Norwegian Cruise Line Holdings Ltd. Ordinary Shares Q2 2026 Earnings Call

Good morning and welcome to the Norwegian Cruise Line Holdings second quarter earnings conference call. My name is Samantha and I will be your operator at this time. All participants are in listen only mode. Later we will conduct a question and answer session and instructions for the session will follow. At that time. If anyone should require assistance during the conference, please press star then zero on your touch tone. Telephone. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Sarah Inmon, VP of Investor Relations. Miss Inman, please proceed.

Thank you and good morning, everyone. Thanks for joining us for our second quarter 2020 earnings call. I'm joined today by John Chidsey, CEO of Norwegian Cruise Line Holdings, and Mark Kempa, executive vice president and chief financial officer. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website. We will be referring to a slide presentation during the call, which can also be found on our website Both the conference call and presentation will be available for replay for 30 days following today's call Before we begin, I would like to cover a few items. Our press release with second quarter 2026 results were issued this morning and is also available on our Investor Relations 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 statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. Unless otherwise noted, all references to 2025 and 2026 net yield and adjusted net cruise costs, excluding fuel per capacity day, are on a constant currency basis, and comparisons are to the same period in the prior year.

With that, I'd like to turn the call over to John.

Thanks, Sarah, and thanks, everyone for joining the call. I'm joined today by Mark as we discuss our second quarter results. At a high level, we delivered solid second quarter results. Top line grew 5%, driven by increased capacity days. While we lowered unit costs 0.5%, leading to profitability ahead of guidance At the same time, the team made substantial progress during the quarter to advance our turnaround priorities. I'm going to talk with you today about actions underway and why I am confident in our pathway to revenue recovery, which combined with our cost control capabilities, will drive meaningful growth in profitability and improve shareholder returns. Successful turnarounds are never linear and take time to demonstrate tangible performance improvements, which translates into financial success Rest assured, our teams are moving with urgency and enhanced accountability across internal functions to continue executing on the initiatives we have underway, and are building on our strong foundation. As you can see on slide four. During my first months as CEO, we have moved swiftly. We have made leadership changes across the brands, adding new revenue management and marketing leadership at NCL and building key commercial capabilities. All while remaining focused on improving our booking curves and delivering on critical initiatives such as Great Tides Water Park on Great Stirrup Cay on time.

At the same. Time, we have not let up on cost discipline and organizational efficiency. Mark will provide more detail later in the call, but during the quarter we identified an additional $100 million of annualized savings in cash benefits combined with. The $125 million of annualized run rate savings we announced last quarter. This brings the actions announced over the past two quarters to approximately $225 million of annualized savings and cash benefits. Importantly, we are actioning these initiatives as demand for cruise and the long term fundamentals for the industry remain strong as consumers are prioritizing travel and experiences We have strong brands, attractive assets, and a product that continues to resonate with guests. But those advantages only matter if we execute with greater discipline and translate them into better financial performance. Turning to slide five, our approach and priorities are consistent with what we outlined last quarter. Build the team culture and capabilities required to execute. Sharpen brand positioning and marketing effectiveness. Rebuild demand, and improved. Our book position and optimize pricing and yield. Through that, strengthened demand base, this is the path to enhance our fundamental business model and operations to position NCL for success. Among the top of our priorities list has been ensuring we have the right leaders, talent and operating discipline in place to guide NCL forward.

This is foundational because the opportunity in front of us is not about strategy. As we have discussed previously. It is about changing how we operate. We recognize the need to work with a true one team mindset across functions internally. During the quarter, we made meaningful progress by welcoming our new Chief People Officer, Heather Jacobs. Heather brings more than 25 years of global people and cultural leadership experience across travel and hospitality. We strengthened commercial leadership at the Norwegian brand with the appointment of Lee Applebaum as Chief marketing officer. Lee brings more than 25 years of experience building and transforming global consumer brands, including patron, Bacardi and Wheels Up Additionally, we have continued to build out the teams and other critical areas, including NCL Revenue Management, digital commerce, casino and itinerary planning. These appointments build on the leadership updates we have made over the past year across other key functions such as technology and strategy. In addition to changes made at the brand level in total, half of my direct reports are new in the role. Over the last year, and we have substantially rebuilt and strengthened Norwegian brand leadership team. Having this. Experienced team in place is essential to implementing meaningful operational changes.

