Good morning. My name is Regina, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Royal Caribbean Group Third Quarter 2023 and Business Update Earnings Call. [Operator Instructions] I would now like to introduce Michael McCarthy, Vice President of Investor Relations. Mr. McCarthy, the floor is yours.

Good morning, everyone and thank you for joining us today for our third quarter 2023 earnings call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bailey, President and CEO of Royal Caribbean International. Before we get started, I’d like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our Investor Relations website and in our earnings release. Unless we state otherwise, all metrics are on a constant currency adjusted basis. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our third quarter and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I’m pleased to turn the call over to Jason.

Thank you, Michael, and good morning, everyone. Before we begin today, I would like to first acknowledge the devastating events taking place in the Middle East. The horrific terrorist attacks on Israel over 2 weeks ago have no place in a civilized society. The scale and the barbarity of those attacks should shock us all and brings the situation in the Middle East to a very dangerous low. We are heartbroken at the loss of so many innocent lives then and in the war that continues to this day. Our thoughts are with all who have been impacted, including many members of our own team. I would also like to recognize the incredible effort from our shoreside teams and crew, abroad Rhapsody of the Seas. We have been working tirelessly with the U.S Department of State to help safely evacuate Americans from Israel. My heartfelt gratitude goes out to all involved. As relates to the impact of these events on our business, about 1.5% of our capacity in the fourth quarter had planned to visit Israel. Most of the impacted deployment was quickly adjusted, including a few sailings that were home porting and Haifa. The evacuation services or Rhapsody of the Seas were provided pro bono to the U.S government and these costs are included in our financial forecasts. Combined with cancelled and adjusted itineraries in the region, for the remainder of the year, the impact amounts to about $0.05 in earnings per share. Now moving on to the business, our teams have done an outstanding job delivering on another strong quarter as we delivered a yield improvement of close to 17% and beat the midpoint of our EPS guidance by 12%. This beat is further solidifying 2023 as a banner year and positioning us extremely well for 2024 and…

Thank you, Jason, and good morning, everyone. Let me start with third quarter results. Our team's delivered another strong performance with adjusted earnings per share of $3.85, 12% higher than the midpoint of our July guidance. We finished the third quarter with a load factor of 110% and with net yields that were up almost 17% versus 2019, about 300 basis points higher than the midpoint of our July guidance. Overall, about 50% of the better-than-expected yield performance was driven by European itineraries with the remainder mainly driven by Caribbean and Alaska. Rates were up approximately 18% in the third quarter compared to 19 and onboard APDs have been consistently higher even as load factors return to the historical levels. NCC, excluding fuel increased 10.3% compared to the third quarter of 2019, a 100 basis points lower than our July guidance. Lower operating costs as well as favorable timing contributed to the better-than-expected costs. Our team's continued to deliver strong top line growth while maintaining focus on costs to expand our margin. We delivered an EBITDA margin of nearly 42% in the third quarter on par with 2019 levels. Over 100% of the revenue outperformance during the quarter dropped to the bottom line leading to higher adjusted EBITDA and earnings versus expectations. We continue to see strong demand and pricing for both 2023 and 2024 sailings. This has resulted in higher-than-expected load factors and record yields into third quarter along with a record book position on a forward looking basis. Now that we are in the fourth quarter, many of our ships have transitioned from their summer to their winter itineraries. In the fourth quarter, about 55% of our capacity will be in the Caribbean, 11% in Europe and about 13% in the Asia Pacific region. The remaining capacity is…

[Operator Instructions] Our first question will come from the line of Steven Wieczynski with Stifel. Please go ahead.

Yes, excuse me. Hey, guys, good morning.

Good morning.

So, Jason, you essentially just provided us with some kind of guidance for 2024, which is much appreciated. And I would also say probably much better, I think, than anybody would have expected, given the higher fuel costs and kind of those fears out there around your cost structure. So as we think about that spread between the yields and costs, I mean, normally we'd be expecting that spread to be, whatever, 200, 300, maybe 400 basis points. But you guys are on pace this year to see your yields outpace your cost by, let's call it, close to 900 basis points. So, I guess what I'm getting at here is, we think about next year, based on our math to get to that, that EPS number north of $9. You probably need to see that spread be pretty wide again, given the fact that Naft just talked about costs being up, let's call it 300 to 400 basis points. So saying all that another way is that, I'm guessing your yield expectations for next year must be pretty high at this point. So hopefully that will make sense.

