Norwegian Cruise Line Holdings Ltd. Ordinary Shares 2026 Q3 Earnings Call

Ms. Inmon, please proceed. Thank you, and good morning, everyone.

Thanks for joining our third quarter 2026 earnings call. I am joined today by John Chidsey, CEO of Norwegian Cruise Line Holdings, and Mark Kempa, Executive Vice President and Chief Financial Officer. As a reminder, this conference call is being simultaneously webcast on the company's investor relations website. We will be referring to a slide presentation during this call, which can also be found on our website. Both the conference call and presentation will be available for replay for 30 days following today's call. Before we begin, I would like to cover a few items. Our press release with third quarter 2026 results was issued this morning and is also available on our investor relations site. This call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements.

These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. Unless otherwise noted, all references to 2026 Net Yields and Adjusted Net Cruise Cost Excluding Fuel per Capacity Day are on a constant currency basis, and comparisons are to the same period in the prior year. With that, I would like to turn the call over to John.

Thanks, Sara, and thanks everyone for joining the call. I am joined today by Mark as we discuss our third quarter results. Mark will be stepping down as Chief Financial Officer after more than 25 years with the company. He will continue serving as CFO through the end of this year, with Meghan Montana, our current Chief Strategy Officer, succeeding him effective January 1, 2027. Mark has been with the company since 1999, and his career spans defining chapters in our history from our years as a privately held company through our IPO in 2013 and the acquisition of Prestige Cruise Holdings in 2014, which brought Oceania Cruises and Regent Seven Seas Cruises into our portfolio. His experience across our finance organization has given him a deep understanding of our business. I also want to recognize Mark's leadership through the pandemic.

At a time when our industry faced an unprecedented shutdown, his steady leadership was instrumental in ensuring the company's survival. On behalf of the board and our entire team, I thank Mark for his years of service and dedication. We have been attracting and adding great talent to our leadership team and are pleased to announce that Meghan will be our next CFO. She brings a strong combination of financial expertise, strategic perspective, and experience in a complex capital-intensive industry. Her background includes investment banking and senior leadership roles at American Airlines across treasury, financial planning, and corporate development. Since joining NCLH in January 2026 as Chief Strategy Officer, Meghan has overseen our transformation office, turnaround strategy, and global outsourcing initiatives. Through that work, she has developed a detailed understanding of our priorities and the actions needed to improve our performance.

As CFO, Meghan will draw on that understanding of our turnaround and her financial experience to strengthen financial discipline, improve execution, and support our capital allocation and balance sheet priorities. I have great confidence in her ability to lead our finance organization as we work to improve performance and deliver long-term shareholder value. Meghan and Mark will work closely together to ensure a smooth transition. Now, getting into the quarter. We delivered better-than-expected third quarter results across the board. Net Yield declined 6.7%, approximately 220 basis points better than guidance, driven by stronger-than-expected close-in demand across our deployment and strong onboard spending. We also maintained discipline on cost, with unit cost declining 2.3% year-over-year, 140 basis points better than guidance. Together, these results drove Adjusted EBITDA of $937 million, exceeding guidance by $63 million, and adjusted EPS of $1.12, $0.22 above guidance.

The strong beat, which was driven by the top line, was due to extraordinary close-in demand by consumers who deferred summer vacations and ultimately booked closer to departure, reinforcing our confidence in the appeal of our products and the opportunity across our brands. These strengths are central to our turnaround initiatives, and while we have more work ahead, our focus remains on translating these advantages into more consistent financial performance, which we expect to improve in 2027, as I will discuss later. Turning to slide 4, I want to touch on the progress of our turnaround strategy, which is built around three priorities: strengthening revenue performance, improving operating efficiency, and enhancing the guest experience. I will spend a few minutes on the actions underway and the progress we are making in each area.

While these efforts will take time to fully implement, we are highly confident that their full benefit will drive results well into the future. We look forward to sharing more detail on our plan, its expected financial benefits, and our outlook for the business at our Investor Day in the first half of 2027. We have implemented a new revenue management system, rolled out a new base-loading strategy across the majority of NCL's second half 2027 sailings and all 2028 sailings, and strengthened the team. We are also changing how we reach our target guests and communicate the value of our offering. Significant work is underway to drive the top line, but we are also focused on many other areas, including increasing pre-cruise purchases and growing onboard revenue per passenger day. Improving operating efficiency is another important part of the turnaround.

We continue to streamline processes and improve productivity across the business. Over the prior two quarters, we identified approximately $225 million of annualized savings and cash benefits. This quarter, we are announcing an additional $100 million in expected run rate benefits, which will phase in over the next couple of years from guest and crew air optimization and refinements to our promotional offerings. These initiatives will support the top line while helping avoid cost with benefits phasing in as we fulfill existing bookings under the prior offerings and a smaller proportion of guest sail with airfare included. Our work here is not done, and we continue to evaluate further significant opportunities to operate more efficiently, including efforts related to outsourcing and leveraging AI. Finally, an exceptional guest experience remains at the heart of our business.

We are enhancing our reservation system to make the booking experience easier and give us greater flexibility to offer guest upgrades and other personalized options, creating additional revenue opportunities over time. Across all three brands, we are improving our websites and apps to make the digital experience more intuitive and convert more of that interest into bookings. Turning to slide 5. I want to give you more detail on the progress we are making in rebuilding NCL's demand generation engine. We have a strong product, and our opportunity is to connect more effectively with the guest who will value it most. The work follows a clear sequence: understand the target customer and what is most important to them, define what the brand stands for and how it meets their needs, sharpen our messaging, and improve the overall effectiveness of our marketing investments.

Starting with our target customer, we have focused on premium families and seasoned travelers. Our research sizes these audiences at approximately 30 million vacationers from households earning more than $100,000 annually. We have quantified the opportunity these groups represent and refined our understanding of what they want from a vacation. That gives us a stronger foundation for deciding what we communicate and where we invest. And the great news is that they are a largely untapped audience as the significant majority, although avid vacationers, still do not cruise. Fundamentally, we have more of an opportunity to enhance our brand communication as opposed to the product itself, which we believe is an advantage in our turnaround efforts. We will continue improving our product and service and refining our promotional offerings, but our research points to a significant opportunity to communicate the strength of our product more effectively.

Our opportunity is to show the consumer what makes NCL distinctive and clearly communicate how NCL is differentiated in the market. Our tagline, "It's Different Out Here," which was first launched in the '90s, has embodied that ethos, but we did not articulate what it meant. Our job now is to bring to life through clear, consistent messaging targeted to untapped audiences. When our new NCL CMO started a few months ago, he and his team set about honing in on what makes us different, focusing on those products, services, and brand attributes that resonate with the core consumer and are perceived to be a gap in today's competitive offering. Our new positioning centers around the idea of cruise without compromise, built on NCL's strengths in freedom, choice, and hospitality. Different members of a family or group often want different things from their vacation.

Some want activities and adventure, while others want time to relax. NCL offers the breadth of experiences and flexibility for guests to enjoy their vacation in their own way while still spending meaningful time together. On vacation, no one should be forced to compromise or, worse yet, return from a trip feeling they need a vacation from the vacation. Our opportunity is to communicate that distinction more clearly and consistently. We believe this positioning is differentiated and ownable, and perhaps most importantly, addresses the perceived experiential gaps in cruising that have resulted in such a low historical penetration with these consumers. This positioning will guide a new creative platform that we expect to launch in January alongside the 2027 wave season. The platform combines creative development with consumer research and data to ensure the message connects with our core audiences.