With the team now in place. Our next step is to build our operating rhythm and culture and translate that collective experience into better execution and ultimately better results. I'll now turn to our plans to sharpen our brand positioning, particularly with respect to Ncl's marketing engine. As seen. On slide six. The starting point is important. We believe we have the right product and the right target consumer. We see that in our guest satisfaction scores. Repeat rates, and cruise. Net sales, which reinforces that the product and service experience continue to resonate. Once guests are on board. We have also identified and sized our priority consumer premium families and seasoned travelers, which represents over 35 million consumers. Additionally, we already have work underway to develop a clearer understanding of what motivates them and determine how best to reach them. In parallel, we are inventorying our products and services to define what truly differentiates NCL and mapping those strengths against the needs of our target guests. The work thus far gives us confidence in the fit between the NCL offering and our target consumer. We provide a flexible premium vacation experience with something for every member of the family, while still creating shared moments together.

The gap has been connecting the right consumer with the strength of our offering through our messaging and media. We have the right product and are focused on the right consumer. Now we are focused on effectively reaching that audience through the most impactful channels. Great. Stirrup Cay is a clear example of this, and you can see that great Tide's Waterpark is coming together on slide seven. Great. Syrup Cay has long been one of our highest rated destinations, but historically, the island did not fully deliver the breadth of the experience that premium families are looking for While we had elevated experiences like Silver Cove and our private villas, we also had an opportunity to create more for families to enjoy together. We are addressing that opportunity with great Tides Waterpark, which is preparing for a preview period beginning next week ahead of the official grand opening on September 4th. The. Nearly six acre water park will feature 19 water anchored by the 170 foot tidal tower in over 800 foot high energy river and the industry's first cliffside jumps. These attractions complement the recently opened Great Life Lagoon, a 1.4 acre pool area larger than two Olympic sized pools combined, as well as existing experiences such as ziplining and Silver Cove.

Combined with the pier, which is also expected to open shortly, the island experience will be more reliable, easier to access and better aligned with what our target guests wants from a premium family vacation. Together. These investments should enhance the island's revenue potential by increasing guest throughput and expanding the range of paid experiences available to guests. I was on the island a few weeks ago, and what stood out to me is the breadth of the experience. Teens can enjoy the slides, cliff jumps and wandering river at great Tides Water Park, while adults have places like vibe, Shore Club, Silver Cove and our private villas where they can relax and enjoy the island in a more elevated way. It is exactly the kind of differentiated experience that allows NCL to create memorable vacations for guests across generations. Importantly, we are not waiting for the 2027 way season to act. We are already changing the way we communicate. Great Stirrup Cay and the broader NCL value proposition in the coming weeks. We will introduce Interim Creative that more directly speaks to premium families. Highlights the breadth of the NCL experience and includes a clear call to action. The goal is straightforward communicate more clearly.

Why NCL is different, why that? Different matters to our target guest. Why now is the right time to book? Improving our brand positioning and rebuilding demand are critical to returning to our optimal book position. We are also strengthening how we manage that demand through improvements to our team, tools and processes. As you can see on slide eight. During the quarter, we began making changes to the way we sell cruises at NCL. As we evaluated our prior approach, it became clear that in certain areas we were holding price too high, too far out, which limited early demand generation and left us more exposed to close in discounting. We are now moving toward a base loading methodology, which establishes more competitive pricing. Earlier in the booking curve to build demand sooner and support stronger close in yields. This is not about discounting the product. It is about managing the full booking curve more effectively. Building a healthier book position earlier. Maintaining better price integrity as we move closer to sailing and being more strategic about our promotional activity. As part of this shift, we have taken pricing initiatives on select sailings in 2027 and open 2028 sailings.

The greatest opportunity is on sailings farther out in the booking window, particularly later in 2027, where we have more time to shape the curve for new 2028 inventory and beyond. All NCL sailings will be managed using this methodology from the outset. Taking a step back, we are focused on managing inventory and price in a more disciplined way, maximizing yield over the full booking cycle and reducing our exposure to close in demand volatility, particularly in periods of external disruption like the one we are navigating today. With many of these operating changes already in motion. We are moving swiftly to ensure the company is better positioned to capture the revenue opportunity. We know exists across our brands. It is important to remember that we are still early in this process. However, and we expect the financial benefits of the actions we are taking today to build over time. I have spent significant time discussing the NCL brand, but I also want to address the work underway across our luxury portfolio, as shown on slide nine. The work here is focused on three areas sharpening, brand positioning, elevating the product and guest experience, and strengthening commercial performance over time.

