Good morning, and welcome to the Norwegian Cruise Line Holdings First Quarter 2023 Earnings Conference Call. My name is Paul 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 is being recorded. I would now like to turn the conference over to your host, Jessica John, Vice President of Investor Relations, ESG and Corporate Communications. Ms. John, please proceed..

Thank you, Paul, and good morning, everyone. Thank you for joining us for our first quarter 2023 earnings and business update call.

I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings; Harry Sommer, President and CEO-Elect 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 at www.nclhltd.com/investors. We will also make reference to a slide presentation during this call, which may also be found on our Investor Relations website.

Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I'd like to cover a few items. Our press release with first quarter 2023 results was issued this morning and is available on our Investor Relations website.

This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures.

A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. With that, I'd like to turn the call over to Frank Del Rio.

Frank?.

Norwegian Cruise Lines, Oceania Cruises and Regent Seven Seas Cruises to form the best cruise operator in the industry. After eight incredible years, it is now time for me to make way for the next generation of leaders who are ready and energized to take this company onto greater heights.

Before getting to the crux of the call, I want to take a moment to thank all of Norwegian's team members around the globe, shipboard and shoreside, who are the backbone of this company and who are the main driver of its success.

I also want to express my sincere appreciation to our loyal guests, value travel partners, lenders, shipyards, investors, analysts and all of our stakeholders for your continued support and partnership over the years.

I'm incredibly proud of what we have been able to collectively achieve, especially over the past few extremely challenging years, but I know that the best days for this company still lie ahead and I look forward to seeing what you all accomplish together. With Harry Sommer at the helm, I leave this company in the most capable of hands.

As Slide 5 shows, Harry has a broad range and depth of experience that makes him one of the premier executives in the industry.

I have worked with Harry in various capacities over the course of three decades, and I can assure you that he is a strategic and innovative leader who has the right talent, skill set and energy to lead the company at this typical time in his history.

As a longstanding cruise industry and company veteran, he brings both continuity and a fresh perspective to this seat.

We have been working together along with our Board of Directors and the rest of the senior management team for some time now to ensure a seamless transition and I am confident that NCLH will not skip a beat as we continue to push forward and capitalize on the momentum we are experiencing today.

Now there are times when fate meets circumstances, and this happens to be one of those times, as my departure coincides not only with the 20th anniversary of the founding of Oceania Cruises, but also the delivery of the seventh ship in the Oceania fleet, the incomparable Vista, which you can see details about on Slide 6.

With great pride, we took delivery of this amazing ship just last week, bringing NCLH's total fleet to 30 vessels with over 60,000 berths. We are heading over to Europe this week where Vista will be christened in Malta by her godmother, Emmy Award-winning food personality Giada De Laurentiis.

At 1,200 guests, Vista is the first of two Allura Class ships for the line, with the second ship named Allura expected in 2025. These ships will further elevate and cement Oceania Cruises' leading position in the upper premium cruise space.

I have to thank our partners at Fincantieri once again, who are bringing our vision to life and delivering a truly magnificent ship. What is even more exciting is that Vista is just a first of three newbuilds that we have in the pipeline this year with Norwegian Viva and Regent Seven Seas Grandeur joining the fleet later this year.

New hardware introductions generate excitement from those new-to-cruise and new-to-brand as well as with our loyal past guests, so three ships in one year will mean that much more of a halo effect for our company to leverage.

Given their very efficient financing structure, it's made possible through the unique nature of the industry's interconnected financing ecosystem, new ships are able to contribute immediately and are expected to be meaningful drivers of the company's future earnings growth and margin expansion.

So now I'll turn the call over to Harry, who will be tasked with delivering on the significant potential upside we see ahead, to provide an update on the current environment and the key catalysts we have on the horizon.

Harry?.

efficiency, innovation and collaboration. We are implementing solutions for efficiency today, innovating for future solutions, including with our investments in modifying two of our future newbuilds to create Methanol-Ready configurations, and are committed to collaborating with our stakeholders and partners along the way.

With that, I will now turn the call over to Mark for his commentary on our financial position and outlook.

Mark?.

