Norwegian Cruise Line Holdings Ltd (NCLH) — Q3 2020 Transcript

Thank you, Crystal, and good morning, everyone. Thank you for joining us for our third quarter 2020 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 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 a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we discuss our results, I'd like to cover a few items. Our press release with third quarter 2020 results was issued last night 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 the presentation. With that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea. And good morning. I hope that everyone joining us today, as well as your loved ones, are healthy and safe. Similar to our last earnings call, today, we will provide a business update, focusing more on the progress of our response to the COVID-19 global pandemic, then onto financial results. I'd like to begin by saying that we welcome the issuance of the CDC's Framework for Conditional Sailing Order. We view this as a positive step in the right direction on the path to our shared goal of resuming cruising in the United States in a safe and responsible manner. The return to cruising is a much-anticipated event for our loyal past guests, valued travel partners, our team members, and the communities we visit around the globe, but in particular, by our home ports around the United States. These ports and the entire cruise ecosystem, which includes port employees, luggage handlers, stevedores, tour operators, taxi and rideshare drivers, coach operators, suppliers, airlines, hotels, and many other businesses and industries, have experienced significant economic hardship due to the ongoing suspension of cruising, and I am sure that they are anxiously awaiting the resumption of cruising as much as we are.

Thank you, Frank, and good morning, everybody. My remarks today will focus on the continued execution of our COVID-19 financial action plan and our road map to relaunch as we prepare for the resumption of cruising. The global pandemic continues to have a significant impact on our business, with cruise voyages now suspended through the end of 2020. There is still much uncertainty around how the pandemic will evolve, so we are focused on what we can control and are prepared to adapt and modify our strategy in real time. As part of our action plan, we continue to take proactive measures to conserve cash and enhance our liquidity profile. Slide 8 illustrates some of the additional initiatives taken since the beginning of the third quarter. These include further reducing operating expenses, including shoreside, general and administrative expenses; opportunistically executing on the July capital raise transactions to further bolster our liquidity profile; and refinancing our short-term $675 million revolving credit facility, which extended maturity from early 2022 to 2026. Slide 9 outlines the improvement of our debt maturity profile in response to the crisis, which we accomplished through numerous initiatives, including capital markets transactions, the deferral of amortization payments, and the extension of maturities. The support we continue to receive from the export credit agencies, our commercial lenders, and the shipyards has been incredible, and we cannot thank them enough for their ongoing partnership with us during this challenging time. During the quarter, we successfully executed a triple-tranche capital raise of approximately $1.5 billion comprised of senior secured notes, exchangeable notes, and ordinary shares. To date, we've raised nearly $4 billion since March and increased our cash position by nearly $5 billion with the drawdown of the $875 million revolver early in the year, providing us with a solid liquidity foundation. We truly appreciate the support we've received from all of our investors. Thank you for believing in our business model, our management team, and in the long-term potential of our company and of the industry. Turning to liquidity, Slide 10 provides our current illustrative liquidity profile. Our total liquidity as of September 30 was approximately $2.3 billion on a pro forma basis, which includes the portion of customer deposit refunds that are included in accounts payable as of quarter-end. We have also earmarked approximately $300 million to account for anticipated health and safety investments and other related items. Our health and safety investments may change as we finalize requirements in the CDC Conditional Order and as we continuously improve and refine our protocols with the best available science and technology. All of these factors combined result in a pro forma available liquidity of approximately $2 billion, enabling us to continue to navigate through this environment and execute on our return to service plan. Once we have additional certainty around our voyage resumption schedule, we expect bookings to accelerate, which restarts the cash flywheel and further improves our liquidity profile. We have made significant progress in reducing our controllable cash burn, with the Q3 average monthly rate coming in at approximately $150 million, representing an over 60% reduction in net cruise cost versus normalized levels. Our entire organization has worked tirelessly to pare back expenses while at the same time balancing the need to be ready to reactivate quickly when the time comes to resume cruise operations. For comparative purposes, if all of our vessels remained in their layup status at minimum manning levels and did not begin preparations for a return to service, we would expect fourth quarter monthly cash burn to average approximately $175 million. This is slightly higher than the third quarter, driven primarily by the timing of certain cash interest expense payments that are expected to be approximately $120 million incrementally higher in the fourth quarter. Overall, for the second half of 2020, this would result in an average monthly cash burn rate of approximately $160 million, which is in line with the company's previously disclosed target rate during a voyage suspension period. However, due to the fluidity of the voyage resumption schedule and associated expenses, our actual cash burn rate for the fourth quarter is expected to be higher. As we begin to prepare our fleet for the gradual resumption of operations, our cash burn will increase from the voyage suspension levels as a result of additional disciplined demand-generating marketing investments, which drive new bookings and associated cash inflows, the restaffing and repositioning of our vessels, the provisioning of our ships, and of course, the new health and safety investments that we plan to make. Given the continued uncertainty around the timing of our resumptions, we are not yet prepared to give guidance for 2021 capital expenditures. Broadly speaking, however, excluding new build payments, the minimum required CapEx that we need to run the business and maintain our best-in-class fleet is generally a few hundred million. Going forward, we do not expect a straight-line recovery, so we will take a thoughtful and disciplined approach to reintroducing costs as we resume voyages in order to conserve cash while, at the same time, balancing the need to drive new cash bookings. Shifting the focus to our financial results, the third quarter was significantly impacted by the pandemic. As a result, we recorded a net loss on a U.S. GAAP basis of approximately $677 million or $2.50 per share. Turning to Slide 11, we ended the third quarter with approximately $2.4 billion of cash and cash equivalents. Our cash balance in the third quarter increased, driven by the $775 million of net proceeds from our July capital raise after completing the payoff of our short-term credit facility. This was partially offset by customer cash refunds for canceled voyages of approximately $200 million; approximately $450 million of operating cash burn, including operating expenses, SG&A interest and required CapEx; and a net working capital outflow of approximately $25 million. Looking ahead, given the continued impacts of the pandemic, we will report a net loss on a U.S. GAAP basis for both the fourth quarter and the year ending December 31, 2020. Before turning the call back to Frank, I want to emphasize that while we are prioritizing our immediate business needs, we are also focused on the future of our company. Our medium- and long-term financial recovery plan, as laid out on Slide 12, focuses on three critical components: first, rebuild and gradually return to pre-COVID margin levels. We also continue to identify opportunities to drive margin expansion through structural cost reductions and a continued strong focus on price discipline. Second, maximize cash generation, which will be bolstered by a robust and disciplined growth profile of nine cash-accretive ships on order through 2027. And third, focus on optimizing our balance sheet and charting a path to delevering. The decision to increase our leverage and issue shares was not taken lightly. But given the extraordinary circumstances presented by the pandemic, these were necessary steps. Despite these transactions, our weighted average cost of debt is approximately 5%. Our priority, once we emerge on the other side of this, is to focus on improving the balance sheet, as we have demonstrated and proven our ability to do so time and time again. I'll now hand the call back over to Frank to provide closing comments.

