Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Norwegian Cruise Line Holdings Ltd (NCLH, Financial) exceeded guidance on all key metrics for Q2 2024, leading to an increase in full-year guidance for the third time this year.
- The company achieved a 14% growth in adjusted EBITDA and a 33% increase in adjusted EPS.
- Strong demand and robust pricing led to record-breaking advanced ticket sales and high guest satisfaction scores.
- NCLH successfully decreased net leverage by 1.5 turns six months ahead of schedule.
- The company is on track to achieve double-digit adjusted ROIC by year-end and has increased its adjusted EPS guidance for the full year to $1.53, a 120% increase over 2023.
Negative Points
- The cancellation of itineraries in the Middle East region resulted in a short resell cycle, although the company managed to offset this setback.
- Adjusted net cruise cost, excluding fuel, came in below guidance due to the timing of certain expenses that will now fall into the third quarter.
- Variable compensation expenses are higher due to better-than-expected business performance, disproportionately affecting the third quarter.
- The company faces ongoing challenges in managing inflationary pressures, although it has been able to offset these through cost-saving initiatives.
- There are concerns about the impact of rerouted Middle East sailings on Q4 2024, which comprised 10% of deployment and were disproportionately weighted to luxury brands.
Q & A Highlights
Q: In terms of booking trends, are you seeing strength across all itineraries for 2025, or are certain itineraries getting more attention? Has your optimal book position changed given how much further out customers are booking these days?
A: We are seeing strength across the board, particularly in Alaska and Europe for next summer. Our optimal book position has likely improved due to better analytics and revenue management tools. Our goal is to maximize yield rather than just achieving record booked positions.
Q: Can you elaborate on the cost savings that helped offset costs in the quarter and the year? Were these incremental cost saves part of the longer-term goal, or were they new opportunities?
A: We are ahead of our $100 million cost savings goal for this year, driven by ongoing initiatives to eliminate waste and improve efficiency. The favorable cost performance in the quarter was due to timing differences, but we are confident in our ability to continue finding new savings opportunities.
Q: How do you plan to manage incremental investments related to the new pier and other enhancements at your private island?
A: We will make measured, disciplined investments over time, with some enhancements opening in 2025 and more in 2026 and 2027. These investments will be aligned with returns and will not result in a significant ramp-up in CapEx.
Q: Are there any early reads on cost factors for 2025, such as the impact of new home ports or private island developments?
A: We do not expect any material headwinds from core costs other than normal inflation, which we aim to keep sub-inflationary. Dry-dock days will be similar to this year, and investments in new home ports like Jacksonville and Philadelphia will not require significant capital from us.
Q: Can you elaborate on the robust demand and pricing power you are seeing globally? Are there any regions where you are experiencing pushback?
A: The majority of our demand comes from North American consumers, and we are seeing strong demand across all regions, including Europe and Asia. We are confident in our ability to achieve our long-term financial goals with robust pricing for 2025.
Q: How should we think about the impact of new hardware and itinerary changes on yield for next year?
A: The deployment mix for 2025 is similar to 2024, with no material impact from new ships. Yield growth will primarily come from organic factors such as marketing, demand, and revenue management improvements.
Q: Are you seeing any changes in onboard spend trends, particularly in light of recent comments from other companies about lower ancillary spend?
A: We are not seeing any decrease in onboard spend. In fact, pre-selling of onboard amenities is up significantly. The value gap between hotel ADRs and cruise line yields provides a long-term tailwind for our business.
Q: How should we think about the impact of better air purchasing on your financials?
A: The benefit from better air purchasing results in lower gross revenue and lower air costs, which is a positive for net revenue. This is part of our ongoing efforts to improve efficiency and provide value to our guests.
Q: How should we think about your year-end net leverage target given your strong performance this quarter?
A: We are making significant progress towards our 2026 target of mid-4 times net leverage. We expect to see continued improvements in our leverage ratio as we focus on debt repayment and strong EBITDA growth.
Q: Can you provide more details on your loyalty program and any plans to reward guests for staying within the brand family?
A: We are studying the loyalty program landscape but are not prepared to comment on specific plans at this time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