Thank you, Harry, and good morning, everyone. Before I dive into the financial results and outlook, I want to also thank Frank for all that he has done to propel this company forward as well as his outstanding leadership.

I look forward to continuing to partner with Harry in his new role as we work to capitalize on the momentum we are experiencing in order to maximize value for all of our stakeholders. My commentary today will focus on our first quarter 2023 financial results, 2023 guidance and the progress on our financial recovery.

Unless otherwise noted, my commentary on net per diem, net yield and adjusted net cruise cost excluding fuel per capacity day metrics is on a constant currency basis. Slide 13 highlights our first quarter results, in which we are pleased to report that we met or exceeded guidance for all key metrics.

Focusing on the top-line, total revenue per passenger cruise day in the quarter was up approximately 18% versus 2019. Net per diems increased approximately 7.7%, achieving the high end of guidance, while net yield of 3.6% with a healthy beat versus our expectations, as load factor of 101.5% came in well ahead of projections.

With significantly higher participation as a result of enhancements to our bundled offerings today when compared to '19, the accounting allocation between ticket and onboard revenue has also changed, which can skew the comparison. Therefore, we focus on total net per diem and net yield as a better holistic representation of our pricing power.

Turning to costs. Adjusted net cruise cost excluding fuel per capacity day averaged $161 in the quarter, better than expected and approximately 14% lower than the run rate in the second half of 2022. This reflects the rapid execution of cost saving initiatives identified and implemented last year, some of which were realized earlier than anticipated.

This includes improvements in areas such as supply chain initiatives, back office optimization, as well as crew costs and travel expenses. Adjusted EBITDA was nearly $40 million higher than our guidance and approximately $234 million in the quarter. In addition, adjusted EPS loss of $0.30, also beat our guidance. Shifting our attention to guidance.

Our outlook for the second quarter can be found on Slide 14. As we have stated previously, the second quarter will complete our occupancy ramp up. In addition, comparisons to 2019 includes certain premium-priced Baltic and Cuba voyages in that year, which we did not operate in 2023.

As a result, growth is in line with our expectations with net per diem increasing approximately 5.50% to 6.25% and net yield expected to increase approximately 2.50% to 3.25%. Pricing and yield are both expected to increase in the second half of the year, with the fourth quarter exhibiting the strongest growth versus 2019.

This is driven by our organic pricing power and, in part, by a favorable comp as the second half of 2019 included various headwinds like the rapid exit from Cuba and the close and resale of those sailings.

Fourth quarter is also expected to benefit from our strategic shift to premium deployments with extended Alaska and European seasons this year, as well as a mix shift with more capacity operating for our Regent and Oceania brands.

Given our robust book position for the second half of 2023, which is ahead of 2019, we have good visibility into the balance of the year, which gives us confidence that we can achieve the sequential improvement and year-over-year growth.

Adjusted net cruise cost excluding fuel per capacity day is expected to be approximately $159 in the second quarter, a further improvement versus the prior quarter, as additional savings initiatives are realized.

We continue to expect modest sequential improvement each quarter in 2023, as occupancy increases and as a result of initiatives which have already been identified and implemented. This should result in a lower run rate cost level exiting 2023 than our full year reported results.

Taking all of this into account, adjusted EBITDA for the second quarter is expected to be approximately $485 million, which is roughly the same level as EBITDA in the same quarter of 2019, another stepping stone to closing the gap versus pre-pandemic levels.

I'm also pleased to report that we expect to achieve another significant milestone in the quarter with adjusted EPS turning positive for the first time since the pandemic at approximately $0.25 per share. Now shifting our focus to our outlook for the full year 2023.

Adjusted EBITDA is still expected to be in the range of $1.8 billion to $1.95 billion, with the high end of our targeted range representing record adjusted EBITDA for the company.

This is expected to translate to adjusted EPS of approximately $0.75 or $0.05 above our prior guidance, reflecting the first quarter outperformance, partially offset by higher anticipated fuel costs and FX for the remainder of the year.

Taking a closer look at the components of the full year outlook, net per diem growth of approximately 9% to 10.5% as compared to 2019, and net yield growth guidance of approximately 5% to 6.5% are unchanged versus our prior guidance.

