Norwegian Cruise Line Holdings Ltd (NCLH) — Q1 2016 Transcript

Thank you, Latoya. Good morning, everyone, and welcome to the Norwegian Cruise Line Holdings first quarter 2016 earnings call. Joining me today is Frank Del Rio, President and Chief Executive Officer for Norwegian Cruise Line Holdings; and Wendy Beck, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Wendy will follow to discuss results for the quarter, as well as provide guidance for the second quarter and full-year 2016 before turning the call back to Frank for closing words. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on our Investor Relations website at www.nclhltdinvestor.com, and will be available for replay 30 days following today's call. Before we discuss our results, I would like to cover a few items. Our press release with first quarter 2016 results was issued this morning and is available on our Investor Relations website. I would also like to review information about forward-looking statements and the use of non-GAAP financial information as a part of this call. The company's comments today may include statements about expectations for the future. Those expectations are subject to known and unknown risks, uncertainties and other factors that may cause the company's actual results and performance in future periods to be materially different from any future results or performance suggested by these expectations. The company cannot guarantee the accuracy of any forecast or estimates, and we undertake no obligation to update any forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, some of our commentary may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company's earnings release. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea. And good morning, everyone. The reporting of first quarter earnings is customarily the most anticipated of the year; it's the quarter that gives us a first glance of actual results and begins to provide a clear picture of expectations for the year ahead. This year, our first quarter report is no exception. And it is doubly exciting as it means that we are one quarter closer to achieving a double-digit adjusted return on invested capital at the end of 2016. While I know, Wendy will review our first quarter results in more detail later in the call, I would like to call out a few highlights that demonstrate just how strong our quarter was. We posted strong yield growth of 3.6%, which while impressive doesn't fully capture the whole story of just how strong our underlying business really is. This healthy yield growth comes as a result of strong overall pricing from solid Caribbean demand and better than expected onboard revenue. If not for the following two factors, it would have been even higher. First, as we have stated several times in the past, the decision to deploy Norwegian Epic, one of the brand's largest and best performing ships and a strong generator of onboard revenue to sail Western Mediterranean Canary Islands during a relatively weak first quarter and second quarter was a drag on yield growth. Secondly, was the planned dry-docking of Norwegian brand's highest yielding ship, Pride of America as part of the Norwegian Edge refurbishment initiative. If not for these two factors, we estimate that adjusted net yield growth in the quarter would have exceeded 5%. Pride of America is now out of dry-dock with improvements and enhancements that may create better shifts than the day she was delivered. Additionally, as a result of our itinerary optimization strategy, beginning in the fourth quarter of this year, Norwegian Epic will be redeployed back to the Caribbean, where we expect that she will garner the ticket premiums and strong onboard revenue that made her a game changer when she first joined the Norwegian fleet in 2010. Looking to more current events, a little over a week ago, I had the honor of welcoming the latest additions to Oceania Cruises' award-winning fleet. Sirena was christened in Barcelona and joined sister R-class ships, Regatta, Insignia, and Nautica to form a fleet of four mid-sized 684 berth ships that deliver exceptional onboard experiences, destination-driven itineraries, and the finest cuisine at sea. Being the new kid on the block has these advantages; Sirena is the first of our R-class vessels to incorporate features from the next generation of ships in Oceania's suite. Among these features are the addition of popular Asian eatery Red Ginger, with cuisine representative of the Pacific Rim, the all-new Italian steakhouse concept, Tuscan Steak, and Jacques Bistro, the first dedicated offering on our R-class fleet from Oceania's Executive Culinary Director, the legendary chef, Jacques Pépin, whose daughter, Claudine, served as Sirena's godmother. Sirena is spending her inaugural season sailing a diverse set of itineraries in the Mediterranean, and her deployment delivered a 30% plus increase in capacity in Regent for Oceania. This short capacity increase, however, comes at a time when, as you know, European sailings are under pressure. The cumulative impact of successive events across