Norwegian Cruise Line Holdings Ltd. (NCLH) Earnings Call Transcript & Summary

Welcome to the stage Frank Del Rio, Mark Kempa and Jessica John. Now over to your host, Vice President, Investor Relations, ESG and Corporate Communications, Jessica John.

Well, good morning, everyone. Welcome, and thank you so much for joining us here today, both those of you who are able to join us in person on our newest ship, Norwegian Prima, and for those who are joining us via the broadcast. We truly appreciate everyone taking the time out of your busy day to join us today to learn more about our company and our strategic vision. Before we begin, I know many of you have not had a chance to explore this incredible new ship, the first of our 6 Prima Class vessels. So let's take a quick peek at this beautiful ship. [Presentation]

As you can see, she's beautiful, and we promise after we talk to you for a 1.5 hours in these seats, we will let you all explore the ship as well. So joining me today, we have Frank Del Rio, the President and CEO of Norwegian Cruise Line Holdings; and Mark Kempa, our Executive Vice President and Chief Financial Officer. In addition to Frank and Mark, we have many others from our executive leadership team that are joining us here today. I want to very quickly introduce a few of our senior leaders so that you can have a face to the name. So when I call your name, can you just stand up and wave to the crowd here. We have Harry Sommer, who's the President and CEO of Norwegian Cruise Line; Jason Montague, who's the President and CEO of Regent Seven Seas Cruises; Howard Sherman, who's the President and CEO of Oceania Cruises; Ross Henderson, who is our EVP of Onboard Revenue and Destination Services. Robin Lindsay, who's the EVP of Vessel Operations; and we have Dan Farkas, our EVP and General Counsel. Our leaders will be available here for Q&A, and they will be at the lunch, so we encourage all of you to stop by and say hello. Great. So here's today's agenda. We've got quite a bit to cover today. I want to level set first. There's been a lot of change over the past few years, including in this room. So we've structured our presentation to provide some insight and to inform both those who are new to our story and to the cruise industry and those of you who have been following us for a long time. Our goal here is for you to take away a stronger understanding of our business what we do, where we're headed and what makes Norwegian Cruise Line Holdings unique. Frank is going to start us off with a quick overview of our company, followed by our strategic outlook, where he will discuss what we think are our key value drivers. Mark will then provide a broader business and financial update. And then lastly, we'll end with Q&A both from this audience and also from the shareholders who participated via our platform online. Now to the fun stuff. Our presentation today is available on our Investor Relations website. Our commentary includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially. These statements should be considered in conjunction with the cautionary statement in our presentation. Our comments may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our presentation. You all can thank Dan Fergus for that part of the presentation. And with that, it's my pleasure to welcome Mr. Frank Del Rio to the stage to provide a company overview and strategic outlook.

Well, good morning, everyone, and things we're showing up today. I know for many of you, it's a to come here on the Hudson, but I think that today's presentation will be very worthwhile for you to learn more about our company, a little bit about our industry. As Jessica mentioned, there's been a lot of changes, as you know, over the last 30 months since the pandemic began. Our shareholder base has turned quite a bit. Many of you in this room are new to cruise. I see a lot of familiar faces, but also some new ones. But before we get into all the details that we want to get across to you today, I want you to think about a couple of things that we hope you can take away from today -- from this presentation today. The first one is we're different. One of the things that frustrates us, and I know that frustrates some of you in the audience as well, is that you assume that whatever happens to some of our peers is sometimes, at some point, going to happen to us. We've told you time and time again, that's not true, just not true. Look at us as a stand-alone company, don't throw us into the pool of the cruise industry because we're different. We have a different fleet. We have a different management team, obviously. We have a different philosophy how to operate our business. We focus on different things. And if you'll see today through the presentation, the results that we have been able to print over the last few years before the pandemic, prove that out. So we're different. Pricing is sacred to us. At the end of the day, this is primarily a fixed cost business, although inflation has had our attention lately. But it is a relatively fixed cost business, and you win in our opinion, based on price. And we're going to hammer that home time and time again, and I hope you guys are listening. So a quick overview of our company. Three brands, one in each of our major -- of the industry's major groups, Contemporary Space, Norwegian, Premium Oceana, Luxury, Regent. Now in every one of those cases, we want to operate at the very upper end within the contemporary space. We don't want Norwegian to cross over to the premium space because we've got a premium brand called Oceana. And we don't want Oceana to jump over to the luxury space because we got Regent there. But each one of those upper end positioning allows us to generate the highest prices -- today I'm going to start early, the highest prices in the industry by far. Our 3 brands visit over 500 