Good morning, everyone, and welcome to our Business Update Conference Call. I am Arnold Donald, President and CEO of Carnival Corporation & plc. Today, I'm joined telephonically by our Chairman, Micky Arison; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. Now 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. Of course, the thing on everyone's mind is, when are we going to resume sailing here in the U.S.? Now while we're very disappointed with the April 2nd additional guidance issued under the conditional sail order, all 30 of our ships in U.S. waters, and that fall under the conditional sail order, have achieved green status. And we are continuing to work with the CDC and the administration to find practical approaches to resuming cruising in a way that serves the best interest of public health.

Thank you, Arnold. I'll start today with an update on booking trends. Then I'll provide our monthly average cash burn rate, along with the summary of our first quarter cash flow. Next, for those of you who are modeling our net income and EPS, I will provide you with some key data and then finish up with some insights into our financial position. Turning to booking trends. Our booking volumes have been very strong given the circumstances. Booking volumes for all future cruises during the first quarter 2021 were approximately 90% ahead of booking volumes during the fourth quarter 2020. Just as positive, our cumulative advanced book position for the full year 2022 is ahead of a very strong 2019, which was at the high end of the historical range.

Thank you, David. Operator, please open the call to questions.

Thank you. Our first question comes from Steve Wieczynski with Stifel. Please proceed.

Hey, guys, good morning.

Hey, good morning.

So – good morning, Arnold. Hope, you’re doing well. So it seems like yesterday, we got some additional comments from the CDC, which -- who knows if they're true or they're not, but it seems like they could be at the point where they might be open to allowing cruising from North American ports by mid-summer, which is encouraging. And I guess the question is going to be -- before those comments came out, we've seen some of your competitors start to announce Caribbean itineraries that embark -- they were embarking from so-called foreign ports. And you guys really didn't do anything like that for your Carnival or your Princess, kind of core North American brands. And I guess is that something that you would still explore at this point? Or do you just kind of sit back and wait at this point to see what the CDC officially kind of comes out for before you make that type of decision? And hopefully, that all makes sense.

Yes, Steve. I think, first of all, just a couple of things. Princess has announced some sailings from the UK, some limited sailings from the UK. But you're correct, we haven't announced sailings just for Princess or Carnival. We have announced for Seabourn sailings out of Greece as an example. So look, the bottom line is this, we are in dialogue with CDC and with the administration. We stand with everybody in trying to make certain that we all contain this virus. And public health is paramount here. So we -- we're in all that. But as released on April 2, that is not necessarily a workable or practical solution. And so we're in dialogue to try to come up with that. So we want to share the optimism that we can be sailing in July. And I think by working together, we can all make that happen. In terms of whether we would consider sailing or home porting out of the Caribbean, Carnival is really America's original cruise line. It is America’s line, we sail more people than anybody else from America and more kids and all that. And part of it is the drive to market capabilities to access for people. So I have 14 home ports here in the U.S. Nobody else has anything like that for Carnival. We prefer to get the people who are working in the ports, all the people who depend on the cruise industry for their livelihood, obviously, we prefer -- and I'm sure the other companies would too, we prefer to have those jobs and all that stuff be here. But if we're unable to sail, then obviously we will consider home porting elsewhere. I hope I answered your questions.

Yes, you did. Thank you very much. And then second question, it’s probably going to be for David. But I mean -- so pre-pandemic, you guys were always kind of targeting a double-digit ROIC. And I guess, if we assume cruising goes back to a so-called normal at some point over the next, call it, couple of years, is there any color you could give us around what that ROIC could look like now given the much lower cost structure, but obviously, you have higher interest costs as well. So any color about what that ROIC could look like down the road, David, that would be very helpful? Thanks.

Sure, Steve. So just to point out, yes, we do have higher interest expense. But clearly, the return on invested capital is on all of the capital. So the interest expense doesn't impact the ROIC calculation, but we are still targeting an ROIC in the double digits. And as we've said many times before, once we get to the double digits, we're not going to stop there. This is a business that we believe has the capability of going beyond that and getting an ROIC in the low teens, so -- low to mid-teens. So we are moving forward and have a lot of optimism and positive attitude towards our business.

Okay, great. Thanks, guys. Thanks for the color.

Our next question comes from Robin Farley with UBS. Please proceed.

