Good morning. This is Josh Weinstein. Welcome to our Fourth Quarter 2022 Business Update Conference Call. I’m joined today by our Chair, Micky Arison; our Chief Financial Officer, David Bernstein; and our Senior Vice President of Investor Relations, Beth Roberts. Before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today’s press release. Our business continues to accelerate on an upward trajectory as we rapidly close the gap to 2019. In fact, we are already exceeding 2019 revenue per diem, and we’re gaining momentum on our return to strong profitability. Taking a step back, this year, we’ve completed a monumental 18-month journey, and with our scale, what we believe to be the world’s largest start-up, returning 90 ships to service, re-boarding over 100,000 team members, and restarting our unmatched portfolio of 8 private islands and port destinations, plus our unrivaled land-based footprint in Alaska and the Yukon, all while welcoming back nearly 9 million guests. For that, I sincerely thank our global teams around the world for the ingenuity and sheer determination it took to see that through to completion. Throughout 2022, we have aggressively built occupancy from a 50-point gap in the first quarter to less than 20 points in the fourth quarter. We achieved this on growing capacity as we returned another 35% of our fleet to service in 2022, reaching 99% of our 2019 capacity levels during the fourth quarter. And on top of this, our constant dollar revenue per passenger cruise day was 2% higher than 2019’s record levels for the full year and 4% higher in the fourth quarter, overcoming the dilutive effect of future cruise credits. Without this impact, each would have been two points higher, and in…

Thank you, Josh. I’ll start today with a recap of our cumulative book position and our financial position. Then I’ll provide some color on 2023. Turning to our cumulative book position. Marking an early start to wave season, we ended the year with multiple brands breaking records on very strong Black Friday and Cyber Monday booking volume. Our full year 2023 cumulative advanced book position is at higher prices and constant currency normalized for FCCs when compared to strong 2019 pricing and is higher than the historical average book position. The second, third, and fourth quarters all have a book position that are above the historical average, while the first quarter 2023 book position was impacted by heightened protocols during its prime booking period, which have since been responsibly relaxed. As a result of the relaxation of the protocols, booking volumes for first quarter 2023 along with all future sailings have increased. Therefore, we expect to continue reducing our occupancy GAAP in first quarter 2023 to 2019 by nearly 5 percentage points from fourth quarter 2022. The strong cumulative book position has resulted in total customer deposits hitting a fourth quarter record of $5.1 billion as of November 30, 2022, surpassing the previous record of $4.9 billion as of November 30, 2019. Next, let’s talk about our financial position. During 2022, we continue to take refinancing risk off the table by addressing our 2023 debt maturities and getting ahead of our 2024 maturities. As a result of this, we ended the fourth quarter of 2022 with $8.6 billion of liquidity. Looking forward, we expect to turn free cash flow positive in the back half of 2023 and continue to be free cash flow positive in 2024 and beyond. We anticipate utilizing this free cash flow to delever our balance sheet…

[Operator Instructions] Our first question is from the line of Steve Wieczynski with Stifel. Please go ahead.

Good morning, Josh and David. So, I guess, the first question would be around the marketing spend for 2023. And I guess, we were thinking that marketing would be accelerated throughout the fourth quarter of ‘22 and then into the first quarter of ‘23 and then start to fall off some. But it sounds like you guys might be keeping marketing spend pretty high throughout the entire 2023 year. And guess -- the question is maybe why are you keeping it so high for the full year? And is there any way to understand maybe what that cost cadence will look like throughout next year? Just wondering if there are any quarters that were -- spend levels for marketing or other costs might be higher or lower? I hope that all makes sense.

So with respect to the advertising in 2023, if you saw the materials that have been put on the website, we’ve been ratcheting up across -- across all of 2022. And we are very excited about the momentum that we’ve got. We’ve already started the wave season incredibly strong with our Black Friday, Cyber Monday and really just the whole book position that’s moved nicely in the month of November. And we think that advertising has a good amount to do with that to really reach first timers, generate awareness, generate consideration and doing so in a really meaningful way. And I think it’s -- we’ve got great brands. I mean we’ve got tremendous brands, but we need to do a better job getting the voice out. And this is a good way to do it. And it helps not just us, it helps our trade partners. It helps the bookings across the board. So, as far as how we’ll look at it across 2023, we’ve given you the guidance specifically for the first quarter. The great thing about advertising is we can dial up, dial down across the board where it’s working and where we don’t think it’s having as much of an impact. But right now, the activities that we’re doing, both in the mainstream media side and then the digital and performance marketing, it’s really starting to hit our stride. So, we’re pretty pleased with the results.