Well, good morning, Steve. And thanks for the question. So, obviously, we are feeling very good about the business, the demand for our brands, the demand for our ships and in destinations. And we're seeing that, as I noted in my remarks, not only in terms of the daily interactions with our guests, but also just the high-level of booking activity. And the strength we're seeing in bookings where we have been booking at an accelerated pace, really, since earlier this year. And of course, as we've been booking, not just for 2023, but we've also been booking for 2024. And when we look at our book of business, you'll see a lot of strength and volume. And of course, with strength and volume allows us to continue to improve on the rate side. And you combine all that with incredible hardware coming into place next year, especially Icon of the Seas, as well as more volume onto places like perfect day because of HideAway, we feel very good about our yield projections for next year. Now it's still early. So we're not in a place where we're going to guide, but as our general internal ambition is always to make sure that our yields are meaningfully outpacing our costs. And of course, most of our costs as not pointed out growth next year on a per unit basis is really just driven by additional drydock days. And of course HideAway which delivers incredible margins, as in which will improve our yield profile, but also has cost with no APCDs. So all in all, we feel very good. And I think it's important to just stress that, my comment on the earning side was that we expected to at least start with a nine. And not only that, we also expect to continue to improve on an ROIC basis on the overall organization.

Great, that's great color. Thanks for that, Jason. And then again, as we as we kind of think about, if we got to think about next year, clearly there's a lot of disruption going on with Israel right now, and I think Naft talked about, it's less than are you talking about that lesson, 1.5% of capacity for next year. But as we think about the rest of the Med, just maybe how you guys are thinking about customer demand for, the rest of Europe next year. And obviously, it's probably a little bit too early to really understand that. But do you expect to see some kind of pullback, whether it's Eastern, med, Western Med, or a combination of both? Or have you pretty much kind of moved your ships and your capacity around enough where you don't think there really will be much pushback from your customer base?

Well, next year, we'll have a little bit less capacity in Europe, about half of our guests for European sailings come from the U.S and the other half come from around the world. We've commented on the 1.5%, and we'll continue to look at that. I think we need to remember we have a pretty nimble sourcing platform. If we're worried about that risk. I do think it's a little bit too early in all of this to have any kind of outlook on what we're seeing, or our expectations for Europe next year. But our commentary around the strength and the acceleration in demand is not just about one market. It's really about all of our markets. It's not just about one product, it's really about all of our products. And, obviously as we -- if these horrific situation continues to occur, that could potentially weigh on a consumer psyche, but that's not something that we're seeing at this point in time. And historically when we see that we typically just see our guest shift in terms of where they want to go. And of course, the vast majority of our capacity in 2024 is going to be in North America.

And sorry, Jason, one more. Just to be 100% clear, your cost guidance for the remainder of this year is unchanged from an APCD, I mean, essentially, all that's happening here is just the APCDs are dropping?

That's correct. That's right.

Okay. Thank you guys very much.

Thanks, Steve.

Your next question comes from the line of Robin Farley with UBS. Please go ahead.

Great. Thank you. My two questions are actually on the same two topics. One is just a circling back to changes with, I know you mentioned it's only that 1.5% that touches on. I think there are some other words a tiny bit, it's still obviously just single-digit for all the major companies. But are you seeing any ships were not necessarily your ships, but other ships moving into your markets? I know, if it's just a port of call getting dropped, you wouldn't have to redo an itinerary. But if there are ships moving in, where you have existing supply that you're seeing, any kind of impact, or would you say that you're still continuing to see demand for Europe next year at the same levels kind of regardless of what's going on with other shipments?

Yes, I would probably just start off, Robin, with how you started that off, which is at least from what we can tell this is pretty low single-digit percent capacity of not just us but our some of our competitors, some have a little bit more than we do. And I think a shift of that magnitude is pretty material. So if a ship is moving further, maybe into the eastern med in terms of heading west, or is heading into the western Mediterranean, or there's some change in the modified and the deployment, it's a pretty immaterial shift for the broader industry. And I think for us, I mean, just our commentary about first accrues first a brand, the power we're getting out of our ecosystem and our loyalty base, that's not -- we are actually much, much more focused on how do we close the gap to land base vacation than we think that things that make small ships like this would impact our business.

