Norwegian Cruise Line Holdings Ltd (NCLH) — Q3 2019 Transcript

Thank you, Carmen, and good morning, everyone. Thank you for joining us for our third quarter 2019 earnings call. I'm joined today by Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings and Mark Kempa, Executive Vice President and Chief Financial Officer. Frank will begin the call with opening commentary, after which Mark will follow to discuss results for the quarter as well as provide updated guidance for 2019 before handing the call back to Frank for closing remarks. We will then open the call for your questions. As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website at www.nclhltdinvestor.com. We will also make references to 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 discuss our results, I'd like to cover a few items. Our press release with third quarter 2019 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 statements 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. And with that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea, and good morning, everyone. There are a few important parallels between the second and third quarters of 2019 that I'd like to point out. First, the third quarter, like the second, marked another record-setting quarter for Norwegian Cruise Line Holdings as we posted not only the highest quarterly revenue in our history, but also the company's highest ever quarterly net yield. At nearly $301 per day, the third quarter marks the first time net yield has ever surpassed the $300 mark, not just for our company, but for any of the major cruise operators. Even more impressive is that the record revenue and record net yield came in a quarter in which we experienced a 1.8% decrease in capacity days. Also like the second quarter, the third quarter benefited from a continued strong demand environment that once again proved that the consumer, especially the North American consumer, is alive and well. And lastly, both quarters benefited from our strategic initiatives around itinerary optimization, particularly in Alaska and Europe, where we grew capacity in the quarter by 17% and 13% respectively. Also similar to what we experienced in the second quarter, we overcame external and non-controllable headwinds, both known headwinds and new ones, demonstrating once again the resilience of our business model and the power of the go-to-market strategy utilized by our big global brands.

