.5%, and adjusted earnings per share growth of 24%, and an EBITDA per capacity day.

These highs helped extend our hard-fought and lengthy track record of strong financial performance. This past year marked our fifth consecutive year double-digit earnings growth, our sixth consecutive year of net yield growth. And as shown on slide seven, over a decade of year-over-year growth in adjusted EBITDA with continued margin expansion.

We also made meaningful progress towards achieving our Full Speed Ahead 2020 targets, which we set out at our investor day, last May. With two years left in our three-year plan we are more confident than ever in achieving our stated targets. In terms of financial performance, 2018 will certainly be remembered as a breakout year.

But there were other significant events that also made this year so memorable.

On the ownership front, we've reached an important milestone with the exit of our main sponsors, including Apollo Global Management, which exited its 11-year stake in Norwegian Cruise Line Holdings, concluding what was undoubtedly one of the firm's most profitable pre-financial crisis vintage investment.

And as I'd previously mentioned, we took delivery of Norwegian Bliss, the most successful ship in Norwegian brand's 52-year history. We continue to see strong demand for her sailings in the Caribbean, and as previously noted, especially for her second Alaska season this coming summer.

We also launched OceaniaNEXT, a multifaceted program including a complete re-inspiration of the brand's four classic vessels, along with more ambitious initiatives, which I will touch upon later.

These achievements and milestones taken together have strengthened the financial and operational foundation of the long-term strategy we have laid out and positions us well as we move into 2019 and beyond.

And just as we did in 2018, we entered the year in record book position and at record pricing, which has allowed us to capitalize on 2019 strong wave season, during which we have witnessed the highest pricing of source inventory in the history of the company.

This achievement puts us in a strong position from which to continue driving meaningful price depreciation on remaining inventory, and to optimize the positioning and launch of our next new build, Norwegian Encore, which joins the fleet in late November.

And while it is still early in the overall booking cycle, the strong demand we are experiencing across all brands and across all markets is also spilling over into 2020, with the company's three brands now substantially better booked and at higher prices than at this time last year for 2019.

This robust performance has resulted in the booking curve extending approximately 9% over last year with our advanced ticket sales balance at year-end 2018 standing an impressive 22% higher than at year-end 2017.

The underlying strength of this booking curve is best observed in our Oceania Cruises and Regent Seven Seas Cruises brands, where each line is now better than 80% booked for 2019 sailing and nearly one-third booked for 2020 sailing, all at meaningfully higher prices to the previous years.

From our vantage point, there does not seem to be a near-term end to the booking condition our company has and is experiencing.

Our yield guidance for 2019, which Mark will cover in his commentary, gives everyone confidence about the state of the vacationing consumer, and therefore of our company's prospects, particularly those who are still concerned about where we are in the economic cycle, and those concerned with the higher-than-average industry capacity growth.

Our Norwegian brand, for example, well in essence, launched three 4,000-passenger vessels, Norwegian Bliss, Joy, and Encore in a span of just 18 months, representing a 24% increase in the brand's capacity, making it by far the largest capacity increase in any 18-month period in our history.

Bliss' stellar performance to date is well documented, and Norwegian Encore continues to be the best booked and highest priced Caribbean introduced ship in the Norwegian brand's history.

But to also be able to absorb Norwegian Joy's deployment to Alaska and the Mexican Riviera, and to do so with a sales window that is only nine months or half as long as that of a typical ship introduction while still delivering strong pricing, should completely dispel any overcapacity fears at least as they pertain to Norwegian Cruise Line Holdings.

This successful absorption of capacity demonstrates three things.

First, that our go-to-market strategy and retail proposition, smart and disciplined marketing spend, and sophisticated revenue management practices which we purposely do not publicly discuss very much for competitive reasons, indeed drive quality demand and generate industry-leading financial results.

Second, that 2019 marks the first in a four-year stretch of moderate capacity growth of the company with a CAGR of less than 4%, which bodes very well for our ability to profitably absorb future capacity increases while continuing to drive pricing higher.

And third, there remain many attractive un-served and underserved markets, both domestically and globally, where our brands can deploy future capacity additions. Meanwhile, the Oceania and Regent brands, as I mentioned earlier, are enjoying record book position and strong pricing power of their own.

So well booked are these brands for 2019, that they are now pivoting their marketing initiative earlier in the year than ever before to build an even stronger base for 2020 sailings, which include the introduction of the Regent Seven Seas Splendor and a full-year of sailings by the three of the four Oceania R-class ships that will have received extensive refurbishment under the OceaniaNEXT program.

Turning to consumers, and despite stock market volatility, fear of trade wars, Brexit uncertainty, and other short-term disruptions, such as a recent government shutdown, our indications are that consumers remain confident in both the short and long-term, especially the all-important North American consumer, from which we enjoy an outsized benefit given our strategic sourcing mix and focus on global versus national brands.