Great. Thanks. On the comments last night from the CDC, and I was interested that you didn't mention the potential to have those brands operating from U.S. ports. And I guess it sounds like the April 2 specifications might be burdensome. I guess my question is, if you're reaching agreements with ports and local healthcare authorities in those places, isn't it possible that if you sort of probability weight the outcome of all of the scenarios that you need to take into account according to the specifications and the healthcare you have to provide in the land base, if you probability weight that outcome with a fully vaccinated ship, can't that get you to a number that's low enough, right? In other words, a fully vaccinated ship, the probability, I would think, would be so tiny that you would need to incur those costs. Isn't it workable in kind of a probability-weighted scenario?

Robin, there's a lot in your question. I think the conversation around negotiating with ports and local authorities, depending on the specificity and the criteria involved in all that, we do that meaningfully. For example, we've sailed overseas -- the industry has sailed, I think, almost 400,000 guests so far overseas. And to do that, we have to have arrangements with all those places and destinations we go. And so that unto itself, depending again on the criteria established and the paperwork involved that may not be so burdensome because we need to have an understanding. Keep in mind when all this started, people were concerned about ICU units being overwhelmed and so on. And fortunately, that hasn't happened with the advent of vaccines, with the advancement in treatments, with more rapid testing, more readily available testing, with all of that, it appears well in a trend and a trajectory where that is no longer at a big risk. Having said that, of course, we want to be having a prearranged agreement with what are we going to do if there's a case onboard? Because if it's in the community, there's a chance of it being onboard. The specific solutions you're referring to in terms of everybody vaccinated and so on and so forth, we'll have to see how that evolves. We continue to be informed by global medical and science experts. Of course, we're going to be in compliance with whatever the protocols are regulated wherever we go. Of course, we're going to do that. But as you know, today, everybody doesn't have access to vaccines. Children are not yet really eligible for vaccines. Hopefully, that'll change over time. Hopefully, the availability of the vaccine so everyone will have access will also change over time. And we would encourage…

Just one quick follow-up. Just thinking about the opportunity to put additional ships into service this summer, given the booking steps you mentioned, there's record booking levels and all the pent-up demand that we're seeing, how far -- in advance, how close in could you add additional July departures? In other words, does that happen -- have to happen by the end of April to sort of reasonably add other ships in July? Just thinking about that timing.

Thank you. Our biggest constraint right now, of course, is being able to ramp up with crew. And so, it will take us minimum 60 up to 90 days to be able to get a crew on board, trained up with new protocols, et cetera, to be able to execute a sailing. So you can backtrack from that in terms of when we'd be able to go with an announcement. And so that's the biggest challenge we have is ramping. But we do have the opportunity from a demand standpoint, assuming we have the crew available and ready to go and trained up that we can do closer in announcements on itineraries and sailings because the demand is there.

Our next question comes from James Hardiman with Wedbush Securities.

So a lot of discussion about vaccines and how that may or may not help the regulatory landscape. I'm curious about the consumer landscape. Obviously, you've got certain customers that would see a vaccine requirement as a reassuring step, creating a bubble on the sea, so to speak. And then you've got another contingent that would see that as somewhat taking away their freedoms. Talk a little bit about -- I'm sure you’ve surveyed your own customer base and how you think about -- how big those different contingencies are and how you serve both?

Well, I would say, first of all, we would encourage everyone to get a vaccine if available is, today, that combined with other basic simple measures you can take is your best defense, I guess, of getting COVID and certainly your best defense against having any serious effects if you do get COVID. And so we would encourage everyone to get a vaccine. Having said that, of course, people have individual personal liberties, et cetera, to my knowledge, and we're involved in the world having tourism council, involved in U.S. travel group, et cetera. To my knowledge, there is no country -- major country today that is mandating vaccines for travel. And so the option is vaccines or testing or whatever. And so that's my understanding today. There, as you can see, as you go about in society today, whether it's restaurants or entertainment venues, some of the sports teams are opening up where they're taking guests in, there's not a mandate for vaccinations. Then some places in the world is not even legal to mandate vaccinations or anything. So there's a lot of complication in all of that. Having said that, as I said before, we'll be informed by the global experts, the medical experts, the scientists. And of course, we will follow whatever the protocols are that -- are regulated and in place wherever we go, we will have to follow those. And you're right, there are a lot of people who don't feel -- even they are willing to take the vaccine, they don't want to be mandated to take it, and people do have that personal freedom perception and orientation. So we want to encourage people to take the vaccine. And then what our ultimate policies will be, we'll have to get that evolve and see. In the UK, we have some -- we've announced some other sailings in the UK. We just announced one in Seabourn where it's available to people who have vaccinations, but we do not have a company or brand policies right now around vaccinations. And we're going to allow that to play out in line of with what makes the most sense. Does that answer your question?