Yes. Steve, the only other additional color that I’d add to that is, remember, I’ve said historically, the best way to judge our cost structure is the full year, and I gave you the guidance there of 1 to 2-point increase. The problem with the seasonality is as we go along, we make decisions that are most appropriate and we remain agile and flexible. But with that said, I will say that the advertising is likely on a quarterly basis to be the highest in the first quarter and the lowest in the third quarter. But the third quarter traditionally has always been a low quarter in terms of advertising. So, that’s probably the best guidance we can give you at this point.

And to follow up on that, I guess, as we kind of think a little bit further down the road, I mean if you guys kind of get back to those normalized load factors and demand still looks pretty solid through the majority of ‘23. Would you expect as we get to ‘24 that you would be able to pull back a good bit on that marketing spend?

Yes. I mean, it’s certainly within our control. Ultimately, we’re not just trying to get back to occupancy levels that are historical. We’re trying to really drive the unit pricing as well. And so advertising is a big component of that. So, we’re -- I hope we’re having that conversation in six months, Steve.

Okay, great. And then just one quick housekeeping, if possible. David, the 2 ships that are leaving Costa, were they sold, or are they just going to be scrapped?

No. So, we announced 3 ships in total and 2 of them, we actually have a contract for at the moment and one we’re working on -- a contract for sale.

Our next question is from the line of Robin Farley with UBS. Please go ahead.

There were a couple of kind of really key things that I just -- I wonder if you could clarify for us. First, the comment on ‘23 price -- that it’s higher, I think you say adjusted for FCC. So, including the impact of that discount, which probably would only be 1% or 2% at this point, is your price on the books in ‘23 in constant currency higher than ‘19, including that? And then, I’m just -- I guess I’m a little surprised that there’s no yield guidance for Q1 because you gave a lot of detail to get to the EBITDA line, including occupancy, and I haven’t been able to do all the math since the release is only out for a few minutes before the call. But it seems like you have a yield in mind for Q1, and it would be sort of 80% plus book by now. So, I just wonder if you could help us with the sort of a range of what might get to the EBITDA that you’re talking about just to help us check our math? And then lastly, the comment on EBITDA, it’s like -- so the guidance for Q1, up $250 million to $350 million and then up sequentially each quarter after that. It is -- I wonder if you could just help us with a floor like on a full year basis, can we -- you’re comfortable that you would be higher than $3 billion in EBITDA for the full year. Like in other words, that sort of up sequentially each quarter, could still get to sort of quite a low EBITDA number for the full year? And I just wonder if you could help give us a floor. Thank you.

Hey Robin, how are you doing? That was a lot of questions. So, let me start backwards because I can remember the first -- the last one. So, with respect to EBITDA, what we tried to convey is on a performance basis, on a unit performing basis, when you strip out the noise of fuel and currency, what’s our trajectory and how are we looking at things? And so, we said on that basis, we’d get back to 50% of 2019 levels in Q1 and sequentially throughout the year, continue to close that gap to 2019. I am certainly hopeful in pushing that we’re going to exceed 2019 levels by the time we get to Q4, but we’ve got a lot of work to do to be able to do that. With respect to your question about yield guidance, just to make sure we’re not -- so do you want to do that?

Yes. Robin, I guess -- maybe you missed the part in my notes where I did talk about this. I said specifically that we expect net per diems to be up 5.5% to 6.5% in constant currency. And that does translate to 3% to 4% in constant dollars. Now, we gave per diems, but of course, we also gave the occupancy of 90% or slightly higher in the press release. So, you can calculate the revenue associated with that. And as far as the booking trends are concerned, you’re right. We did indicate that the FCCs would be less than 1 point for the year. And the book -- the pricing would still be up even if we didn’t add back the FCCs. We’re still at higher prices. I think that covers all of your questions. Any follow-up?

That does. I have more, but I will get back in the queue. Thank you.

Okay. Great.

Our next question is from the line of Fred Wightman with Wolfe Research. Please go ahead.