We are also benefiting on several other fronts. First, our go-to-market strategy and the sizeable marketing investments we have made to communicate the wonders of our three brands to travel agents and consumers has guests recognizing more and more the benefits of booking early to get the best and highest value.

Our elongated booking window is proof of this. And another data point is the sale of future cruises onboard our ship. In 2018, all three of our brands experienced meaningful increases in the number of guests who booked their next cruise even before finishing their current one locking them in into future cruises while reducing marketing-related cost.

Second, we are benefiting from the continued shift of consumer spent from material things to experiences. While the retail sector has been a mixed bag of data, the experience economy as we see has remained strong.

And third, just as we are seeing consumer confidence in booking cruises further up, we are seeing equal confidence in their current spending as the onboard revenue continues to surpass the record levels of the prior year.

Lastly, we continue to leverage the strong global demand environment with our expanded worldwide sales and marketing organization that allows to us further hone our best guest strategy which focuses on sourcing the best guest defined as the highest yielding guest regardless of their prominence. At the same time, our core markets remain strong.

2018 was the second consecutive year of double digit pricing growth in Europe driven by all three brands while 2019 is building on that solid foundation with pricing above last year's record level.

In Alaska, despite industry capacity growth in the mid teens which includes our very own 27% increase in capacity, we expect another blockbuster season with Norwegian Joy joining Norwegian Bliss and Norwegian Jewel. Norwegian Joy's reposition to Alaska has brought heightened attention to this market and to the Norwegian brand.

Joy is booking well and at higher prices compared to the smaller vessels she replaced in our deployment despite her condensed nine-month booking window. And lastly, business in the Caribbean continues to accelerate. And we are pleased with our performance in the region as we await the late year introduction of the Norwegian Encore.

For the historic -- historically 2019 Norwegian Cruise Line Holdings is taking shape.

Our strong start to the year with a record book position, the successful absorption of a record capacity increase in the most profitable North American market, a confident consumer that is willing to book further and further out and is willing to spend more and more onboard. It all sounds to me like the making of an encore performance.

I'll return at the end of the call to discuss our longer term initiatives. But now I would like to turn the call over to Mark to discuss our results and guidance in more detail.

Mark?.

Thank you, Frank. Unless otherwise noted, my commentary compares 2018 and 2017 net yield and adjusted net cruise cost excluding fuel per capacity data metric on a constant currency basis.

I'll begin with commentary on our fourth quarter and full-year results followed by color on booking trends and close with our guidance for the first quarter and full-year 2019. Throughout my commentary, I will be referring to the slide presentation which Andrea mentioned earlier in the call.

I am pleased to report we have another record quarter one where the company generated the highest fourth quarter revenue and earnings in its history. Adjusted EPS of $0.85 exceeded expectations by $0.07.

As you can see on Slide 8, the beat was driven by $0.02 of revenue outperformance from strong well-priced close in bookings and exceptionally strong onboard revenue.

A $0.04 benefit below the line from the impact of fluctuating foreign exchange rates on our advanced ticket sales obligation which we expect to reverse in 2019 and will impact our reported revenue and yield metrics. And a $0.04 benefit for interest and other below the line items.

All of which were partially offset by higher ship operating expenses as well as performance related compensation expense. Turning to Slide 9, net yield increased 4.7% or 4.2% on an as reported basis versus prior year outperforming guidance by 70 basis points.

The beat was driven by strong well-priced, close in bookings, and exceptionally strong onboard revenue across all major revenue streams.

Excluding the benefit from our new Norwegian brand capacity, Norwegian Bliss, which garnered yields above the NCLH corporate average in the quarter, our fourth quarter net yield growth would have been approximately 4.5%, which excludes approximately 75 basis points of revenue dilution from China operations related to the itinerary optimization initiative.

Turning to costs adjusted net cruise cost excluding fuel increased 3.6% versus prior year and 3.4% on an as reported basis. Our total fuel expense within line versus expectations as fuel consumption savings offset an increase in fuel prices per metric ton netted hedges which came in at $496.

Turning to full-year results, 2018 finish strong and we delivered yet another record year of financial performance. Both revenue and earnings were the highest in our history and we achieved a record adjusted even a margin of 31.3% up from 30.7% in the prior year and expanded our double digit adjusted ROIC to 11%.

Turning to slide 10, full-year adjusted earnings per share grew 24% to $4.92 or $0.37 above the mid-point of our initial full-year guidance issued last February. This result comes despite a 7% impact from unfavorable fuel prices.

Our performance in the top line from continued strong demand for our portfolio of products and Norwegian Bliss is record breaking -- season contributed to the beat the guidance. Revenue grew over 12% versus prior year, reaching a record $6.1 billion.