Thank you, Frank. Unless otherwise noted, my commentary compares 2019 and 2018 net yield and adjusted net cruise cost excluding fuel per capacity day metrics on a constant currency basis. As you can see on Slide 6, strong revenue performance in the third quarter, primarily driven by exceptionally strong onboard revenue and strength in close-in bookings, drove earnings above expectations with adjusted EPS of $2.23, beating our guidance by $0.08 despite a $0.06 impact from Hurricane Dorian. The quarter experienced a direct impact from Dorian from three items. First was the cancellation of two voyages as a result of the extended closure of Port Miami, which forced us to reroute two of our ships; Norwegian Breakaway and Sun to New Orleans resulting in lost revenue and additional costs to repatriate guests back home. Second, there were multiple itinerary changes not only for ships sailing from Florida but for ships operating up and down the Eastern Seaboard as many of the ports were closed as a cautionary measure while awaiting the path of the weather system. And lastly, our hurricane relief efforts which totaled approximately $3 million. If not for this impact, adjusted EPS would have grown to $2.29 on a decrease in capacity days of 1.8% and would have exceeded our August guidance by $0.14 and the prior year's record of $2.27 despite the impact of Cuba and Pearl. Turning to Slide 7. Net yield increased 3.9% or 3.3% on an as-reported basis versus the prior year on a capacity decrease of 1.8%, outperforming guidance expectations by approximately 215 basis points. Stripping out the noise in the quarter, core fundamentals remain strong. And if not for the previously disclosed impacts from Cuba and Pearl, coupled with Dorian, net yield would have increased 6.7%. This growth comes on top of the prior year's robust net yield growth of 4%, which included both the benefit of premium priced Cuba sailings and the premium priced inaugural Alaska season for Norwegian Bliss, compared to the current year which included lower-priced Bahamas cruises that had to be filled in a very compressed sales cycle. Turning to costs. Adjusted net cruise cost excluding fuel increased 11% versus the prior year and 10.2% on an as-reported basis, making Q3 the highest growth quarter in the year consistent with our expectations. This increase was a result of unanticipated costs due to Dorian, such as guest repatriation and costs related to relief efforts along with incremental marketing to bolster sailings in 2020 combined with expenses outlined in our prior call, which included the scheduled 18-day dry dock of Oceana's Regatta, marketing expenses for sailings previously containing Cuba calls, and operating costs associated with Pearl's technical issue. Fuel expense for the quarter was slightly higher than expectations due to an increase in fuel price per metric ton net of hedges which came in at $504 versus guidance of $492. Turning to Q4. I'll direct you to Slide 8 to review deployment highlights. As our ships repositioned to their winter deployments, there are two focal markets for the quarter: the Caribbean and Europe. Our Caribbean mix is up approximately 39%, which is down versus the prior year with capacity decreasing approximately 8%, primarily due to the extended European season for deployment of Norwegian Getaway and Epic along with the addition of Norwegian Pearl to the region. Europe mix for the quarter increased to approximately 18%, representing a nearly 40% increase in capacity as a result of the extended season. Looking at expectations for the fourth quarter on slide 9. Core business fundamentals are strong, despite an expected incremental $0.09 of headwinds driven by lower pricing and higher expenses entirely due to Dorian. Let's focus on net yield first. As a reminder, keep in mind that our Q4 outlook includes the expected dilutive mix impact of approximately 125 basis points for the combined performance of Bliss and Encore in the quarter. Further this quarter also includes a scheduled dry dock of the highest yielding ship in the fleet, Regent Seven Seas Explorer. Dorian's 110 basis point drag on net yield is a result of the one-two punch of Cuba sailings being converted to Bahamas-only sailings combined with the near-term dampening of consumer demand for Bahamas sailings from the extensive media coverage surrounding the storm. That said, the good news is that the pricing impact we are seeing from that is expected to be fully offset in the quarter by strength in the core Caribbean, resulting in an improved outlook for net yield, compared to our prior implied guidance. And as time passes and we distance ourselves from the impacts of Cuba and Dorian, the booking window will return to normal and more importantly, half of our capacity in the Bahamas basin will reposition to other higher yielding destinations such as Alaska beginning in early Q2. To better illustrate the strength of our core top-line fundamentals in the fourth quarter when you strip out the noise from Cuba, Dorian and the mix impact from the new Norwegian ships that results in an expected 5.7% increase in net yield over the prior year, solid growth of 4.7%, which as you recall benefited from the premium priced Cuba sailings and Norwegian Bliss' incredibly successful inaugural Caribbean season. Turning to costs. Adjusted net cruise cost excluding fuel is expected to be up approximately 2.25% or 1.75% on an