I just wanted to sort of follow up and build on the occupancy ramp. If we look just from 3Q to 4Q, 10 points of improvement, if we look at sort of what you guys are expecting in 1Q, it sort of 5-ish percent. So, can you just sort of walk us through what’s driving that lower sequential improvement relative to the 2019 levels? And maybe how we should think about that in the context of the expectation that you guys are going to be back to sort of full occupancy over the summer?

Sure. Sure, Fred. So one thing to think about when you think about our Q1 deployment profile, it is very different from what we typically have the rest of the year. We’ve got actually 9 ships in Q1 on World Cruises, another 4 ships on 70-plus night Grand Voyages and then a host of ships that are doing longer exotic voyages, 35-nighters, 28-nighters. And so, with that profile, those are longer lead time type of itineraries, some bucket list types of things. And so, it is progressing for Q1 exactly where we thought it would be with respect to closing the occupancy gap given the dynamic of that itinerary profile. And as we get into Q2, those have stopped or wind down and we get back to the cadence that we expect.

Understood. That makes sense. And just on the booking momentum, there was a comment in the release just talking about November booking volumes exceeding 2019 levels. Also a comment about momentum continuing into December. Are December bookings still above 2019 levels, or did those sort of tail off after some of the promos in November?

No. They’ve continued very strong, and they’ve continued well above the 2019 level. So, we’re very pleased with the overall position and the bookings that are coming in to date.

Our next question is from the line of David Katz with Jefferies. Please go ahead.

Two quick ones. I think in the past, you’ve referenced getting back to 10% ROIC. If you could just talk about the path there and the puts and takes on what has to happen for that to occur? And then second, with respect to the advertising, do you have any sort of measurements or metrics that you -- that are shareable that demonstrate or confirm some of the productivity around that? And that’s it for me. Thanks.

Thanks, David. With respect to the advertising, our brands -- without wanting to give away competitive positions, our brands are tracking with respect to awareness and consideration, which has a correlation to booking. They track lead generations, they track conversion -- track conversions on websites, they track via performance tied deals in the marketplace, and we actually know exactly what the impact is from the activities that we are taking. So, we do have them across the board, and we follow them and we discuss them with the brands, and that’s how we make decisions with them about where it is effective and where it might not be effective. And what’s great about us having 9 brands sharing amongst themselves, what’s working and what’s not working, so we can learn from each other. With respect to the ROIC, it’s revenue. I mean revenue is the thing that’s going to drive us back to double-digit ROIC. David mentioned our industry-leading cost base. That will continue to be a focus, of course. But really, it’s going to be the revenue and that’s where our brands are focused.

And one thing, David, I’d like to add on the advertising front. One thing we’ve been tracking is we take a look at our book position for 2023. And in the last 6 months, since we have increased the advertising, we have seen a shift and a lot more new to brands. In fact, it’s an 8-percentage-point improvement. So at this point in time, what we’re seeing for the 2023 book position is that it’s roughly half of the guests are repeat royal guests and the other half are new to brand. Unfortunately, these people have an old sail. So, I don’t know whether they’re new to cruise or they’re brand switchers, we’ll find that out shortly as they sail. But the fact is -- we’re getting a lot of great demand and we’re seeing it in the booking volumes.

And that’s an indication also of the growing health of our trade partners because they are a huge piece of our ability to drive first timers on board. So, a shout out to them as well.

Our next question is from the line of Jaime Katz with Morningstar. Please go ahead.

In the prepared remarks, there was a comment on reprioritizing project list. Is there anything noteworthy to update us on maybe what you guys are shifting focus on or shifting focus away from, anything sizable there?

So, there’s -- I think a lot of the stuff is timing. From a big perspective, if you look at the change in the CapEx, a lot of that had to do with the fact that 26 ships have left their fleet, they were smaller, less efficient ships. And therefore, we don’t necessarily need the overall CapEx number as high as we had previously. But when it comes time to prioritizing it, it’s also a timing issue and doing the things that are most important first. And that’s some of the reason why you saw the CapEx come down in 2022. The only noticeable thing that where really -- as far as our office space, clearly, with the new ways of working in today’s environment, we’re significantly reducing the amount of CapEx that we’ll probably need to expand our offices as we continue to grow.