Other key financial metrics for the full-year 2018, include net yield grow up 3.5% or 3.7% on an as reported basis which exceeded the mid-point of our prior guidance by 20 basis points.

The year benefited from the successful introduction of Norwegian Bliss, strong demand for European sailings, additional high yielding sailing to Cuba well priced close in demand and stronger than expected on board revenue.

Excluding new Norwegian Brand capacity, full-year net yield growth would have been approximately 3.8% which excludes approximately 30 basis points of revenue dilution from China operations. Adjusted net cruise cost, excluding fuel increased 2.6% percent or 2.9% on an as reported basis.

And fuel price per metric ton, net of hedges increased to $483 from $465 in the prior year. It's important to note overall fuel pricing decreased since our last call are substantial hedge position entering Q4 as well as the lag in the, at the pump pricing minimized any tail wind from the market declines.

Shipping to 2019 on a full-year basis, our capacity is expected to nominally increase approximately 2.7%. With the annual nation of Norwegian Bliss along with the late November introduction of encore to the fleet partially offset by the approximately 50 day dry dock and re positioning for Norwegian Joy.

As Frank mentioned earlier, 2019 is the first year and a four year stretch of moderate capacity growth for our company. I'll direct you to slide 11, to review some deployment highlights. For the year, a little over a third of our capacity is in the Caribbean which includes Norwegian Bliss and encores debut in the region.

While capacity in Europe is up in the low teens as we deployed six Norwegian ships to that region in the peak summer. Norwegian Joy's redeployment result in a decrease in APAC share of our deployment and increases Alaska's share which equates to approximately 27% capacity increase in the region.

First quarter deployment is similar to prior year with the exception of -- who share decreases of Norwegian Joy enters dry dock before re positioning to Alaska. Looking at expectations for the full-year on slide 12, strong booking trends have continued across all core markets at all three brands.

Adjusted EPS for full-year 2019 is expected to be in the range of $5.20 to $5.30 or approximately 7% growth over prior year at the mid-point.

This includes an adjustment for the onetime non-cash write-off in depreciation and amortization of approximately 25 million associated with Norwegian Joy's enhancements, which will make her even better than a record-breaking sister ship Norwegian Bliss.

Since our last earnings call, we have seen a decrease in both fuel prices and interest rates, which has been partially offset by unfavorable foreign exchange rates, resulting in a net tailwind of approximately $0.10 per share.

As previously discussed, our expectations for 2019 earnings growth in the high single digit range is primarily a result of four factors. First, we have moderate in your capacity growth of approximately 2.7%. Second, we are lacking extremely strong financial performance in 2018 with adjusted earnings growth of 24%.

Third, we are incurring marketing and launch costs associated with two upcoming ship launches Norwegian Encore in late 2019 and Seven Seas Splendor in early 2020 with minimal in your contribution due to the timing of deliveries.

And lastly, the itinerary optimization initiative skews both are yield and cost metrics higher in 2019 due to a partial year benefit from higher revenues, which will be substantially offset by the associated costs including the extended dry dock and repositioning for joy.

NET yields for the year is expected to increase 3% to 4% or 2.5% to 3.5% on an as reported basis. This performance is on top of the already robust 3.8% growth we delivered in 2018, which excludes approximately 30 basis points of revenue dilution from China operations.

When excluding incremental capacity from Norwegians Bliss and Norwegian Encore, it results in only in marginal difference to our annual net yield guidance of 3% to 4%. Norwegian Bliss's Caribbean sailings are garnering yields above the NCLH corporate average and are offset by below corporate average yields when sailing in the Mexican Riviera.

Concurrently, Encore's one month of revenue service does little to move the needle. Adjusted net cruise cost excluding fuel is expected to be up approximately 3.25% or 2.75% on an as reported basis.

This is primarily due to an increase in total dry dock days and associated costs versus prior year fewer capacity days, which increase our system-wide unit cost. Due to the approximate 50-day Norwegian Joy -- 50 days, Norwegian Joy will be out of service to complete her dry dock, reposition to Seattle and carry out inaugural activities.

Incremental marketing costs associated with the deployments of the vessels involved and the itinerary optimization initiative and marketing and inaugural expense for Norwegian Joy Encore and Seven Sea Splendor.

Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $465 with expected consumption of approximately 860,000 metric tons. We have continued to strategically layer on additional NGO hedges for 2019 and 2020, and they're now hedging into 2021.

As a result, we currently have 57%, 53% and 33% of our total fuel consumption hedged for 2019, 2020 and 2021. There are a few key items to keep in mind for the balance of 2019. When looking at the cadence of net yield growth.

The first quarter is expected to be the lowest yield growth quarter primarily as a result of the Easter holiday shift into the second quarter as well as Norwegian Joy's final China sailings during the low-priced winter season.