Very helpful. It does. And then I guess second question here, and you get this question all the time, but I figure it's worth asking every few months. Walk us through sort of your latest thoughts on the timetables around mobilizing the fleet, how quickly you could get to sort of cash flow breakeven, how quickly do you think it would -- how long do you think it would take to get the full fleet up and running. And then as I think about occupancy, Norwegian talked about a 60% occupancy level to start. Do you think that's a reasonable number? Or is there another number that you're thinking of?

Okay. And one other comment in fairness to people on the vaccines, too, I just have to make is that, as I said, and I'll repeat it. But everybody doesn't have access to vaccines today. Hopefully, that will change, and hopefully, it will change very quickly. But today, everyone doesn't have access. And so that's a whole another factor to put in, and children today are not approved to take vaccinations. And so there's testing going on and sciences at work. And in coming months, that could change as well. But today, children obviously are not approved for vaccines. And so, those are additional vaccine commentary. Now back to your current question. Initially, take our UK sailings and some of the other sailings, initially, so we can have opportunity to practice the protocols and make sure everything is going as planned, we're starting with less than 50% occupancy, but that will ramp up pretty quickly as we make certain that the execution is in place and going well. And so that's where we are in terms of the initial sailings. Again, for other companies, whatever theirs are, it's probably just a similar thought process. So people want to make sure that the protocols are in place and are working right, and we all get good practice with our crew in managing all of that. And then it would ramp up as we get better at it. So that's the first comment. In terms of how quickly it gets break out there, David make some comments on the financial perspective. But what we've been saying is 30 to -- depending on the brand and the ship size and a whole bunch of other things, 30% to 50% is -- of occupancy is better than breakeven financially for us for a given…

Yes. Let me just address the breakeven. It'd be very difficult at this point in time because -- to determine exactly where we breakeven, there are so many variables. I mean you're talking about pricing, the cruise ticket, there's the price of fuel, there's currency. So what I've been doing is referring people back to our 2019 actual. And when we look at 2019, and I've said this before, if we had the top 25% -- top 25 ships in our fleet operating, we would -- and yes, they would be -- I'm just talking about full operations with full occupancy. Those 25 ships would generate enough cash flow to cover the pause cost for the other 60 ships in our -- 65 ships in our fleet as well as cover the full $2.4 billion of SG&A that we had in 2019. And by the way, with Arnold's comments, coming back and being more efficient, hopefully, we can do better than what we did in 2019 in terms of SG&A. But hopefully, that helps you build your own model because there are just too many variables at this point for me to be specific on the guidance of when we'd be cash flow breakeven.

Our next question comes from Patrick Scholes with Truist.

A couple of questions for you. Yesterday, the CDC came out -- it was in a Bloomberg article, and I quote, "Hopefully, by mid-summer with -- hopefully, by mid-summer, there'll be restricted revenue sailing." I'm curious, I'm sure you thought about this. By them saying restricted revenue, do you interpret that to mean test cruises or would that be limited occupancy on paying cruises?

Thank you for the question, Patrick. I think I'd -- rather the CDC respond to what they were thinking when they said that, again, we want to work with them and the administration to ensure that ultimately, it would be really revenue cruises at this point in time. And we look forward to working with them to come up with a practical approach that would make that happen and still serve the interest of public health.

Understood. And then in that regard, do you have a date in your mind? And I don't want to -- I don't expect you to tell what that date might be. But do you have a date in your mind that you'd just say, hey, it's X date and we're just not really moving forward here sailing out of the United States that you would possibly go ahead and pull the U.S. ships and sail them out of other countries at that point, sort of a deadline date in your mind?

No, I wouldn't say there's a date per se. Obviously, practically speaking, as a company, we'll have to make prudent decisions due to our investors. And so we'll do what we think we need to do to get people an opportunity to sail and to give an opportunity for people to work and earn and so on and so forth. But we don't have a arbitrary date. I would say it's sooner rather than later that we might have to announce some additional home porting outside the U.S. We're trying to hold back on that, but it could be sooner rather than later on that. But I continue to be very much focused on working with the CDC and the administration to come up with a solution that works for American workers and American public, and I think we can. I think if we all just continue to work together, we'll figure that out.

Okay, fair enough. And thank you for the…

Where we have figured it out, and I think we can figure it out here, too.

Our next question comes from Brandt Montour with JPMorgan.

Sorry, one more on vaccines and CDC. And understand that you don't want to alienate any of your U.S. loyal guests. The other Norwegian's 100% vaccination plans looking to ramp up load factors much more quickly than what we would expect you could probably -- or anyone could probably realize under the conditional sailing order that I realize that's a work in progress. My question is, if that strategy for Norwegian is able to move forward, is there a world in which you could envision moving to something like a hybrid approach where some ships require vaccination and then you can ramp up loads really quickly and then others are more -- available to people that didn't want to have a vaccine, is that something that's on the table for you?