as-reported basis, which represents an increase of less than one half of 1% on an annual basis. The increase is primarily due to costs to repair damage to our private islands infrastructure and to replenish its various beach fronts as a result of the erosion caused by Dorian. Higher than expected dry dock costs required to harmonize Explorer to that of its sister ship Splendor, higher inaugural expenses for the extended launch activities of Norwegian Encore in Europe, New York and Miami, and slightly higher sales and marketing expenses to further bolster the successful launch of Splendor and support the Regent brand's 26% growth in the year. Looking at fuel expense. We anticipate our fuel price per metric ton, net of hedges to be $498 with expected consumption of approximately 221,000 metric tons. Taking all of this into account, adjusted EPS for the fourth quarter is expected to be approximately $0.69, which includes an estimated impact of $0.26 from Cuba and Dorian. Exclusive of these two items, adjusted EPS guidance would have been $0.95, an increase of approximately 12% over the prior year. Turning to the full year. I'll walk you through the components of our revised adjusted EPS outlook on Slide 10. The year benefited from topline outperformance in the third quarter combined with a stronger revenue outlook for the fourth quarter, primarily in the core Caribbean resulting in a $0.14 benefit to the full year. Accretion from the $150 million in shares repurchased in the third quarter accounts for $0.03 and foreign exchange fuel and other savings of approximately $0.03. These benefits were partially offset by the aforementioned marketing and dry dock cost of $0.05 and a $0.15 impact from Dorian, of which $0.10 is attributable to revenue and $0.05 is attributable to costs. As a result, we expect adjusted EPS to be in line with the midpoint of our August guidance of approximately $5.05. To put the year in perspective, if not for the $0.67 of combined headwinds from Cuba, Pearl and Dorian, our guidance would have been approximately $5.72 or an approximate 16% increase over the prior year and would have exceeded the high end of our original guidance range provided at the beginning of the year. Looking at expectations for other key operating metrics on Slide 11, we've increased our outlook for net yield growth for the year by 40 basis points to now be up approximately 3% or 2.4% on an as-reported basis versus the August guidance despite the impact from Dorian. If not for this headwind, net yield growth would have increased another 25 basis points to 3.25%. And if not for Cuba and Pearl as well, net yield growth would have been approximately 5%. Adjusted net cruise cost excluding fuel is expected to be up approximately 5.75% or 5% on an as-reported basis. The 125 basis point increase versus previous guidance is primarily due to the impacts from Dorian and the previously mentioned items. Looking at fuel expense, we anticipate our fuel price per metric ton net of hedges to be $490 with expected consumption of approximately 836,000 metric tons. Focusing on the fuel environment on Slide 12, we continue to strengthen our hedge program and during the quarter increased our overall portfolio. While there is still a small amount of uncertainty in connection with the new IMO regulations going into effect on January 1, we continue to expect our 2020 total fuel expense net of hedges to be on the higher end of our typical range of 6% to 7% of gross revenue. This is consistent with our previous expectations and is driven by an increase in volume from capacity growth as well as higher pricing, primarily related to the shift in MGO consumption from 30% to approximately 60% in 2020. Looking ahead to the broader outlook for 2020, while it is still too early to provide guidance we want to provide some puts and takes and a few items to keep in mind. First regarding Cuba, as Frank mentioned earlier, the impact diminishes in 2020 to the previously disclosed expected range of $0.20 to $0.25 per share for the full year. This impacts the first half of the year in the topline due to the loss of the premium pricing that our Cuba sailings garnered. Second, Norwegian Bliss is lapping her successful inaugural first and second quarter of sailings stepping down from the pricing premium that inaugural seasons customarily command. Lastly, the accretive benefit to yields from Seven Seas Splendor, which was offset by the expected dilutive impact of Norwegian Encore. And in terms of dry docks, 2020 will have a higher number of dry-dock days versus 2019, including two extended dockings of approximately 40 days each for Norwegian Spirit in the first quarter and Pride of America in the second quarter. In terms of the cadence for net yield growth. The aforementioned puts and takes are heavily weighted to the first half, with Cuba alone providing a 200 basis point drag. As a result, first and second quarter net yield growth is expected to be below the typical range of net yield growth that we normally aim to deliver. All in all, it's steady as she goes and 2020 is expected to follow in the footsteps of 2019 as another record year. While we have work to do to offset the multiple headwinds we've weathered over the last few quarters, our business fundamentals remain strong and we continue to be on a solid trajectory toward achieving our full speed ahead 2020 targets that were laid out at our Investor Day.