Moving on to costs, adjusted net cruise cost excluding fuel per capacity day is expected to average approximately $159 for the full year, slightly better than our prior guidance and reflecting lower-than-expected costs in the first quarter. This represents a 15% decrease as compared to the average of $187 in the second half of 2022.

As Harry noted, we continue to evaluate all opportunities to accelerate revenue and improve operating efficiencies, and are taking deliberate actions to improve our margins, while maintaining the exceptional guest experience and superior service levels our brands are known for.

We look forward to continuing to demonstrate this improvement over the coming quarters. Turning our attention to the balance sheet.

Slide 15 provides our debt maturity profile, which includes approximately $800 million of scheduled debt service for the remainder of the year, the vast majority of which is related to our export credit agency-backed ship financing.

We've talked previously about the actions taken earlier this year to address a large portion of our 2024 maturities, so I won't go into further details today, but a summary is provided on Slide 16 for your reference. Since we last spoke, we also signed agreements to increase our ECA-backed commitments by approximately €1.7 billion.

This was primarily to finance improvements and modifications to newbuilds currently on order across our three brands.

This includes the previously communicated changes to the last four Prima Class ships to make them up to 20% larger than the first-generation ships, as well as the addition of the Methanol-Ready configuration to the last two ships to increase optionality and help future-proof these long-life assets and reach our decarbonization goals.

The financing also covers owner supplies associated with preparing certain newbuild center service as well as related financing premiums.

While we originally plan to fund this with our organic cash flow generation when the ships were originally ordered, given the very efficient and supportive financing we received from export credit agencies and the continued uncertainty in the macro and financial markets, we felt financing this was a prudent action to minimize cash outflows for the next few years.

Turning to liquidity. Our overall liquidity position remained strong at approximately $1.9 billion, as outlined on Slide 17. This consists of approximately $700 million of cash and cash equivalents, nearly $600 million of availability under our revolver and our $650 million undrawn commitment.

This does not include the separate $300 million undrawn backstop commitment, which enhances our future liquidity but is not currently available to drop. I want to reiterate our commitment and relentless focus on delivering value for all of our key stakeholders.

We will continually evaluate options to accelerate our recovery, while maintaining adequate financial flexibility to adapt to different macroeconomic backdrops. Overall, we feel optimistic about the direction of our business and we believe we are taking the right steps today to create a more nimble and resilient organization for the future.

With that, I'll turn it back to Frank for closing comments..

Thank you, Mark. Before turning the call over to Q&A, I'd like to leave you with some key takeaways, which you can find on Slide 18. First, we continue to see healthy and resilient demand from our target markets who remain willing and eager to spend on cruise vacation travel.

Our brands continue to resonate with consumers as demonstrated by our book position and pricing for the remainder of '23. Our record book position also gives us high visibility into the back half of the year and beyond.

Second, we are already starting to see the benefits of our margin enhancement efforts, and we'll continue to take strategic measures to best position the company for its next chapter, while ensuring that we keep the secret sauce that makes our brand so special fully intact.

Third, we are excited to deliver on our industry-leading growth profile, which we are confident we can profitably absorb providing a meaningful boost to our future earnings power. And lastly, we feel comfortable with our liquidity position and are committed to prioritizing restoration of our balance sheet in the coming years.

We've covered a lot today, so I'll conclude our commentary here and open up the call for your questions.

Operator?.

Thank you, Frank. [Operator Instructions].

Before we get to the questions on the line, we first want to address a top question from our online shareholder Q&A platform, which provides all of our investors another avenue to submit and upload questions for management.

The top voted question we received this quarter was, what are the three main action points the company will take to ensure growth in the year ahead? Harry, do you want to take that one?.

Sure, yes. Happy to, and that's a great question. We touched on this already in our prepared remarks, but we are laser focused on delivering our '23 guidance and financial goals.

One of the drivers of growth this year is going to be our robust newbuild platform with us taking delivery of three new and I might be biased, but I'm going to add absolutely magnificent ships this year, including the incredible Vista, which start sailing tomorrow.

Those ships along with some of our other recent additions translate to a nearly 20% growth in capacity when compared to 2019. So that's expected to provide a meaningful boost to our current and future earnings power.