destinations around the world, and we will carry roughly 3 million guests in 2023. We also have 2 incredible island destinations, 1 in the Bahamas, great Stirrup Cay. We've had it for almost 25 years. We spent the -- invested a lot of money in upgrading her over the last 4 or 5 years. And we're the only cruise company that actually has a private destination in the Western Caribbean called Stirrup Cay in Belize. So today, we're going to talk quite a bit about our value drivers. What makes us different than the other cruise lines that I talked about, what makes us different, why you should not -- why you should not lump us with everyone else? We are not all created equal. So I talked about our 3 brands at the [indiscernible] respective market categories, making us the dominant operator offering upscale experiences. When you walk around this vessel, this is a contemporary vessel. This is not your grandfather's contemporary vessel. We like to say that good taste doesn't cost any more than bad taste. And I think you'll recognize what I mean by that when you walk around this vessel, you see the offerings, you see the state rooms. And you can see why this vessel is commanding the high premium pricing that it is. This ship just finished a transatlantic. It generated onboard revenue more than double our transatlantic average. And I mean she wasn't even full. So as a company, we have 29 vessels. That's sizable. We've got berth, but we're not so big that we don't know what to do with the vessels. We still have many, many unserved and underserved markets that will bode well for our growth. As you know, we have 8 ships coming online over the next 5 years, 5 more Primas, 2 for Oceania, 1 for Regent, 3 next year, 1 for each brand. And so we believe that we will be able to -- we know we'll have a fantastic growth, 50% growth over 2019 level. On an adjusted basis for 2023, 23% over '19. We have a differentiated -- and this is one of the points that I really want you guys to listen to. We have a differentiated go-to-market strategy, which allows us to generate these industry-leading yields and would not lead the industry by a little bit. Mark will show you what -- how we performed as recent as Q2 of this past year. And later in my presentation, I'll show you historically how we've done. But we beat the competitors. You know who the competitors are. I'm not going to mention them by name, but you know who they are. We don't be them buy a nose. We beat them by a wide margin. And so we believe that, that go-to-market strategy of market to fill, not discount to fill is the winning formula. And then you saw what happens -- just recently, what happens when companies don't follow that pricing power philosophy. We have the right team in the right place, the guys that you were just introduced to, Mark, we've been together a long, long time. Harry and I go back 30 years; Howard 27, 28. Jason and I started Oceania from scratch 20 years ago; Robin and I, 20 years ago. Mark is the rookie, as we've only been together 9 years, but that's long enough. So we've got a great team. We know what to do. We've gone through hard times before. We'll show you what we've done during the hard times. So we know this playbook. We know how to get out of the situation we're in and we're getting out of it, not because I'm hoping to do. I'm not hoping because we're wishing it will, we're going to show you numbers. We're going to show you where we stand for '23. And early on in this presentation, I'm telling you that we will have record-breaking pricing, record-breaking yields in 2023, and we'll have record EBITDA. Okay. So a little more about the individual brands. Norwegian Cruise Line is our largest company, largest brand, contemporary space. We have 18 vessels. Oceania is the leading upper premium brand. We have 6 vessels today, 2 more on order, the first 1 coming online in May, Vista. And Regent today has 5 vessels, another 1 coming in the end '23, Grandeur. Regent is all-inclusive, luxury. You can't do better than Regent. If money was no object, you're going on Regent. To give you an example, there's one suite on Explorer, Splendor and Grandeur that goes for $12,000 per night, per night. It's always sold out. So Jason, you've done a great job with that brand and Howard with Oceania brand. Certainly Harry with the Norwegian brand. So here is where our brands stack up next to the competition. As you can see, each one of them is at the upper end of their respective categories in the luxury, premium, contemporary. And one of the wonderful things about our company is these 3 unique brands don't really compete with one another. Others have so many brands that they sabotage each other. We don't. We don't have that problem. Next, we're the dominant cruise operator in the upscale brand. So between Oceania, Regent the vessels that are coming online for them. And then the Haven suites on board the Norwegian brand, we have more upscale berth 9,200 than anyone else by a long shot. Why is that important? Well, this is one of the reasons why we have the highest yields, not the only reason, but one of the reasons. And the other one is these vessels, not just the Oceania, Regent brands, but all the vessels are focused on operating premium itineraries. The #1 driver of yields, and those of you who have known me for a long time have heard me say this over and over again, the #1 driver of yields of ticket pricing is your itinerary. If I ask you, Steve, let's go on to cruise. First thing you're going to ask me is where are we going? Itineraries drives pricing, and we have more premium itineraries than anyone else, and you can see the shift between 2019 and 2023, the arrows pointing up Alaska, Europe premium itineraries, the Caribbean, low-price itinerary is going down. Let's talk about guest demographics. We are a U.S.