Europe in the past month has indeed affected booking patterns for sailings in Regent, particularly among North American consumers, who comprise the majority of our sourcing pools. The weaker demand from high-spending North Americans has increased our reliance on local European sourcing, which has historically booked closer in and at lower prices, resulting in lower onboard spending. This weaker demand and the resulting shift in sourcing, coupled with the increased capacity in Europe for our premium Oceania brand and Norwegian Epic's winter season deployment in Europe, have resulted in our tempered expectations for the second quarter. While the yield growth story for Q2 is not what we expected coming into the year, there are several very positive factors providing a solid foundation for the balance of 2016 and beyond. First is the runaway success of Seven Seas Explorer, which debuted in the Mediterranean in July. She broke single-day and multi-day sales records at Regent and is almost entirely booked for her inaugural season. I recently visited her at the yard, and she will certainly live up to her billing as the most luxurious ship ever built, justifying the record-high per diems she is garnering. Second, we have a lengthy full ship charter of Norwegian Getaway at a significant premium above her normal rate. This charter will also shift capacity out of the non-peak Miami-based Caribbean season in the third quarter and should bolster pricing for Norwegian brand's newest ship, Norwegian Escape, which is also based in Miami for Caribbean sailing. Third is the continued strong demand from North American consumers for sailing in markets closer to home, mainly those in the Caribbean, Alaska, Bermuda, Hawaii, and New England. These sailings comprise close to 60% of our capacity in the back half of the year. The combination of a premium-priced 40-day charter for Norwegian Getaway and strongly booked inaugural seasons for the high-yielding Sirena and Seven Seas Explorer combine to lock in approximately half of our yield growth in the back half of the year. After factoring in the majority of sailings in the back half being in strong-performing North American markets, we feel confident in our positive expectations for the third and fourth quarters of 2016, where pricing is up mid-to-high single-digits with occupancies slightly down. These positive expectations also do not take into account the potential upside for European sailings, where we believe the worst of the slowdown is behind us, as we have seen positive booking traction in the last four weeks and remain hopeful that the momentum continues. Lastly, adding to this momentum is fine-tuning of our pricing strategy to capture more business at favorable rates. Our disciplined pricing strategy focuses guests on value versus price and is a major driver in achieving the industry's highest yields, and also the industry's highest yield growth since our initial public offering. For months, the Norwegian brand has successfully bundled value-added packages, such as unlimited beverage and dining in its cruise fares. First in its Freestyle Choice offers, and then in its Free-at-Sea promotions to the majority of its guests who recognize the outstanding value proposition of these programs. One lesson learned, however, over the last few months revolved around online travel agents (OTAs), which are one of the main distribution channels for selling close-in inventory. One of the drawbacks of this channel is its difficulty in effectively communicating non-price dependent offers to consumers. When guests search for cruise options online, the Norwegian brand is sometimes at a competitive disadvantage, as our value-packed pricing appears higher versus competitors for similar itineraries, even though our overall value is much greater. We took this opportunity to introduce sail-away rates on the lowest level category of each stateroom type (excluding suite), which represents less than 10% of Norwegian's inventory. Sail-away rates are cruise-only rates with no value add, which will allow us to capture business that we temporarily were not capturing. While these fares appear to be at lower price points in third-party pricing surveys, the cruise fares result in net ticket yields that are generally equal to those of our bundled Free-at-Sea fares. To summarize, we expect our strong book position, coupled with continued robust demand for North American itineraries and our enhanced pricing strategy, will result in strong yield growth in the back half of the year, compensating for the moderate yield growth in the second quarter. Our expected full-year growth of 4% in 2016 is even more impressive given that in prior years' yields grew 4.7% and 7.4% in the third and fourth quarters, respectively. There were several other highlights in the first quarter, including the first reveal of exciting activities and features on our upcoming China-dedicated ship, Norwegian Joy, which I'll cover in more detail in my closing comments. But now, to discuss the results and outlook in more detail, I'll turn the call over to Wendy. Wendy?