Thank you, Mark. Earlier in my comments, I mentioned the enthusiasm that we have for the growing Alaska market, which has led us to make significant investments to further strengthen our presence in this high-yielding cruise market. Prior to the arrival of Norwegian Bliss, we solidified our partnership with the Port of Seattle by renovating their terminal at Pier 66 and we continue to cultivate various other partnerships in the region, aimed at developing both port and guest-facing infrastructure projects in key ports that will facilitate our growing presence. Our itinerary-enhancing projects include a new pier in Ward Cove in Ketchikan, the purchase of the last waterfront parcel in Greater Juneau and a development of a second pier and customer-facing attractions at Icy Strait Point in Huna, all of which will give our guests enhanced experiences onshore as they explore the last frontier and give all of our brands a leg up on the competition. We are also investing in the guest experience onboard our ships, with Norwegian Spirit entering dry dock early next year, is the last ship to enter the Norwegian Edge revitalization program with the most extensive bow to stern renovation in the company's history. The updated elements onboard Norwegian Spirit will take the guest experience to the next level, with new venues and a look and feel consistent with our recent newbuild launches and which touch every aspect of the ship with every venue stay and public area being completely revitalized to prepare her for her sophisticated travelers that will sail on her exotic itineraries throughout Africa, Asia and Australia. The combination of a better than new ship at a fraction of newbuild prices and immersive itineraries in the APAC region will benefit our strategic global sourcing strategy of attracting the highest-yielding guests with an unmatched value-packed offering in the region. As I close up my remarks, I'd like to give a brief update on our ESG initiatives which are summarized on slide 15. As I stated earlier, we recently reactivated our Hope Starts Here program in the wake of Hurricane Dorian, delivering needed food, supplies, equipment and substantial monetary aid to the Bahamas and continue to provide aid wherever we can assist. On the environmental front, we continue to make significant strides in our efforts to reduce single-use plastics onboard our vessels. Earlier this year Oceania Cruises and Regent Seven Seas Cruises partnered with Vero Water and recently Norwegian Cruise Line announced its partnership with JUST Goods to replace all single-use plastic water bottles with environmentally-friendly reusable and recyclable bottles across its fleet by January 1 of next year, making Norwegian the first major global cruise line to go plastic water bottle-free. Lastly, on the governance front. This morning Norwegian Cruise Line Holdings was honored by the Women's Forum of New York for its commitment to greater female representation on its Board of Directors. Today, women comprised 30% of Norwegian's Board with backgrounds ranging from corporate executives to senior officers in the Armed Forces. Our commitment to diversity, however, extends well beyond gender. We are also committed to both social and professional diversity. And today 60% of our directors come from diverse backgrounds, which we truly believe will enhance our ability to better compete in an increasingly complex global environment. Before turning the call back to Frank, I'd like to discuss one metric we feel is vastly underappreciated, our cash generation. Despite operating in an extremely capital-intensive industry, coupled with our strong growth profile, our cash generation is expected to accelerate as we continue to realize the powerful earnings accretion our core business model provides, as well as the incremental earnings power from the addition of Norwegian Encore and Seven Seas Splendor to the fleet. This positive cash generation provides us the flexibility to continue to return meaningful capital to shareholders while also making prudent investments for the future to further enhance returns. With that, I'll hand the call back over to Frank to provide closing commentary. Thank you, Mark. Earlier in my comments, I mentioned the enthusiasm that we have for the growing Alaska market, which has led us to make significant investments to further strengthen our presence in this high-yielding cruise market. Prior to the arrival of Norwegian Bliss, we solidified our partnership with the Port of Seattle by renovating their terminal at Pier 66 and we continue to cultivate various other partnerships in the region, aimed at developing both port and guest-facing infrastructure projects in key ports that will facilitate our growing presence. Our itinerary-enhancing projects include a new pier in Ward Cove in Ketchikan, the purchase of the last waterfront parcel in Greater Juneau and a development of a second pier and customer-facing attractions at Icy Strait Point in Huna; all of which will give our guests enhanced experiences onshore as they explore the last frontier and give all of our brands a leg up on the competition. We are also investing in the guest experience onboard our ships, with Norwegian Spirit entering dry dock early next year, is the last ship to enter the Norwegian Edge revitalization program with the most extensive bow to stern renovation in the company's history. The updated elements onboard Norwegian Spirit will take the guest experience to the next level, with new venues and a look and feel consistent with our recent newbuild launches and which touch every aspect of the ship with every venue stay and public area being completely revitalized to prepare her for her sophisticated travelers that will sail on her exotic itineraries throughout Africa, Asia and Australia. As I close up my remarks, I'd like to give a brief update on our ESG initiatives which are summarized on slide 15. As I stated earlier, we recently reactivated our Hope Starts Here program in the wake of Hurricane Dorian, delivering needed food, supplies, equipment and substantial monetary aid to the Bahamas and continue to provide aid wherever we can assist. On the environmental front, we continue to make significant strides in our efforts to reduce single-use plastics onboard our vessels. Earlier this year Oceania Cruises and Regent Seven Seas Cruises partnered with Vero Water and recently Norwegian Cruise Line announced its partnership with JUST Goods to replace all single-use plastic water bottles with environmentally-friendly reusable and recyclable bottles across its fleet by January 1 of next year, making Norwegian the first major global cruise line to go plastic water bottle-free. Lastly, on the governance front. This morning Norwegian Cruise Line Holdings was honored by the Women's Forum of New York for its commitment to greater female representation on its Board of Directors. Today, women comprised 30% of Norwegian's Board with backgrounds ranging from corporate executives to senior officers in the Armed Forces. Our commitment to diversity, however, extends well beyond gender. We are also committed to both social and professional diversity. And today 60% of our directors come from diverse backgrounds, which we truly believe will enhance our ability to better compete in an increasingly complex global environment. Before turning the call over to Q&A, I'll refer you to slide 16, which contains our key takeaways for this call. First, strong demand drove outperformance on the top line and on earnings beat versus guidance despite impacts from Hurricane Dorian. Second, our core business fundamentals remain strong for the remainder of the year and well into 2020. Lastly, we remain on a strong trajectory to achieve our 2020 full speed ahead targets. And with that I'd like to open the call for questions and answers.