We're also hard at work at our ongoing margin enhancement initiative and our continuing to identify new and innovative ways to get more efficient while also delivering best-in-class product and service offerings for our guests. We're pleased with the results so far, but we're not stopping there and we'll continue to leave no stone unturned.

And lastly, we're going to continue to capitalize on the robust consumer demand we're experiencing, which is translating into our record book position and strong pricing, including very robust onboard revenue generation. So, we feel good about our position over the next year and we're going to do everything in our power to deliver on all our goals..

Hey, operator, we can take the questions from the line now..

Thank you. Our first question is from Dan Politzer with Wells Fargo. Please proceed with your question..

Hey, good morning, everyone. And Frank, congrats on a storied career and wish you all the best luck in your future endeavors. Harry, congrats on the new role and look forward to getting to know you better. First question on the second quarter, the yields. I mean, I think they were a little bit lower than we were expecting.

So just any more detail there between maybe the gross and the net, was there any noise in the quarter on the Free at Sea program, also I guess that would relate to the first quarter? But just trying to zoom in a little bit on first quarter versus second quarter and the change there? Thanks..

Yes, good morning, Dan. This is Mark. So, first and foremost, there is no change. Q2 -- both Q2 pricing and yields are exactly in line with where we thought they were going to be. Of course, as your occupancy ramps up, you do see a little bit less of pricing power on your [lower meta] (ph) i.e., inside cabins.

But overall our NPDs remain very healthy and strong. And then secondly, I think the other piece to look at is when you do the comparison versus a very strong second quarter 2019, we're comping over some difficult comps with Cuba that we had back in 2019 as well as the full benefit of Baltic itinerary.

So, while on the surface, it may appear that there is -- it is a bit softer than Q1, I assure you it is exactly where we expect it to be. And as I said in my prepared remarks, the second half of 2023 is expected and continue -- and we continue to expect very strong pricing and yield growth..

Got it. And then, on the cost side, the cost guidance, obviously, the first quarter was better. I guess to what extent should we expect that to continue to step down throughout the year? And how much is your guidance reflecting some conservatism there? I know that was a big part of the commentary last quarter just on the uncertain macro..

Yes, sure. So, let's address the cost side first. So, we did overachieve in Q1. And as I had communicated, we had communicated on our last call, we were steadfastly going into a lot of our onboard -- our margin enhancement initiatives. And we simply executed some of those initiatives quicker than we had anticipated.

So, while we did get a benefit in Q1, it doesn't necessarily translate to a benefit in the outer quarters simply because we already had that baked into our guidance. That said, we have not stopped, and we continue to look at opportunities to improve our cost structure. So -- but it's a bit early for us to give additional color on that.

All I can tell you is that we are razor focused on that. And I think we will continue to have a sequential improvement quarter-over-quarter, and I think I'm very confident. I think quite a bit of you were nervous last quarter whether or not we could achieve our cost savings, and I think we've demonstrated that in Q1.

We've demonstrated that in our full year updated guidance, and we will continue to push hard on that..

Thank you. Our next question is from Steve Wieczynski with Stifel. Please proceed with your question..

Hey, guys, good morning. Harry, welcome. Frank, thank you for your service. Good luck in retirement. Hope you take up some golf now. So, I'm going to kind of ask Dan's question maybe a little bit differently.

But if -- Mark, if we look at Slide 13, I mean look you basically destroyed every guidance target that you laid out back in February for the first quarter.

So, we think about that beat and the fact that you didn't really flow that through, that full beat through to your full year EBITDA guidance And look, I understand there's a fuel headwind there, but I guess what I'm just getting at here is if your customer base stays pretty much status quo from here, it would seem to us it would be tough not to get to the high end of your full year guidance and maybe even exceed that top end of your guidance.

So, what am I missing there, Mark?.

Well, Steve, first of all, I appreciate the adjective you used of destroyed our guidance. But I would like to say we healthily beat our guidance. Look, Steve, I think first and foremost, we have to look at the underlying fundamentals of the business.

Our NPD and yields continue to be strong, continue to be in line with our expectations The consumer is still strong. The consumer is buying cruise tickets. The consumer is spending more on board. The consumer is pre buying more before they get on board. And we're very pleased with that.

