Good morning. This is Josh Weinstein. Welcome to our Second Quarter 2023 Earnings 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’ll refer you to the cautionary statement in today's press release. There are many milestones we've hit over the last two years, and this past quarter is no exception. In fact, there was much to celebrate in the second quarter. We reached a meaningful inflection point for revenue with net yield surpassing 2019 strong levels. And on top of that, operating income, cash from operations, and adjusted free cash flow were all positive. Adding to those achievements, we just hit all-time highs for bookings and customer deposits. And remarkably, we are still experiencing a phenomenal wave season, which started early, gained strength, and is still going strong midway through the year. This strength in demand delivered outperformance in the second quarter for revenue, adjusted EBITDA, and the bottom line, a credit to the dedicated efforts of our 160,000 amazing team members ship and shore. Net yields in constant currency turned positive in the second quarter, compared to 2019 as we drove cruise ticket prices above 2019, while maintaining record onboard revenue growth and continuing to close the gap on occupancy. In fact net per diems in constant currency were up 7.5% over 2019 in the second quarter. This was 4.5 points better than the midpoint of guidance, which we were able to achieve while meeting our forecasted occupancy. Based on continued strength in pricing, we have also raised our expectation for net per diems in the second half by over 2.5 points while again maintaining…

Thank you, Josh. Before I begin, please note all of my references to ticket prices, net per diems, net yields, and adjusted cruise costs without fuel will be in constant currency unless otherwise stated. I'll start today with a summary of our 2023 second quarter results. Then I'll provide a recap of our cumulative advanced booked position. Next, I'll give some color on our 2023 full-year June guidance, and finish up describing the impact of our SEA Change Program on our financial position. As Josh indicated, in the second quarter, we outperformed our guidance. For the second quarter, our adjusted EBITDA was $681 million at the high-end of our March guidance range. The improvement was driven by $108 million of favorability in revenue from higher ticket prices. Net per diems were up 7.5%, 4.5 points higher than the midpoint of our March guidance range. In fact, second quarter revenue of 4.9 billion was a record and we achieved a significant milestone with net yields turning positive as compared to 2019. However, our revenue favorability was partially offset by a $13 million unfavorable net impact from higher fuel prices and currency. And 52 million of unfavourability in adjusted cruise costs without fuel, due to the timing of expenses between the quarters, as well as other factors that will impact our cost guidance for the full-year. Turning to our cumulative advanced booked position. For the remainder of 2023, our cumulative advanced booked position is at higher prices when compared to strong 2019 pricing, despite headwinds from the loss of St. Petersburg as a marquee destination due to the suspension of cruises to Russia and normalized for future cruise credits with a booked occupancy position that is near the high-end of the historical range. With the strength in booking volumes above 2019 levels,…

Thank you. [Operator Instructions] Our first question comes from Robin Farley with UBS. Please proceed.

[Technical Difficulty]

Hey, Robin. Robin, can you hear me?

Yes.

It's a little hard to hear your question. You're coming in and out, sorry.

Hopefully this is a little bit better?

Yes, thanks.

Great. So, I wanted to ask a question about this three year guidance, but first it's a quick clarification on the comments about 2024 bookings. In the release, you mentioned it's ahead of volume and you say strong prices. Is it fair to assume that strong means that 2024 price in the books is up above 2023 price? I just want to clarify that strong means up year-over-year just that briefly? And then on your three year targets, just thinking about what is, kind of implied yield growth to get there? It seems like and I haven't been able to do the full math just given the time constraints, but it looks like at least seven points of yield growth between 2023 and 2026 would just come from the occupancy gap closing, maybe even kind of 7 to 10 points based on the comments today? And can you sort of walk us through what you're expecting in terms of price increase or per diem increase in that period, kind of implied in your EBITDA guidance for 2026? Thanks.

Got it. So, with respect to 2024, the book position get record levels at strong price. What we're going to do is, we're going to give you some more color on that when we get into our next quarter and we'll talk more in-depth about 2024 overall in the first half. But suffice it to say, the brands are doing a very good job at getting ahead and doing it at pricing that we're happy with and still a long way to go for 2024, and a lot to play for. So, we're very pleased with the progress that we've been making while still ratcheting down on the occupancy as we've talked about over the course of every quarter this year. So, the trajectory is very, very good. With respect to the three year targets, it's probably on the low end of what you're talking about for occupancy and we expect to make up, you know it's probably sub-seven points at this point, but pretty close around there. We're probably going to make probably – I expect to make all of that up in 2024 as we get back to a normalized operations. On top of that, we're looking at low-to-mid single-digits with respect to price increases as we get from [2024, 2025, 2026] [ph], and that type of profile we've got experience with, as we look back over the period from 2015 to 2019, so we feel real good about our ability to be able to make those types of steps over time.