Hi, good morning everybody. Frank, starting with you, just getting back to your earlier commentary for the third quarter and fourth quarter, you sounded bullish around pricing for the remainder of the year and into next year. So as you look towards 2020, I was wondering if you could talk about what may have changed since you last updated us in August. I think you mentioned in your prepared remarks that you've seen an acceleration in demand, but I couldn't tell if that was referring to the remainder of this year or 2020?

No, it's mainly related to 2020 since 2019 is nearly finished. Over the past four to six weeks, we have observed an upsurge in overall business demand for 2020 and even into 2021. The booking window has expanded by 10% year-over-year, which is a strong indicator of both the industry's health and our company's ability to increase load with a capacity rise of 8.7% while also raising prices. It's a significant achievement that we can raise prices, extend our booking timeframe, and increase our load despite experiencing unusually high year-end capacity growth. We are very pleased with our results. We are continuing to adjust our itineraries away from lower-yielding areas to higher-yielding ones. Everything is falling into place, and we are extremely satisfied with our performance this year and optimistic about another outstanding year ahead.

Great, that's helpful. As a follow-up, your outlook also highlighted that you're experiencing stronger revenues from the Caribbean in the fourth quarter. You mentioned that you've noticed a decrease in bookings following Dorian, which accounted for much of the 110 basis points impact on net yield for the fourth quarter. However, I’m curious about your current position regarding the booking window and pricing for the Bahamas compared to your usual booking windows and pricing. How does it compare now to what is considered normal? Is any of this affecting the first quarter or the first half?

Yes. So it's good that you mentioned Bahamas separately from the Caribbean because core Caribbean both western deployments and eastern deployments are strong higher load, higher pricing. Bahamas is the issue and a short-term issue as we distance ourselves from the impacts of Cuba. Remember, when Cuba came into the picture, a ship that went to Havana was also going to the Bahamas. And so we stopped calling those sailings Bahama cruises and instead of calling them Cuba cruises. Well now with Cuba out of the way, they're back to being Bahama cruises. And the Bahama cruises are being impacted by several factors. One of the factors, this time last year, we were in Cuba. And so the year-over-year comparisons are night and day, in terms of pricing, because Cuba's demand was such a high price. Number two, the effects of Dorian, which shortened the booking, the attractiveness if you will, of the destination. And in our case because Cuba was so strong, we had more capacity in the Cuba/Bahamas region than we normally would. As I mentioned in my prepared remarks, as we move into 2020, we will be moving those vessels that had been in the Bahamas and had been in the Caribbean out of those regions and into higher-yielding markets such as Alaska and the Eastern Mediterranean and Asia. So it is temporary as we move forward sequentially, the effects of Cuba diminish, the effects of Dorian disappear. But yes in Q4, as you saw in our release, the Bahamas is what is dragging down pricing to the tune of 110 basis points.