So -- but if you just took Q1 in isolation and you said, okay, we beat the quarter by $0.15, and you look at the rest of the year, almost half of that is being eroded by fuel and FX headwinds. So, the remainder of it, we are carrying through.

So, while we're not ready to necessarily change the rest of our guidance metrics, I think we're trending well and we're trending healthy. And I think our guidance reflects that. So, we said last quarter that we wanted to be prudent in terms of our guidance. We want to deliver and hopefully beat. We'll continue down that path.

But things are looking very, very healthy from our perspective in terms of the overall consumer demand for cruise..

Okay, got you. Thanks for that, Mark. And then, Mark, probably for you as well. If we go back to your initial guidance back in February, you noted that you turned the year. I think it was around 62% booked, which was in your historical range.

And now as we've eventually exited wave, can you maybe help us think about where you are booked now for '23 and then maybe also kind of give us a look at '24? And if you don't want to give exact numbers, I understand that, but maybe some qualitative commentary would be helpful there..

Sure, I'll take that one. And Steve, I thank you for the kind words at the initial start of your question. We've stated before that our goal is to be between 60% and 65% booked at year-end for the following 12 months.

I think that range applies to the end of wave as well that we like to be between 60% to 65% booked for the following 12 months at the end of wave. And I can say that we are hardly within that range, pretty much exactly where we want to be.

So, we were very happy with the way wave turned out and our book position both on a basis of itself and compared to 2019 is doing very well..

Okay, great. Thanks, Harry. Thanks, Mark. Thanks, Frank..

Thank you. Our next question is from Vince Ciepiel with Cleveland Research Company. Please proceed with your question..

Thanks for taking my question. I wanted to dig a little bit more into the regional setup. Can you discuss what you're seeing? I think first half of the year you weighed a little heavier at Caribbean.

How pricing and close-in demand is looking for the region? And now that you've kind of moved through waves and have more of Alaska and Europe for this summer filled out, kind of talk about how you're feeling about pricing for the summer?.

Sure, Vince. I'll -- it's Harry. I'll take that one too. Listen, we were very pleased with the results in Q1. We're trying with our new premium itineraries to be us booked a little further in advance so that close-in bookings does not represent a -- such as larger percentage of our overall business as it used to.

That being said, we were very pleasantly surprised with close-in demand for Caribbean in Q1. Of course, Caribbean doesn't matter all that much for us in Q2 and beyond as we shift our deployment to Europe and Alaska.

So, a little less close-in demand there as we are booked further in advance, but we're happy with both occupancy and price, especially for the key summer period..

Great. Thanks. And any color just on the cadence of bookings that you've seen year-to-date maybe relative to pre-COVID levels? I think that there was kind of the wave of pent-up demand following some change in COVID restrictions at the mid to late part of last year. Obviously, it sounds like wave has been healthy.

But would you say things are stable, accelerating or decelerating kind of on a core basis when you adjust for those factors?.

Look, we have about a 20% increase in capacity for 2023 versus 2019. So of course, our bookings need to be 20% higher. And we've absolutely seen or exceeded those levels during Q1 booking period compared to Q1 of 2019. So, I think the best indicator for us is our advanced passenger ticket sale revenue.

Our balance sheet is up I think 60% compared to the end of Q1 2019, which I think gives you a very robust indicator of how our book position looks..

Great. Thank you..

Thank you. Our next question is from Brandt Montour with Barclays. Please proceed with your question..

Hey, good morning, everybody, and congratulations to both Frank and Harry. So, first question is on the cost side. Mark, you sort of gave us a quick update and sort of sequential improvement on a dollar basis throughout the year.

And I'm just trying to -- and obviously, if we try and back into what's implied for the full year, it would seem like it's very modest improvement, almost flattish from a pretty high level.

And I'm just trying to reconcile that with the seasonality that we used to see in your business with the 3Q costs usually being pretty elevated given more exotic itineraries.

Can you kind of help us understand why that's different now?.