Okay, great. Thank you.

Sure. Thanks.

Our next question comes from Steve Wieczynski with Stifel. Please proceed.

Hey, guys. Good morning and congrats on the solid quarter and the change in the full-year outlook. So Josh, I want to go back to actually the last question there in the SEA Change Program. So, you’ve talked about that low-to-mid single-digit kind of bump in yields, but can you also maybe help us think about how you're thinking on the – from a cost perspective too? So, are we kind of thinking about a low to mid-single-digit kind of bump in yields? And then maybe like a 1 point to 2 point spread between net yield growth and NCCs, is that the right way to think about this?

Well, I don't know if I'm talking to you anymore, Steve. Putting that aside, nice to hear from you. We – basically, we'd expect to be getting back to the norm, which is low-single-digit cost increases. So, we expect a nice differential between what we'd be expecting on the yield side and what we'd be expecting on the cost side. There is, as we think about the ins and outs, there's good news with the occupancy, but it does come with a little bit of bad news, which is that type of step-up in occupancy will have a bit of a cost drag, which we're very happy to take. We're still going to be thinking through our advertising planning as it gets to 2024 and beyond. And as you've heard us talk about before, that's been very successful. And so, we'll come to more concrete plans as we get into the fall for the following year. And so, there are some particular things as we think about our trajectory. But overall, you can expect that I would expect a difference between those growth rates.

Okay. And then, since you already don't like me, I'm going to stay on costs a little bit, but you guys have now – you've raised your cost guidance two quarters in a row. And look, I understand the stock comp stuff, I understand the inflationary pressures, but first of all, I just want to make sure I hope that you guys now have a pretty good handle on costs for the remainder of the year, and more so around the advertising investments that you mentioned in your prepared remarks and how you expect those to pay-off over time? I guess I'm just a little bit confused about what we're seeing today from a demand perspective versus the fact that you guys need to market more aggressively? So, any color there would be helpful.

Sure. So, with respect to the comments about looking at the fourth quarter advertising spend and maybe taking it up for 2024, there's two things. There's getting the occupancy and getting it at a price that we want to get it at. And we do think that the advertising spend and the way we've been doing it has been effective not just on getting the volume, but getting it to a place where we can take the price up to where we want to get it to. And so, we will continue to look at that to see where we can get to, to be honest with you. So, I wouldn't look at advertising as a one and done. We've somehow gotten back to something. We want to maximize. We want to optimize. And so, we're going to keep doing – sorry, there’s some sirens in the background here. So, we'll keep thinking that through and ratcheting up or ratcheting back depending on its effectiveness.

Okay, got you. Thanks guys. Thanks, Josh. Appreciate it.

All right.

Our next question comes from James Hardiman with Citi. Please proceed.

Hey, good morning. Hopefully everything is going okay over there.

I'm in New York. That's all you need to know, right?

That's all you need to know, exactly. Just a clarification on the three-year target math, I guess to about $6.7 billion in adjusted EBITDA for 2026, and then, is that the right math? And then also as we think about getting back to investment grade, 3.5x leverage seems to be the number that would presumably get you there. Are those two generally in-line with how you're thinking about EBITDA and leverage metrics for 2026?

Yes, you got it, right on the head.

Got it. Really helpful. And then you gave us a bunch of good math in terms of how you think about paying down debt both this year and through 2026, maybe walk us through where you see the cash balance going? I think you said, you expect total debt to finish the year this year at 33 billion, what's the net debt number or what's the cash balance that you would expect? And then similar question for 2026. I think you called out a $8 billion total debt reduction. What's that look like on a net-debt basis?

Yes. So James, the cash balance should start coming down over time. You're trying to get into a level of precision that goes beyond our forecasting. Remember, it's not just debt and cash. Remember, there's customer deposits, other balance sheet items, but putting it all together, our liquidity at the end of the second quarter was $7.3 billion and we do expect to see that decline over time. Pre-pause we were targeting 2% to 2.5%, and as we rebuild our financial fortress, we will bring our level of liquidity down to that level. Keeping in mind that most of the time, a good portion of our liquidity will wind up to be the undrawn revolver. So, even if we have 4 billion of liquidity, it may only be 2 billion of cash or something like that. So, we do see the cash balance coming down, but the level of precision by year, by quarter is very difficult to project. But your math in all the numbers are – is good, and we're continuing and confident that we can work through and achieve those.

