Norwegian Cruise Line Holdings Ltd (NCLH) — Q2 2021 Transcript

Thank you, Roshea, and good morning, everyone. Thank you for joining us for our second quarter 2021 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. We would also like to welcome a special guest joining us today, Dr. Scott Gottlieb, Former Commissioner of the U.S. Food and Drug Administration, Chairman of our company's SailSAFE Global Health and Wellness Council and author of the soon-to-be-released book, Uncontrolled Spreads. Frank will begin the call with opening commentary, after which Mark will follow to discuss our financial results 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.nchlltd.com/investors. We will also make reference to a slide presentation during this call, which may also be found on our Investor Relations website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I'd like to cover just a few items. Our press release with second quarter 2021 results was issued this morning and is available on our Investor Relations website. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. And with that, I'd like to turn the call over to Frank Del Rio. Frank?

Thank you, Andrea, and good morning, everyone. As always, I hope that all of you joining us today as well as your loved ones remain healthy and safe. Before I go into my prepared remarks, and if you haven't already heard the good news, I would like to congratulate Andrea on her new appointment to Chief Sales and Marketing Officer of our luxury brand, Regent Seven Seas Cruises. After more than 30 earnings calls with our company, we will all miss her, but wish her the very best of luck in her new role. Jessica John, who many of you have already met, will assume the role of Vice President of Investor Relations, Corporate Communications and ESG beginning September 1. Congratulations, Andrea and Jessica. I am pleased to say that we are taking this morning's call from Seattle, Washington as we prepare for a very exciting day tomorrow, the relaunch of our first ship from the United States in over 16 months. And as Andrea mentioned, we also have a very special guest with us today, former FDA Commissioner, Dr. Scott Gottlieb. After over a year of working together remotely to reach this long-awaited milestone, it is truly a pleasure to finally meet Dr. Gottlieb and the other public health experts on our SailSAFE Global Health and Wellness Council in person and for the first time today as we kick off our Great Cruise Comeback. Today, we will focus our commentary on the progress we have made on our return to cruising, our comprehensive plan for the phased resumption of operations for our entire 28-ship fleet and the record-setting strength we continue to experience in consumer demand, which has translated into a record load factor and record pricing for the calendar year 2022 and beyond. As you can see on Slide 4, our return to service plan is centered around three key phases. First, we developed our multilayered SailSAFE health and safety strategy, including mandatory FDA-, WHO-, or EMA-authorized vaccinations for all guests and crew as its cornerstone. In addition, we test all guests at the terminal prior to embarkation, and all crew undergo weekly routine testing. Next, we have now announced voyage resumption plans for all 28 ships in our fleet. And lastly, we are intently focused on the flawless execution of the phased relaunch of our fleet, which we expect to complete by April 1, 2022. Against a still ever-changing COVID backdrop, we remain vigilant and ready to adapt as needed, keeping a close watch on port availability, travel restrictions and any changes to the global public health environment that could affect our planned operations. Overall, we are encouraged to see some relaxation of travel restrictions and opening of borders in recent weeks, particularly for vaccinated travelers. Just a few weeks ago, Canada moved up its plans to allow the return of cruise ships in November, 4 months earlier than previously announced. Many countries in the EU are now allowing travelers from the U.S. And in the past few weeks, both Canada and the U.K. announced entry to vaccinated travelers without quarantine. Travel restrictions and port closures do remain in place in other parts of the world, but we are ready to execute on our cruise assumption strategy and have backup plans ready to go, which we can implement and adapt as needed. Slide 5 details our voyage resumption plans by brand and by vessel. After 500 days, the time has finally come, and I could not be more pleased to say that our Great Cruise Comeback officially commenced last week with Norwegian Jade operating Greek Isles voyage out of Athens. The