Okay, great. Thank you. And then just on the expense piece for next year, it was very helpful, thank you for sort of breaking out the -- I don't know if there's any further breakout of the dry dock. And what that pieces of the 300 basis points, just because in some ways, the timing of that is sort of a non-recurring kind of increase. So I don't know if there's any more breakdown on a 300 bps. And then if there's any way to sort of help quantify, I know you're not giving full year yield guidance. But to whatever degree, there's some bps there that have expense from HideAway. What you would expect the offsetting, I would think you would clearly be more than offsetting that. So just to sort of help investors think about what's really ongoing here, which is, I guess, probably closer to the 100 bps range so, thanks.

Hey, Robin, its Naftali. So just on the cost, so as I mentioned, roughly 300 basis points related to dry docks and HideAway, the vast majority. So think about like 80% of it is, is to dry docks, and the remainder is really about HideAway. It's a nice way to ask it again, but I'll just say what Jason said, we were very excited about next year, our formula, we always strive to drive and grow yields more than cost. And that's definitely -- that's what we're intending to do next year.

Okay, great. Thank you very much. Thanks.

Hey, Robin. I’ve to jump in for a second as Michael, just to update you on HideAway because I was there last weekend. And I have to tell you, we are incredibly impressed. It's a spectacular, new destination for Royal Caribbean. And we opened for sale for this one products about three weeks ago. And it's going gangbusters. I mean, we're delighted with the product. It's going to be really a game changer. And the demand has been exceptional. We've already started pushing up the pricing for that experience. So of course all of that comes online with Icon of the seas, which is by far the best selling product we've ever launched in the history of our business and it continues to perform an exceptionally high-level. So the combo of Icon with hideaway is really for us exceptionally exciting. And then of course, we've got Utopia going straight into the shores market to perfect day in the summer. And that, again, is already selling at record rates so and record volume. So we're kind of pre switched on about what's happening in the next year in '24.

Great, thank you.

Your next question will come from the line of Brandt Montour with Barclays. Please go ahead.

Hey, good morning, everybody. Thanks for taking my question and congratulations on the strong report. I think I'll take a shot at the second part of the 2024 cost comments from you Naft. I think when we think about very low single digits, that's pretty cut and dry, and we all know your history of what you were doing pre-COVID on the cost line. When we think about what is in there, though, right, there's China, and then there's Icon. I would think Icon is push it down, right? Because of all the APCDs that come along with Icon. But China, I would expect to have a rollout of more sort of cost base over there? How should we sort of think about those two factors when we try and model very low single digits?

Yes. I just think -- there's other things, too, right? First of all, Icon actually is -- there's a lot of venues on it. So yes, there's a lot of APCDs, but we also offer a lot of experiences on board. And you're right, China is a market that we're coming back. And obviously, we're not there today, we're just ramping up. But there's a lot of things that are going into it. And the commentary is we manage our cost across the board and we are very comfortable with the very low single digits as we go into next year.

And Brandt, it's Jason. I just want to add in. Obviously, our capacity is growing at 8% next year. And so that's certainly helping making sure we're getting more and more efficient, which is a critical objective of the organization. We are also beginning very much to benefit from new disruptive technology and employing them in different parts of our business that can lower service calls and improve process efficiencies. And that's kind of an overall objective is how do we get better each and every year. And that's why we believe that excluding the dry docks and HideAway, which are structural, we were able to continue to produce low single digit costs -- sorry, very low single digits, yes, Naft just reminded me.

Great. That’s helpful. And then just as a follow-up, the $9 starting point for the EPS figure tells us a lot, obviously. Just to get a sense of getting your guys' heads when you are in your budget process and you're thinking about that figure. Do you want to -- do you think you're starting at $9 in any current economic environment? Or do you think you're starting at $9 in the current economic environment?