Thank you, Frank. Unless otherwise noted, my commentary compares 2016 and 2015 per capacity day metrics on a constant currency basis. I'll begin with commentary on our first quarter results, where I'm pleased to report yet another strong quarter of financial performance. Adjusted earnings per share increased 41% to $0.38, coming in at the top end of our guidance range of $0.34 to $0.39. Strength in the quarter was a result of higher net yields from higher pricing as well as lower than anticipated net cruise costs excluding fuel. Strong pricing in the Caribbean, which comprised 65% of our capacity in the first quarter, coupled with strong onboard revenue for the period drove outperformance in adjusted net yield, which increased 3.6%. On an as-reported basis, adjusted net yields were up 2.5%. This outperformance is particularly impressive given the year-over-year comparisons Frank discussed earlier. Now looking at costs, adjusted net cruise costs excluding fuel per capacity day, increased 1.5% or 1.1% on an as-reported basis. Turning to fuel, our fuel expense per metric ton net of hedges decreased 16.7% to $438 from $526 in the prior year. At face value, fuel expense net appears to be favorable versus guidance for the quarter by $1.6 million. However, when combined with a $5.2 million realized loss in other income and expense related to a portion of our fuel hedge portfolio, which was deemed ineffective, all-in fuel expense was unfavorable by $3.6 million in the quarter due to the increase in fuel pricing for our unhedged fuel consumption. Taking a look below the line, interest expense net was $59.8 million compared to $51 million in the prior year, mainly due to higher interest rates as a result of an increase in LIBOR rates as well as an increase in average outstanding debt balances primarily associated with the delivery of Norwegian Escape. As for other income expense, there are a few puts and takes impacting this line item. First was the aforementioned loss on our fuel derivatives of $5.2 million. Secondly, there was a loss of $4.2 million from the mark-to-market impact of foreign denominated advance ticket sales, which will benefit future periods in the form of higher recognized revenue. These losses were more than offset by a gain from the fair value increase related to a foreign exchange collar for the Seven Seas Explorer newbuild, which we customarily adjust out of earnings. Excluding the $4.2 million non-operational translation loss, adjusted EPS would have been $0.02 higher or $0.40 in the period, further demonstrating our strong underlying operational performance. As we discussed on our last earnings call, we have executed an agreement to divest our land-based operations in Hawaii, which we expect to finalize in 2016, subject to customary closing conditions including the receipt of all required regulatory approvals. Our guidance provided excludes the results of the aforementioned land-based operations. Since the sale is yet to be finalized, results for the first quarter include this land-based operation. The following key metrics back out the land-based operation from first quarter results to provide an apples-to-apples comparison to guidance. Adjusted net yield growth on a constant currency basis would have been 3.9% compared to the guidance of approximately 2.5%; and on an as-reported basis 2.7% compared to guidance of approximately 1.75%. Adjusted net cruise costs excluding fuel per capacity day growth on a constant currency basis would have been 1.6% compared to guidance of approximately 2%; and on an as-reported basis, 1.3% compared to guidance of approximately 1.75%. Adjusted earnings per share remained unchanged. Taking a look at markets and deployment around the world, we see continued strength in the Caribbean, where Norwegian's two newest ships, Norwegian Escape and Getaway are deployed year-round from Miami. For the second quarter, approximately 37% of our overall capacity is in the Caribbean, up from 29% in the prior year due to the addition of Norwegian Escape to our fleet. Europe accounts for 26% of our capacity for the second quarter and while comparable to the prior year. As for other key markets, Alaska accounts for 11%, Bermuda 7%, Hawaii 5% with the remainder of capacity in the Asia/Africa Pacific regions, South America repositioning sailings, and other voyages. Now, I'd like to walk you through our guidance and expectations for the second quarter and full-year 2016. As a reminder, due to the pending sale of our land-based operations in Hawaii, our guidance and sensitivities exclude the results of this operation for both current and prior year. Additionally, for your reference, in our fourth quarter 2015 earnings release, we provided key metrics for 2015 by quarter and full-year excluding these results to assist with modeling on a like-for-like basis. Starting with the second quarter, capacity will be up approximately 10% due to the addition of Norwegian Escape, which joined our fleet in October of last year, and Oceania, Sirena, which joined the fleet post her dry-dock at the end of April. As previously mentioned, the weakness in European itineraries has tempered our expectations, and adjusted net yields are expected to increase approximately 1.75% or 1.5% on an as-reported basis. Adjusted net cruise costs excluding fuel per capacity day is expected to increase approximately 6.25% or 6% on an as-reported basis, primarily due to the year-over-year timing of scheduled dry-docks, which we have noted on previous calls. There are four regularly scheduled dry-docks in the quarter compared to only one in the prior year, resulting in higher net cruise costs in the quarter. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $480 with expected consumption of approximately 175,000 metric tons. Taking all of this into account, adjusted EPS for the second quarter is expected to be in the range of $0.80 to $0.85. As for the full-year, expectations remain unchanged for our three key metrics. Adjusted net yield is expected to increase approximately 4% or 3.5% on an as-reported basis. The cadence of adjusted net yield growth is led by the third quarter, which will have the highest growth benefiting from the addition of Seven Seas Explorer and Sirena to the fleet, as well as the 40-day charter of Norwegian Getaway. In order of growth, the third quarter is followed by Q1, then Q4, and finally Q2. Adjusted net cruise costs excluding fuel per capacity day is expected to increase approximately 2.5% or 2.25% on an as-reported basis. In terms of cadence of growth, the second quarter will have the largest growth, followed by the first quarter, then the third quarter, and finally the fourth quarter. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $460 with expected consumption of approximately 715,000 metric tons. As of March 31, 2016, we had hedged approximately 92%, 82%, 55%, and 50% of our total projected fuel consumption for the remainder of 2016 and the years 2017, 2018, and 2019, respectively, at an average price per metric ton of $380, $361, $356, and $309. We opportunistically layered on incremental hedges throughout the first quarter, including new hedges for marine gas oil (MGO), which we had not previously hedged. As a result of our ability to now hedge both our major fuel consumption types, our overall fuel hedge position significantly increased. To illustrate our strong operational performance, had we not entered into a majority of our hedges prior to the steep decline in fuel prices, expected adjusted net income for the year would have been approximately $120 million higher, adding an additional $0.52 to earnings per share. Taking all of this into account, our expectations for adjusted EPS for the full-year remains unchanged and is expected to be in the range of $3.65 to $3.85. There are few other key metrics that I would like to touch upon. Our balance sheet remains in great shape, and we expect to be approximately four times levered on an as-reported basis or approximately 3.7 times on a pro forma basis by the end of this year, as we naturally de-lever, bringing it into our targeted leverage range of three times to four times. As for capital allocation, we opportunistically repurchased $50 million in the quarter under our previously authorized $500 million share repurchase program. As of March 31, 2016, $264 million remained available in the program; and while we will remain opportunistic for the remainder of 2016, we anticipate larger share repurchases in 2017 as we balance our share repurchase program, leverage target, and liquidity profile. With that, I'll turn over the call to Frank for some closing comments.