We expect net yield growth for the remaining three quarters to be relatively consistent, as Norwegian Joy's redeployment to North America will offset the tougher comps from the lapping of Norwegian Bliss's inaugural season as well as the impact from six scheduled dry docks for the high yielding Oceana and region brands.

As for the cadence of a net crews cost excluding field per capacity day, the third quarter is expected to be the highest growth quarter, mainly due to the timing of dry docks, with one scheduled dry dock for an Oceana vessel occurring at the tail end of the quarter compared to zero dry docks in the prior year.

Q2 is expected to be the second highest quarter primarily due to the dry dock and repositioning on Norwegian Joy. Now let's take a look at our expectations for the first quarter, which can be found on Slide 13. Net yield is expected to increase approximately 2.5% or 2% on an as reported basis.

This growth comes despite headwinds from the shift of the Easter holiday into the second quarter which includes premium price sailings for the spring break period as well as Norwegian Joy's final China sailings.

Excluding the benefit from our new Norwegian brand capacity Norwegian Bliss, which is garnering yields above the NCLH corporate average while sailing in the Caribbean, net yield growth is expected to be approximately 2%. This comes on top of 4% growth in the prior year.

Turning to costs, adjusted net cruise cost excluding fuel is expected to be up approximately 2.5% or 2% on an as reported basis. As for fuel expense, we anticipate our fuel price per metric ton net of hedges to be $456, with expected consumption of approximately 215,000 metric tons.

Looking below the line, we expect a $0.10 one-time benefit from tax planning initiatives as discussed on our previous call, which has shifted from Q4 to Q1 and it's expected to be partially offset by a $0.04 exchange loss, resulting in a net benefit of approximately $0.06.

Taking all of this into account adjusted EPS for the first quarter is expected to be approximately $0.70, a 17% increase over the prior year. As Frank mentioned earlier, in 2018, we made significant progress towards achieving our full speed ahead 2020 targets that we provided at our Investor Day.

As you can see on Slide 14, we've reported better than expected adjusted EPS growth of 24% increased our double digit adjusted ROIC to 11%, delivered our balance sheet to 3.3 times and returned 400 million for approximately one-third of our targeted 1 to 1.5 billion of capital to shareholders.

Looking at slide 15, our cash generation continues to accelerate and we remain extremely focused on returning meaningful capital to our shareholders. In 2018, we repurchased a total of approximately $665 million worth of shares under our previous and current repurchase authorizations.

We have a $600 million remaining on our current 1 billion, three-year authorization. Our goal is to have a balanced approach to our capital allocation strategy, while maintaining maximum flexibility. We continue to explore with our board, the potential initiation of a dividend. With that, I'll hand the call back over to Frank for closing commentary..

Thank you, Mark. Well, my earlier commentary focused on our 2019 story. I want to reinforce that we are focused just as much on the long-term and on our sustainable success as we continue to make sizable investments to drive future returns even higher.

We continue to invest in the growth and quality of our fleet with recently announced new ship orders for the Oceana and region brands, which number one, expands our new bill program to 11 ships featuring approximately 28,000 berths for delivery over the next nine years to 2027, a 50% increase from current capacity level.

Number two, these new orders give us new state-of-the-art tonnage for our three best-in-class brands and number three provide us with measured capacity growth for years to come all financed at historically low interest rates.

We also continue to invest in our existing fleets of the Oceana next initiative I mentioned in my earlier commentary and Norwegian Edge, which saw the penultimate ship in a program Norwegian Sky undergoing comprehensive refurbishment that has left the ship in as good as new condition, elevating our offering in a three-and four-day Bahamas in Cuba market.

We continue investing in Port-related and destination specific infrastructure with a new dedicated state-of-the-art terminal at Port Miami under construction a partnership to develop the strategically important IT straight point port in Alaska and the completion of exciting new guests facing developments at great state of K or Bahamas private island.

And last but not least, we continue investing in technology with Cruise Freedom, our innovative technology platform that leverages the very latest proximity and location technologies including wearables. Cruise Freedom will meaningfully enhance the guest experience and will be ready to make her debut on Norwegian Encore late in 2019.

We'll have more news on that as we get closer to Encore's launch. Today, we've covered a lot of ground. So we provided some key takeaways which you can find on slide 16. Looking back, we delivered a breakout year in 2018 with record-setting financial results driven by strong demand and the exceptional performance of Norwegian Bliss.

Looking to the intermediate term, we look to build on our strong book position and deliver another record-breaking year in 2019. And last but not least, we are ahead of pace to deliver on our full speed ahead 2020 targets.

On behalf of our 33,000 employees I'd like to thank all of our stakeholders whether you are a shareholder, a creditor, a travel agent partner, a vendor, or our valued guest for continued confidence and trust and support. And with that I'll open the call for questions.

Operator?.