At Oceania, Cruises, our focus is on aligning the fleet more closely with the brand's luxury positioning. That is why we are reimagining Oceania, Nautica to Oceania. Aurelia creating a more intimate suite forward ship designed for fewer guests with enhanced service levels. Today, we are also announcing that we have entered into a binding Memorandum of Agreement to sell Oceana Serena, the transaction includes a leaseback arrangement that will allow us to continue operating the vessel until the ship is transferred in spring 2028. This is a deliberate portfolio action to move the Oceania fleet toward a product offering that better supports the brand's positioning in long term return profile. It also represents another step toward improving Oceana's product market fit and simplifying the portfolio to more fully reflect the luxury experience. Our guests expect. At Regent, we are taking similar action to further strengthen the brand's position in the ultra luxury market. Today, we are announcing a new suite category on the Seven Seas Explorer class ships, where we will reimagine and expand our entry level suites on these vessels. As a result, Regent will offer the largest entry level suites in the luxury cruise industry. While also improving two important luxury metrics space ratios and guest or crew ratios.

Take. Together, these actions are about making the products match the positioning, creating clearer differentiation for our guests and improving the financial performance of our luxury portfolio over time. We've learned a great deal over the two quarters and made meaningful progress executing against our strategic priorities. While the financial benefits will take time to build, we are confident that the actions we are taking will support stronger performance over time With that, let me turn it over to Mark.

Thank you, John, and good morning, everyone. I'll begin with our second quarter results on slide ten, which were ahead of our expectations. Net yield in the second quarter was down 2.6%, which is 100 basis points above our initial expectations. Adjusted net cruise cost X fuel of $163 was better than guidance, declining 50 basis points driven by strong cost controls, which ultimately drove adjusted EBITDA of 666 million, exceeding our guidance by $34 million. Lastly, adjusted net income for the quarter benefited from several below the line items and was 222 million with adjusted EPS of $0.48. $0.10 better than our guidance. Turning to slide 11. You can see our third quarter and full year guidance. Our. Outlook continues to reflect a challenging backdrop as we are in the early stages of the turnaround and continue to build our commercial engine, especially on the Norwegian brand. Starting with full year net yield, we now expect to be at the low end of our guidance range with net yield declining approximately 5%. This reflects. The softer demand environment I just mentioned, as well as the fact that many of the changes we are making to drive revenue higher, particularly on marketing and revenue management, will take time to translate into financial results.

In the near term. The back half of the year remains pressured. The Mark. Marketing and demand generation challenges John described have left us below our optimal booked position. The. Changes now underway, including new creative and media plans are only beginning to roll out and have not yet had time to materially influence booking behavior And given the proximity of many of these sailings. There is limited runway for those actions to benefit. 2026 results. Looking at net yields in the third quarter, we expect a decline of approximately 8.9% with load factor of 104%. This. Demand pressure across the portfolio with the most pronounced impact on our European sailings, which represent approximately 39% of our deployment in the quarter. This is particularly relevant as approximately two thirds of our guests on these sailings are sourced from North America, where elevated airfare and broader macro conditions have put some pressure on demand. This implies that for the fourth quarter, net yields are expected to decline. Approximately 6.5%, with a load factor of 99%. We are disappointed in this outlook, which is a reflection of our current book position that is challenged due to the previously mentioned marketing and demand generation issues.

Looking ahead to 2027, and as John noted earlier. Our efforts underway on marketing and demand generation will take time to manifest themselves in revenue due to our elongated booking curve. As a result, we expect the first half of 2027 to have continued demand challenges, with the most pressure in the first quarter. That said, we are confident that these actions underway are the right ones As the year progresses and particularly as we move into the second half of 2027, we expect to see improvement as the booking curve better reflects the changes we are making across marketing demand generation and revenue management. Moving to costs, as John discussed earlier in the prepared remarks, we have continued to make meaningful progress in improving our cost structure and identifying additional cost savings. We now. Expect our adjusted NCC fuel to be down approximately 25 basis points for the full year. As we carry some of the additional savings from the second quarter into the full year. As a result of softer than expected top line performance, partially offset by better cost performance, we now expect adjusted EBITDA of approximately 2.5 billion and adjusted EPS of approximately $1.50. Moving to slide 12, you can see the cumulative impact of the savings and efficiency actions we have taken across the business This quarter.

We have identified another 100 million of annualized savings in cash benefits related to the consolidation of technology vendors and other employee compensation due to the. Nature of these savings. It is important to note that the vast majority of the benefits relate to capital expenditures, with the remainder tied primarily to salary and benefit efficiencies. These savings build on the 125 million of savings announced last quarter and the approximately 300 million of saving efforts identified from 2020. Four through 2026, which brings total savings over the past three years to more than $500 million. We expect these cost actions to benefit the business over time. Supporting both margin expansion and free cash flow. As the top line recovers It is also important to note that our work here is not done. We continue to see additional savings opportunities across the business. Both within S, G, and A and on the shipboard side, and we expect to build on these efforts going forward These savings have been reflected in our unit cost growth, which is detailed on slide 13. We began. The year expecting NCC growth of approximately 1% last quarter. We reduced that outlook to approximately flat, and we are now reducing our guidance again to a year over year decline of approximately 25 basis points.