Yes, Brandt, good morning. So, I think what you have to think about is looking at our newbuild deliveries that we're taking this year as well. So, we are taking deliveries of ships obviously now in the second quarter. We'll be taking delivery of a ship in the third quarter and fourth quarter.

And what's unique about that in the third and fourth quarter obviously we're taking -- we have a higher -- we have the higher operating cost brands of Oceania and Regent. So that does somewhat elevate your unit cost although we do receive benefit on both the top- and bottom-lines from that.

So, I wouldn't skew too much that the premium itineraries are going to be a big driver of costs. Overall, our cost levels tend to remain the same. It's really around our promotions and advertising variable costs that would have any sort of influence. So look, I think bottom-line, we continue to sequentially improve our cost structure.

I said last quarter, we need to do a better job of leveraging our scale. We're on that journey. We've hopefully demonstrated confidence to the market that we've achieve step one of that, and we'll continue to optimize around that.

And hopefully, over the next few quarters, we can continue to prove that and further build confidence that we're leveraging our scale to the best of our ability..

Great. Thanks for that. And then just as a follow-up. Great to hear that you guys are happy with your book for the all important sort of summer in the Mediterranean.

I'm just curious if flight prices broadly is acting as a headwind, and if you think about your book or your strategy this year for the summer, is it bundle -- is flight prices being bundled in for the consumer? Is that sort of more -- is that more of a factor now than it was in '19? And how should we think about that?.

Yes, Brandt, I think you've hit it, right? We've all experienced whether it's traveling for business or consumers traveling, flight prices are elevated. And of course, with our bundling strategy that we've embarked on over the last few years and that's really taking full throttle in 2023, that does have some headwinds to our overall net yield.

And that's simply as a matter of when we sell the ticket to the consumer, we sell the air at what we believe are going to be the best projected prices. And our consumers are booking very far out in advance, which is a good thing.

So there's always going to be some puts and takes until when you actually purchase the flight where you may have some variability in there. But overall, we believe that our air strategy is the right thing to do given our strategic itinerary deployment. And there's always going to be some variability in there, but nothing that overly concerns us..

I just want to add to Mark's comment that our guests have to fly to get to a cruise. And there's two choices, they either make their own air arrangements or they make their air arrangements through us.

And of course, as we buy air tickets for over 1 million guests a year, we have some really good systems and efficiencies to leverage the best prices out there. We use all types of tools in terms of automation, even AI to predict when the best time to book a flight is.

And with those tools, we think bundling actually provides us in this uncertain future environment, a competitive advantage. So something that absolutely it impacts us. But if we do it right, we can turn it to our benefit..

That's great color. Thanks so much..

Thank you. Our next question is from Conor Cunningham with Melius Research. Please proceed with your question..

Hi, everyone. Thank you for the time. Congrats, Frank and Harry. Just on the second half, net per diem, it's implied a decent step up in the second half. Just trying to get comfortable with how you get there.

So are you basically booked above that right now? And then as you get closer in, the trends kind of soften a little bit? And just any color on how you're expecting onboard trends in the second half would be helpful. Thank you..

Yes. So, regarding our second half NPDs, yes, I think we labeled that on our slide, we're expecting roughly 11% or 12%, if I recall correctly. And number one, that's on the back of very strong just good old-fashioned core growth. It's also on the back of bringing on some of our premium brand vessels.

But more importantly, when you look at the comparisons in the back half of 2019, we're rolling over much easier comparisons, the inverse of what's happening in the first half versus 2019. Again, we had to rapidly exit Cuba in, I believe, June or July of 2019. And we had to sell those voyages close in for very efficient pricing.

And then, of course, as you look at the brand mix, that's also a tailwind. But also in Q4, where we expect quite a substantial amount of our pricing power, we are actually in the Alaska season longer this year as well as in the European season longer this year.

And I think it's somewhere in the neighborhood of we have 3% more deployment in Q4 of Alaska and I believe 7% deployment -- more deployment in Europe for Q4. So, when you combine all those factors together, that's what gives good -- great confidence in where our pricing is.

And I think the tail end of your question was whether or not we're booked there currently, look, we're -- our book position, Harry touched on it earlier, we're exactly where we need to be to hit our goals and our guidance. So, I won't give too much color on that, but other than we're exactly in a position we need -- where we need to be..