Thank you, Wendy. We are excited about our newbuild program, which adds a new vessel to our fleet each year through 2020. While we recently took delivery of Sirena for the Oceania fleet and anxiously await the delivery of Seven Seas Explorer in July, the most exciting update in our newbuild program is perhaps the announcement of some of the luxurious accommodations and thrilling features and activities of our first purpose-built ship for the Chinese market, Norwegian Joy. Based on the successful design of our Breakaway Plus Class Ships, Norwegian Joy will be styled to appeal to Chinese travelers and include everything from Norwegian brand's largest upscale shopping venue and multiple casinos to an increase in staterooms designed specifically for families, as well as interconnected staterooms for extended families traveling together. The ship will include a number of berths within the Norwegian brand, including concierge level accommodations, which feature larger balcony staterooms, with luxurious in-suite amenities, the services of a dedicated concierge, and an exclusive concierge lounge with private bar and light food offerings available throughout the day. The concierge level complements the brand's luxurious, The Haven by Norwegian suites complex, which will also be part of Norwegian Joy's collection of accommodations and has been expanded to include a VVIP casino. At-sea firsts will abound on the Norwegian Joy, including a two-level, eight-turn electric car race track at the very top of the ship and a Galaxy Pavilion complete with numerous immersive virtual reality experiences, drilling simulator rides, active video walls, hovercraft bumper cars, and a single seat, genuine Formula One race car that's been converted into a state-of-the-art racing simulator, among other exciting activities. If you'd like to learn more about Norwegian Joy's features, I invite everyone to visit our dedicated microsite at www.ncl.com/norwegian-joy. By the time of our next call, Seven Seas Explorer will have joined the Regent fleet, as the most luxurious ship at sea. As I mentioned earlier, her popularity was so great that she broke records and sold out many voyages as soon as sailings were open. Keep in mind these initial sailings were open only to members of Regent's loyalty program. Once sales were opened to other guests, her popularity only grew. So much so that in March of this year, we announced an order for a sister vessel to be delivered in 2020. We are very bullish on these highly anticipated Explorer class vessels and look forward to the first addition entering our fleet this July. The introduction of Norwegian Joy, Sirena, and Seven Seas Explorer, along with our disciplined pricing strategy, deployment optimization, and cost containment initiatives are a few of the many factors that reinforce our confidence in our long-term earnings per share and return on invested capital target. Perhaps the biggest factor contributing to our confidence is our strong booking position for the first half of 2017, which includes double-digit pricing growth, not including any benefit from our China ship, which doesn't launch until July of 2017. Consequently, our view regarding our $5 adjusted earnings per share target for 2017 has not changed since last quarter and we look forward to posting double-digit adjusted ROIC at the end of this year for the first time in our company's history and leading the industry in this all-important metric. With that, I'd like to open up the call for questions. Operator?