That's exactly right. And just to add on that. If you look at our Q4 yield, our prior implied guidance was flat. But excluding the impact of Dorian, we're actually up about 110, 120 basis points and that's all primarily coming from the Caribbean. So again, we're seeing strength in that core market in the forward view.

Okay. So we won't hear anymore about the Dorian in the first quarter, it sounds like?

Not as much.

Hey, good morning, everyone. Thanks for taking my question. So Frank, I guess a question for you. I mean obviously, the forward booked position continues to expand, your booking windows expanding. Have you thought about taking some more risk right now and not just on the pricing side but just on some of the, I guess, pricing decisions in terms of your deposit policies? I know I think a year or two ago you raised the deposit date to 120 days. Is there any thoughts to raise that even longer? And then some of your competitors have focused more on the nonrefundable side. I know that's not really an area where you guys have explored. Can you just talk about that opportunity and how you see that as something that you could expand into?

Good morning, Jared. As you know and something I stress in every call, we already have by a very, very wide margin, the highest yields in the industry, not only in ticket but in onboard. That doesn't happen by chance. It happens because we work it every hour of every day, always looking for opportunities to raise prices across our three brands and we do. And so when you ask me if we're focused on or if we're doing anything on it, that's all we do. That's the primary focus that we have is the combination of our go-to-market strategy, which means that we invest marketing dollars to stimulate demand in the marketplace versus reducing prices. And whenever we believe that the booking window, booking curve combination allows us, we take prices up. It's why we constantly are looking for the optimization of our itineraries, always moving ships to higher-yielding itineraries. Why we're so bullish on Alaska? Alaska used to be a three-month season: June, July, and August. So now we're getting there in April and we're not leaving until October. It's now a six-month season of very, very high-yielding, not only on ticket, but incredibly high-yielding onboard. And so we're going to continue doing that. We're taking Spirit out of the winter Canary Island marketplace, one of the historically lowest-yielding areas and we're sending her, after her refurbishment, out to Asia, Australia, Africa, more exotic itineraries to take advantage of our huge customer base, our past guests files that have never been to those areas because we've never sailed to those areas before. So all these things help the selling process of lower marketing costs, higher occupancy, higher yields, more revenue, more earnings per share, and I think that our performance over the last four or five years proves that that philosophy and strategy works.

Okay, thank you. And Mark just maybe a question on cost, can you talk about what that incremental marketing is that's hitting this year that's for 2020, maybe why you took the marketing up? And then historically you've talked about ex-fuel unit cost growing at a 1% to 2% range. This year is an unusual year with all headwinds, ex-fuel unit costs up 5%. If I look at next year, maybe as a starting point 1% to 2% and then subtract out the 170 basis points you're calling out for Cuba, Pearl and Dorian, why is that not the right approach to look at it? I know you called out the higher dry docks for next year but you're still at 5% this year versus, call it 1% to 2% in a normal year. So can you help me think about that a little bit better?

Thank you, Jared. I want to start by discussing the marketing aspect. We've publicly shared our go-to-market strategy, and we are willing to invest in marketing when we expect to achieve a minimum return of 4 to 5 times, ideally even more. This investment is reflected in our net yield performance, which continues to exceed our guidance and expectations—not by chance, but due to strong onboard revenue and ticket pricing across the board. We are committed to this approach as long as it contributes positively to our bottom line. Regarding 2020, while it's early to provide detailed insights, we acknowledge that our costs were elevated in 2019. Looking ahead, we anticipate some benefits carrying into 2020, despite having about 14 additional dry dock days that year. For now, we maintain our expectation of a 1% to 2% increase in costs, and we aim to exceed that. As we finalize our operational plans for next year, we will provide clearer guidance in our February call.