Okay. That's helpful. And then, on the shift to longer cruises and more immersive cruise, the 3 point gap in overall occupancy, is that basically reflective of that change in the second quarter? And then, I'm just trying to figure out the limits to rebuild an occupancy in the 2024 assuming no change to your footprint overall? Thank you..

So, in terms of 2024, I'll take the second part of your question first, listen, I think there's still a little rebuilding that can be done in Q1. So, I think Q2 to Q4 basically represents what we're going to see in future periods as well.

But Q1 finished up at 101.5%, we can do better than that going forward when we have the more advanced lead time we need to book some of our exotic itineraries and also have the fully overhang of the difficult years that we've talked about beforehand.

In terms of this gap of 3%, does that reflect what we're going forward? Pretty much close to that after the Q1 commentary I gave you already.

We think this shift to premium itineraries, primarily Europe and Alaska, but a little bit in Asia as well, allows us to get the type of customer that we need to get to support our revenue goals and our revenue growth for the future..

Great. Thank you..

Thank you. Our next question is from Stephen Grambling with Morgan Stanley. Please proceed with your question..

Good morning. Thanks. Harry, congrats on the new role and Frank, best wishes in retirement. I have a sneaking suspicion you have contributed to the stellar booking and pricing coming around the world sailing.

Following up on the strategic shift to longer, more immersive itineraries, should we be thinking about any other financial ramifications of this shift other than the occupancy? I mean, is there any net cruise, cost changes or net yield changes that we should be thinking through? Thanks..

I just want to comment that when Frank goes on cruises in retirement, he doesn't pay, so he won't be activity to that world cruise number you saw earlier. So, I'll turn it over to Mark to talk about financial ramifications..

Hi, Steve. So, I would actually rephrase that as financial benefits. Obviously, while there is a slight impact to load factor, the whole reason we're going to more longer-premium itinerary intensive destinations is number one, to get a better guest, to get higher pricing and to maximize the value that we're getting out of each of our assets.

So while there's always a -- both sides of the coin, overall, the economics on going to those itineraries obviously favors the company or we would not be doing that. But so I wouldn't get caught up too much on the slight impact to occupancy..

Got it. That's helpful.

And then changing gears a little bit, can you just remind us of how much of your new ship spend is already financed and locked in as we think about rates? And have you seen any impact to export credit rates given the broader credit crunch?.

So, all of our new build orders, I'll remind everybody that we do not execute any newbuild orders without committed financing. That is just a complete no-no in our organization. So, we have very efficient fixed rate financing for all of our newbuilds that are on schedule to delivery through 2028 at an average rate of anywhere from 2% to 2.5%.

There is no opportunity for the export credit agencies to change those rates. As I said those are fixed. So we have very efficient financing going forward, and I see no risk around that because there's just simply not an opportunity for the institutions to do that..

That's great. Thank you so much..

Thank you. Our next question is from Robin Farley with UBS. Please proceed with your question..

Great. Thanks. And congratulations to Frank and Harry to both of you with the changes. I had a question. If we could circle back just for a moment to the occupancy in Q2. A quarter ago you talked about it returning to historic occupancy levels. And you're talking today about some of the shoulder period itineraries are being expanded.

And so, was the change since reported was it just sort of a decision to say, "Hey, we're happy with the pricing that we're getting and so we're going to -- occupancy may not be coming in exactly what we thought, but it makes more sense to hold price for those," or just trying to think about -- because I think the itineraries themselves didn't change since you last reported.

So just kind of wondering if it was -- what it was in the yield management that approach had changed. And then my other question is just on the €1.7 billion in additional ECA financing, I know the €1.2 billion are for those ships that are a couple of years out.

Is the additional €500 million, is that for 2023 specifically or is that spread out over different years?.

So, Robin, this is Harry. I'll take the first half, and I'll let Mark discuss the ECA financing. Listen, in Q2 -- in all future quarters, our focus now is in having our cabins as close to 100% full as palpable.