-centric company. Now maybe someday that will come bite me in the ass, but not today. Not with a strong dollar, not with the rest of the world having economic concerns, especially Europe probably in a recession, the U.S. is still the best place to do business. American consumers are the best cruise customers. They book the earliest, gives me greater visibility. Greater visibility means I can raise prices because I have confidence I'm going to go full. That is key. You'll see our booking curve in a minute. They book higher cabin categories, and they spend the most money on board. So we like American consumers. Now we don't only live by American consumers. You can see roughly 80% U.S., 20% rest of the world. I like that balance. And then the generational mix. We don't rely just on the old baby boomers, although they are the dominant at nearly 40%. But depending on the itinerary, depending on the ship, depending on the brand, we go down to Gen X, millennials even Gen Zs. And then the quality of the customer. You've also heard me say that we go after a quality customer. With only 29 vessels, I don't have to go to every corner of the world to fill the vessels, 29, 3 million guests a year. But we've targeted a quality customer. And as you can see in the bottom right-hand corner, 94%, 95% our Oceania and Regent guest that net worth over $0.25 million, 1/3 or so -- or 2/3 or so for the Norwegian brand. That bodes well for us. These people are more resilient if there is an economic downturn. They have the money to spend on ticket and onboard. One of the reasons why we lead the industry in yields is our quality customer. I don't need a rest. There we go. Best-in-class fleet, youngest fleet of the major operators. Why is that important? If you have newer ships, they're more efficient, less fuel consumption, less repairs and maintenance, more balcony cabins. The second leading driver of yields after itineraries is the cabin mix. We have the richest cabin mix, and it's growing as -- it's improving as we add on the new vessels. Innovative hardware. I hope you guys have a chance to spend an hour or so on board after the presentation, after lunch, just to walk around. This is not your grandfather's cruise ship. This has got everything you can imagine. We worked hard to put together a package, if you will, of wonderful accommodations, incredible restaurants. And then fun stuff, the racetrack, Galaxy Pavilion, the dry slides. So hardware at the end of the day, counts, and we have invested heavily, not just in the new builds, but also in our legacy fleet that we've always kept them up at the highest possible level of condition. We've upgraded them whenever possible. And that allows us also to drive yields. And what we do is we take our legacy fleet, if you will, and put them in more exotic and longer itineraries. And itineraries where families may not go, they don't need the racetrack. When you go from Bangkok to Tokyo on an 18-day cruise, you're not worried about the rush slide or the racetrack. It's itinerary focused, and you saw that itinerary is the #1 driver. So here is our industry-leading growth profile. It's not too much, it's not too little. It's just right. So we were very fortunate that during the pandemic, we didn't have to take any vessels. Worked out that way. We took delivery of Encore in late '19. We took delivery of Splendor for the Regent brand in early '20, nothing in the rest of '20, nothing in '21. And just last month, we took delivery of Prima. Next year, we have 3 deliveries, 1 for each brand. Stand-alone brands, they don't compete with one another necessarily so we're very comfortable taking delivery of 3 vessels next year, 1 for each brand. And then as you can see, 1 in '24, 2 in '25, 1 in '26, 1 in '27. This will generate a 50% capacity growth from 2019 levels, 50%. So are we a growth company? Are we a value company? I think we're both. But this is a very digestible, if you will, pace of adding new builds. Look at what we've done in the past, when we've taken on deliveries. And I know some of you, especially the analyst community, have always worried about all too much capacity growth. The historical capacity growth is 3% or 4%, in some years, it's going to go to 5% or 6%. Relax, I think we proved to you guys during -- prior to the pandemic that the industry was well poised to absorb more of this high-end, high-quality vessels. Certainly, we need more vessels because we have dozens of unserved and underserved markets that we simply don't have ships to go to. There are some competitors that have 15 vessels, 18 vessels in Alaska. We've got 6. There are competitors that have vessels year-round in Australia. We don't. In the U.K., we don't. In Europe, we don't. Year-round, who have year on operations out of Texas, out of Alabama out of New Orleans, out of Tampa, we don't. Why? We simply don't have the ship. So we're looking forward to our vessels. But look at what we've done historically by this management team, we grew our capacity days by 7% over that 5-year period. So maybe we grow our revenue 7%, right? No. We grew our revenue 11% because these are high-yielding vessels, more revenue, more demand. So maybe if you grew revenue 11%, we grow EBITDA 11%. Now, we beat EBITDA by almost 20%, 13%, and then cash provided by operating activities, 15%. Cash provided by operating activities more than double capacity growth. And Mark in his presentation will show you how we finance these vessels. And so if you were us, you do the same thing. You'd keep adding ships until the market said, no mass. And the market has set no mass to us, nowhere near that. So this is what we've done in the past, and I can look you in the eye and tell you this is what we're going to do in the future. I talked a little bit about our islands in the Bahamas and in Beliz, but also Alaska. We've made quite a number of investments in Alaska. And Alaska is one