I think, again, that's one of probably 1,000 different scenarios. In my comments, I mentioned agilely and constantly changing dynamics and ability to adapt. And so certainly, that's one of a 1,000 different possibilities. Hopefully, we can come up with something that wouldn't require those kinds of dynamics. And more than cost, would be optimistic, we all can working together. But I guess there could be scenarios like that. So I'm hopeful that we'll have something much more straightforward that will accommodate the , and we'll let the appropriate authorities have the available information we have.

Okay. And then I'm surprised we haven't talked about the pricing commentary yet because it was really positive. Arnold, you mentioned further pricing -- looking for further pricing strength. And then, David, you mentioned in the last few weeks pricing trends were positive. I guess the question is -- and you haven't even started marketing yet, so we would assume it would -- potentially that would be another catalyst. But is there any concern or one concern we would have is that if people aren't booking non-balcony cabins or inner cabins right now, is there any benefit from some cabin mix in those numbers?

I'll just make a comment first, David, let to speak to the specifics. Generally, as you understand, I'm sure, what you have is a basic kind of supply-demand right now. I mean we have very limited sailings available and a lot of pent-up demand. And so therefore, there's an opportunity to give people a great value. The vacation experience they want still at a much better value than equivalent land-based experience. So still a great value. And so we're seeing that reflected, though, in the general pricing strength. But David, you can go ahead and answer the specific question.

So keep in mind, the pricing comments that we made, the pricing was up, we were looking at the full year 2022 booking trends. And essentially -- substantially, all our fleet is open for the full year 2022 without the -- so what we see, we looked at it by quarter. We looked at it by brand. We looked at it by category mix. And we see the same general positive pricing trend regardless of how you look at it. So we felt very good about the overall book position. As well as the last couple of weeks, as I had said in my prepared remarks, booking volumes and pricing was very encouraging in the last couple of weeks. And by the way, it wasn't just on the voyages that we opened up for this summer, looking at 2022 as well. Everybody wants to go away. And I will tell you, the next best thing to actually going away is planning a vacation. And that's what a lot of people seem to be doing right now.

Our next question comes from Jaime Katz with Morningstar.

I'm actually curious to understand a little bit better what the mechanics behind the revenue management processes right now, particularly whether you guys are filling the ships to that 50% mark, leaving some incremental ability closer in, if you can fill more, or whether you're booking above and beyond that for maybe later this year where there may have to be some adjustment or some of those reservations may have to be walked back, if that makes sense?

Yes. Well, first, I'll make a few comments and then, David, add whatever you would like. When you think about revenue management, you think about the booking information we're sharing a lot of booking as well out into '22 and some is even in the '23, where we fully expect to have full occupancy and full fleet sailing and so on and so forth by that point in time, and where there's confidence obviously amongst those who want to cruise that is likely they'll be able to at that point in time. So that's a lot of what's driving what you're hearing much more so than the near end shorter-term stuff, which is more limited occupancy. But David, go ahead.

Yes. The -- I think, Arnold, I think you said it well. The -- first of all, on the revenue management side, Micky and Arnold and I have met with every single revenue management team recently, and we've been talking to them about what they're doing and how they're doing it and sharing best practices to make sure that everybody is thinking very clearly about what is optimal under the circumstances. Because as you would imagine, the models that we have, while they're helpful, they're not the answer in this environment. And we have to layer in our own thought process on top of that. So the people are actively thinking this through very carefully. The limitations on occupancy that you're describing are more of a short-term thing that we are focused on for the voyages we've announced this summer in both the UK, for P&O Cruises, Cunard and Princess as well as what we're seeing with Costa and AIDA and, of course, Seabourn in Greece as well. So we are focused, and we will limit the occupancy as appropriate the way Arnold had described and, of course, try to take advantage of the positive cabin mix in terms of pricing when we do that. And so it's a shorter-term issue. But when we look out to 2022 at this point in time, the percentage that's on the books is much lower. And therefore, as a result of that, the capacity limitations are in a factor. And hopefully, by then, when the full fleet is operating, we're operating at a much higher level of occupancy as well. The vaccine rollout continues around the world, and hopefully, we get to a better place.

Okay. And then I think you had said demand quarter-over-quarter was up 90%. Is there a way to think about what the sort of organic part of that is and what part of that is attributable to itineraries that were open for 2021?