Thank you, Mark. I'd like to leave you with a few key takeaways on Slide 13. We will continue to work with our expert advisers, including the Healthy Sail Panel and the CDC to refine our science-backed plans for a safer and healthy return to cruise to protect our guests, crew, and communities we visit. We continue to observe strong demand for cruising across all source markets, deployments, and brands in both the medium- and longer-term. Lastly, we are focused on the initial resumption of voyages in the U.S. in a gradual phased relaunch worldwide as we work in partnership with authorities around the globe. With that, Crystal, please open the call up for questions.

I have multiple questions, but I'll stick to the guidelines. Mark, since you concluded your prepared comments discussing cash flow liquidity and your long-term financial recovery plan, I need to inquire about your ability to maintain cash outflows longer than you initially expected. You mentioned this several times during the call, and since your liquidity runway extends well into next year, I'm curious about your thoughts on accessing the capital markets for additional liquidity. Your competitors have recently engaged with the markets, so I'd like to hear your perspective on that.

Thanks, Felicia. We continue to look and have the ability to access the capital markets should we need to. As we've said in the past, we believe, and as we said on this call, we believe we have a very solid runway with just almost $2.5 billion of cash on the balance sheet. So as we look forward, we will be looking at it on an opportunistic basis. But given the comments I made in my prepared remarks, we've raised almost $4 billion this year so far or almost $5 billion of incremental cash when you include the drawdowns of the revolver. So we have the ability. We're constantly looking at it, but we're not in a rush. We're going to do it on an as-needed and opportunistic basis.

Can you just remind us what your balance sheet looks like just in terms of raising further debt? And do you think something like an ATM structure would be more attractive under these circumstances?

