Good morning. This is Josh Weinstein. Welcome to our third quarter 2022 business update conference call, my first as CEO. I’m joined today telephonically by our Chair, Micky Arison. And with me here in our Miami offices are 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 on a positive trajectory. We’ve been closing the gap to 2019 as we put a stake in the ground internally and shifted from return to service to a relentless focus on return to strong profitability. The occupancy gap to 2019 has reduced from over 50 points in Q1 to less than 30 points in Q3. At the same time, our capacity in service has gone from approximately 60% in Q1 to over 90% in Q3. In fact, in the month of August, we achieved almost 90% occupancy at higher constant dollar revenue per diem despite the impact of future cruise credits. And the differential in adjusted cruise costs, excluding fuel per ALBD, has reduced from over $25 in Q1 down to $10 in Q3. As a result, we were able to generate over $300 million of adjusted EBITDA in the third quarter, overcoming a near doubling in fuel prices. We expect these favorable trends to continue as we finish up 2022 and head into 2023. And while we expect breakeven to slightly negative fourth quarter EBITDA given the seasonality of revenues and our increasing investment in advertising to drive revenue yield in 2023, we do expect second half EBITDA overall to be positive. We’ve also been making strategic changes to our fleet composition that will…

Thank you, Josh. I’ll start today with a review of guest cruise operations, and then provide booking trends and the current tone of business. Turning to guest cruise operations. Third quarter 2022 represents a significant milestone in the resumption of our guest cruise operations with adjusted EBITDA turning positive for the first time. We were pleased to see that third quarter 2022 revenue increased by nearly 80% compared to second quarter 2022, reflecting a continued sequential quarter-over-quarter improvement. For the third quarter, occupancy was 84%, a 15 percentage-point increase from the second quarter. We ended the quarter on a high note with 90% occupancy in the month of August. We were encouraged by the continued very close-in demand we experienced during the third quarter for the third quarter, a trend we had anticipated. Revenue per passenger day for the third quarter 2022 decreased from a strong 2019, mainly due to the impact of future cruise credits, or more commonly called FCC, and currency given the stronger U.S. dollar, along with our large presence in Europe with four brands in the UK and Continental Europe. Once again, our onboard and other revenue per diems were up significantly in the third quarter 2022 versus third quarter 2019, driven by price increases, greater spending by our guests and the increased effect of the second wallet as more guests are participating in pre-cruise sales of onboard activities. In fact, year-to-date, we have seen over 50% growth in pre-cruise sales of onboard activities on a per passenger cruise day, or PCD, basis as compared to 2019. Our teams have done an excellent job capitalizing on the opportunity in this area. As I indicated in my comments during our last business update, we expanded our bundled package offerings given their popularity. The new bundled offerings required…

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

Yes. Hey, guys. Good morning. And Josh welcome to your first call as CEO. I guess, my question, we seem to be hearing a much different tone from some of your peers in terms of how the EBITDA or cash flow recovery is playing out versus what you guys just reported in the third quarter and your outlook for the fourth quarter. So, I guess, is it fair to assume that your Carnival Princess, your domestic brands, are doing very, very well right now, but it’s your non-U.S. brands that are struggling at this point, and that’s the issue right now versus your peers? And then, Josh, does that make you think a little bit differently about your portfolio ships, meaning do you still need 9 brands at this point?

Yes. Hey Steve, thanks for the welcome. So, I think you asked a couple of things. Let me see if I can hit them all. So first of all, I can’t speak to our peers. I won’t speak to our peers. I’ll speak to us. The momentum is continuing, which is really promising, as you heard from my prepared remarks, as well as David’s. Particularly over the last six weeks, things have ramped up incredibly strong, and the book of business is good. With respect to how we’re looking at the brands, obviously, Carnival in the Caribbean has done a great job. They are Americas’ cruise line, and it showed through loud and clear as we’ve been going through this past year. But I wouldn’t look at this as a North American versus European question. All of our brands are in varying points with respect to their pricing and their occupancy and how those play out, and they’re responding to their target audience in their source markets and trying to optimize as best as they can. As you heard in my prepared remarks, and I think what we’ve talked about already before, is we can do better. I have high expectations for all of our brands to make significant improvement on the revenue side. And some of it’s blocking and tackling. Some of it is really pushing the envelope in certain areas. And I actually feel pretty confident so far. I’ve managed to hit 3 brands in that type of setting. It’s been Costa, Holland America and Princess. And the activities that are underway are significant. And I really -- I don’t think it’s appropriate in this forum to get into any specifics, but we are tracking hundreds of things, some big, some small, that are going to ultimately lead to significant improvement.