Yes. We -- I can give you an example of where we would and where we wouldn’t prioritize. So, we talk in the press release and some of our prepared remarks about the impact we’re making on are carbon footprint and the fuel consumption that drives that. That’s going to continue full steam ahead. We see, a, great returns in that; and b, doing our part on the sustainability front, which is critical to our long-term success as well. There could be things that when it comes to making a decision about the speed at which we want to introduce new venues on board of a particular brand, we can pace those out differently. We can take a little bit less risk on trial and error of creating new experiences. So, it’s all a question of what we think the appropriate return could be, where we want to take risk and where we just want to be more focused on managing the cash balance.

Okay. And then I know there’s been a lot of discussion on marketing spend. And I’m not sure if you guys have directionally elaborated on maybe the ROI of marketing spend, there seems to be a pretty decent push to sourcing more North American consumers across the cruise operator landscape. And so, I’m wondering if the marketing spend is as productive as it has been historically or if you expect that to be maybe temporarily depressed before you can prune that back? Thanks.

Well, I can repeat what we said, which is we are spending more, and we are very happy with the results, and we’ll keep monitoring it and adjusting as appropriate. But we feel real good about our brands to strengthen the market and our ability to champion them with additional advertising.

Our next question is from the line of Brandt Montour with Barclays. Please go ahead.

So Josh, I want to dig into the opportunity a little bit more on the marketing front as well. If you were to try and isolate how much of the opaque channel mix shift you’re doing now versus ‘19, that additional mix to that channel and trying to isolate the upside to that -- those per diems just from taking off the additional sort of, again, opaque channel promo activity. Is there a way to sort of give us that level of magnitude for that opportunity when you are able to remove the rest of that?

I’d love to give you a straight answer, but I got to be honest. So I’m not sure that I could in a way that I feel comfortable will make sense in a short amount of time.

So Brandt, I know that’s like another way of asking us what is our yield guidance for the rest of the year. The one thing I do want to point out, which I said in my prepared remarks is that we will -- and wave season is important, and we will give guidance for the net per diems and occupancy and EBITDA for the balance of the year. However, we did give the net per diem guidance for the first quarter, as I reiterated before, when Robin asked the question. And one thing I do want to point out is that I also mentioned that the first quarter benefited by brand mix. And that brand mix was worth about 2 points, and so as you think through the balance of the year, there will be positives as what you’re just describing. But as you think through that, please take that into consideration as we forecast the year, the per diem now.

And I guess I could say looking backwards and you look at our trajectory from Q3 to Q4, we are pulling back, right, and that’s helping improve our per diems. And we’ll -- I mean, the great thing is it’s pretty easy to turn on and turn off. And so far, as we get into this wave season, the momentum is good. It gives us -- it gives us a lot of excitement about being able to pull that further as we get into 2023.

Okay. That was really helpful. The second question I have is related to China. You guys -- it looks like the 2 ships that we didn’t know where they were going to go are now being removed. And so that means that there’s no near or maybe even medium-term plans to return to China. Do you guys consider China still a medium to longer-term opportunity for you? And are you watching that market closely to potentially go back eventually to alleviate supply pressures in other markets, or how are you thinking about that market now?

Yes. I mean, look, the great thing about our assets, they’re mobile and we’ve moved them to optimize our demand and our revenue generation. If and when China opens up again and opens up not just to domestic cruising, but really opens up, we’ll certainly look at that, but we’re not relying on it. We’re not counting on it. We have -- we are the number 1 or 2 brand in all the major cruise markets today, and we like that position, and we’re going to push hard on increasing our penetration there.

Our next question is from the line of James Hardiman with Citi. Please go ahead.

So, there was a comment in the prepared remarks about discounting through opaque booking channels. That seems like an important comment. I know criticism by at least one of your competitors is that you guys have been discounting in such a way that it’s going to be difficult to recover from that anytime soon. It seems like you disagree with that criticism. But also, it seems like, if I look at the big difference between 3Q and 4Q, it’s sort of the turnaround in those per diems, which is obviously a focus for you guys. So maybe speak to that strategy and your level of confidence that it’s ultimately going to pay off?

Sure. So, I’ll speak for ourselves. I won’t speak for anybody else. We are a global company. We have a different profile than our competitors. With respect to how our brands are optimizing revenue, which is price, it is occupancy and onboard spending. They are all using different levers and different mechanisms, including opaque channels, which, as you just referenced, we’ve been able to pull back over time without much of a problem. We focus on the revenue that is going to get to the bottom line, and that’s our focus, not just driving revenue but driving revenue that doesn’t get caught up in the cost and not hit our EBITDA or not hit our operating income, and that’s where we’re focused.