relaunch went off without a hitch and demonstrated that strict vaccination requirements, comprehensive preboarding testing, and a suite of other robust protocols are working as designed to help mitigate the introduction and transmission of COVID-19 aboard our vessels. A special thank you goes out to the officers and crew of Norwegian Jade, who, even after 16 months of not operating, seamlessly adapted our new protocols and delivered the same exceptional service and world-class cruise experience that our guests expect from our company. As an indication of this top-notch service delivery, our onboard revenue on this first cruise significantly exceeded our target, which was focused on 2019 actual results by over 50%. All of our incredible team members around the world work tirelessly to prepare for this critical moment, and I am truly grateful for the privilege to work day in and day out alongside such a dedicated, passionate, and talented team. I also want to express our sincere thanks to our loyal guests, valued travel partners, and all of our stakeholders for their patience and support during these challenging times as we ramp up our return-to-cruise plans. Norwegian Jade's successful relaunch is just the first of many to come, including our much-anticipated return to cruising in the United States. Tomorrow, Norwegian Encore, the line's newest and most innovative ship, will make her West Coast debut with a 7-night sailing to Alaska from Seattle. We are looking forward to once again bringing guests to explore the last frontier, one of the most popular destinations with our guests and providing some much-needed economic relief to the communities, families, and small businesses throughout coastal Alaska, who have been devastated by the loss of cruise tourism revenue during this prolonged suspension. The next step in our relaunch plan is our return to Miami, the cruise capital of the world. I'd like to address our request for a preliminary injunction that we filed last month, which will allow us to confirm guest vaccination status for sailings departing from the State of Florida that has been heard in a Miami Federal Court today. Combating this virus is an unprecedented historic challenge that requires everyone, including governments at the local, state, and federal levels plus private enterprise and society at large, to do their part. I have tremendous empathy for our elected officials, business leaders, friends and families, and neighbors who are all doing the best they can under enormously difficult circumstances to beat back this virus. Having had the pleasure to work in the cruise industry for nearly 30 years, I am confident that in the current global health environment, and especially with the rise of the Delta variant, having a fully vaccinated and tested population onboard our vessels is the best path to keeping our guests, our dedicated crew members, and the people of the communities we visit safe from COVID. In order to do that, we must be able to confirm the vaccination status of our guests at every port we sail from, including those in the State of Florida. We owe it to all our stakeholders to do everything possible to ensure we deliver on this critical mission. We hope that the federal courts will agree with our vision and our mission. When we say the health and safety of our guests, crew members, and communities we visit is our #1 priority, we mean it. It is not a slogan nor a tagline. The legal actions we have taken in Florida reflect our deep commitment to resume sailing in accordance with our robust science-backed SailSAFE health and safety protocols outlined on Slide 6. Our policy of 100% vaccinations, coupled with preboarding testing of guests and routine testing of crew is in place without issue in the nearly 500 ports we sail to and from around the world, except Florida ports. Nothing takes priority over health and safety. And we have gone to great lengths and expense to pursue this commitment to our guests, crew members, and all stakeholders. Again, this commitment is not a slogan nor a tagline. Health and safety is far and away the most important principle to guide how our company operates at all levels. And this fundamental philosophy has never been more important than right now. We want to use every tool available to us that science and medicine have developed to prepare our ships to return to service, and vaccines are our most powerful tool. Given that we have Dr. Gottlieb here today, who is not only a world-renowned expert but is also the Chairman of our SailSAFE Global Health and Wellness Council, I'd like to give him the floor for his thoughts on our health and safety program. Dr. Gottlieb?