of those premium destinations that we're now circling around, and I don't want to say we own Alaska because that would be a little overstated, but we are in a great position to have our own facilities, our own docks so we can grow our capacity in Alaska by investing in Ward Cove and ICE state. In Juneau we're about to make a big investment in [indiscernible] so we can do more turnarounds there. Alaska has not only become a premium destination, but it's become more than just a 4-month summer destination like it used to be. It used to be mid-May to mid-September. We now get there in early April, and we don't leave until mid-October. So it's a combination of perhaps global warming, bigger vessels, more demand, but we stretched that season to almost 7 months now, and it's a great place to be, unique go-to-market strategy. We live and die by this. You saw what happens when cruise companies discount to fill. Nothing good happens. And we're going to show you 2 numerical examples, 1 by me, 1 by Mark, a little later of what happens when you go to the dark side. We market to fill. We'll spend whatever we have to spend. I kid around and Mark hates when I say this, but the marketing budget is always in pencil because it is whatever it has to be to fill the vessels because there's always an ROI, a multiple. We don't want empty cabins, and we don't want the discount. Do we ever price adjust? Yes, we price adjust, of course, to be competitive. But we're not selling cruises for $20 a day. You'll see what the cumulative effect of how we do it compared to what others do it. And please, if there's 1 thing you remember today, it's that how we price, how we go to market. We love bundling, right? To us, it's never about the price. Prices are relevant almost. It's the deal. What's the deal on going on a cruise? Steve, if I told you we're going on a cruise, and it's $999. What does $999 mean? But if I told you get 2 for 1 this and 3 for 1 bed, and you get free this and you could free that, you get excited because it's a deal. And so we focus on the deal. We focus on bundling stuff, stuff that you normally would buy on a cruise, share excursions, drink package, dining packages WiFi. And each brand does it slightly different because they have slightly different markets, slightly different audiences, big difference in pricing, but they all are focused on bundling and they're all focused on market to fill, staying on the booking curve. And Mark will talk more about that later as well. Here's an example of this bundling Norwegians pre-FC participation. In 2018, roughly half the customers that we sold cruises to bought the bundled package with the free stuff that I mentioned. 85% in '22 for '23. And it's unbelievable. Now why is that important? First of all, a bundled cruise is stickier than just your playing vanilla take it to come on board, stickier, less cancellations, less cancellations, less churn for marketing -- they pay a higher deposit, more cash comes in early, more visibility, fresh wallet concept. Can't stress steady enough. If you spend all this money upfront and you'll see in a minute, the average booking curve now is 255 days, 8.5 months. So you buy this bundled package today and you've got 8.5 months to save some money. So when you come on board, you've got a fresh wallet and guess what? You spend all over again. We just saw it on this vessel on this past crews that ended yesterday double the average that we have for a Transatlantic. That's key. And here are the onboard generation streams. Shore excursions, the biggest one. Casino, big, big driver and Ross and his team -- by the way, all this credit goes to Ross Henderson and his team, he does a fantastic job and onboard revenue. I don't think there's another company that focuses on onboard revenue like we do. We have a top-notch executive. All he does all day long and his team is on board. He's not worried about filling the ship, that's somebody else's job. They're -- his when they get on board, and he does a great job of squeezing every dollar out of them. Let's go to the next slide. Distribution channel. What we saw during the pandemic, everybody went online, right? You bought your pellet paper online through Amazon, you bought Peloton online. You bought everything online. Well, you bought cruises, too. So you can see that the travel agent channel has actually decreased from 2019 to 2023. But look what went up. Direct went up a lot. The direct web, the cheapest of all channels, direct web. It's direct. There's no commission involved, and there's no human intervention that are involved. So this is good, better, best, that's what we have here. We love travel agent business. We do everything we can to generate business through them. It is still our largest channel, but it is no longer the fastest growth channel. The fastest growth channel for us is direct and actually direct web is the fastest growing. And we're spending quite a bit of investment and time and effort in putting forth all the technologies needed to really increase that square. Differentiated pricing drivers. How -- why do people pay us more to come on board? Why do people in the second quarter -- I won't do it, Mark. That's your slide. Why do people pay a lot more to come on board the 3 Norwegian brands than on competitors. Number one, driver of yields, itineraries. I get criticized for this because maybe I should be doing something else with my time. But I spend more time on itineraries across all 3 brands than I do just about anything else, maybe building the ships with Robin. That's how important itineraries are. We live and die by itineraries, the right ship at the right place at the right time is key. Hardware, get discount the hardware. And we've invested heavily in new hardware. As we've talked about, we've invested heavily in refurbishing our older vessels, our legacy fleet. Too