Okay. Got you. Thanks for that color, Josh. And the second question would be around 2023. And look, I understand you guys aren’t going to give guidance for ‘23 at this point. But in the past, we’ve heard previous management at Carnival, kind of talked about it at a very high level, there was a good chance that 2023 EBITDA, there was a chance to exceed 2019 EBITDA. So Josh, you’re now at the helm, and how do you view that probability from what you can see today? Is this something that’s still possible, or are you just saying, hey, look, it’s too early to make that call?

Well, we’re certainly anticipating strong EBITDA in 2023. We’re not providing guidance, obviously. So I don’t want to get ahead of where we are in that process. Fuel and currency are obviously a big swing, and we’ll see how that plays out in 2023. I have no idea, but we’re working hard to generate as much as we can.

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

Josh, welcome aboard. So obviously, there’s a lot of discussion about the booking -- I don’t know if surge is the right word that you’ve seen since the relaxation of some of the COVID restrictions. I guess, I’m curious, what, if any, impact that is having on pricing, particularly in the context of we have this per diem decline. I think it’s about 4% versus 2019 for the third quarter. But then as we look to next year, the pricing seems like it’s up meaningfully. And so, I’m just trying to connect those two dots and maybe sort of the missing piece is a significant improvement coming off of these restriction relaxations. But maybe paint that picture for us.

So yes, the volumes have been incredibly encouraging. I can’t speak specifically to price over the last few weeks. But I can tell you that the pricing of our business on the books for 2023 overall is actually higher today than it was earlier in the year. As far as what’s driving that, I think there’s a lot of things that are driving that. I do think that the fact that we are now able to be more aligned to land-based alternatives reduces a lot of friction and opens up more demand to us and our brands. You heard us mention advertising. We had a different advertising approach versus what our norm was pre-pandemic, and we really -- we scaled way back. And in the process of doing that, we were doing it in the context of the pause and how we wanted to prioritize our resources and focus in on those loyal guests and more efficient channels. But as we’ve been ramping back up to full strength with our advertising strategy, it’s starting to pay dividends. And in addition to that, we have, as you heard, we have more and more people sailing again and going back and telling folks that we are a great product, and all of that is helping. So, I can’t give you -- I wish I could be scientific and tell you all the drivers and how they impact the pricing, but I’d be lying. I don’t think anybody can do that. So, we’ll just have to see what’s working and see what’s not and leverage what we can.

And also, let me just add. When you’re looking at the fourth quarter, clearly, we were in a situation where our wave season was impacted. And remember, we didn’t start the increase in advertising expense until the third quarter. So that, too, impacted the revenue per diems that you mentioned in the third quarter. But as Josh talked about, we are addressing that clearly as we move forward.

Got it. And then my second question, maybe a bit -- well, it’s an open-ended question. But Josh, since you’ve been at the helm, I don’t know if you’ve had a chance to think through -- or maybe you could help us think through some of the challenges and opportunities facing the Company. I guess what I’m trying to figure out is how much of that is sort of a cruise industry set of challenges and opportunities versus Carnival-specific. And take us -- wherever you want to take it, whether it’s the mix of your customers, mix of geography, strength or weaknesses of your specific brands, but I’m curious how you sort of slice and dice those two.