Thank you, Mr. Del Rio. [Operator Instructions] Our first question comes from Harry Curtis with Instinet. Your line is now open..

Good morning everyone, very strong results. I had a couple of questions.

Frank, if you could discuss given your record booking level, the strategy going forward balancing the need to continue filling your fleet this year and next versus pushing price, because you are so well ahead, is it not likely that just the math behind being ahead you had less cadence to sell.

So what is the balance we should look forward to between pushing price versus occupancy?.

Good morning, Harry. So the load is in very, very good shape both for 2019 and 2020 as we stated in our commentary. So we're focusing on price. We're pushing price higher everywhere we can both in 2019 and 2020.

You saw the booking curve elongate 9% year-over-year, and I always say that I'm not sure what the optimal booking curve is, but any time I can push the booking curve out, and raise price at the same time that's good for our business.

So I think overall, while we still had a lot of cabins to fill the emphasis will be on raising prices across all three brands..

Very good.

And then the follow-up question is 2019 is another sizeable renovation year for your legacy fleet and as you exit 2019 if you could describe the competitiveness of the legacy fleet vis-à-vis its need for any significant additional renovation spend beyond 2019?.

Yes, well, dry docks are a continual phenomenon in our industry required by our class, but I will tell you that the heavy lifting as I mentioned several times in prior calls will be behind us at the end of '20. The entire Regent fleet has now been completely refurbished.

The OceaniaNEXT program has one vessel behind us that was done at the tail end of '18, two more in '19, and the last one will be in '20. We just finished Norwegian Sky. I just walked through the day after she came out of dry dock she literally is as good as new. And the last one we're going to focus on is Norwegian Spirit.

And I don't think it's any coincidence that our record industry leading yields are as a result of how well we maintain our vessels. And that's something that is core to our strategy of offering consumers the very best product possible and we can see that consumers are willing to pay for it..

So the bottom line is that your free cash flow in 2020 should look pretty measurably then?.

It will because of our performance, our increased yields. It will because we'll have more capacity. 2020 will be a very sizable year in capacity. We have two new vessels, each of them operating roughly 11 months each. And one of them is what I suspect will be the highest yielding ship in our fleet, the new Regent Splendor.

So yes, free cash flow is something that we expect to accelerate. It's part of our 2020 target of returning up to $1.5 billion to our shareholders one way or the other. And as we mentioned during our prepared comments, we're well on track to achieve that..

That's great, everyone, thanks very much..

Thank you..

Our next question comes from Felicia Hendrix with Barclays. Your line is now open..

Hi, good morning. Your very detailed prepared remarks blew through like almost all my questions..

Did we miss one?.

Sorry?.

Did we miss one?.

You missed a few..

Oh..

So the first thing I wanted to talk about was your first quarter net yield guidance. I was just wondering if you could talk about some of the things that changed clearly for the better regarding your outlook there since you last reported, because if we kind of dial back to then.

And if you look at where consensus was and it's been -- came down kind of into the call. The perception was that your first quarter guidance was going to be a bit more muted than what you gave.

So just kind of wondering, I mean, I think Frank, you're very clear to say that pricing has been getting better and stronger, but if you could just kind of walk us through what happened from then until now to give us some color about the strength in the markets, help us understand that, that would be great..

Yes. Felicia, this is Mark, I think it's just a result of what we've been seeing in the overall industry. We're seeing strong pricing in all of our markets. Caribbean is doing fantastic.

We're guiding 2.5% for the first quarter and about a half a point of that is related to the Bliss and she's operating in the Caribbean, but when you strip out the new capacity the underlying organic fleet is strong. And that's coming across all markets. So we're just seeing good business everywhere we operate..

But I guess my point is that it seems to have been getting stronger even in a short period of time, no? Because I mean, if we go back to when you reported again -- I think the view was that the number wasn't thought to be as high as what you actually came in with your guidance..

Yes, we're seeing strong pricing on our remaining inventory and we're seeing significantly strong trends in our onboard revenue as well. So that's helping profit up. So when you put that together it's creating a nice, healthy momentum for us..

Great. And then just on Alaska, I mean, Frank, I think that you made a lot of really good points there.

But you know the investment community is concerned about the capacity increases we're seeing in Alaska this year which has to do with Joy and I'm just wondering like -- obviously, you guys are going to do well there with the new hardware there, but do you think that Joy and Bliss will have created a halo effect over the entire region, like, lift Alaska in general in terms of the consumer and demand or do you think your ships might be cannibalizing other supply that's there?.

It's hard to say, Felicia, certainly, the -- you know, two years in a row of us being able to deploy top hardware to the region has created excitement in the region, even more excitement for our own brand. Even our third vessel in the Alaska region, Norwegian Jewel -- obviously Joy and Bliss overshadow is doing better than ever.