many companies only focus on their newest baby, the shiny new toy. We -- you're here today. We do that as well. But we don't forget the legacy fleet. Because you know what, 3 years from now, this ship won't be the shiny new object, something else will be. And so we focus on premium vessels, premium hardware, premium itineraries, premium food, every one of our brands stands for something. The Norwegian brand stands for great entertainment. I wish you guys can stay overnight and see the Donna Summer show. Donna herself would be very proud. The food onboard Norwegian is the best of any contemporary line. It's learned from its sister brands, Oceania and Regent. Fantastic premium mix of cabins. We talked about it at 60% premium going to 65% by the end of '27 when these other 8 ships come online, and we market to fill. We put our money where our mouth is, and we will do whatever we can, whatever we have to do to stimulate demand, especially U.S.-based demand to fill these vessels at high prices. I talked about the booking window. I'm sorry, I said $255 earlier, it's $245. But look how it's grown over the last 5 years almost 50% from 171 days to 245 days. What does this mean? It means people are booking with us earlier than ever. Why is that good? Well, the first is cash comes in the door. People pay hefty deposits to make their booking. That means they also pay earlier than if it was a late minute booking. But the most important -- the most important result of people booking early is it gives us visibility, right? If the 2 extremes are people book 2 years in advance or people booked the day before the cruise, which 1 of those 2 do you think you get higher pricing on? The first one. And so having this early warning system allows us to moderate marketing, let's not waste marketing dollars that we don't have to. If people are -- if this cruise is booking like crazy, let's raise prices. We don't set prices -- kidding around with some folks here. You remember on TV, set it and forget it. We don't do set it and forget it. We manage those prices daily. We have a team of we call the video gamers, and their job is they're assigned a vessel. They look at each cabin, each sailing, each ship, every day, looking for opportunities to raise prices. And we've been raising prices, and you'll see that in a moment. So when you have -- when you have this kind of visibility, 8.5 months, on average, 8.5 months. So when we tell you that we think '23 is going to be a fantastic year. Record EBITDA, record yield. It's not because I wish it to be true or I hope it to be true, it's because I got the bookings, and the bookings are occurring earlier than ever. The visibility is better than ever. So my confidence is greater than ever to tell you that that's what's going to happen. This is referred to this as our report card. This is 2019, the last of the great years before the great pandemic hit, how do we do on net yield, ticket yield? How do we do on onboard revenue? How do we do on overall yields? As you can see and you can imagine who Peer 1 and Peer 2 are, don't look at the colors, that's not -- that's not a hint. But 18% greater than Peer 1, 36% greater than Peer 2. That's just to get on board. And then onboard revenue 1/3 higher against Peer 1, 2/3 higher than Peer 2. Now you might say, well, Frank, that's because you've got such heavily weighted on Oceania and Regent drives all those numbers up. You might be true on ticket, but you'd be wrong on onboard because there's so much inclusivity on Oceania and Regent, it actually brings the numbers down. Let me say this, and I won't give you the number, but I'll give you directionally. If we were talking about Norwegian as a stand-alone company, it'd still be #1, still be #1. Let's go to the next slide. So yields are great. That's nice, Frank. But how much of it dropped to the bottom line? So even though we are the smallest of the big 3, you might think we don't have the scale to suppress costs. On an EBITDA per capacity day, we beat the blues by 12% and the reds by over 50%. So that top line does drop to the bottom line. Are our costs higher, yes? Do you expect people to pay you $12,000 a day for a suite, you better not give them chopped steak for dinner. So Jason's cost a lot of money, but he gets the return on it. And you can see here $95 a day, 50% better than some others. So let's pivot a little bit. We've talked a lot about Norwegian. It's talk about the industry how that industry dynamics affect us. So let's take the top 2 on the right sort of as one limited capacity growth. There's only 4 crews or shipyards in the world that build cruises. Germans, the Fins which is owned by the Germans, French and the Italians. So as much as some of you guys worry about capacity growth, stop it, stop it. And you'll see in a minute what the capacity or what the inventory of cruise cabins are compared to hotels, for example. So there's a limited number of ships that can be delivered no matter what. The barriers to entry are great. If Ivan and I wanted to start a new cruise line tomorrow, Ivan and I figure we need about $1 billion because we've got to order at least 4 ships, $1 billion each, 20% down is $800-- and we need 200 working capital, establish a brand, hire a few people, start marketing, $1 billion. And by the way, that $1 billion is going to be dead for about 5, 6 years because that's how long it's going to take for you to get your first ship. Barriers to entry are steep because of high capital cost and the long waiting period. If you're in the business, you're in luck because newbuild financing, and Mark's going to go over, great detail on that a little later, is phenomenal. We financed this vessel, I think is 3%, under 3%, 12 years fixed. Any of the debt guys in the room, can you do better than that? I don't think so. So if you were us, and you can buy an asset that lasts 