Yes, so I think one of the things I would say, Brandt, is that we are saying it's going to start with -- that it will at least start with the $9. So I wouldn't necessarily peg it to $9, it's just that we're seeing at a 9 handle, which I think is just an important thing. And obviously, it's impossible to predict what the environment will look like 6 months from now or a year from now or 5 years from now. But we have a pretty nimble platform. There is a significant value proposition or value differential to land-based vacation. Pre-COVID, we were, call it, 10% or 15%. Today, we are somewhere around 35%, 40%. So there's a lot of value for the consumer to get if there are changes the operating theaters that we are in. I would also keep in mind that we are pretty well booked, and we will cross this year in a very strong booked position. And so we have -- we will have a lot of that already on our books, the consumer has already made those decisions. But I will say, which I think is an important thing when we look at the consumer, is as we're here on the call, we have thousands of people making bookings for experiences that are at least 6 to 8 months from today. They're making bookings into 2025, they're even making bookings into 2026. So our visibility in terms of how the consumer is looking at things going forward, at least on a vacation experience on our incredible brands, is pretty good based off of where the consumer is standing today.

Excellent. Thanks all.

Sure.

Your next question comes from the line of Vince Ciepiel with Cleveland Research. Please go ahead.

Great. Thanks. Big picture question. Curious your perspective on the supply/demand kind of dynamic in this industry over the next few years, what you're seeing in the order book, and then on the demand side, it seems like you and some peers as well are really seeing strong performance out of the new to cruise. So what that could mean for the trajectory of demand growth in years ahead as well.

Hey Vince. Hope all is well. So on the order book side, at least what we can see kind of 5 years out here is the industry is going to grow on a gross basis around 4%, it could potentially be a little bit lighter that if there's going to be some potential more exits over time. That's not a number that can really be changed at this point in time. And we really haven't seen a lot of new orders come on the books as of late. So I think we have a pretty good view on the supply side. I think when we think about on the demand side, I don't think it's just new to cruise. I mean, new to cruise has been very strong us being indexed more into the short, brings in a lot more new to cruise. But I also think the point about new to brand, I think, has really significantly grown coming here out of COVID, which we think is another strength. And then I think our point about how focused we are about getting more reps out of our guests through loyalty, through having a recognition of our kind of family of brands, we think is also really strong. And the last point I'll make is, I know we really focus these conversations on the industry, but I really think we need more and more focus the conversation on land -- or just overall vacation experiences. The cruise industry is a sliver of overall vacation and travel and leisure, 1% shift towards cruise is worth -- I think it's like 10 or 11 Oasis-class ships. So we're focused on how do we continue to be more competitive with land. And we're seeing that with the younger generations who really look at us very much similar to how they look to go to Orlando or Vegas or skiing, et cetera. And if we can close that gap, we can close half of that gap and get back to where we were, that's also worth probably about 10 Oasis-class ships. So we're heavily focused on trying to do that.

Great. Thanks. And then just digging a little bit deeper into this year on the yield side, I think you started around to 2% to 4% or something like that and now you're looking for yield up about 13%. So kind of two parts. What's been the biggest positive surprise that has led to that? And then how would you slice up that 13%-ish growth in terms of new hardware contribution, CocoCay and core price?

What you're really seeing -- I mean, kind of across the board, right, onboard spend is meaningfully higher than we expected. Demand for our new ships is certainly there. But of course, that would have been in our original guidance for the year, our expectations on that. And then like-for-like is up significantly. So it's not one thing, I think there's just -- there's been really starting in the wave of this year. Demand for our brands has been at an exceptional level. Demand for ships going to places like Perfect Day have been at exceptional levels and has put us in a position to be able to continue to increase rate bringing us closer to that value gap that's out there versus land-based vacation. Now I think keep in mind, like crews kind of lagged everybody else coming back from COVID. And so I think we're also benefiting from that.

Great. Thanks.

Your next question will come from the line of Dan Politzer with Wells Fargo. Please go ahead.

Hey, good morning, everyone. I was wondering if you could talk maybe a little bit about pricing trends and maybe the difference between contemporary and luxury brands and what you're seeing? And similarly, as we think about Europe and next year, I know it's only 15% of your capacity but you're coming off a pretty strong year. Obviously, that skews a little bit more luxury. And then as we think about consumer willingness to book a European or Mediterranean cruise, any kind of thoughts as we should think about 2024 as it relates to those kind of two sub segments?