Well, overall, I’d say, I think I can say on behalf of the industry, all of us are way too good of a value when it comes to stacking us up versus non-cruise alternatives. And so, I think the more we can break through as an industry with how good of a product we are, how inclusive it can be, that will serve dividends. That’s why I’m very committed to our travel agent partners because they are critical for us in that success in being able to communicate that story and convince first timers who don’t know cruising, could be daunting, could be confusing and help them get on board because once we get them, they want to come back. I don’t know, and so I can’t speak to our peers and what they do and how they do it behind closed doors. I do think the things that we’re seeing on the commercial side with all of our brands, and it varies brand-by-brand, but I think -- all I can tell you is the specific to our corporation, and I think they’re going to really pay dividends for us in a big way.

Next question from the line of Robin Farley.

So just kind of looking at the language you’ve used over the years to describe forward bookings. When you say considerably higher, that’s more upbeat language than you typically use. It seems like considerably higher is probably more than 5%, but should we think of it as being more than 10% or would that be a different adjective for that range?

Hi. This is Josh. I used to have a dictionary that David provided for everybody when we were doing these preparations back when I was a Treasurer. I think, it’s safe to say this is mid-single digits. And so I guess I can -- there’s your answer.

Great. No, that’s very helpful. And then also on the nonfuel expense, it seems like -- and we’re still digesting the release, but it seems like your guidance for second half nonfuel expense is quite a bit higher than previous. Is it just the advertising that you’ve mentioned? Are there other things? And I sort of have a follow-up about the advertising, but maybe just to even frame what’s happening with the nonfuel expense. Thanks.

Sure. So, if you take what we said about all the quarters and you actually weight average it with the ALBDs per quarter, you get something in the mid- to high-double digits. And we had said mid-double digits before. So, it is a tad higher as a result of potentially more advertising expense than we had previously anticipated. But it’s not a significant change on a full year basis from what we said before, just maybe a point or something like that from the previous guidance.

Okay. And then, just on the advertising piece, it’s just -- you’ve talked about being ahead in price and volume in ‘23, and then you talked about this kind of sequentially how things are ramping up. So I guess, just thinking about -- so it seems like demand is growing naturally on its own. So, I guess, why the decision to do more advertising. And I don’t know if that’s targeted in certain -- I know it’s a European demand issue, or just kind of help us think about when you’re sort of naturally seeing such strong volume and price on how to think about that. Thanks.

Yes. So, a couple of things. One is we have volume, but we want to get volume plus price and fill the ships at good pricing. So, we just -- we need to be doing more to accomplish that. It’s not a European versus American phenomenon. And remember, advertising is not just for the moment and filling the ship in the next quarter. It’s setting the groundwork for awareness consideration, and ultimately, making that booking decision. And we have to be thinking about this in the context of the fact that we’re taking bookings for the next 2.5 years, not just the next quarter. So, we need to be real thoughtful. And the point about new-to-cruise, that’s where it makes a huge amount of inroads, particularly as we’re building toward wave. And all this -- our goal is to be setting ourselves up really well for a very successful wave, and it has been years since we’ve had that. And so I think there’s a lot of excitement in the organization actually because our game plans are out and we know what we want to achieve.

Okay. That’s helpful. Thank you. So it sounds like the advertising, it’s up versus what you originally thought, but not higher than what you would typically do sort of pre-pandemic. Is that the right way to think about it?

No, I wouldn’t say that yet, actually. We’re back up to those levels. We have more capacity to sail. So naturally, that should -- we’ll always try to find efficiencies. But there’s a lot of pluses and minuses in the equation, and we’re working through our 2023 plan with all of our brands now. So, have more insight about how exactly that’s going to shape up in a few months.

But it’s fair to say that if you look at the four quarters, remember, we had talked about -- we weren’t doing much advertising in the first half of the year. And we did increase it in the back half. And I think I had said once before that we did expect advertising overall to be higher than it was in 2019. So, your -- what you’ll see is a big ramp-up in the back half of this year versus 2019, even higher than the normal level that we would see in the fourth quarter in anticipation of wave season.

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

I’m hoping you guys can help us think through what the magnitude of FCC is left to work through might be, and when you think we may be sort of through digesting those.