Thank you, Frank. It's a great pleasure to be here with you today and to witness the culmination of over a year's collaboration on enhancing Norwegian's health and safety protocols. All of the scientific and medical experts on our SailSAFE Council fully support and recommend a fully vaccinated and tested population to relaunch cruising, as it's the most effective way to mitigate the introduction or spread of the virus onboard a cruise ship or anywhere else in society. Even with vaccines, however, the risk can't be fully mitigated. But this approach mitigates the risk to the greatest extent possible and significantly reduces the severity of any potential breakthrough cases. While the Delta variant is fueling the current rise in cases, if the U.K. is any guide, I believe we're perhaps further into this epidemic surge. And we'll hopefully be turning a corner in the next several weeks. In fact, some of the states hardest hit by the Delta surge in the south are already showing some indication that their epidemic waves could be starting to peak. In the meantime, the vaccines are highly effective even against the Delta variant. And Norwegian is taking the extra step of coupling vaccines with multiple additional layers of protection against COVID-19, including universal testing prior to boarding the ship. This goes well beyond what we're seeing in other travel and hospitality sectors. And with the controlled environment a cruise ship provides, it can offer one of the safest vacation options. I look forward to seeing our protocols in practice with you tomorrow on Norwegian Encore.

Thank you, Dr. Gottlieb, for your insights. I, again, want to thank you and the members of the SailSAFE Global Health and Wellness Council for all the hard work and expert guidance that you and the council have provided us. Now with our safety protocols in place and our voyage resumption plan in full swing, we'll shift a discussion to our booking trends, which you can see on Slide 7. In short, pent-up demand for cruise vacations, especially for 2022 sailings, is very strong as we have experienced record-breaking demand for future cruise vacations across all three of our brands. This outsized demand is even more impressive when considering that this strength is true despite significantly reduced levels of demand-generating marketing investments and the absence of a full complement of our all-important travel agent partners throughout the world. The unparalleled pent-up demand I speak of is demonstrated by our record booking position and pricing. For full year 2022, the load factor continues to be meaningfully ahead of 2019 record levels by a wide margin. And when you look at our booking curve at the same point in time versus two and three years ago, we are now booked 9 to 10 weeks ahead of those levels. Pricing is also higher than 2019's record level even when including the dilutive effect of future cruise credits. The strength we are experiencing is evident throughout 2022, but particularly strong sequentially as we move through the year and our fleet rollout is completed and becomes fully operational. In addition, approximately 75% of our booked position in 2022 is comprised of new cash bookings with the remainder comprised of future cruise credit bookings. So far, approximately 45% of our outstanding future cruise credits have been redeemed. The strong demand is also extending beyond 2022. Last month, Regent Seven Seas Cruises easily broke the opening day booking record for its World Cruise for the third year in a row. The 2024 World Cruise, a 132-night sailing, surpassed all expectations and sold out in under 3 hours and at higher pricing than the 2023 World Cruise. Not only was this without a doubt the strongest World Cruise launch day in the line's history, but it also saw a strong increase in new-to-brand guests, which comprise approximately 1/3 of bookings. This is further evidence of the continued demand we are seeing, both from our loyal past guests and new-to-brand cruisers even for these long exotic itineraries. As I have said time and time again, the pent-up demand is real. Last quarter, we reached an inflection point in our advanced ticket sales build, which continued its positive trajectory throughout the quarter. Our advanced ticket sales increased approximately $300 million on a gross basis or over 50% versus the prior quarter's builds. As we begin phasing in the rest of our fleet, we expect this momentum to continue to accelerate sequentially. As we look to the future, the growth opportunity we have planned for as we emerge from this crisis is impressive. In May, Norwegian Cruise Line unveiled Norwegian Prima, the first of six Prima Class ships, which marked the first new class of vessels for the brand in nearly a decade. Debuting in summer 2022, Norwegian Prima, which you can see a rendering of on Slide 8, is absolutely stunning, offering the most outdoor deck space of any new cruise ship, including more total pool deck space than any other ship in the line's fleet, as well as multiple infinity pools and vast outdoor walkways. She will also take the line's groundbreaking ship-within-a-ship concept with the Haven to the next level. Most importantly, however, she is resonating with guests unlike any other new ship launch we have ever seen before. Her sales debut in May hit a single best booking day and best initial booking week record, doubling the previous record set by Norwegian Bliss in 2018 and at prices approximately 20% higher than Bliss commanded. Turning to Slide 9. We also had an exciting announcement from Regent Seven Seas Cruises, which unveiled the name of its newest ship, Seven Seas Grandeur, the sixth ship in the world's most luxurious fleet. Seven Seas Grandeur will host 750 guests and is a sister ship to Seven Seas Explorer and Seven Seas Splendor. There are more reveals to come leading after her launch in the fourth quarter of 2023, with her inaugural season set to be unveiled and open for reservations next month. As you can see on Slide 10, we have an industry-leading growth profile with nine ships coming online through 2027. These new builds represent approximately 24,000 additional berths, growing our fleet by approximately 40%. In 2023, when our fleet is back in full force, we expect our capacity to be approximately 20% higher than 2019 prepandemic levels with the benefit not only of our four 2022 and 2023 new builds but also a full year of both Norwegian Encore, which joined the fleet in November of 2019 and Regent Seven Seas Splendor, which launched in February 2020. With a smaller footprint of 28 ships in our fleet, the addition of our new nine ships strongly positions us to further diversify our product offerings and penetrate unserved and underserved markets globally, which is expected to drive meaningful growth to both the top and bottom lines. As Slide 11 clearly demonstrates, our excellent track record speaks for itself in our ability to successfully absorb capacity and turn that capacity growth into outsized revenue, EBITDA and net cash flow growth. Our new ships are expected to be accretive to earnings and cash flow, and I expect our historical industry-leading performance to continue in the years to come with the addition of our new ship deliveries. I'll be back later to provide an update on our ESG efforts as well as provide closing remarks. But now I'd like to turn the call over to Mark for a financial update. Mark?