Sure. Well, at least in terms of what we've been experiencing is there's been strong demand on a pricing standpoint whether it's contemporary, whether it's in the premium space, luxury or expedition space. I think there's been a little, I would say, more elevated demand that we have seen, especially for Royal and ships, especially going to Perfect Day has been at an elevated level. But the yield improvement that you've seen through the course of this year, which is significant, has really been across all of our brands. And I'd also add that our load factor expectations also rose to the course of this year. We returned to normal load factors much earlier than we had anticipated for that. You are right that on the European side, it does skew a little bit more on the premium and luxury side of things. But I think we think overall, at least what we have seen demand pattern wise, that continues to be very strong. And we typically as we start to get towards the end of this year and early January is when we start to really see the elevation in European bookings as it gets into that 6 to 8-month booking window, which is what we have historically seen.

Got it. And then …

And I'll just add -- just add something that also across the markets, what we've seen this year is pretty strong demand. Caribbean, as we said, has been strong all along, but we were very, very pleased with the summer season in Europe, right, with double-digit yield growth.

Got it. And then pivoting to China a bit. I know you don't have full capacity having a return that yet there relative to 2019, but as you think about the Baltic capacity coming off Eastern Med, is there a willingness or maybe incentive at this point to shift more of your capacity to China? And maybe can you just give an update on demand trends there?

Hey, Dan, it's Michael. We have a China product spectrum selling out of Shanghai in April of next year. And so far, the bookings, both volume and rate. Very good, much better than our '19 performance, which, of course, was a record for the brand. So we're feeling quite optimistic about the China product. I'm not sure there's any need to shift any capacity at this point from the Baltic or from the Eastern Med. So I think we're in a good position with our China product. We'll be one of the first Western brands operating in China. And the indications are very positive. So we'll see how it goes for next year.

Got it. Thank you.

Your next question will come from the line of Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks and congrats on another nice quarter. So, Jason, maybe on the accelerating demand, the book position and the pricing relative to prior years as you cited as we look to '24. I guess, maybe larger picture, how are you balancing pricing power relative to the multiyear market share opportunity relative to land-based alternatives? And then just in the strength in bookings that you cited, have you seen any near-term moderation to note related to the recent overseas conflicts?

Yes, sure. So we feel -- of course, they're always getting better that we have the best kind of yield management systems and the best revenue managers in the world. And so they are very much looking at volume versus price. And we have significantly automated that using AI and so forth to be able to make sure that we have an understanding on the elasticity and the behaviors of the consumer minute by minute. And so what we do try to do is obviously continue to increase price and then build volumes. And historically, there's been questions about on the book position. You plan to be at the same level when you turn the year as previous years. You want to be higher, you want to be lower. The answer really is, it all depends on our ability to continue to drive pricing and then optimizing our yields. And so optimizing our yields is key. And of course, we're -- and these yield management tools, we're also very focused on what we're seeing in behavior on the [indiscernible] side. Going on the European side, I think, again, we are just coming out of the Europe season, and we are beginning to book for next year trends continue to be very strong. But it is early in the European season for us to start calling out that there's no impact from Israel. It's not something that we are seeing today, and of course, we don't know how long this war, conflict is going to go on for, which could very much inform where the consumer wants to go next year. I think what's important is what we are getting is a very sticky consumer who wants to be sailing with us, staying within our ecosystem. And so sometimes it's not a question of where they're going to go. It could be a question of where they're going to go, but they're going to go somewhere with us, and that's what we're focused on making sure they're doing.

Great. And then maybe just a follow-up. Naftali, on the EBITDA margin profile as we think multiyear, and just looking back to prior peak levels, how would you size up where we stand today relative to the Trifecta plan, which I think calls for low 30s? Just maybe as we think about the puts and takes as you see it today.

Yes. So I think I said it in my prepared remarks, but our goal, first of all, is to obviously increase the profitability as we continue to grow the business. But this year, we will be back basically to our margin that we had in 2019, which was a record year. But if you kind of do the math, we are not yet in our Trifecta goal. And by the way, Trifecta for us is just base camp, right? So we -- our ambitions are beyond that. So that just leads you to -- and our ambitions are to continue to grow the margin much more than we had in 2019, and that will go through with our proven formula, right? We continue to grow the business, to capacity growth, moderate yield growth and really strong control cost controls and disciplined capital allocation, we think will deliver more margin.

Great color. Best of luck.

Thank you.

With that, I'll turn the conference back over to Naftali Holtz, CFO, for closing remarks.

Thank you. We thank you all for your participation and interest in the company. Michael will be available for any follow-up. I wish you all a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.