Yes. When you look at our raises to date, roughly half of it, roughly $2.5 billion has been via debt. So we've obviously encumbered the balance sheet pretty heavily. So looking forward, it would not be our desire to issue any incremental debt. We do not have the ability to offer any material secured debt as we are at our limits on our negative covenants. However, there could be opportunities to issue unsecured debt. But most likely, we are looking at, if we go down that path, it would be some sort of equity-type transaction, whether it be an ATM, similar to whatever competitors have done, or any further exchangeable type or common equity.

So I hate to ask such a short-term question, but obviously, there are a lot of exciting headlines in the cruise world out there over the last couple of weeks. So I was just curious regarding bookings that you guys were seeing; we were all sort of expecting some type of positive inflection when the CDC finally lifted its No Sail Order. Wondering what you saw when that order was converted to the Conditional Sailing Order? And then if I may, I know it's only been a day since the vaccine news, but if you've seen any type of positive uptick in bookings data over the last 24 hours.

It's Frank. So bookings in the last 24 hours yesterday were pretty good, better than the previous four or five Mondays. And that's, I think, attributable to the vaccine news. We did not have any particular promotion or did any outsized marketing. So I do think that was positive news. Contrary to when the Conditional Sail Order was issued, it was issued late on a Friday. Bookings are typically weak over the weekend. We didn't see much of an uptick, much of anything given the CDC news. Most consumers, I don't think, follow that level of detail of what happens at the CDC level vis-à-vis the cruise industry. But the vaccine is something that has made huge news. The stock market hit an all-time high. So it was front and center in all consumers' minds.

Got it. Frank, that's great information. I would like to ask a brief question regarding the medium and long-term financial recovery plan. First, about rebuilding margins. Could you share any insights on the potential margin differences we might expect in a couple of years when your revenue returns to 2019 levels? Have you considered how much improved the normalized margins could be in that situation?

Well, as you know, we did have industry-leading margins. We were very happy with our margins. Today, we have no margins. So it's not like we have to rebuild from where we are; we just want to get back to where we were. I believe that going forward, we're going to have, as Mark mentioned, nine new vessels that are going to be high-yielding and very cash-accretive joining our fleet over the next few years. That's going to help margins. I think we have all learned, through this pandemic, ways to control costs better. We are amazed that we do as well as we do booking-wise with little or no advertising and marketing and very little support from the travel agency communities. So we think there may be opportunities on the costs side. But primarily, we are a revenue-driven, marketing-driven company. We win the game given our size, not because we're the best at controlling costs given our limited scale, but because we're the best at generating the highest ticket yields in the industry by a very wide margin, and the highest onboard revenue yields by even a wider margin. We think that will continue and grow as we bring on these nine incredible ships that we have on order.

So Frank, in the past, you've indicated it could take 5 to 6 months before your full fleet would potentially could get mobilized. And I'm guessing the question is based on what you know today or what you know now; is that still a pretty fair range? And then the second part of that question would be maybe help us think about when you would potentially see a full recovery, meaning kind of getting back to that 2019 EBITDA level. You've been helpful in the past kind of walking us through that.

Look, it's still very fuzzy, very fluid. We don't have a single ship operating, so this is very speculative, Steve. In terms of how long it's going to take to get the full fleet up and running, my best sense today, given all the uncertainties that we still have to work out with the CDC and when we can start, is 6 to 9 months. Broadly speaking, I look at 2021 as a transition year. I believe that we will be able to have our entire fleet up and running sometime in the latter half of '21, so that '22 becomes the first full year since 2019 that we can operate the entire fleet for the full year. '22 is the road to normalization, and then '23 forward is normalization. So a lot of questions still to be answered. We still have travel restrictions around the world, travel bans in some cases. Airlines have got to get back up and running. Ports have got to open. But let's look at just what's happened in the last 2 weeks; we have the framework from the CDC. That was step one. We are very encouraged by the CDC's willingness to sit down and discuss the issues that we see with the order with us. We think that's going to start very, very soon, and that's just a great positive note. We've seen the vaccine, and although it's going to take some time for the vaccine to find its way throughout the populations of the world, it's what we've been hoping for. My guess is that the Pfizer vaccine may be the first out of the gate, but they won't be the only one. Just this morning, the breakthrough therapeutic from Eli Lilly is certainly a very positive step. We've seen incredible leaps in progress in the technology of testing. So we now have some wind to our back. We've got that flywheel going a little bit. The excitement level is at its highest in a long time. So we're encouraged but still have a lot of obstacles to overcome. We're prepared. We've got the liquidity, we've got the know-how, and we have the history behind us. We're going to get over this.