This marks the third consecutive year of NCC fuel growth of 1% or less, underscoring the cost discipline we have embedded across the organization and the continued opportunity we see to operate more efficiently. Importantly, these efficiencies have not come at the expense of the guest experience as John. Discussed earlier. Guest satisfaction scores have continued to improve over the past several years. Even as we have maintained discipline on cost, performance. Moving to slide 14. Another important factor to keep in mind is that our order book should be viewed in the context of our broader fleet optimization strategy. While. We have a strong order book with 16 ships on order across our three brands, the signed MOA for the sale of Oceania Sirena means we now expect five ships to leave the fleet over the next three years. This is important because we are not simply adding capacity for the sake of growth. We are actively managing the portfolio to improve fleet quality, better align capacity and product offering with each brand's positioning and support. Stronger returns over time. Turning to slide 15. I want to highlight an important CapEx inflection over the. Last several years, we have invested heavily in our fleet, adding 2 to 3 ships annually and driving strong capacity growth, including an expected 7% increase in capacity days in 2026.

While we take delivery of two ships in both 2026 and 2027, the cadence moderates meaningfully. Beginning in 2028, with only one ship scheduled for delivery in each of 2028 and 2029. As a result, our capacity growth will moderate meaningfully to a 2.5% kegger from 2026 to 2029, and we expect gross new build and growth CapEx to decline by nearly $1 billion annually, materially improving free cash flow generation. This is especially important as our revised adjusted EBITDA outlook for 2026 increased our year end net leverage expectation, and we now expect to end the year above six times, reducing net. Leverage remains a top priority as top. Line performance improves and our new build delivery cadence moderates. We expect stronger free cash flow generation to support debt reduction and meaningful progress on deleveraging over time. As shown on slide 16, our debt maturity profile remains manageable, with no significant debt maturities until 2030. That gives us added financial flexibility and supports our ability to focus on deleveraging over the next several years. We have continued to simplify our balance sheet. In May, we announced our election of a cash settlement for our two exchangeable senior Notes due 2027, which mature early in the year.

This election allowed us to reduce our diluted share count by 2 million shares in the quarter, and approximately 4 million shares for the full year. Overall, the actions we are taking on costs, capital expenditures and the balance sheet are strengthening the company's financial foundation. While. The near term revenue outlook remains challenging. We are continuing to move with urgency on the areas within our control and remain focused on improving free cash flow and reducing leverage over time With that, I'll turn it back to John for closing remarks.

Thanks, Mark. Before we open the call for questions, I want to close with a few thoughts. As you. Heard today, we are moving to make meaningful change across the business. We have strengthened the leadership team, identified additional savings Began changing how we market and price the NCL product and taken steps to sharpen the positioning of our luxury brands. I also want to recognize the team across the company. Our team members are working incredibly hard to move the business forward while continuing to deliver great vacation experiences for our guests every day. The changes we are making are not small, and they require focus, accountability, and a willingness to operate efficiently and effectively. I appreciate the way the organization is leaning into that call to action as. I touched on before. We also recognized that the actions underway will take time to fully translate into financial results Rebuilding demand. Strengthening the booking curve, improving marketing effectiveness, and embedding a more disciplined revenue management approach will not happen overnight. That said, we are confident that we understand where we need to improve and are making the right changes now to position NCL for long term success. It is important to note that all the changes we are implementing today are against a backdrop in which the demand for cruise and long term fundamentals for the industry remain strong at.

LH. We have strong brands, attractive assets and a product that continues to resonate with guests. There's more work ahead, but our priorities are clear and we are moving with greater discipline to translate those advantages into improved financial performance. With. That operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. Our first question is from Lizzie Dove with Goldman Sachs. Please proceed with your question.

Hey, good morning. Thanks for taking the question. So, Mark John, appreciate all the color here and the comments that you gave on 2027. I know it's still early, but could you maybe elaborate on how you're thinking about the setup for 2027? On the net yield side? I guess particularly in terms of maybe how booked you are for next year, at what price? And with that in mind, when do you think that we can start seeing some of these green shoots on the, on the net yield side of things?

Hi.

Good morning Lizzie. Thanks for joining us this morning. So, you know, to reiterate what you