Hi. Thank you, and good morning. Frank, I just wanted to stay with that last point you made on the $5 adjusted earnings per share target, because as you think there might be some confusion. I believe in your last release, you talked about exceeding the $5 target, and then in this release, it seems more like you were on track for the $5. So, perhaps you could help explain the difference in some metrics there?

Yeah. Look, there is no difference. I just reiterated our position. We feel as strong today as we ever have, perhaps stronger than ever, given that we are now closer to 2017 than we were one quarter ago. As I said earlier, bookings, which is the main driver of this business, remains strong for 2017, and pricing is very strong with double-digit yield growth. We've never talked about exceeding the $5 target—while we set the target at $5, the point I want to get across is that nothing has changed. If we were going to exceed it, we would have exceeded it as much today as we did last quarter. No one should read too much into the change of language whether it was to reach or some other term to qualify it. 2017 is looking very, very good and I'm very comfortable with where we are.

Okay. That's helpful. Thank you. And then I just wanted to touch on the well-known softness in Europe—the North American market is a two-parted question. One is, when you think about or if you are looking back in terms of what has happened so far, can you just parse out for us how the low-end demand from North Americans for Mediterranean cruises has affected the Norwegian brands versus the Prestige brands? And then also, I was just hoping you could touch upon a comment that you made regarding that over the past few weeks, the worst is behind us and that you're seeing some improvement? Thank you.

I won't talk about the different brands individually. Approximately a third of our overall business for European itineraries is sourced in Europe. So, we still rely primarily on the North American consumer. While we are trying to diversify our channels—over the last year, we've opened offices in Sydney, Australia; São Paulo, Brazil; Germany; and China—we're still a North American-centric company, and that's beneficial since North Americans pay the highest amounts to go onboard cruises and spend the most money once there. However, you have to recognize that given the events that have occurred in Europe over the past four to five months, these situations affect North Americans more so than the local European markets. Yes, as time passes and people start to feel secure again, they tend to forget what happened. We put the past behind us, and we look forward. So, yes, I believe the worst of the downturn in North American market demand for European sailings is behind us, and we've seen an uptick in business in the last four weeks, and we hope that momentum continues. It's essential to note that we don't need a major rebound in European business to hit our target; we have seen that the business has continued to perform well, and therefore we have reaffirmed our guidance for the full year. If Europe materially improves, then we can see some upside.