It's been two years in a row now of double-digit growth in capacity. Not just for us, but for the industry. But I think it goes to show the strength of Alaska. It's a short season. People know that they only have a small window to be able to go and people are going.

Alaska has become a go-to, must-have destination on your bucket list especially for families. And our ships certainly are built for families. There's everything you can possibly think of to do on these vessels. I think millennials love the outdoors and the environmentally oriented destination of Alaska.

So I think it's got a lot going for it, and -- but I do hope that next year, in 2020, and I think it is -- we'll have much more moderate capacity growth in that region..

Great. Thank you so much..

Thank you..

Thank you..

Our next question comes from Jared Shojaian with Wolfe Research. Your line is now open..

Hey, good morning everyone. Thanks for taking my questions. So Frank, I was pretty surprised to hear your comments on the Bliss and just your ability to hold it in some cases, raised price from a year ago. So I guess of your 3% to 4% yield guide for the year.

How much of a tailwind have you baked in from Bliss, if you baked in a tailwind at all and then, can you also parse out how much of a tailwind you've baked in from the Joy redeployment?.

Yes, hi, Jared. This is Mark. So, we guided 3% to 4% and when we -- first let's address the Bliss; Bliss is doing fantastic in many as we said in many months she's booking at or above what she garnered in her inaugural year, which there's not a lot of cases where you can say that. That said, she is also analyzing year-over-year.

So you have some tailwind that knocks that down, so Bliss is really essentially a plus shore slight tailwind for the year.

As far as the Joy, I think the best way to think about it is, we had said with this whole itinerary redeployment it was going to be a $0.30 accretion in 2020, if you kind of parse that back and you look at that and say that's a clean annualized number. And you pull out the dry-dock costs, which are, I guess, around $0.03 to $0.04.

And then you say she is operating about only two-thirds of the year in '19. That gets you to about most, let's say, $0.17 or $0.18 of accretion. And as we said with the redeployment, it's all on revenue; it's all ticket to an onboard revenue accretion. So when you compare that against our -- what is it, a point of yield it's approximately $0.23.

You get to about 75 basis points of yield tailwind for the quarter for the year and then with the lower capacity days we are being out of service, it gets you in around the 1% zone. So our underlying organic fleet growth is really growing at our 2% to 3% in line with our expectations of what we target every year..

That's really helpful. Thank you. And I know it's a little early to be talking about 2019 or 2020, but I'm going to ask you about anyways, just given some of your comments. And, it seems to be shaping up well, and on the yield side, you've got several tailwinds with Splendor and Encore and analyzing Joy.

And then on the cost side, you have tailwinds from lapping the drydock and the marketing spend, et cetera.

So is it unreasonable to assume that 2020 yields and costs could look better than a normal year just assuming kind of a steady macro environment from here?.

Yes, assuming a steady macro environment that's always the necessary requirement with Splendor coming on certainly she's going to bring premium yields to our corporate average.

But that's going to be somewhat offset by Encore again, so on core as we said Bliss is doing well in the Caribbean Encore is our best book ship, new bill launch in the Caribbean. But you have to look at her on an annual basis, so at this stage looking forward, it's a bit early.

We don't necessarily believe that Encore may be accretive to our system yields, but it is, it's looking great but it's just still way too early to make that commitment. And then, in terms of the cost, yes, I think we will see some deceleration on the cost front from '19 to '20 given some of the one time or ramp up in cost that we've seen this year..

Okay, very helpful. Thank you very much..

Our next question comes from Thomas Allen with Morgan Stanley. Your line is open..

Hey good morning.

One of your peers talked about a little bit of weakness from Europe source customers, just given the macro uncertainly there are you seeing that at all?.

Yes, U.K. has been little up and down. But unlike our peers, where we don't have national brands that require, a whole lot of locally sourced business to make things work. Our percentage of business that comes from Europe is a little bit less than half of our total internationally source business.

So can Europe be doing a little better? Yes, probably could. But again, our domestic demand is so strong for Europe just for Europe itineraries that we're not relying a whole lot on Europe source business to sell our vessels.

We are more focused on raising prices in Europe and over the last two years, we now have two consecutive years, so we've been able to raise prices for Europe source business over 20% as we hone in on our best cash strategy with only 26 ships, the demand that we are seeing for our products we can be selective and what customer's resource and quite frankly we're going for price.

And so as I said before we raise prices to the point where there's parity for us the source market we are in different whether a Brit or a German or on American a book our cruises because we price it accordingly.

And so I think that's one of the private key differences for us and some of our peers that we simply don't have to rely on the European market as much as others may have to..

Thanks, helpful. Thanks.

And last quarter, as far as focus on free air promotion and -- any updates on how that progressing?.

Hi, I'll take that one. We've been very happy with how we free airs has been received. It's in the very hard our focusing on the value over the prize and we see it as one more tool in the toolbox and so we're able to use it where it makes sense then that tends to be in some of our further out inventory longer hold product.