Thank you, Frank. Our remarks today will focus on the continued execution of our COVID-19 financial action plan, our liquidity profile, and our all-important phased voyage resumption plan. I am pleased with the significant progress we've made on our return to cruising. As Frank mentioned, we are here in Seattle ready to relaunch Norwegian Encore tomorrow. We have a comprehensive voyage resumption plan in place and are focused on the execution of this phased relaunch. We expect to have eight ships, representing approximately 40% of our total capacity, operating by the end of the third quarter and 17 ships, representing approximately 75% of our capacity, by year-end. The last ship, Oceana's Nautica, will emerge better than new after an extensive dry dock and reinspiration and join the rest of the fleet on April 1, 2022. While we've reached several important milestones in our road to recovery, we recognize that the global health environment is still fluid. So we remain focused on maintaining our cost discipline and pulling all available levers to conserve cash and maximize financial flexibility as we execute our relaunch plan. As you can see on Slide 12, since the halt in global cruise operations in March of 2020, we worked quickly to implement our COVID-19 financial action plan. During the pause in operations, we successfully reduced operating expenses by nearly 60% and capital expenditures by over 75%. As we ready our ships to return to service, costs will increase as expected. But we will do so in a strategic and disciplined manner to balance our cash needs while maintaining a strong liquidity profile. Since the beginning of the second quarter, we've taken several additional proactive measures on our financial action plan. We continue to significantly reduce or defer near-term demand-generating marketing expenses and nonessential capital expenditures. In July, we amended nine credit facilities for our new build program to increase the commitments by approximately $770 million to cover owner supply costs, modification costs and financing premium fees. We want to thank our banking partners for their continued support of our company during these extremely challenging times. Turning to our liquidity and cash burn on Slide 13. We had approximately $2.8 billion of cash and cash equivalents as of June 30. This provides us with significant financial flexibility to continue to navigate through this fluid environment and execute on a return-to-service plan. As for cash burn for the second quarter, our average monthly cash burn rate was approximately $200 million per month. This was slightly higher than our guidance of $190 million driven by the announcement of additional ship relaunches in our voyage resumption plan and the associated restart expenses. As for the third quarter, we expect our average monthly cash burn rate to increase to approximately $285 million as restart expenses accelerate with additional vessels entering service. Restart expenses are primarily related to repositioning, provisioning and stopping of vessels, implementing new health and safety protocols, and a measured ramp-up of demand-generating marketing investments. Note that this cash burn estimate does not include our expected cash inflows from both new and existing bookings. We will continue to take a disciplined approach to reintroducing costs as voyages resume, while at the same time, balancing the need to drive new cash bookings. Looking ahead, based on our resumption plan, we expect to reach a crucial inflection point with operating cash flow turning positive over the course of the first quarter of 2022. To assist with modeling, Slide 22 details additional guidance we have provided for certain metrics, including depreciation and amortization, interest expense, and new build-related capital expenditures. Turning to Slide 14. We ended the second quarter with approximately $2.8 billion of cash. Our cash balance in the second quarter decreased driven primarily by approximately $600 million of operating cash burn, including operating expenses, SG&A, interest, and CapEx, customer cash refunds for canceled voyages of approximately $150 million, and net working capital and other outflow of approximately $10 million, which includes health and safety investments. Before handing the call back to Frank, I want to reiterate that as we continue to navigate through this crisis and relaunch our fleet over the next few quarters, we have not taken our focus off the future. Our relaunch milestones bring us one step closer to executing our medium- and long-term financial recovery plan as outlined on Slide 15 and to rebuild and continue to drive margin expansion, maximize cash flow generation and optimize our balance sheet. With that, I'll hand the call back to Frank to provide closing comments.

Thank you, Mark. Before we wrap up our prepared remarks, I'd like to provide an update on our global sustainability program, Sail & Sustain, shown on Slide 16. This summer, we reached several key milestones on our ESG journey starting with the publication of our first comprehensive ESG report, which included disclosures aligning with the Sustainability Accounting Standards Board or SASB index. This was a significant step forward in our efforts to enhance our transparency. And I encourage you all to take a look at the report, which is on our website if you haven't done so already. We also unveiled our redesigned Sail & Sustain program, which is structured around five pillars developed through cross-functional collaboration with key internal and external stakeholders. The pillars include reducing environmental impact, sailing safely, empowering people, strengthening our communities, and operating with integrity and accountability. In addition, we have aligned to the United Nations Sustainable Development Goals and have identified ten goals where we believe we can make the greatest contribution to achieve a more sustainable future for all. In conjunction with the report, we have also developed a new sustainability website, which we will use to continue to provide critical disclosure to all of our stakeholders. On the environmental front, we were pleased to announce our newly created long-term climate action strategy and our goal to reach carbon neutrality. This ambitious program is centered around three key action areas, including reducing carbon intensity; identifying and investing in technologies, including exploring alternative fuels; and implementing a carbon offset program. We continuously seek opportunities to reduce our overall footprint by minimizing fuel consumption. And in fact, our ongoing investments in systems and technologies have resulted in a reduction of fuel consumption per capacity day of approximately 17% from 2008 to 2019 for our entire 28-ship fleet. With the introduction of our nine new and more fuel-efficient vessels through 2027, we expect to see further improvement in our intensity rates. In addition to ongoing initiatives to reduce our greenhouse gas emissions rate, we have committed to purchasing high-quality verified carbon credits to offset 3 million metric tons of carbon dioxide equivalent over a three-year period beginning last year. This is a measurable step in the near-term emissions reductions, which will help bridge the gap in our decarbonization efforts until new technologies become available. Our 3 million-ton commitment is sizable. To put it in perspective, it is the equivalent of over 7.5 billion miles driven by an average passenger car. And we plan to increase offset purchases in future years to help us reach our goal of carbon neutrality. We are very proud of the progress we have made so far in ESG, and we are committed to making a lasting impact on the world as responsible corporate citizens and ESG leaders. I look forward to sharing additional details with you as we continue on our ESG journey. Turning to Slide 17. I'd like to leave you with a few final key takeaways. First, we are putting health and safety at the forefront of our return to service, as demonstrated by the great lengths we are taking to resume cruising in the safest manner possible with our universal mandatory vaccination and preboarding testing policy across our three brands. Our Great Cruise Comeback has commenced, and we are focused on the flawless execution of our phased voyage resumption plan with a target to have our full fleet in operation by April 1, 2022. We continue to experience strong future demand for cruising with very positive booking and pricing trends for 2022 and beyond. And lastly, as we emerge from the pandemic and focus on our longer-term prospects, we have an attractive and well-thought-out growth profile, which we expect will provide a meaningful boost to our financial results and shareholder value in the coming years. Overall, while we still have a long road to full recovery ahead of us, we are encouraged by the significant milestones we have reached in recent days on our return to cruising. Tomorrow, we will take another monumental step forward with our official U.S. relaunch. And I look forward to getting back to what we do best, providing exceptional vacation experiences and lifetime memories for our guests. And with that, we can open the call for questions.