So, I think I had indicated in my prepared remarks that we did expect to see FCC’s impact yields in 2023, but it would be less than 1%. In 2022, we had seen a couple of points of an impact given our forecast and the expectation. And I think you’ll see that it’s the FCC sweeteners that you’re talking about. And I think you’ll see that end with 2023.

Excellent. And then, from a capital spending perspective, I think there were some shifts in expenses in the table in the press release. Is there anything noteworthy, worth mentioning on different spending programs that have shifted or anything like that? Thanks.

Yes. Well, just keep in mind that a lot of the CapEx, depending on which particular item you’re looking at, a lot of the CapEx is in foreign currency. And with the changes in foreign currency, particularly the newbuilds, you will see a reduction in the newbuild CapEx. The non-newbuild CapEx, we’ve been looking at that very carefully and making sure that we optimize those numbers. So you did see a decline in 2022 from the previous guidance. And we are relooking at 2023. As Josh had said, we’re going to be going through with all the operating companies that plans for 2023. So at this point in time, we haven’t made any changes, but we will continue to look at that and talk to them about optimizing CapEx for 2023.

Next question from the line of Ben Chaiken with Credit Suisse. Please go ahead.

Sorry if I missed it. I think that FY23, the language surrounding FY23 bookings changed slightly. Maybe I’m mistaken. I guess, simplistically, can you help us with the booked position in ‘23 and maybe how that’s changed since the last update relative to ‘19? It sounds -- I mean, it sounded like bookings have accelerated since the vaccine vertical change, but just a little unclear on the total booked position for ‘23 relative to the last update. Thanks.

Sure. So, keep in mind that what we’re talking about here in terms of an acceleration of the book position or the bookings that occurred in mid-August with the relaxed protocols. And the booking patterns, as we indicated, accelerated. In fact, our North American brands were up 30% over 2019 in the last few weeks. So, the booking patterns have been tremendous. But the book position, previously we had said was at the higher end of the historical range. And now, we’re saying it’s at the average. Earlier in the quarter, we were slightly below 2019 levels, but closing the gap and now we have exceeded 2019 levels. So, we feel very good about the overall book position, particularly with relaxed protocols and now exceeding 2019 levels. But from a pricing perspective, we are better priced than we were earlier in the year, and we feel very good about that as well.

Okay. That’s helpful. And then is that -- are you able to break up -- so it sounds like a little bit of a deceleration in bookings for ‘23 position. Is there -- I know a few times, is there a difference between European and non-European itineraries in terms of driving that movement?

Yes. I wouldn’t have called it a deceleration during that period. Remember that for most of the quarter, we still had the protocols in effect. And as a result of that, while we were getting bookings, the booking levels were slightly below 2019 and level for 2023. But since the relaxation of the protocols, we have seen things accelerate considerably. The other thing to keep in mind is that we have seen a much closer in booking curve than we had previously seen historically. And so that, too, has probably impacted 2023 as well. But with the relaxed protocols and putting us more in line, with the testing requirements gone, we’re in great shape. And as I said before, I mean, we’re now, in the last few weeks since the relaxation of the protocols, our North American brands were up 30% over 2019 levels, and we feel great about that. So, we’re looking forward to 2023.

And our European brands are doing well, too. They’re just operating in a closer in booking window. So, they have seen a significant spike as well. It’s just more for a closer in period. But again, same thing, mid-August, and it took off.

Okay. And then, just one more on the costs. It sounds like we’re in this low double-digit range versus ‘19 exiting the year. Can you help us, just directionally, maybe how much of that is core underlying costs and how much of that are maybe like fleet ramp-up, COVID protocol related, et cetera? Just ballpark splits.