Well -- so let me tell you some of the things I looked at to better understand the demand and what flowed through. So I looked at the first quarter bookings just for 2022 because all of those sailings were already open. And for 2022, the bookings in the first quarter were higher than the bookings for 2019, which we all know was a very robust year. And then when I looked at the March bookings for 2022, they -- I said they accelerated because just for 2022 in March, we saw a significant increase in bookings versus what we had seen in 2019. And so this was, to my point, when you do an apples-to-apples comparison just for 2019 -- for 2022 versus 2019, you're seeing some very positive booking momentum. As I said before, people are looking forward to getting away. There's all that pent-up demand, and they're planning the vacations.

Our next question comes from David Hargreaves with Stifel.

Great job on controlling cash burn. With respect to the refinancing efforts that you talked about, I'm just wondering if there are any specific elements of the debt stack that you may be targeting and whether we should be thinking in terms of equity clawbacks? And then I have a follow-up.

David?

Yes. So -- yes. So in general, I mean, you can look at all of the debt that we did early last year in the April, June and July and August timeframe, which was, as Arnold has said, very expensive. And those are the things that we're focused on in terms of refinancing. And we've been very specific that we're looking clearly at refinancing to lower interest rates, and we're not necessarily -- we'll be patient in terms of reducing our debt load and using the extra cash until we have clear line of sight that our fleet is going to be fully back in operation and we feel comfortable. So I'm expecting to focus on refinancing the early expensive debt.

Okay. And…

I'm sorry. Finish your question, then we'll take one more, and that will be it. Go ahead.

Thank you. So with respect to the vessels that you've taken on and expect to take on, could you talk about secured borrowing capacity, if there have been changes to that and if you expect a need for any further covenant amendments?

So the vessels that we're taking on, with each vessel, we have a committed export credit that's associated with those ships. So as we take delivery of the vessels going forward, we'll use those export credits, and they are unsecured financing. And the export credit agencies have been very supportive. We continue to work with them. And so we feel very comfortable with that financing, and it's committed in place. And our bank groups that are associated with that, too, have been very supportive. As far as covenant amendments, we have worked with all our bank groups, and we got multiyear covenant amendments for our agreements, and we feel good about that. We have -- if you look at the 10-Q, you'll see that with the export credit agencies, I guess, they gave us covenant waivers through either August or November of 2022. They said they were very busy with other customers, and we're now working with them to complete that holiday, too, as well as get the same covenant amendments that we got from our bank group.

We have a question from Sharon Zackfia with William Blair.

I had a question about -- thanks for the detail on the efficiencies you've been able to generate on the ships. But I'm wondering at the corporate level, if we look at that kind of $2.4 billion from pre-pandemic annually, what do you think structurally you've taken out of that number? And then on marketing, which is obviously a big chunk of that $2.4 billion, have you rethought kind of what the right level of marketing spend might be going forward?

Yes. Real quick, we're not going to give any kind of guidance in the cost at that level. But in terms of our historical behavior of becoming more efficient, and certainly with this pause, we've had the opportunity, which you normally don't have, to really take a really hard look at everything because we are so reduced in terms of staff at this point in time. And then look at all of our processes, et cetera, and have time to introduce additional technologies that make us more efficient and what have you. So we do see substantial contributions in terms of cost improvement across the board on the shoreside. With regards to the marketing, that's evolving on its own anyway in terms of what the most powerful delivery mechanism is for positioning and attracting and getting bookings and so on, it’s just naturally evolving as society becomes increasingly digital and social media-based, et cetera. And our most powerful marketing tool has always been word of mouth because the product itself, the experience itself is so great. That's always been the most powerful marketing, too. Right now, we have pent-up demand. On top of that, all the repeat cruisers have gone almost a full year now without being able to cruise and have a huge pent-up demand there. We have a base of almost -- a database of almost previous cruise scores that we can access directly and so on. So it’s -- we'll see how all those dynamics change, whether the absolute spend will be different or it will be reallocated, that's all being worked at. But the short answer is, we're going to come out leaner, and we're going to come out having more impact per dollar spent. There's no question about it. David, I don't know if you want to add any additional color from.

No. I think that's perfect.

Okay. Well, look, I want to thank everyone for being on. Obviously, we feel, as I said, will come out operationally stronger, and we're excited that we're starting to sail again. And we're looking forward to working things through here in the U.S. It's a very important market, obviously, for us, extremely important. And we're looking forward to giving people the opportunity to have a great experience as they do in the rest of the travel and tourism sector. So thank you so much, everyone. Appreciate it.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.