Great. That's helpful. Thank you.

Great. Thanks. I think your last comments on 2017 were very interesting, double-digit pricing growth, and if you could kind of give some color on bookings, and why do you think it is so strong for the first half of 2017?

First half, because the second half is still lightly booked and not material for commentary. Our brands are strong, our marketing platforms are resonating in the marketplace. Other than European itineraries, business is stronger than ever, especially in the Caribbean, Hawaii, and Bermuda. The first quarter of 2017 has very little Europe since it is primarily a Caribbean-centric quarter. As we distance ourselves from the events in Europe, by the second quarter of 2017, things begin to improve. Remember that Norwegian Joy, the new China vessel, doesn't come on until the third quarter. The fact that we are so well booked at such high pricing without the benefit of the China vessel, which we know is higher yielding than the rest of the fleet, is very encouraging for us.

Great. And do you think that the improved traction in bookings for North American passengers going to Europe—has that just been due to the memories fading of the incidents in Brussels and Paris and people getting more comfortable with traveling to Europe versus perhaps promotions and discounts?

Well, there are a couple of things to consider. Yes, those events are not hitting our customers in the face every day in the news cycle; they become a bit of history, and hopefully, we keep it that way. Another factor is that, overall travel to Europe is down; the airlines have also had to drop their prices. So, our customers benefit from these lower prices, making it more economical for them to travel to Europe. The strong dollar helps as well. We're hopeful again that the worst is behind us, and we have some positive indicators that suggest it indeed is.

Good. Thank you.

Hi. Great. A couple of things, I want to clarify. One is, can you give us the breakdown of Europe or maybe even Eastern Mediterranean, specifically Q3 versus Q2? Just trying to think about, given the impact that's Q2 and trying to think about what that might be in Q3? I know you're not giving specific guidance for that in Q3, but just kind of thinking about the percent of exposure? And then, also, just looking at Q1 results of the gross yield. I know there are different deferred revenue adjustments and we can't tell it's sort of with or without currency, but I guess how to think about the gross yield change in Q1, which was kind of flattish?

I'll take the question about the Eastern Mediterranean and so forth. Our Q2 capacity in the overall Mediterranean is 21%, and there is growth of 26% for Q3. It's more, but not materially more. However, we are well booked in Q3. Our guidance for the full year takes into account what has happened in Europe in Q2 and the impact on our Q3 Europe business. Despite the difficulties in Europe, we reaffirm our full-year guidance, suggesting that if Europe hadn't faced these challenges, our results would have been even stronger. We are confident in our current guidance regardless.

Good. That's helpful. So, your current guidance suggests that declines in the Mediterranean for Q3 would be at least as much as the declines in Q2, right? You're not expecting any improvement, correct?

The difference between Q2 and Q3 regarding Europe in general is that the Baltic, which has been a very high-yielding itinerary, has been less impacted than the Mediterranean, and it comes into focus much more in Q3 than in Q2. The Baltic represents almost a three-fold increase in capacity over Q2.

Okay. That's helpful. On the Q1 gross yields?

Yeah.

So, what's really important to keep in mind here is that as we rolled out our bundled packages, which actually started in Q1 of 2015, the accounting rules stipulate that the revenue is allocated between the ticket and onboard revenue based on retail value. As a result, the individual components are not representative of the selling price in the market. So, I would focus everybody to concentrate, and I have been saying this quarter-after-quarter, to look at total net yield or total net revenue. If you look at it on a component basis and try to divide it out by capacity days, it looks skewed with ticket and onboard, but it's all due to these bundled packages. Once we get into Q2, we'll be rolling over like-for-like when looking at Q2 of the prior year before rolling out the bundled packages.

Okay. Great. Very helpful. Thank you. And just one final thing, Frank, I don't know if I caught your comments correctly on the 2017 volume on the books or just for the first half of 2017; is the volume on the books up as well as price?

First half, yes.

Is the volume up as well as price?

It's comparable to the prior year. We started the year in a great booking position, so I'm pleased with where we are for 2017. To be more heavily booked, frankly, we'd probably be leaving money on the table in terms of yield. I'd much prefer to be up double-digit in pricing than to have an additional point or two in capacity.