Got it. That’s helpful. And then my second question -- obviously, there’s been a lot in the news and if anybody has any kids in school right now, half the class has something, right? Flu, COVID, RSV, this whole idea of a tripledemic, which you got to hand it to the media for their ability to brand diseases at this point. But, I guess, I’m curious if you’re seeing anything in any of the metrics and booking statistics that you look at that would suggest that that’s having an impact on your business at this point? Or is the consumer largely over it as we think about how viruses and diseases are going to impact their willingness to book a cruise?

Yes. We -- look, I mean, having come through two years of COVID, I think pretty much across the board, what we see is people are -- people are happy to get on with their lives. Now obviously, I’m not trying to belittle what you said because there could be some folks that are dealing with some things that are pretty tough on them and their family right now. But what we see is trends that are going back to normal about how people are thinking about those types of illnesses. And we always knew this point would come, right, when all of the masking and staying away from each other would go away and some things that we didn’t experience would come back with a little bit of a fury in the world, not on our ships. And that’s what’s going on, and we’re taking it in stride, and it doesn’t seem to be a problem.

Our next question is from the line of Patrick Scholes with Truist Securities. Please go ahead.

How should we read into your comments regarding pricing for next year? Certainly, semantic theory. Previously you said higher, now it’s slightly above. I mean, technically, they could mean the same thing, but a little more color on that, please. Thank you.

Well, I think you gave my answer, which is the language change, but it’s really not a significant change in our book position. Half one, we are really trying hard to close that occupancy gap. We are using the opaque channels where we think it makes sense and where we’re going to lean harder and we plan to keep pulling that back as we get through a great wave season. And regardless, we anticipate very strong onboard spending to supplement our ticket prices. So. for us, pun intended, it’s full steam ahead.

Okay. Thank you. Then one or two more questions here quickly. Can you just give us an update on what the book direct trends have been in the most recent quarter versus say the comparable quarter in 2019 versus booking through a travel agency? What are you seeing there? Thank you.

What we’ve been saying all along is that the direct business held up relatively well throughout the pandemic and the trade had to build itself back up, and we’ve been trying to support them to do just that. And the great thing is, as we’ve referenced in some of the other questions, the trade has been doing great lately. They’re as excited about our advertising as we are because it helps them, too, and they’ve really started to push on the volumes. And so, we couldn’t be happier with how they’re progressing.

Okay. And then just lastly, if I caught it correctly, you talked about 15% reduction in fuel for ALBD next year? I think the previous number had been 10%. How much is that being driven by the reduction, it sounds like some of the older legacy fleet and what else may be driving that? Thank you. That’s it.

Yes. So, the combination of the removal of the smaller, less efficient ships with the new ships that were delivered, make up 9% of the 15%, and then, the other 6% has to do with all of the itinerary optimization as well as the investment in fuel reduction technology, things like the Air Lubrication System, which I mentioned in my notes and was also in the press release.

I think we got, Chris, time for one more question.

Certainly. Our final question will be from the line of Vince Ciepiel with Cleveland Research Company.

Just real quickly here, I wanted to get your kind of big picture perspective on the path for margins potentially for the business. And -- it sounds like there’s some real fuel efficiencies to be had on the consumption side. Obviously, you’re dealing with higher fuel prices, but also your operating cost outlook was pretty strong. And then, when you layer in your view for a return to historical occupancy, coupled with pretty decent price position for ‘23. Like, when you put all that together as -- I don’t know, maybe you’re even exiting ‘23, going into ‘24, do you foresee margins getting back close to historical levels, ahead of historical levels? Kind of what are you targeting kind of over the long run?

Well, because we’re not giving guidance, I think the best I can tell you is how we’re thinking about that EBITDA on a per unit basis. And when you get rid of the noise from currency and the fuel prices, operationally, what we’re really trying to do is exceeds 2019 levels by the time we get to the end of the year, and that’s where we’re focused. As far as the longer term, maybe we can have more of a conversation on that in March when we’re going to be talking more wholly about our full year guidance.

But it’s fair to say, there’s a lot of potential relating to the revenues, all of the advertising that we’re doing, which should bode well for the return on invested capital, which we expect to increase considerably over time as we move through the next year or two.

Thank you. So, to everybody on the call, thank you very much for joining us and happy holidays. And I’d encourage you to go to our website for our presentation materials and some supplemental schedules. Thank you all very much.