One more point of clarification. So, in the Qs, there's a mention of [1.7 billion] [ph] of reserve funds from customer deposits and other assets, what's the status of that, the opportunity to, sort of bring that onto the cash balance?

Yes. We are pretty confident that will be ratcheting down nicely and we should get the majority of that back in – off of that line item and into our cash, the majority by the end of next year and the rest of it in the following year. So, we're making good progress.

Got it. Perfect. Talk to you guys tomorrow. Thanks.

Thank you.

Our next question comes from Fred Wightman with Wolfe Research. Please proceed.

Hey, guys. Good morning. Do the 2026 targets assume that you return to China? And if so, what are you, sort of baking in there?

Very good morning, Fred. No, there is no assumption in these numbers that we return to China. As you know, Costa was our brand, that was our China platform and through our efforts at portfolio management we were able to take the tonnage and move them to Carnival Cruise Line, which has gone fantastic, as a matter of fact, Carnival fun Italian style met our expectations and frankly exceeded them with respect to how it was embraced by the Carnival Guests so far. And so, frankly speaking, our assets are in a good place and they're yielding more than they would, had we stayed the course, I believe. So, we're very excited about China opening up for international travel with cruise companies, and we think that's a great thing for the industry, but the fact is, we're going to be probably on the sidelines of that for a few years because our assets are right where we want them to be. And we can always relook at that. Obviously, our assets are mobile and we'll do that, but we feel real good.

Makes sense. And then the last quarter you guys talked about exiting the quarter some improving performance out of Europe. It sounds like based on everything that you've said today that that trend has continued and maybe even accelerated, but can you just frame, sort of where you see the European cruise recovery versus what you've seen in North America and how to think about that in the back half?

Yes. So, you heard me in my prepared remarks, and I was talking about the fact that over this record second quarter that we had in bookings, Europe was right there alongside North America. And the really encouraging thing about that in our European brands profile this last quarter, on the booking side, double digits in both volume and price versus 2019, specifically for the European itineraries, which by the way, for our European brands is the vast majority of their deployments. You're talking more or less in the second half of the year. It's probably about 90% give or take. And so our strategy of having our ships deployed with really strong brands, the strongest we've got in Europe. The number 1 brand in Germany, the number 1 brand in the UK, number 1 or 2 in Italy, in France, and Spain. Doing that and catering to those markets specifically is really starting to bear fruit. And so, the trajectory is fantastic. And when you think about the improvement that our European brands made, you think about the first quarter versus the second quarter, how were they comparing against 2019 in the first quarter and how were they comparing against 2019 in the second quarter with respect to their yields? We saw a 10-point improvement in the comparison for our European brands. Our North American brands improved too, but much less than 10%. And that's not a bad thing for our North American brands. They just have been improving like wildfire over the last several quarters. And as we said, the European brands they're catching up. They're catching up and it's great to see that they've really started to pull everything forward.

Great. Thank you.

Our next question comes from Jamie Katz with Morningstar Katz. Please proceed.

Hey, good morning. Thanks for taking my questions. I want to talk a little bit about the booking curve. I know you guys are articulating that it's extending and there's always this contemplation on, if there is some optimal pricing being left on the table with the extension of the booking curve. So, can you talk about how you're thinking of managing that over the next few quarters? Thanks.

Yes, good morning. It's really a brand by brand question, right, because there are different dynamics for each brand about, A, where are they in the booking curve. What does their capacity increase look like over the next 18 months? What source markets are they in? What's the state of those source markets. So, it's really hard to give you a holistic answer other than to say holistically, all of our brands. Their goal is obviously what's going to generate the most revenue when the ship leaves, right? That's it. And as we've been not only getting back to a normalized booking pattern, we've also been putting things out for sale even more to give our guests actually what they're demanding. So, I'd say the best answer I can give you is that each is very, very diligent in thinking about how to optimize for the variables that they have got. It's been very encouraging to see how far we can push it out. I would say there is a point where we'll stop. It's just not worth into your statement about leaving it on the table. It's – that's part of the equation. So, might not be a satisfactory answer for you, but it's because it's complicated and there are a lot of factors to consider.

Of course. And then, is there anything you'd like to add or elaborate on reorg and maybe where you think there were some opportunities to improve the structure of the business and how we might see that sort of come to play going forward? Thanks.