Great. Perfect. Thank you very much.

Hi. Good morning. Just a follow-up on the second half of this year. Can you provide us with a little bit more visibility on how well booked you are in the second half? How much more is there really to sell?

Hi, Harry. So, the per diems are up in the mid-to-high single digits with occupancy slightly down, particularly in Q3 due to the European situation we've discussed. I'd rather be slightly ahead with pricing being up, because it is more difficult to claw back pricing than to claw back occupancy. Occupancy adjustments occur after the ship sails, but that pricing competition lingers. We're pleased with our achievements on the pricing side; all three of our brands are recognizing the industry's highest yield in their respective categories, and I want to protect that at all costs. The good news is, the tempo of bookings is very strong in the fourth quarter and in 2017. We recognize the slight weakness in the third quarter, but it is offset again by Explorer being so well booked—just about sold out, and it's not sold out in the entire second half. Sirena, another high-yielding ship, is also very well booked. The upcoming 40-day charter is at premium pricing. Approximately half of our projected yield growth in the second half of the year is locked in due to our strong booking position.

I understand. Thank you for that. Let me shift gears. If you could touch on or follow up on your comments from the last call regarding Cuba. It’s taken longer for you to get approval from the government than you thought; can you give us your thoughts on that? One of your competitors has mentioned that they thought the impact of Cuba would be relatively modest; do you feel differently?

I am still confident that a Norwegian Cruise Line Holdings vessel will cruise to Cuba before the end of the year. We continue to make progress, and while I'm disappointed about missing your April deadline, I'm happy with our progress and feel optimistic that we will wrap this up soon, and that one of our vessels will sail into Cuba at the start of the year. I still firmly believe that Cuba will garner a yield premium compared to anything else in the Caribbean. The question will be how much capacity of any brand or company will be dedicated to Cuba, and how many sailings that ship will operate there. For a company like us, which is smaller than our two other competitors, a ship sailing to Cuba or a ship in China could represent a significant impact.

Thanks, Frank.

Hey, good morning, everyone. I was hoping you could give us a sense of what you think Norwegian Explorer or Sirena in the Getaway charter will add to core net yield growth of 2% to 3% in the second half?

I don't have that number off the top of my head, but I'll tell you that, that business is accounted for; the charter is a contract that is locked in. Sirena and Explorer are both very high yielding vessels, more so than the rest of the fleet, which gives us the confidence we can achieve our yield in the second half. As I mentioned earlier, approximately half of our projected yield growth in the second half of the year is locked in due to our already strong booking position. I recall that our current booking position is up mid-to-high single digits in the second half of the year.

I'll just add, Kevin, our implied yields are very strong for the back half of the year, approximately 4.5%. But we've also mentioned that Q3 will be stronger. We don't break it out by the brands, but there is significant strength coming from the three items we have cited.

Okay. Very good. And then second, could you give a sense of what the total percentage of your business has been booked for the third and fourth quarter?

We typically don't break down occupancies like that. I will tell you that in the second half, pricing is up mid to high single digits, and overall occupancy compared to this time last year is slightly down—the slight down trend is primarily in Q3 because Q4 is slightly up.

Okay. Thank you.

Thank you. Just a follow-on, Frank, on a couple of questions that have been asked. Thank you for all the color you've given so far, greatly helpful. The Prestige brands, given that they booked further out, did you see cancellations post-Brussels, and is that what is impacting Q2 more so, and not as much Q3 because of the SKU into the Baltic? Going forward, how are you attracting more Europeans to fill in, even though you don't source that many Europeans?

Typically, when these events occur, cancellations aren't what cause the weakness. When you are booked, you tend to stay. What typically happens is that new bookings become harder to come by. This is what happened after Paris, Istanbul's early January situation, and Brussels. It takes a little time for the news cycle to ease. So, while the worst might not be behind us, we are entering the prime travel time for Europe. It is possible, although we are not relying on it for our guidance, that there will be a late Europe booking season, later than normal, that will bridge our gap for bookings.