And Steve, to add on that, this is not a race. We are cognizant; we said we are going to take our time. We want to instill confidence in the consumers. We want to instill confidence in all the constituents with our brand. You only get one shot to do that right. So we're going to take it on a methodical approach and do it right because again, you have one shot to do it.

Okay, Mark, can I ask one more quick question? Regarding the $175 million in cash burn you mentioned for the fourth quarter, I understand that it's mostly increasing due to interest. However, are there any additional costs included for bringing some of your team back for these test cruises? If not, could you provide some insight into what that cash burn might look like over the next few months as you begin to get staff and ships back in position?

The $175 million for Q4 is really on a like-for-like basis, just to give you a comparison of how that stacks up against Q3. Again, the differential is really just the timing of cash interest. So no, the $175 million does not include any material start-up costs that we may incur. Given where we are today and the lead time in which we think we need to stand up vessels, there could be slightly higher costs that come through in Q4 certainly. But I don't anticipate that it would be material. At the end of the day, your first and largest cost is really repatriating your crew. Fortunately, we have ships to do that right now, so it doesn't really cost us an incremental lot of dollars to do that. So that's first and foremost. All the other related start-up costs are going to happen closer into your actual start-up, with the exception of marketing. So yes, there may be some slightly higher costs, but I don't anticipate that it will be materially different.

I wanted to talk a little bit more on the future cruise credits. I think in August, you were seeing something like a little under half of those canceled cruisers taking the FCCs. Not sure if you mentioned that updated number and what you've been seeing recently. And then the second part of that is I think you alluded to half of FCCs still being outstanding, which represents a really nice base of pent-up demand that you've already spent kind of the marketing dollars on. As you think about that group of customers booking for next year, booking for 2022, can the pricing on the overall booked position continue to hold at what's really impressive at flat as more of those FCCs come into the mix?

Yes, this is Mark. Thank you. Regarding your first question about the refund rate, it has been fluctuating around the mid-50s, primarily due to the refund pressures we faced at the onset of the pandemic. However, in the last three months or so, concerning canceled voyages, that average rate has decreased significantly to about the 30 to mid-30 percentile range. This indicates confidence from our current customers. You're correct that looking ahead, we have a solid base of business from those FCC customers. This situation allows us to leverage our cost structure since we don't need to spend on marketing to them again. When we do reach out to them, our aim will be to upgrade their bookings. We’ve observed that these customers typically have a 25% bonus, meaning when they rebook, they are upgrading beyond that additional 25%. This has been advantageous for us and will likely support our pricing strategy. We have consistently stated our commitment to maintaining price discipline, and we continue to see this reflected in our booking trends and pricing discussions.

Yes. Vince, note that we said in my prepared statements that a little over half of all FCCs issued to date have been redeemed. Of all the FCCs that we've issued, they represent about 15% of annual capacity. That means that 7.5% of annual capacity has already been redeemed. It's not insignificant, but not material. We've seen that pricing for '21 and '22 is flat to slightly higher than it was prior to the pandemic for like-for-like periods. The bottom line is the FCC redemption has had zero effect on pricing. We're maintaining pricing for new bookings. Since people have the 25% bonus, should we raise prices, it's still a great deal for them. Bottom line is FCCs are not going to be affecting future pricing decisions.

I'm curious if you guys have any noteworthy trends you can share from the 40% of the consumers that are not repeat cruisers to the brand. I think on one of the slides, it said 60% were loyal repeat cruisers. Are you seeing any differences in behavior on booking trends or anything like that that would be helpful to us?

No, nothing that we've discerned. Marketing is being done more online than digitally than we would normally do because, again, of wanting to preserve cash and the fact that travel agents are not as active as they normally do. We find, and this is one of the potential areas of future cost savings, is that digital marketing is a real venue. It's not just kids buying things on Amazon or on Instagram. People are buying cruises worth thousands of dollars online. We think that's a trend that the pandemic might have accelerated, the whole Zoom world. We think that's a positive on a net-net basis. We'll continue to manage our business and manage our workforce and devote resources to this kind of digital transformation that we find ourselves in.

Okay. And then just out of curiosity, I know the original restart duration was for 6 months when you guys were estimating it, and that went from 6 to 9 months. I assume that's more about logistics and not about anything structural that's stretching that time period out. Is that right?