Before we take our first question, we ask that you please refrain from asking any questions regarding pending litigation. We appreciate your understanding and cooperation in this regard, as we will not be commenting any further. Roshea, please take the first question.

You clearly have a roadmap indicating when the full fleet will be back in service. If you continue on your current trajectory and achieve your goal of getting 60% of your capacity back by the end of the year, Mark, I believe you mentioned that you would reach breakeven by the first quarter. I want to confirm that I heard you correctly. Additionally, could you share some of the assumptions you're using to reach that level?

Steve, thank you for your question. You're absolutely right. Let's begin with our plan for resuming voyages. We have been very disciplined and methodical, and we are not trying to be the first to launch our vessels. We believe we have a well-thought-out plan that aims to have about 75% to 80% of our fleet operational by the end of the year. Consequently, when we consider our cash flow, including inflows and the regular operating contributions from our vessels, we anticipate being cash flow positive at some point during the first quarter of 2022, which is only 5 to 6 months away. We’re very encouraged by the booking trends we've observed. As we restart and our ships come back into service, this will help to initiate the cash flow process we’ve been discussing. We're optimistic, although there is always some level of risk involved. Based on our thoughtful plan, we believe we have a solid strategy for returning to cash flow positive operations.

Okay. Frank, I want to ask about the recent changes we've noticed with the operators over the last week or so. There have been adjustments related to mask mandates and the requirement for testing before boarding. I would like to understand your thoughts on how this may impact the mindset of cruise passengers. Do you believe that some of these individuals might decide to postpone their bookings? How do you think this situation is currently affecting your customers?

Steve, our booking trends tell a different story. As I mentioned earlier, we are about 10 weeks ahead of where we were in 2018 at this time, during a record year. Norwegian Cruise Line Holdings took a proactive stance very early on, as soon as late March, announcing we wouldn't resume cruising until it was safe, with a requirement for everyone to be vaccinated, including both crew and passengers. We stand firm on this policy, viewing it as a competitive advantage. During the pandemic, travelers eager to explore want to do so safely, and our platform provides that assurance. Dr. Gottlieb highlighted that being on a Norwegian Cruise Line ship is one of the safest experiences available. I'm encouraged to see that my industry peers are adopting similar measures, having started to implement some of the protocols we announced early on. For us, this remains a competitive advantage, and we will continue to prioritize the health and safety of our guests and the communities we serve in every way possible.

How should we be thinking about the customer deposit inflow over the course of the restart? And as you mentioned, the restart costs moving up a little bit in the coming quarters. Should that be front-end loaded? Or should we be expecting a similar amount each quarter till fully up and running?

Steve, it's Mark. Our customer deposits increased by 50% compared to the previous quarter, amounting to approximately $300 million on a gross basis. As we continue our relaunch and get closer to the operation of our voyages, we anticipate further acceleration in this area, and we're very pleased with the results. Regarding our relaunch costs, all expenses we are incurring are normal and expected. Given the number of ships we are restarting over the next five to six months, there is nothing unusual about our expenditures. There will be some one-time upfront costs associated with relocating a significant number of crew members for each vessel, but these costs will stabilize over time. Most importantly, as our ships begin to sail, we are starting at about a 60% load factor and gradually increasing to 80%, with hopes of returning to our usual load factors shortly thereafter. The vessels currently in operation are cash flow positive right from the start, which is crucial. This has been evident with our first two initial voyages completed by the Norwegian Jade, and we expect the same for upcoming voyages across the rest of the fleet.