Yes, sure. I think that there are purposes of how you organize the corporation with operating units and ideally with an operating unit you're doing it because you're going to get scale within that operating unit. And if you're not getting the appropriate level of scale, then you're taking away from the nimbleness and agility and the ability for brands to move quickly to take advantage of opportunities. And so, we – I looked around and basically by being able to deconsolidate a couple of operating units and give them more nimbleness and flexibility and have a direct line of reporting directly into me, it speeds up the whole process and it lets us act much quicker and much more I would say purposefully for the brand's needs. At the same time, we did – it's not just about giving the brand's autonomy and nimbleness. We also pulled a few things up to the corporate level to support brands more holistically. So, effectively, in deconsolidating, we've benefited both scale on the corporate side and nimbleness for particular brands. And as a result, as you heard in my notes, I've now got it's actually 93% of the capacity that effectively reports directly to [me through six] [ph] of our Presidents who lead that specific brand. And finally, by having our 7% of capacities, which are great brands, but small, they can piggyback on a bigger brand and it works very, very well. [Indiscernible] piggybacks on P&O Cruises in the UK, Seaborne piggybacks on Holland America, and P&O Australia can now do the same with Carnival Cruise Line, which are both full-year players in Australia.

Excellent. Thanks.

Our next question comes from Matthew Boss with JP Morgan. Please proceed.

Great, thanks and congrats on a nice quarter.

Thank you.

So, maybe if we dig a little deeper on the SEA Change plan, could you speak to the annual EBITDA Glide Pass embedded in the three-year plan or maybe specifically help us to break down the 50% increased target as we think about the year-over-year opportunity in 2024, maybe just given the visibility that you have today, versus the level of improvement that you're embedding in the outer years within that three-year plan?

Well, it’s a tough question to answer since we're not giving you 2024 guidance yet. So, I'd say, if we think about pluses and minuses for 2024 and maybe we can start there. There's a lot of winds in our backs in 2024. The occupancy is going to be a big jump as I talked about on one of the earlier calls, which is going to be a nice pickup in yields on top of what we would expect to be that low-to-mid single-digit price improvement. The booking curve is in good shape. We're in the best book position in our history. All those commercial activities that I've talked about over the last several quarters are in full swing. The capacity that we have were about 5.5% capacity growth in 2024 versus 2023 and two-thirds of that goes to Carnival Cruise Line, which is, it's our highest returning brand, which we're very excited about. So, we feel good about the trajectory and what we should expect some nice pickup in 2024. Now, 2024 is not going to be without challenges. The Ukraine, we don't forecast that having a reversal such that we can get back to St. Petersburg and those really high yielding types of trades. We're not planning on China, as you've already heard me say. Question mark, hopefully, energy security concerns won't come back, but I don't have a crystal ball there. We do have more dry docks in 2024. So, there are pluses and minuses, frankly. There always are. We do feel good that we expect 2024 to be a nice step up versus where we are now because of the trajectory in getting back to normal and full and then pulling ahead. David, I'm not sure if there's anything you'd like to add with respect to …

The only thing I'll add to what you indicated, Josh is the fact that going into the call, if you looked at consensus, it was similar to our annual step-up towards that 6.7 billion of EBITDA that James had calculated. So, just take a look at that and you can see, but that was going into the call.

Great. And then maybe just as a follow-up, Josh, as we think about historical profitability, and now your newly layered more simplified operating structure that you've laid out. I guess maybe as you think about this three-year plan, particularly in the back-end of that plan. What would you say or is there a way to rank maybe the areas of potential conservatism that are not in the plan?

For rank, I wouldn't even begin to try. Look, we set out our targets about what we hope to meet and frankly, as you'd expect the CEO to say, I will strive to exceed showing a 50% growth in unit EBITDA, which does not take into account capacity benefit in the EBITDA number. Getting to the highest points in ROIC and EBITDA in what will be just about 20 years, I think that that's a good trajectory. And we'll do our best like I said to go well beyond. I would expect, I expect our margins to get back in-line with historical norms. So that's certainly part of it. I'll let you take another crack at asking it in a different way, but that's probably the best I'll give it to you.

Great color. Best of luck.

Thank you.

Our next question comes from Patrick Scholes with Truist Securities. Please proceed.

Hi. Good morning, everyone.

Hi, Patrick.