Yes, it's logistics. It's the prevalence of the disease around the world. It's seasonal. If ship number 25 is ready to go on September 1, and she normally would have been in Alaska, maybe we don't bring her up on September 1 because the season is almost over, and it would be penny-wise, pound-foolish to stand her up then and there. Maybe we wait until the following month when she normally would have been in the Caribbean. So those types of positionings and deployment considerations are important.

So just a clarification on back to sailing. When do you expect to start the trial sailings? And how long do you expect the trials to take? And then should it take 6 to 9 months after that to get all the ships sailing? Kind of a follow-up question: at what point in there do you see free cash or EBITDA breakeven?

You've overstepped your boundary of one question, Thomas, but we'll do our best to remember. The question police won't get you. Look, we have a lot of questions to sit down with the CDC to work out. But if you just read literally the order and the sequence that we need to get a vessel ready to start the sailings, we think those sailings could start as early as early January. As Mark said, this is not a race for us. We want to get this 100% right. We're stressing flawless execution. There's still a lot to learn about the order and the nuances of how to execute those orders, implement the 74 recommendations seamlessly along with the framework that the CDC has laid out. Those are complex issues, what kind of testing, how often do we test, et cetera. So don't pin me down to an exact date, but I would tell you that there's a chance that maybe some companies can start these trial cruises in December. We don't forecast that we will be wanting to do so until probably sometime in January. Then there's another series of sequence that the CDC has called for in terms of giving notice and getting the ship certified on a ship-by-ship basis, the audits they'd have to go through. We're very reluctant to give you a date for the first trial sailing because your next question is going to be, 'Well then when is your first revenue sailing going to begin?' and we simply don't know at this early stage when that is. In terms of when do we return to EBITDA breakeven or cash breakeven on a ship-by-ship basis, we have said that given where our pricing is, which is at historical levels, we believe that number on a ship-by-ship basis is somewhere between 40% to 50% depending on the ship, the size of the vessel, and so forth. On a corporate level, I would be very hesitant, so hesitant that I'm not going to answer the question as to when we would be corporate-wise EBITDA breakeven or even cash breakeven. It's going to take some time.

And just to further elaborate on that, if you look at our working capital change over from Q2 to Q3, we've essentially flattened it out excluding our normal ongoing operating expenses. So we are making progress there. It's just going to take time. It's going to be a matter of what load factor capacities we roll out, how quickly the ships are rolling out. It’s tough to give you a definitive answer to say we're going to be cash flow positive on x date. There are so many variables involved. But I assure you that we are going to ramp up our costs on an as-needed basis. We will be very disciplined about it, as I said in my prepared remarks. But we will spend the dollars where we need to, to protect price and drive demand, which is what we always do.

Appreciate the detail, as always. For either Mark or Frank, I was wondering, in the table that you have around pro forma liquidity, you have that $300 million cash health and safety initiatives component. I was wondering if you could give any detail around how much that covers the fleet or how long that's supposed to be good for. Is that just for an initial restart? Any color around that? And then I have a follow-up.

Yes. That $300 million is obviously an estimate. When you look at it on a go-forward basis, what we really were trying to do is give the market color on some of the funds that we're carving out. In the past, I think we've said we estimate that we think we need $100 million to $150 million of investments to make the ships safer under the new standards. That's going to be spent over time. It's not all going to be spent in the fourth quarter or the first quarter. It's going to come out over time, over the next few quarters. So that's not going to be an immediate outflow, but it's an estimate. As you can imagine, as the framework has been issued and as we continue to assess the more intricate technical guidelines around that framework, that enables us to then determine what needs we have on the back end for investment purposes. Again, we just wanted to be cognizant that we were carving out a significant amount of funds related to that to cover ourselves.

Got it. So not implying that it's payable or going to be spent immediately once there's some sort of resumption.

You can think about that, but that outflow would probably happen over the course of two to three quarters.

Got it. That's super helpful. I wanted to follow up on liquidity. We noticed that the Regent 2023 World Cruise pricing has increased, and there's an option for far-out bookings. I'm curious about how you're approaching the pricing for other brands regarding far-out bookings from a liquidity perspective.

Our pricing strategy has not changed. As you know, if you go back to the last four or five years, on average, we're able to raise our ticket yields in the 3% to 4% range. We want to continue that trend. We think that the combination of pent-up demand in the marketplace, our industry-leading brands, less capacity in the marketplace, and the new ships that are coming online for us will all contribute to this. If you recall, we had so many under-penetrated markets or markets where we simply didn't have a presence because we only have 28 ships. We long for our newer vessels to come online, and we think that will help the overall yield growth profile of our company.