That's super helpful. Maybe one more if I can sneak it in, which is kind of the topic du jour, but have you seen any impact, and you kind of talked about this a little bit from the Delta variant on bookings pricing more recently? And how would you think about the impact of risk if further requirements are imposed on even 100% vaccine sailing such as otherwise?

Steve, it's Frank. Look, we have seen a modest decrease in our net new booking activity during the month of July when the Delta variant has surfaced. It is sequential, so it's more pronounced for 2021 sailings, which for us is not that significant. I'm not focused on 2021. It's a transitional year. The focus is to get the ships operating again. As Mark mentioned, very successful launch of Norwegian Jade. It went off without a hitch. We do have muscle memory. We do remember how to operate cruise vessels. The customers had a great time. Onboard revenue was through the roof. And so we are encouraged that we're off to the races. It's good that we have such a pad, so to speak, on our forward bookings to be 10 weeks ahead of our best prior year ever. It's certainly a wonderful cushion and insurance policy to have. In discussing the likely course of the Delta variant with Dr. Gottlieb, we think this is a transitory, temporary phenomenon. It's going to run through the course of the population very, very quickly. We don't think it will have lasting effects. But again, having a 10-week advance, so to speak, is certainly wonderful to have.

Congratulations on the official relaunching. And Mark, maybe you alluded to this in your prior comment. But I want to understand, Frank, how you're thinking about occupancies. While COVID is still sort of among us and you're 100% vaccinated, can you get to a full ship under that scenario without masks? Is that safe? And is that in your plans? And has that changed at all in the last few weeks because of Delta?

Yes. As Mark mentioned, we're starting every vessel in the 60% to 70% range of load factor. That's not anyone's requirement. It's not a CDC mandate. It's something we think is a responsible way to start operations, train our crew, get our feet wet, so to speak. If all goes well, after 30 days, we'll increase that to 80% load. And after 60 days, we will resume trying to fill the vessel as in prepandemic levels. And yes, in a fully vaccinated environment, the way that we are conducting it, where we test everyone at the pier, where we have the protocols in place, the new air filtration systems that we have spent tens of millions of dollars to upgrade throughout the fleet, we believe that we can safely operate vessels at full capacity. We will see. It will be staggered. We will learn along the way. But yes, we believe that can be achieved. And by the way, and so does our SailSAFE council, which they again, believe that our protocols are second to none, not just in the cruise industry, but in any kind of public environment.

Yes. And Brandt, I want to just add to that, that when we look at all the measures we are taking, and you look at that vis-à-vis any other hospitality-driven type venue in the world, what we're providing our customers is one of the safest experiences that we can based on today's science and technology. So that, again, we believe that that's an advantage for all three of our brands.

Yes, this is Scott. We are confident that the steps we have implemented, such as ensuring a fully vaccinated population on board the vessel and testing individuals before they enter that environment, significantly reduce risk and create a safer atmosphere. Compared to other leisure and vacation options, this setting is much safer and more predictable. We have not only measures in place to prevent the introduction of the virus onto the ship but also robust strategies to limit secondary spread if a case arises. In the event that someone does become ill during the cruise, we have worked hard to provide a safe environment for treatment, including advanced therapeutics, ICU-level care, and established procedures for offboarding passengers who may fall ill. At every stage, we have implemented reasonable measures to ensure the safest possible environment for leisure activities.

That's all great color. And then my second question is just on that metric you gave, Frank, on the onboard spend on the first ship out and up 50%. That's obviously a really impressive statistic. Is that apples-to-apples, I guess, with what you would have seen from that ship in 2019, I guess, on a per person basis, since it's going to be a little bit less load, right? But I guess, can you also talk about the mix on the ship of where you're seeing that consumer spend really sort of take off?

Certainly, when we examine the onboard spending, we focus on it on a per person per day basis, as this reflects the customer's willingness to spend. This analysis compares similar voyages and itineraries to the record levels seen in 2019. The passenger mix for that voyage was primarily U.S.-based, followed by European travelers. The spending trends were consistent with our expectations, with significant expenditures on shore excursions, food and beverage, and in the casino. It's encouraging to see that customers are eager to spend, and while it's early, the signs are highly positive.

Great. It sounds like deposits are building nicely, and there's an expectation to move cash flow positive at some point, maybe in the first quarter, even of 2022. Number of things going in the right direction. Can you help us think about the path and timing for deleveraging of the business?