Shifting gears a bit here, looking at your balance sheet, last quarter you had about 1, if I'm wrong, correct me, 1.7 billion of reserve funds from credit card processors. Where does that stand right now? And how should we think about that balance going forward? Is that still accumulating? And when would realistically you might think that you'll be able to release cash. And I assume that would probably be used for debt reduction at that time? Thank you.

Yes. Thanks, Patrick. Somebody asked it earlier on the call. They were probably referring to it in a little bit of a different way, but we would expect the vast majority of that to be released back to us effectively by the end of 2024 with the rest by the end of 2025. So that's a trajectory that we expect. And to your point, yes, that's increased liquidity and cash and we'd be using that to continue our process of deleveraging.

Okay. And what is that balance today specifically, the 1.7, which was at the end of 1Q? Where are you now?

At the end of Q2, you'll see when the Q is filed, it’s 2.2 billion. It has – since customer deposits went up, the reserve funds went up correspondingly.

Okay. Thank you. That's it.

Thanks, Patrick.

Our next question comes from Dan Politzer with Wells Fargo. Please proceed.

Hey, good morning, everyone. Thanks for taking my questions. For the three year plan, I wanted to hit on the 12% ROIC target. Can you talk about, are there strategic things that maybe or not obvious as we think about your current business that bridge you to get there? Are there changes and what I mean by this are there changes in mix in terms of brands or further reallocating capacity to higher ROIC brands? And along with that in terms of your cost of capital, it's obviously now higher. How do you think about the thresholds for investments now? And maybe what are the things that you're focusing on that are going to help bridge us to the improved 2024 costs that you've been referencing?

Okay. Well, so from a strategic perspective and a portfolio of brands, it assumes and we're marching forward with the same brands that are in our current portfolio. We have taken action to reallocate our assets within our portfolio and the makeup such that, I don't have it in front of me, but Carnival Cruise Line over this period will be about a third of our capacity. And in the timeline that I was talking about, if you look back in our pre-pause last four year period, they were closer to what was it 26%, 27% Beth? Yes, about 27%. Pardon me?

25%.

25%. So, you're looking at our highest returning brand being a third of our business up from a quarter, which is certainly part of our strategy. At the same time, our focus is generating incremental and accelerated demand for all of our brands. And I think you see that in the booking numbers that we've been talking about, the pace at which we've really been coming back, every single quarter and we expect performance to continue. So, from a strategic perspective, it's letting the brands focus on their commercial operations, ensure they got the capability and the capacity to do everything that we expect and fill their ships with folks who are very willing to pay for the amazing experiences that they give. And I think that's starting to really shine through. We do have some wind in our backs as well with respect to our land based portfolio because Grand port is not currently in our portfolio, even though we've got an amazing footprint in an unparalleled footprint in the Caribbean, that alone will take our annual number of guests that we carry from about 5.5 million this year to 7.5 million and we expect that will be a very nice pick-up in our business.

Got it. And then just turning to the pricing gap, you and your peers have talked about relative to land based vacations. To the extent that there is some uncertainties certainly on the consumer side still and these prices have elevated considerably on the land based side. How do you think about your cushion here? And to the extent that we were to see a slowdown in lodging in RevPAR, how do you think about that as impacting your pricing stability or resilience?

Sure. Well, obviously, based on what we've been telling you today, we don't see a slowdown, which is very good, especially because one of the benefits we have is, we are very well booked for the next 12 months and those bookings are sticky. So that is incredibly helpful to our outlook. Now, what I call it, I actually call it an outrageous and ridiculous value gap to land. And that is a double-edged sword in our favor, because if there is a slowdown and if hotels take their rates down a bit and airlines take their rates down a bit and resorts, whatever that might be, we are still outsized in our value. And as a result, if there is a recession, we stick out for the right reasons because of how far your holiday dollars can go. And on top of that, because of our home porting strategy with about 75% of our ship's position where our guests don't have to get on a flight should they choose not to, that sets us up very, very well for people who are trying to figure out how to stretch their vacation dollars. So, to be honest with you, our focus on base loading for 2024 and pulling ahead with all of those factors at our back, we feel quite good. And we probably said this in other calls. Every recession is different. This one happens to be one where there's record unemployment, people still wanting to purchase experiences, particularly travel, which bodes quite well for us. We've got time for one more question.

Got it.

Sorry, thank you.

Thanks.

Yes. Operator, we've got time for one more question, or I could just end the call. So, I think we've lost our operator. So, I'll do that. Thank you everybody for joining us today. And for those that we'll see tomorrow, I look forward to seeing you for the Investor Day. Thank you very much.

Bye-bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you.