Hey, good morning, guys. So, first, I want to dig into the third quarter a little bit, the yield beat a little bit more. And I guess the question is you beat your yield guidance by around 200 basis points, which obviously is very, very strong and that's after you already had kind of a good one month under your belt when you gave that guidance. So can you help me understand a little bit more how the last two months, the third quarter why they performed so well?

Sure. Yes. Steve, this is Mark. As I mentioned earlier, we experienced extremely strong onboard revenue spending. Whatever inventory we had was sold at favorable prices. I don't want you to underestimate the strength of our onboard revenue. Looking at our year-over-year onboard revenue, I believe it increased by about 4% to 5% on a reported basis, and when we adjust for GAAP allocation transfers and the added benefit from the Joy, our core onboard revenue grew in the mid-single digits. That's a solid performance, and we are still seeing that trend. I often refer to it as our canary in the coal mine; we track it closely and are pleased to see positive momentum. Consumers are actively spending, and along with our pre-cruise initiatives that capture more of their spending before they even board the ship, we have found this to be very advantageous. We continue to refine our strategies in this area.

Okay. Thanks, Mark. And I guess as we look out to next year, your forward commentary obviously is pretty upbeat around what you're seeing right now. If we kind of look at where our consensus yields are next year which are hovering let's say 2.7%, 2.8% right now, I understand you're not going to bless that number. But I guess what I'm trying to understand here is, is it fair to say pricing and load factors are up in all four quarters? And if you already said that, I apologize. And Mark you talked about the first quarter, second quarter being below your normal range or expectation. I don't think you're going to answer this, but can you remind us what your normal range or expectation is?

We usually target a combined company yield growth of 2% to 3%. This translates to a higher yield expectation for each brand when looked at individually. Considering the first half, we are facing a drag from Cuba, which is approximately 200 basis points. Therefore, I wouldn’t expect us to achieve the 2% to 3% year-over-year growth in the first half; it will likely be lower. However, for the full year, we are still confident that we will remain within that target range and achieve our goals.

And Mark, could you clarify if pricing and load factors are up in all four quarters right now?

Yes. You are 100% correct. I thought Frank had said that in his prepared remarks that we are up in pricing and load for all four quarters in 2020.

Across all quarters, we are up in pricing and load.

Good morning everyone. Thanks for taking my questions. So, thinking about the Caribbean in the first half, I'm just going to kind of pile on to this, but it's slightly different question. If you would be able to strip out Cuba and any kind of Dorian impact, what would the book look like in terms of pricing and volume year-over-year in magnitude versus where you were this time looking out?

I'm sorry, it's a bit hard to hear you, Brandt, so I apologize, but I believe you are asking what our outlook would be if we excluded Cuba and the impact of Dorian, is that correct?

Apologies. How does the book perform in the first half in the Caribbean when excluding Hurricane Dorian in terms of volume and price, particularly regarding the magnitude?

Yes. As I mentioned in the previous question, we have seen increases in both price and volume across all four quarters. When we refer to this, we are adjusting for Cuba as that represents a significant portion of our business. Thus, on a comparable basis, we are also experiencing growth in that first half. We will keep testing the market and determine how much additional capacity we can allocate as time progresses. Over the past three years, for instance, three years ago we had the Norwegian brand with a 2,200 passenger ship. By 2020, we expect to have 12,000. This means we have nearly doubled our capacity in Alaska in a three-year span, and we don't believe we are finished yet. If we thought we were done, we wouldn't be making the investments we are currently making. We believe we have a strong presence in Alaska, which will further improve as we complete these investments. Alaska is a slotted area, and a prime example of this is the Glacier Bay permits granted by the U.S. Parks Department. We were fortunate to secure another 10 years, which is a significant achievement and a key part of our deployment strategy there. Glacier Bay is the top destination people want to visit in Alaska, and we have secured this for the next 10 years. We are also expanding to ensure we have the berth capacity for our largest ships in the region. Furthermore, our ticket prices and onboard pricing for our Alaska itineraries are very strong, and we aim to take full advantage of that opportunity.