So, for the fourth quarter -- well, first of all, let me just say that the fourth quarter, I don’t think is a great indication of looking forward data. I think we can do better, and we’re going to be having those conversations with our brands. But embedded in the fourth quarter, there’s probably a little bit of start-up costs, but most of the ships and most of that was spent before the fourth quarter. But there are protocol costs. From -- I had said earlier in the year, we were probably spending tens of millions of dollars a month on protocol costs. By the time you get to the fourth quarter, when you’re looking at adjusted cruise costs without fuel, you’re probably talking about maybe $1 to $1.50 of costs in there that are included in the forecast. So, there is something which is affecting that double digit -- low double-digit projection. But it is, like I said, maybe $1 or $1.50. And I’m not even sure we’re going to spend that much, but that’s what the brands have included. Given that forecast, we’re prepared at about the same time as the relaxation of the protocols.

Not to belabor the point, but why just call up? Why is 4Q not -- I think you said 4Q is not a good kind of like period to use.

Yes. I think when you look at all the different things over a full year period. Keep in mind, just as an example -- I’ll give you one example. So I’ve always said that looking at cost by quarter are not a good reflection of the year because things vary by quarter. And I just indicated, I think it was Robin who was asking the question about advertising, and I said that advertising was up considerably in the fourth quarter versus 2019. So, if you just take that item alone, that would have had an impact on your double-digit number. And so, no one quarter is ever going to be a good indication of the full year because of the seasonality of the spending by quarter.

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

I wanted to just get your thoughts on pricing and the value proposition strategy in the context that we look at other areas of hospitality that are driving price, and I recognize your model is different from that. But what are you doing? What can you do? What thoughts do you have about the ability to sort of drive price within the context of the value proposition now?

I mean, it’s a good question. There’s a lot of answers, right? I mean, it does start with being able to clearly communicate, who the brand is, and then from a marketing perspective, are they targeting the right folks? Are they speaking to them the right way? Do they have the right digital performance marketing agenda that they can generate leads that are effective and turn them into conversion? I mean, it’s just -- it’s that whole life cycle, right? And so, the discussions that we have been having with our commercial teams at the various brands so far has really been focused on all of it. And it’s revenue management, right? It’s how we choose to do our pricing curves, how we introduced promotions at the right time, how we use the opaque channels. Yes, I mean, it’s literally it’s the whole way we do things in the commercial space. And there are opportunities for us. I can’t speak to people outside our company. For us, we have a good amount of opportunity to drive significant improvement in our revenue profile by making improvements in varying aspects of that whole cycle.

I appreciate that. And can I -- just on another matter, I just want to be clear about the possibility of any sort of further capital raising out there. Are those categorically off the table? Are those largely off the table, or are they maybes at this point?

So, from a capital perspective, we are always opportunistic. We did indicate back, I think it was in March, that we were looking to refinance the $3 billion of maturities in 2023. We’ve worked through $2.5 billion of that. But we always look at -- we remain opportunistic. We look at the capital market. We try to look longer term and to see what needs we have and what we should do rather than just looking at next quarter or the next six months. And we will evaluate opportunities, and we’ll look at all options as we always do to make sure that we are in a good, solid position. So, it’s the best answer I can give at this point in time.

Next question from the line of Ali Naqvi with HSBC. Please go ahead.

Just on maybe some of your comments on the Q4 trends. Could you give us any sort of commentary on a like-for-like basis regarding volumes? And is any of your commentaries should suggest that there’s any consumer weakness demand or is it mainly due to, as you said, the future cruise credits and closer in bookings? Thank you.

So I’m not sure I fully understood your question, but you were talking about Q4. And as far as Q4 is concerned, one of the things that I had indicated was we -- in my prepared remarks, we did expect to see a slightly increased occupancy. Now, keep in mind, if I went back to 2019, we saw a 9 percentage-point drop in occupancy from third quarter to fourth, which is pretty typical because of the third quarter is the seasonally strong summer season for the Northern Hemisphere, and we have all those kids on board. So, a drop in occupancy is pretty normal. But, we aren’t expecting this year a drop in occupancy in the fourth quarter. We’re expecting an increase in occupancy, and that’s a result of the cabin occupancy build that we are expecting. So, we’re moving in the right direction. And I think we’re in good shape for the fourth quarter. Hopefully, that answers your question. If not...