Yes. Vince, it's Mark. We are intensely focused on that. As you can recall, in 2019, we were on a path to our stated leverage of 2.5 to 2.75. We've obviously had to lever up the balance sheet as a result of this. But as we look forward, our goals right now are we want to get below 5. And then obviously, we'll look to get into the 4s. It's a bit premature to decide or to really telegraph when we're going to get to those levels. As we've said before, if 2022 continues on the path that we're seeing today, it could be a very nice year in terms of EBITDA and subsequent cash flow generation. So that's certainly going to assist and help us with that delevering story. So we are focused on it. We have not lost sight of that because we know that's important. But right now, we're focused on relaunching and providing the best experience that we can to our customers. And if we can do that, that's going to subsequently turn into significant cash flow generation. And I will reiterate, we've said and we expect in our conservative relaunch plan, we expect to be cash flow positive over the course of the first quarter of 2022. So when you think about that from a restart within a 6-month period to be cash flow positive, we feel that's pretty tremendous. And we're pretty proud of that. So we look forward over the next few months of restarting our fleet. And again, that the cash flow that, that spins off.

And another question. You look at the hotel industry, leisure nights, 15%, 20% ahead of '19 levels right now. Pricing in that industry is 5% ahead of 2019. When you think about the path for yield into '22 and '23, you've already kind of had a glimpse into once people get a path and the ability to go that unleashing of pent-up demand, what it can mean for pricing and other aspects of leisure. So curious, as you look out over the next couple of years, is just a little bit ahead of '19 the right way to think about it? Or could pricing be even better than that in years ahead for cruise?

I think it's better than that. If you strip out the dilutive effects of the future cruise credits, the like-for-like pricing, the pricing to the public, so to speak, is up significantly, multiples of what our typical year-over-year growth is in yields. And so the pent-up demand is real, and we're taking advantage of it. We do have these future cruise certificates to deal with, which will end in 2022, that these FCCs will not be dilutive at all in 2023. The FCCs have to be used by the end of 2022 or else we're going to refund the customer or whatever they paid in. And also, remember, as I mentioned, I believe it's Slide 11, look at our future growth. We have 20% more capacity coming online through the end of '23. Look at our historic ability to absorb that growth and how we turn capacity growth into gross revenue growth, outsized EBITDA growth, and outsized net cash growth. So we're very much looking forward to taking delivery of these vessels over the next few years. Four of them come online in '22 and '23. They're going to be accretive. They're going to be higher than the corporate average. So we believe that that's a wonderful setup. As Mark mentioned before the pandemic hit, NCLH was hitting on all cylinders. We were delevering to investment grade. We're going to start paying a dividend. The biggest problem we used to sit around the boardroom was, what are we going to do with all this cash? And well, we're going to start generating cash again, and that cash is first going to go to pay down debt that we took on to survive the pandemic, and then we're going to look to do what companies do: buy back stock if it's opportunistically to do so, perhaps expand the business. We're bullish on this business. We know how to operate a cruise in this top-line cruise company. We haven't forgotten how to do that over the pandemic. And we're seeing the pent-up demand from customers that allow us to do what exactly what we do best. So we're very much bullish on the future.

Great. I have two questions. First, could you remind us what percentage of your ships in 2021 or over the next six months will be based in Florida this year? Secondly, regarding expenses, you mentioned carbon credits. Can you help us estimate what your spending on carbon credits might be?

When we look at the next six months, we expect to operate about six vessels from Florida, with the Norwegian Gem departing from Miami on August 15. The rest should start operations in mid to late December. Regarding carbon credits, we are very enthusiastic and committed to our ESG initiatives, having invested a few million dollars in purchasing these credits. We are also making several investments in our fleet, such as exhaust gas cleaning technology and waste heat recovery, all aimed at reducing our carbon emissions. Additionally, for Florida-based vessels, approximately 35% to 36% of our fleet will be sailing from there over the next six months.

Okay, great. The carbon credit hasn’t been reflected in the profit and loss statement yet, correct? I assume you’ve acquired it, and it’s recorded on the balance sheet, with the expense impacting your operations later on?

Yes. That will get expensed as we consume the fuel that it's related to in a pro-rata fashion over the course of the next two to three years. But again, I want to highlight that it's not a significant amount. It's a few million dollars. So you're not even going to see it when you look at our financial statements.

My questions are actually on the composition of cruisers looking forward, and given your disproportionate exposure to U.S. cruisers, what that looks like for some of the European itineraries in September and October? In addition to that, I think you guys had commented that one-third of the bookings for the Regent Seven Seas World Cruise was new to brand. So is there anything noteworthy that you saw in those new passengers that's different from maybe what you've seen in past passengers?

Yes. Typically, for a cruise on the Norwegian brand that operates in Europe, roughly half the customers are from the U.S., and half the customers are from the rest of the world. On the first two Norwegian Jade cruises to the Greek Isles out of Athens, we have seen that number jump in the neighborhood of 80%. So many Americans have not been able to go overseas for such a long period of time that the pent-up demand that we're seeing for cruising overall is higher indexed by Americans wanting these long-haul travel plans to places like Greece. So we don't think that's sustainable in the long term, perhaps in the short to medium term as this pent-up demand is sort of burned off. But it's good to see that we have the marketing strength and the sales platforms throughout the world to be able to fill our ships. And whether it's Americans want to come over or Europeans, we're seeing strong demand across the board.