That's great. If I could sneak one more in here, how should we be thinking about returns on those projects that you just announced?

I believe they offer significant value repeatedly. Alaska is a destination-focused area, and we need to have land programs established. We are taking the initiative to develop these challenging land capabilities. However, I find it difficult to provide a specific percentage for return on investment. This will be reflected in our net ticket yields, and we will have a clearer answer on that in the future.

Brandt, this relates to our strategic positioning, ensuring we have the right ports and destinations that consumers want to visit. There's limited opportunity in Alaska as it's the last frontier. We are securing this for the long term, knowing we achieve premium yields from that region. While we anticipate those returns will reflect in our top line, it's challenging to quantify them solely based on the specific initiatives we are implementing.

Good morning, everyone. I wanted to follow up on Mark's comments about the performance in the first quarter or the first half. It seems like there are two distinct halves to consider. How much visibility can you provide regarding the second half? I believe the stock price dropped significantly after those comments because there's typically limited visibility, leading to some concerns about the latter half of the year. It would be helpful if you could share any details you do have.

Sure. I'll start off and I'm sure Frank will jump in here. But look, we have tremendous visibility on our second half books. We always have. And I think we've even mentioned in our prepared remarks that the premium brands are going to turn the year at 70% sold for 2020. Our remarks around first half and second half were really just to give you some cadence in terms of don't expect the yield in the first half to be as high because we're rolling over very difficult comps from Cuba. And that's just reality. At back half, we will see a benefit from that. So we are not implying in any form or fashion that we would expect our full year yield guidance to be out of our range of 2% to 3%. We fully expect that. It's just going to be a front half, second half story.

And not because of performance, but because of year-over-year comparisons. First half has five months of Cuba in 2019 and 2020 has zero.

Thank you for that clarification. Second question, you talked about deposit growth and a decent amount of that is probably tied to the new capacity coming. So, are you able to give us a sense of if that deposit growth looks as encouraging on your core fleet as well?

Our advanced ticket sales, which you referred to, are up 12.5%, while our capacity growth for 2020 is only 8.7%. This means that deposits are exceeding capacity growth by 44%. Encore is one factor contributing to the 12.5% increase, but the strength goes beyond that. Although I can't provide specific numbers per ship or brand, the fact that deposits are outperforming capacity growth significantly suggests we are selling more at higher prices than we were last year. Additionally, our booking window has extended by 10% year-over-year. It's important to emphasize the underlying strength of our business. We have experienced some weakness in the third and fourth quarters due to Cuba and the effects of Dorian, but we anticipate that 2020 will be an excellent year. There is no observable decline in consumer enthusiasm for cruising and for our three brands. Operator, we have time for one more question.

Thanks for fitting me in. So just one question. Just the prior question, where you talked about still feeling confident in kind of that 2% to 3% net yield growth in 2020. You also talked earlier about seeing mid-single-digit onboard growth currently. Do you need to continue to see that to reach 2% to 3% growth next year? And what are kind of the gives and takes to think about to kind of continue that onboard growth? Thank you.

Yes. We're consistently examining ways to increase revenue from consumers and get them engaged with our ecosystem earlier, even before they make a purchase. We don’t factor that into our future projections. Historically, we've exceeded expectations in many of the last eight to ten quarters mostly because our onboard revenue has continually outperformed. We generally estimate onboard revenue growth at around 1%, and we’ve been pleasantly surprised by the results so far. While we have good visibility into this area, outcomes can be unpredictable, similar to a casino where sometimes players win and sometimes they don't. However, we don’t require sustained 5% growth to achieve our 2% to 3% targets. What was the second part of your question?

What other factors should we consider that might affect the 5% growth you mentioned? You basically addressed it, but is there anything else to add?

No. I think it's going to be again a continued strong consumer and our ability to continue to reach the consumer earlier in the booking cycle before they ever go on the ship. That is a key differentiator for us and a key item that really helps us outperform.

Well, thanks everyone for your time and support. As always, we will be available later today to answer any other questions you may have. Take care.