So, I can definitively say that in Q2, we will be at or ahead of our Q2 cabin load occupancy across the entire fleet to get the passenger load occupancy as a function of, what we talked before, having less third and fourth guests on board. But as Mark just discussed, we believe, over time, this actually is going to be EBITDA and margin accretive.

So, we're very happy with that strategy..

Yes. And Robin, just to add to that, we did try to communicate last quarter and over the course of many investor meetings that when we said historical occupancies, we didn't say that they were going to be exactly the same. We said we expected them to be within a couple of points, especially on the overall year run rate.

So, I just want to point out that that's not necessarily a change from last quarter. In terms of the export credit agency financing, yes, so we obtained financing for €1.7 billion. And in our last earnings release, we had called out that we had increased our contractual commitments by €1.2 billion.

And the differential simply is that, as I said in my prepared remarks, we've now included certain things, financing for owner supply and other related items that are required as part of the ship delivery. And the thought process there was it is very efficient and very extremely beneficial financing.

So, in order to preserve cash for the long term at very -- and given the very efficient rates, we simply decided to finance more. So does not represent a further €0.5 billion increase in the overall ship cost, it is simply a different mechanism for financing some of the existing costs that were already expected.

And I think that's why when you look at our capital commitments on our newbuilds for the next three years, it's actually decreased overall in terms of cash out of the system..

I know it's definitely favorable terms and the fact that they're willing to finance the -- that additional €500 million absolutely a positive.

I was just wondering if that €500 million was for 2023 or is that for the later deliveries that the €1.2 billion applies to, or is it spread out over a number of deliveries between them?.

It's really spread out over the course of the next three to five -- it's spread out I don't want to say ratably, but relatively ratably across all of the remaining newbuilds, excluding Norwegian Viva and Vista, which we just took delivery of, of course..

Okay, great. Thank you..

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

Thank you. Our next question is from Patrick Scholes with Truist Securities. Please proceed with your question..

Great. Thank you. Frank, well, congratulations on absolutely an amazing career. And Harry, welcome to the hot seat, as they say. My questions are for Mark. The last time we spoke regarding the debt maturity, the intention was to use cash flow from operations this year to pay off the ECA -- the existing ECA loans.

And then secondly, if I have my notes correctly for the $1.4 billion loan, it's going to be either pushed out or amend and extended. Is that still the intention? And did I get that correct? Thank you..

Hi, Patrick. Good morning. Yes. So, definitely we are planning -- we are funding all of our existing debt maturities this year from cash on hand and organic cash flow. So, you're spot on there. And then, the $1.4 billion of term loan and revolver that was extended to January 2025, we will address that -- start addressing that later this year.

And whether or not we refinanced that on a more holistic approach or we do another amend and extend. Obviously, we'll look at what the markets are doing, what the environment looks like. But we'll do the most -- obviously, the most economically feasible option out there.

So that's something that you'll see us out in the marketplace in the latter part of this year..

Okay. Thank you. And then just a related follow-up question. Mark, over the past year, you've given some longer-term net debt to EBITDA target ratios for various years. Are you still -- do you see yourself still on track to hit those targets? Thank you..

Yes, Patrick. We're firing on all cylinders. As I've said internally, our target is to turn 2023 with a very five -- high five handle on a pro forma run rate leverage basis. Now that's not a necessarily easy task, but that's one of the things we're marching to as the management team and, of course, with our Board of Directors.

And that's going to come on the back of again strong pricing and yield growth, which we've talked about, as well as rightsizing our cost base and leveraging our scale. So, we are marching towards that. There's never a guarantee, but that is what we're rallying around.

And we hope to deliver on that and we're feeling good with what the outlook looks like today..

Okay. Great. Thank you..

Well, ladies and gentlemen, once again, I want to thank everyone on this call. Whether you're a travel partner, a vendor, a lender or an analyst, you've supported us, you've challenged us, but most of all, you've made us better.

Personally, I couldn't have asked for a more fulfilling and more successful career in this incredible industry and everyone here contributed to that. Now for one last time, thank you for your interest and your support. I have full confidence in the management team and their ability to take this company onto its next chapter.

Harry, Mark and Jessica and the team will be available to answer any questions you may have once this call is over. Have a great day, stay safe, and all the best. Thank you once again. Bye-bye..

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