And then as far as some of the debt service on the balance sheet, are you guys taking steps to maybe refinance some of the operating debt that you raised early in the cycle, in the COVID cycle? Or is that something that's maybe on pause for now with a bigger focus on just restarting the fleet?

We are focused on all of the above. While our immediate priority is to restart operations, we haven't lost sight of our balance sheet and the management opportunities it presents. We are actively examining this and have identified potential opportunities in some of our higher-priced notes, particularly in our 12.25 and 10.25 notes, where we might have potential clawback opportunities. Our primary goal right now is to get the vessels operating. Once we have a few vessels back in the water and greater visibility on that, you can expect us to explore those opportunities and act on the balance sheet management options we have.

A couple of questions for me. Maybe a clarification here. So when I digest what you've said about your fleet ramp and the occupancy ramp, it kind of feels like second quarter of next year could be a pretty normal quarter. Obviously, your fleet will be back to 100%, but it seems like the expectation is that occupancy will be, at least on all but one ship, 100% plus. So is that sort of what you're targeting in terms of sort of the first normal quarter? That seems like, Frank, you made a point earlier that you weren't so much interested in the starting line but more so the finish line. Seems like that's maybe a little bit ahead of some of your peers.

James, it's Mark. I believe that when we analyze 2022, particularly the second quarter, we are experiencing very strong bookings for that time. To give you some context, let's consider the initial voyages of the Norwegian Jade. Even with reduced capacity, we are seeing considerable demand and spending on those ships. As we bring our vessels back online over the next two to three quarters, I think Q1 will appear fairly normal as well. We expect to have about 9 or 10 vessels operational in Q1. Thus, by the second quarter, we anticipate that most of our vessels should return to their usual load factors. If everything goes well, it might happen even sooner. While we are mindful of 2021, our priority is to ensure we handle this correctly. We want to build trust with our customers, shareholders, and employees, and we're committed to learning from each cruise we launch. We're enthusiastic about 2022 and the future, but for now, our focus is on 2021, ensuring our fleet gets back to sailing. Overall, things are looking promising, but we must continue working towards getting the ships back in operation.

Got it. That's really encouraging. And then trying to do a little bit of math here. Obviously, there are a lot of moving parts. But if I think about $2.75 billion of cash, about $9 billion in net debt as we stand here today. You've said another $285 million of cash burn in the third quarter. Presumably, that comes down in the fourth quarter. I'm just trying to figure out, once we get to that inflection point of cash flow positive what the balance sheet looks like? Is it in the ballpark to think that maybe another $1 billion of net debt before you hit that inflection point?

I believe you are correct, James. Currently, we have approximately $2.8 billion in cash and we expect to use around $900 million in the third quarter. However, it's important to note that this figure does not account for the customer inflows anticipated from advanced ticket sales. We experienced considerable growth in the second quarter, and we expect that trend to continue in the third and fourth quarters, extending into the first quarter. By analyzing our current cash position and our expectation to achieve positive cash flow by the first quarter of 2022, you can estimate what our cash balance will look like and how cash generation will progress. We are confident in our current liquidity and believe we have a solid foundation. We have implemented significant measures to reach our current situation. As long as we successfully execute our voyage resumption plan, we feel very confident in our strength at this moment.

Given the severe labor shortage in the United States and ongoing supply chain issues related to basic food ingredients, I’m curious about the labor situation and supply chain for food and beverages in your more international operations.

Patrick, we are not unaffected by the current situation. However, one advantage we have is that most of our labor force, which is ship-based, comes from overseas. Our employees are eager and thrilled to return to work. We have collective bargaining agreements for most of our staff, and it's important to note that these employees, unlike many in other parts of the world, have not received significant government assistance. They are excited to be back; when they board the vessel, many express their joy through tears because they have the chance to work again. Therefore, we do not foresee any challenges regarding the labor aspect of our operations. Regarding food and consumables, while we are aware of inflationary pressures, we have started to see some stabilization. There may be some supply chain delays that result in higher costs, but we have also successfully renegotiated contracts and adjusted prices over the past 18 months, which has yielded benefits. We are intensely focused on managing costs. Although we are not exempt from inflation, we believe we have a strong opportunity in 2022 to capitalize on our recent renegotiations. We are looking forward to moving ahead.

Thank you all for joining us this morning. We are excited to be in Seattle to launch Encore's first season for the Alaska route and begin our cruising comeback in the U.S. Thank you again, and we look forward to seeing you next quarter. Goodbye.