And Paul, the remarks around the Regent and Oceania bookings were more of us signaling the solid demand out there and the pent-up demand. From a liquidity standpoint, if you think about it, that really doesn't impact us or benefit us in the near term, as yes, we do get deposits from that. But the bulk of those funds don't come in until roughly anywhere from 120 days to depending on the voyage, it could be 180 days or more on a world voyage. So again, there needs to be significant near-term liquidity benefit from that.

Regarding the CDC no sail update, as I understand it, the approval dates for ships, simulated testing, and then revenue sailings follow a sequential timeline. It appears that the simulator takes 30 days and revenue sailing takes 60 days. Is that accurate? Additionally, is there any possibility that this process could be adjusted to occur concurrently?

Yes, not all those periods and notice periods are sequential. We think they are concurrent. Those are some of the clarification questions that we have that we will be discussing with the CDC in the coming weeks.

What are your thoughts on developing more private islands and creating a controlled destination environment, building on the idea that if you had a hotel on Great Stirrup Cay, it would be one of the world-class destinations in the Caribbean and shifting towards something like that?

Yes, I still stand by those comments. Ivan, as you know, we're the only cruise company that actually has a private island private destination in the Western Caribbean. A lot of folks have it in the Bahamas area, as we do at Great Stirrup, where we've made significant investments in making it an upscale destination, as you mentioned. We're very, very proud and happy with that. It doesn't get the fanfare that the Bahamian Islands get. Maybe that's our fault. Great Harvest Caye in Belize is just a wonderful destination. Because of the pandemic, over time, the new vessels coming online, that island will be used more than it has been in the past. We're very happy with those two islands. We are making major investments in real estate development in Ketchikan with Ward Cove, the land we bought in Juneau, in addition to the investment we've made in Seattle at the port there. We are really, really in good shape in leading the industry in controlling the destinations that we need so that we can deploy more vessels to Alaska. Real estate is expensive, and it takes a lot of money to develop real estate. I think that around the world, I'd love to have a private island in the Mediterranean. Let me know if you know any for sale. I don't think there are. But we're very happy with what we've got today. We have one in the Bahamas, one in the Western Caribbean, our Alaska investment. The situation we have in Hawaii with our private American vessel and the fact that it's the only American-flagged vessel that can cruise in Hawaii gives us even more flexibility there. We are very happy with our land-based offerings, and we'll keep an eye out for other available options. For the time being, we're pleased with what we got.

But do you think that consumers might appreciate the opportunity to experience a controlled environment after they've been tested and taken to your island, for instance? They would still be in a contained setting that you have control over. At some point, this could represent an appealing vacation option. Marketing it as, 'I want to enjoy a nice vacation while minimizing outside exposure,' could be effective.

Certainly, the bubble we're trying to create onboard can also be created in private islands. What we're going through now is not a long-term issue; we don't want to make long-term decisions to fix short-term problems. Our customers enjoy these private destinations; they are controlled. Forget about the health and safety aspect; they're controlled just from an experience point of view. I'm glad I've got two of them. We're going to return to normalcy at some point. People will like variety in itineraries, and they enjoy port-intensive itineraries. Our plan is to continue to offer that. Thanks, Ivan.

Thanks for sneaking me in. This is a bit of a multi-part follow-up for Mark. Can you maybe help us think about free cash flow sensitivities to different occupancy levels? And then just touch on kind of intermediate-term target net debt to EBITDA levels. How have the long-term targets of 2.5 to 2.75x changed or not changed in the longer term?

Yes, yes. Look, obviously we're targeting to get back to our reduced net leverage levels. That's going to take time; there are a lot of variables in between. But we're focused on that. In terms of sensitivities on the cash flows and load factors, we've said again that a ship breaks even roughly at 40% to 50%. That can provide your free cash flow sensitivity from there. The second part of that question was more on leverage levels; if there's like an intermediate-term target you might be thinking about? Yes, to lower it as soon as we can. Number one, we need earnings and visibility on the industry. Our number one priority as we emerge from this is going to be to determine how we can delever and find financial flexibility in the markets to possibly refinance some of our debt or balance sheet management. So that's front and center, but we have to emerge out of this first.

Thank you, Steve. And thanks, everyone, for your time and support and your patience during our third distanced earnings call. As always, we'll be available to answer your questions later on today. Stay safe. Bye-bye.