Yes, I think maybe there’s a couple of other points to put out there as well. We started in a hole because we didn’t have the benefit of our Q4 having gone through a successful wave in the beginning of the year. All the things that you heard us talking about with respect to the advertising spend and the change in tactics we had at the beginning of the year, the protocol changes, all those things left us where we were. The great news is our brands have been doing a good job of adapting to a closer in booking window. And so, as you probably heard by now, because we’ve said it a couple of times, the volume that we are getting in bookings is certainly not just for 2023, it is also closer in and benefit in Q4 as well. And the brands are doing a good job of optimizing the demand we’re seeing on a shorter-term basis.

Got it. And maybe just with the benefit of your experience, what is the sort of impact to the wave season after you had sort of hurricane and the impact from that, please.

The impact of the hurricane...

On wave season.

Well, so first of all, as we said in the press release, on behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by both Hurricane Ian and Fiona, and our thoughts and prayers are with anybody who’s been impacted. With respect to the current impact, we don’t see anything significant on our business. At this point in time, we don’t anticipate anything coming out of these hurricanes that would have any type of significant impact at all on our upcoming wave season.

Yes. But by the way, if I had to estimate the impact on us at this point in time, clearly, because of some of the disruption, probably have -- we have canceled a couple of cruises. And probably less than $10 million impact from both hurricanes, Fiona and Ian. But remember, in a normal year, there’s always an impact from hurricanes, and the impact right now for these two is probably less than $10 million.

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

So, I just wanted to maybe talk about -- a little bit more about ‘23, and specifically put the issues that you guys are having with current sort of booking window lengths or the length of time of the average booking that you called out as impacting the current quarter into context, which is that looking at ‘23, right, you’re ahead of historical volumes for ‘23, you’re ahead of pricing for ‘23 against historical pricing. And your current run rate of booking volumes right now are well ahead of ‘19. And so, when you add all that up, I guess, I’m just trying to figure out what else -- what, like besides exogenous events, could sort of derail you from turning the calendar year in a normal position versus history. Like, why else would that not be a normal year, except for maybe the length of telling people are averaging their booking out into the future?

Yes. That’s a good question. I mean, I think it points to what we were trying to express about how positive we are about the trajectory and how 2023 is already positioned. So, we’re going to do everything we can to make ‘23 a fantastic year. And so far, we’ve got a good base upon which to do it. We’re ramping back things, ramping up things that we hadn’t been doing in the past few years, a few months, whatever that might be, depending on the actions. And our goal is to smash it in 2023.

And the only thing I’ll add to that is our onboard revenue per diems have been up significantly in ‘22. And as I said in my notes, that also puts us on track for a record year in 2023 for onboard revenues.

Yes. And we keep leveraging more and more our presales of onboard spending, which is wind at our backs. We have a richer cabin mix, as we talked about. So, there are quite a few things that set us up for success that we thought we need to deliver.

And if I could just maybe ask a question about pricing and how to think about the effect of promotional activity this year, which for the whole industry was more elevated, or at least, we perceive it to be more elevated it was sort of as expected as the industry doubled its capacity essentially overnight earlier this year. But I guess, my question is, when you think about next year and headline prices versus net prices after promo, is there some kind of dynamic where it might be easier to lift pricing over the next several quarters just by peeling off promotional activity? It feels like that would be an easier exercise than raising headline prices, but I could be completely off.

Yes. Look, there’s lots of levers that our brands use via opaque channels, via promotions and such. We have the same goal, right, in any event, which is to generate as high a price as we can and as much revenue as we can. And so, to your point, there’s opportunity when you look at what we’ve done this year versus how we’re tackling next year, and we’re going to do our best to perform at a high level.

Thanks, guys.

Thanks, Brandt. I think, operator, I think that’s all the time we have for calls today. But, thank you, everybody, for joining and listening.

Yes. No, thank you very much, everybody. And look forward to working with Josh. 2023, as we said, with pricing being up considerably higher on our books and all the other things we indicated, we feel very good about 2023. So, thanks, and have a great afternoon.

That concludes today’s call. We thank you for your participation, and ask you to please disconnect your lines.