30 years. That's always full, that generates the kind of EBITDA you saw, that you can finance with 20% down over the construction period at 3% or less fixed for 12 years. How many would you order? I think you do all you could -- favorable tax structure. Not many of you know about Section 883 of the IRS code. We know all about it. And that resulted in us paying an effective tax rate of about 3%. Whatever we make, we keep. Underpenetrated global markets, you're going to see later, only 30 million people in the world cruised in 2019, 30 million. Little over half were Americans. We are the most underpenetrated, underserved of the big 3 cruise companies because we only have 29 vessels, a lot of opportunity for upside. We've got movable assets. We have an engine, we have propellers, we have routers. We can put the ships where they're going to generate the most money. You build a building in wherever and it's stuck there. It's not going anywhere. We've got flexibility. We can move ships to high potential areas, take them out of low potential areas. We talked about high very favorable demographic trends. We've talked about that. The boomers, 10,000 of them retire every day. They've got the time, they've got the money. The value proposition of cruising. That's another thing I want you to walk away with remembering, the value proposition, you'll see some schedules later. A cruise for 2 for 4 on a ship like Prima is going to cost you 40% to 50% less than a comparable vacation on land, 40% to 50% less. And if times do get a little rough around the edges, if the economy does start to stumble, I believe that people will look for value more so than ever before, and they're going to find it in the cruise industry. Go to the next one. So this is a chart going back to 2001 of how many people cruise in the world. You see 9/11. And every year, the number of people that cruise is greater than the year before. No matter what happens in the world, not 9/11, not the Great Recession, not the 14 geopolitical events that took place in 2016 has the growth of passengers, not capacity, passengers ever stumbled. And we believe that 2023 will be the first year full first year since the pandemic, and you're going to see that number also exceed 2019. So resiliency. This is CIA's best guess, and it's a guess. I don't think they're too far off because it mirrors very much capacity because ships are always full. The question of the cruise industry is not are the ships full or not, at what price? And that's where we excel. And you saw the example of 2019, you're going to see more examples of second quarter 2022 when Mark comes up. This is one of those schedules I wanted to talk to you about of the underpenetrated cruise market globally. On the left, you see the percentage of the target population of each country that has ever cruise. And target population in the my sprint is people over -- who make over more than $40,000 and ages between 25 and 74. That's de minimis in terms of income. But nevertheless, you can see the U.S., only 7% of Americans have ever cruised. 7%. Look at the right side. If you take all the cruise ships in the world, all of them, they're state rooms, they still have less state rooms, less cabins than the top 3 cities in the U.S., which is Las Vegas, Orlando and Chicago. If you take Norwegian Cruise Line Holdings alone, our 62,000 cabins is less than 1/4 of just Orlando. So look at that. We're smaller than 1/4 of Orlando. You guys are worried about overcapacity. Come on. Worry about something else, something real. That's not what to worry about. Go to the next one. Here is an example I was talking about, the value proposition. These are real numbers. We didn't use our random numbers machine to come up with this. We shopped it, we shopped ourselves, we shopped the 4-star resort in the Caribbean. We shopped the 4-star Miami Beach Hotel, 44% less coincidently than on Norwegian cruise. One of the things I think the industry needs to do a better job of is harping on this. The value proposition -- we do it through the deal. It's not about price, it's about the deal, and I wish that others would focus more about the deal versus land than they have in the past. So go back to a minute. So what does this mean? It means we have a -- we still have a lot of headroom and opportunity to raise prices, the third bullet versus land. You're going to see in a minute how -- well, you saw in '19, you're going to see what we did in second quarter '22 in pricing. There's still a lot of headroom and as we bring on more ships like this, which are premium priced, not just for Norwegian, but for Oceania and for Regent, our pricing is going to continue to go up. And the backdrop is that it should go up given the broader hospitality dynamics of the land vacations. We talked a little bit about the strong leadership team. Mono and mono will go up against anybody. I wouldn't trade my team for anybody out there. We've been together for a long time. When I go like this, like this, like this, Harry knows exactly what I mean. Howard sometimes will disagree, but he knows what I mean. And we're a family. We started this cruise company, Oceania back in 2002, literally at my kitchen table. And these guys were there. I'll go into any battle with them, and we have. We've gone through battles. We started Ocean in 2003 and 3 months later, the Iraqi war broke out, and then there was SARs, and there was the chicken flu and all sorts of bad things happen, and we survived and we succeeded. And we succeeded the Great Recession, and we succeeded through the -- all those all those terrorist attacks that occurred throughout 2016 you recall them. And we're going to -- not that we're going to beat the pandemic. We're beating the pandemic. What do you see Mark's presentation. You've heard us in our last earnings call, bookings for 2023 were in line with 2019 at