It's definitely a program not a promotion, it's something that we can use that at times where it makes sense to add value, keep the story well away from pricing and along with the beverage package, the dining package, Wi-Fi, shore excursion and an opportunity to add value move away from price and continue to have this really strong pricing deployment that we've been we've been demonstrating this.

So if you like it you'll continue to see it and we'll place strategically make sense for this..

[Operator Instructions] Next question comes from the line of Steven Wieczynski with Stifel. Your line is now open..

Good morning. So Mark, you talked on -- but I guess, around the Norwegian fleet enhancements you guys talk about that you think that would drive about $0.30 in additional earnings in 2020 and I was wondering if you could help us think about where that estimate currently fits.

Is that still a pretty good range I guess what I'm getting at it seems like there could be some outside that range now given how strong the demand and pricing patterns that are currently out of the marketplace?.

Yes, $0.30 that was our best guess we always try to give you our most educated forecast and I think it's you know it it's really early, that we are seeing great signs, great booking patterns on the Joy and the other redeployment that we initiated but it's still early I think we're confident that in that number but to say that we're exceed at this point I think is a bit premature..

Okay, got you. And then second question would be around fuel consumption I guess, if we look at the first corner consumption of 215 tons and then compare to the full-year estimate of 860.

Assume pretty big step up in consumption in the last couple quarters just wondering what you know might be driving that and then also maybe how we should think about consumption in 2020 as well if there's anything that we should be thinking about around consumption over the next 12 or 24 months. Thanks..

I think in the first quarter a big portion of that is going to be Bliss as she repositions tour dry dock in and comes out of Asia. I'm sorry Joy I apologize I said Bliss.

And that as we look forward our consumption if we normalize our consumption per capacity day for 19 if we took out the Joy repositioning, we took out the encore which is again being delivered later in the year who have to come across the Atlantic, we would expect our consumption to be down you know some words 0% to 1% which is consistent with what we aim to deliver.

And then in 2020, I think we would see an escalation in that you know prop possibly in the 2% to 3% zone as we analyze the larger ships and the -- comes on board as well..

Our next question comes from Brandt Montour with JPMorgan. Your line is now open..

Good morning everyone, appreciate you taking the questions. So I know the way away on China I just want to ask about the reaching spirits plans to deploy the next year is that still the plan and how is your thinking regarding a lot I believe that market changed the if it all sense, so technician was enough last July. Thanks..

Yes, Brandt, it will be year round trip to Asia. We're always looking to deployed vessels at the highest yielding itinerary as you know you heard me say many times itineraries is the number one driver of yield.

So will continue evaluating and but yes Spirit will go to Asia and I think in second part of your question is have we seen anything different in the Chinese market. I would now ply with that Joy has performed a line slightly ahead of what we had expected in the first quarter of 2019 but never the last.

Her deployment to Alaska for all the regions you heard so far today in a prepared statement was the right thing to do..

Great. Thanks. And just following up, just a little housekeeping on CapEx and I apologize if you already touched on this but CapEx guidance came up a little bit for this year and next year as wanted get a sense how much of that is the new port you announced in Alaska and what else maybe in there..

Yes, so that our agreement with the port and the infrastructure in Alaska, that's an asset light agreement so it's not really a lot of CapEx is coming on that very similar to our ported Miami agreement.

The increase is really driven around the additional ships that we recently announced as you recall we announced two new builds for Oceania and one additional for Regent cruises and in addition to our Leo five and six class. So that in conjunction with some further investments that we planned to make around technology and other infrastructure..

Our next question comes from a line of David Beckel with Bernstein. Your line is now open..

I had a quick question about onboard spending in the beat in Q4, can you this provide a little bit more color on exactly where I know you mentioned across all components but are there specific initiatives you put in place that are driving stronger than expected on borders or is more function of just robust consumer environment and just to follow up on that for 2019, what do you sort of expecting in terms of onboard spending growth on a year-over-year basis?.

Yes, so I for quarter fourth quarter we saw great trends across all of our streams. So I think the key is and we've been saying this is we've been investing in and getting the consumer touch point earlier in the booking cycle. So we're selling more ahead, we're bundling more ahead.

So what happened is the consumer is coming on board with a clean wallet, a fresh wallet. So that helps us. We're seeing strength in our casino channels it's just really across every channel. As pivot to 2019, we typically look for you know 1% or 2% of growth in on board revenue.

Obviously, we always try to outperform that's our typical modeling range and the early signs of what we're seeing in the quarter for January, February are looking good. We're seeing continued strong trends there, so very positive..

Great.

If I could just add a quick follow up there, can you remind us about what percentage of your, I guess is mostly plus Norwegian passengers are packaging or what percentage of onboard spend is prepackage verses actually on board the ship?.