Okay. And then, Wendy, what percent of your capacity will Norwegian Joy represent for 2017, and how about its fully annualized capacity? Also, on hedging, how are you hedging shifting to the MGO type?

Regarding your question on China, yes, it will roughly be 4% for 2017 since it should come midyear; on a run rate basis based on current capacity, it is 8%.

From a mix standpoint, nothing has changed; it's still roughly 70% HFO and 30% MGO. We're currently using hedging strategies for MGO as a part of our fuel hedging.

Okay. Great. Thank you both.

Thank you, Tim.

Great. Thanks. I wanted to circle back on fuel. When looking at the guidance of the fuel price per ton and the consumption, it looks like there is a nickel benefit versus when you last gave guidance, but you've also mentioned some other items impacting earnings. Could you help us with the math on what the net EPS impact of fuel is versus when you last provided guidance?

Hi, Vince. So, for the full year, we are down about $13 million in guidance compared to the time we gave our original guidance. At that point, our hedge position was roughly 75%, meaning 25% of consumption was subject to volatility. However, as we transitioned to a position that is now 92% hedged, we are very much locked in. The updated guidance is actually a tailwind for us.

Great. Thank you. And then secondly on China—in your last call, I believe you mentioned that it was about a $15 million cost investment in 2016, $15 million in the first half of 2017, and turning profitable in the second half of 2017, which should be accretive to the $5 target. Has anything changed since?

No, you have that correct. So, it's $15 million in 2016. I'd straight line that throughout 2016, followed by an additional $15 million in the first half of 2017. Although the ship won't launch until the second half, we will be profitable in 2017, and it remains accretive to our $5 EPS target.

Great. Thanks.

Hi, good morning. Thanks for fitting me in here. Most of my questions have been answered, but maybe just a couple mechanical questions on the first quarter. Obviously, the first quarter yields were significantly better than you had expected, and costs were also better. So, I presume the other income line that you mentioned was worse; how should we model that throughout the remainder of the year? Should we expect to see some offset in other income later on, or should that be a similar negative for the year as we saw in the first quarter? Second, looks like you got a nice benefit from occupancy in the first quarter, about 140 basis points better than last year. Can you help us understand that? Were more families taking trips, or was there something more structural that allowed you to achieve that, which might be a benefit going forward?

In terms of the Q1 occupancy, it was a strong quarter. We had Escape for the first time; we didn't have Escape in Q1 of 2015. She's very popular, and it was peak winter Caribbean season. Marketing has resonated very well. We rolled out the Feel Free At Sea promotion. The bulk of our inventory was out of Europe and already booked at the turn of the year. We had a very solid book position by year-end, which consequently benefited Q1 more than any other quarter due to its proximity.

We've seen much greater strength in the Caribbean yield and have experienced increased onboard revenue, so when you get the right passengers on board, they tend to spend more. This positively affects occupancy. For net cruise costs, some of it is timing, primarily on marketing. On the other income line, you cannot accurately model that since this was the first time we've talked about this mark-to-market related to advanced ticket sales. The advance ticket sales represent a liability since these are future sailings, and due to the weakening of the dollar at quarter-end, we recorded this; if rates hold at these levels, this could potentially result in a similar tailwind in the future quarters.

Got it. And then, my last question—regarding currency, it seems like the currency headwind for the year is relatively unchanged compared to your prior guidance, which is a bit of a surprise, given what I'm looking at: the euro, Canadian dollar, and British pound all strengthened versus three months ago. Maybe that just wasn't enough, but why aren't we seeing a bit of a benefit from that side?

Primarily, we source 85% of our business from North America, meaning 85% to 86% of our business comes in U.S. dollars. Therefore, this influence isn't material; moreover, the currency hasn't changed that much.

We are rolling over similar levels from the prior year.

Okay. Fair enough. Thanks, guys.

Thank you.

Thanks, everyone, for your time and support this morning. As always, we are available to answer your questions throughout the day. Have a great day. Thanks, everyone. Bye-bye.