the same point in time. In line means equal to slightly up, okay? So anybody is wondering. I wonder what within historical average means. You got anybody figured out what that means. Steve, have you figured that out yet? No. We're telling you what in line means and it meaningfully higher prices, significantly higher prices that we're going to show you. If you recall, for those of you who are involved in our business and involved with Norwegian, in -- at the third quarter call in 2018, I said that we had reached the optimum booking curve in 2018 for '19. If you book any faster, you're leaving money on the table, if you book any slower, you're either going to have empty cabins or you're going to have to discount which we never do. We've reached the optimum. I don't want to sell any faster. And so today, for us to be at or slightly above where we were in 2019 is exactly where we want to be at higher, meaningfully higher prices. So this is a team that's been doing it. We share the same passion. I wish we can show you our e-mails at 5 in the morning and at midnight. We're a family. Like I said earlier, we just -- I wouldn't trade these guys and these calls for anyone in the industry. So very happy to have them. Let's go to the next, Sale and sustain. This is not a slogan for us. This is not a check the box for us. This is not this is something that is integral part of our organization in everything we do. We're very proud of the S and G part. More than 50% of our management team is women. We have 3 women on our Board of Directors of 8. We have minorities of every kind, including me. I am not Swedish. Norwegian? I'm not a Norwegian either. But -- so on the governance side, on the social side, as I said, we I'm fortunate that I was given an opportunity to run this wonderful company. And I see it as my obligation to carry that torch and pass that a ton. On the environmental front, let's face it. We burn heavy fuel and we've committed to decarbonize completely by 2050. And we're going to have to invest vast amounts of money to be able to do that. We're going to do whatever science allows us to do. So we're hoping that biodiesel fuels come along. We're now looking at how we convert several of our new builds to methanol fuel, which we believe is the best chance of decarbonization based on the science we have today. It's not LNG. LNG is a stop gap, the best solution today is methanol. So we're doing everything we can on that area. And to show you how much we mean this, we have tied our ESG metrics to our management compensation, our bonuses. If we don't do what we say we're going to do, it's going to hurt my pocket in everybody else's pocket. So that's the best indication I can give you how seriously we take this. We got skin in the game. And Jessica and her team are doing a great job of disclosure so that you and the investment community can see exactly what we're doing. Robin and his team are doing everything possible on the mechanic part of the vessels, how do we conserve fuel how do we convert some of our fuel. We have experiments going on with a fuel company of being able to use sustainable fuels, nonfossil fuels. So ladies and gentlemen, I just tell you and the list is long, we're committed to this. It's not It's not the show of the day. It is an integral part of everything we do, the E, the S. The S, we've been doing for quite a while. I'm very proud of the diversity and the inclusion among our ranks. And of course, governance with the Board, the senior management team. So I've been here for a while. I'm going to bring up Mark Kempa, our Chief Financial Officer, who is going to give you more food for thought. Thank you.

Well, good morning, everybody, and Frank, I guess, after -- it's good to hear after 9 years, I'm still considered a rookie. Maybe on year 10, I'll become a veteran. I don't know. Welcome, everybody. It's good to see everyone here. I see a lot of familiar faces. I see a lot of new faces. Thank you for joining us today on this wonderful ship. It really is spectacular. Fun fact, this what you're sitting in today, the seats go back, and this turns into a pretty phenomenal nightclub, Las Vegas style. The chandelier comes down. I know there were some of you who were able to experience that in Europe, but it really is a phenomenal space and just goes to show you how we've thought about changing the ship, changing the cruise experience and utilizing all our spaces in the most effective way. That's one of the reasons we talked about that -- Frank talked about why our onboard revenue was so strong from the onset of the ship, we're sailing. So in any case, let's get to business. So what are the positive catalysts for 2023? There's 3 main things. Improvement in public health and regulatory environment. Look, COVID is done. Consumers are done with COVID. Societies are done with Covid, governments are. We've seen over the last, I guess, 3 to 4 months, all areas of the world have basically eliminated all of their restrictions. Most recently, we just saw Canada. Greece, I think, is announced. I don't know if it's public yet, but it's -- this week is dropping all their protocols. And I think there might be 1 or 2 small areas in the world or spots in the world that there's protocols. But the world is open again, and consumers want to see the world. We've relaxed our protocols. We mentioned back in early August at the -- at our earnings call, we dropped all vaccination requirements for all of our ships. We immediately saw a significant boost in bookings. And that was, I believe, 2 or 3 days into it. I can tell you, since then, we've seen a sustained level of solid bookings at the higher levels that we saw immediately after we dropped the vaccination requirements. And then most recently, if you saw last -- this past Monday, the Norwegian brand, we actually dropped all requirements. Meaning, if