Yes, I don't know that we've given specific details on that but I think were probably north of half of our guests are in this part or in the bundle packaging deal..

Our next question comes from the line of Vince Ciepiel with Cleveland Research. Your line is now open..

Good morning. I wanted to circle back to fuel expenses, at the Investor Day you mentioned the potential that MGO could step up to 60% of the mix is that still the thinking going into next year and then it looks like your hedged position increased from 3Q release or the 4Q release, and now 50% hedge for 2020, which is ahead of schedule.

I think you normally target to be 50% in the current year, so how are you thinking about fuel costs going into 2020, would that change, could you elaborate a little bit on that?.

Yes, certainly. So everything we see for 2020 we are still targeting that, you know, roughly 60% MGL mix. We have a significant investment in our scrubber technology. And all the ships that are coming online are coming online as planned within our date range. So that's positive. In terms of hedging, what you guys have seen it.

Since our last call in November at one point fuel markets were down almost what 17% or so, so we took advantage and we layered on more hedging for both '19 and '20. And more particularly, we layered it on in our gas oil which is our proxy 4MGL. So we were able to obtain some favorable pricing.

And in terms of our strategy, we aim to be at a minimum 50% hedge going into the year, but we have always said that when there're dips in the market, we'll opportunistically ramp that up and that's what you saw over the course of Q4..

Great, thanks. And then just separately on the Caribbean, could you touch on what you are seeing on a regional basis? I know that throughout 2018 it sounds like the western was improving and maybe coming in at a bit of a premium to the east.

I am just curious what you are seeing as demand has recovered for eastern Caribbean sailing and what pricing looks like there, and just your thoughts on Caribbean pricing as a whole for 2019 versus '18?.

Yes, it's Andy. I'll take that. Overall, we are very happy with Caribbean. As Frank said in his opening comments, we have seen the acceleration overall. Pricing is up in the Caribbean, load factor is up in the Caribbean. We are seeing it broadly across the region.

And Bliss, of course, has been an outstanding deployment in the Caribbean as well as in Alaska trade. And so in the east, she has performed extremely well. So we really don't see any hangover in the Caribbean at all. We just see acceleration and performance. Strong pricing, strong load, and feel very good about the outlook..

Operator, I think we have time for one more question..

Our last question comes from the line of Tim Conder with Wells Fargo. Your line is now open..

Thank you, and congrats to the whole team on the conclusion of the year, I wanted to circle, Frank, on the Med and in particularly the eastern Med and with the Splendor coming and maybe shifting around a little bit of capacity, that historically has been a very high yielding segment for the industry.

What are you seeing there with demand? I know some itinerates have been slowly added back for your sales in the industry.

But what are you see and how do you see that looking on out in the '21 and so forth at this point assuming no changes in geopolitical obviously?.

Yes. I am ready for that question, Tim. We for the first time since 2016, we went back to the Med -- to the eastern Med, this coming summer with 12 sailings increasing to 20 sailing in 2020. And I am pleased to tell you that all 12 sailings in 2019 are better loaded and at higher pricing than the surrounding sailing that do not include Turkey.

Turkey is the -- when we talk about the eastern Med, Turkey is the key destination which has been somewhat off limit to the industry for the last couple of years.

So the fact that the Northern American consumer who is the one booking most of these eastern Mediterranean cruises, seem to want to come back to the eastern Med and is willing to pay a premium price bodes very well for 2020. As you know, itineraries are developed and put up for sale 18-24 months sometimes before the actual sale date.

So you test the waters. You see what happens. And then it takes you a while to really ramp up. So at this point assuming that there are no other disruptions or reason to not go to the eastern Med, I expect that we along with the rest of the industry will probably increase the number of deployments to the eastern Med beginning in 2020 and more in 2021.

So it's good news. As you know when the eastern Med is good, it's as good as any if not the best of all itineraries. So we are all looking forward to being able to increase our presence there. Thank you, Tim..

Okay.

Then a quick follow-up here for me, Mark, just a little bit more detail, if you would, can you enumerate what the tech investments are in the CapEx and then when you anticipate having all those tech enhancements rolled to the fleet?.

Yes. I think it's a bit early to say what we are investing in. I think we are looking at all different aspects. As we said, we are looking for rolling out some new technology with the Encore later this year.

And as we go forward, we want to make sure our platforms and our systems behind the scenes are capable to handle that as we look forward and maybe we start integrating voice features or artificial intelligence down the road. But we are doing some catch-up here.

We are making investments slowly but surely but you are not going to see anything radically different than what we have already announced. It's more back of the house..

Okay, great. Thank you, gentlemen..

Thank you, Tim..

And thanks everyone for time this morning and your continued support. As always, the team will be available to answer your questions later today. All the best. Bye-bye..

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