you're unvaccinated or you choose not to show your vaccination status, you don't have to test anymore. That's across our Norwegian brand. So again, barriers are eliminating for the consumer, for the traveler to see the world, making it easier for all of our customers to enjoy our product. Consumer desire for travel experiences. Look, we all bought stuff during the pandemic. I think the 1 thing that the pandemic taught us all is, we want to continue to see the world. We want to continue to experience life, not just stuff. We believe as a cruise brand, as a company, we are well positioned to capture that. Just look at this ship, just look at all the ships that we have in our fleet. The tremendous value, the tremendous breadth of opportunities, experiences that you can gain on 1 of these ships as a traveler is amazing. And then, of course, our attractive new build pipeline. I think Frank mentioned it earlier, but if you look at our new build pipeline through 2027, that represents about a 50% growth in capacity between now and then. So if you just think about that and put -- take that back to where we are today, we're not just focused on new ships growing for growing. We're focused on growing with new ships, driving more to the bottom line, but also generating more out of the bottom line from our existing fleet. You saw the numbers were -- on Frank's slide where we grew capacity, we grew EBITDA, we grew operating cash flow growth, it's good growth. So if you think about that today and where we are and you think about that from an earnings growth [Audio Gap] is going to continue, which we firmly believe obviously. So our phased and disciplined voyage assumption. This has been a lightning rod in some sense, but we're very proud of this. We started -- we reentered service in Q3 of '21 with 3 ships. Most recently at the end of second quarter, we now have all of our ships in operation, 100% of our capacity. And on the right-hand side, you see the sequential increase in capacity. Now I want to very clearly point out, our capacity at these levels was by design. We have said from day 1, we are not in a rush to get back to full capacity. If you go back 6, 8 months, we were doing it in a measured fashion because we wanted to protect the consumer. We wanted to make sure that we are giving the consumer the right product. And we wanted to protect price, which I'll talk about in a little bit. But you can see, we can sequentially ramp up 48% in Q1, 82% -- we've said low 80s for Q3. It's probably going to be about 82% or 83%. And then as you look forward, we expect to be back at full historical operating capacity for the second quarter of 2023, not in the second quarter, but for the second quarter of 2023. So booking trends update. I talked about that we saw an immediate uplift and extension in our bookings post the August announcement. It's too early to say what's happened since Monday of the announcement of the further relaxation of our protocols. But I'm here to tell you, booking strength is solid. Demand is solid. We continue to garner price. It's demonstrated in our results for both, the first quarter and second quarter, and you will see it's going to demonstrate in our third quarter results. Bookings are strong. Frank touched upon it, but our booking trends for FY '23 continue to be, whether you want to call it equal or in line, it's not historical average. In line has been interpreted that it could be this wide band from left to right. We're telling you that is equal to our 2019 record levels. But more importantly, pricing is significantly higher, and it's still that way today. You'll get more color on our upcoming earnings call, but the booking -- and the booking pace today is at a level that we need. The booking paces are at a level that will get us to that -- back to that historical capacity, starting in the second quarter of next year and beyond. Those 2 factors are going to really set a tremendous foundation for excelling at 2023. And something I want to add, we recently talked -- heard 1 of our competitors talk about FCCs and the potential dilution to 2023. For us, we don't have that issue. We've clearly stated for probably the last 18 months or so that all of the future cruise credits or FCCs that we issued during the pandemic, they expire at the end of 2022. Doesn't mean a consumer can book on 12/31 and sail in 2023? No, they have to book and sail by the end of 2022. And for those remnant FCCs that may still be out there, we are simply going to refund them to the consumer. What does that mean? That means there is no yield drag to 2023 versus what some of our competitors may be seeing. So we're targeting -- I talked about pace. We've told you, I believe, back in our '18 or '19 earnings call and subsequent events since, we believe our optimal position going into a calendar year is being at about 65% booked at the NCLH level. And I'm here to tell you today, we are on target to do that. That is a sweet spot. We don't leave too much money on the table. We don't get too much -- we don't get too many bookings up front that don't allow us to take advantage of opportunities down the road. 65% in that zone is the optimal booking or target for us based on our booking curves. And we're well -- we're pacing well to that, and we are going to hit that at year-end. So when you look at all 3 of those equations together, the book position, the pacing, the strong pricing power, we are very well set for 2023. The business is there. The proof is in the pudding, the business is on books. So pricing, it's all about pricing. You can see our second quarter, this is net -- total net revenue per diem, not gross revenue, net revenue, 11% over 2019. And you look at our 2 peers, blended, you can call it flat, slightly up, slightly down whatever way you want to cut it. If you take that same statistic and you look at the first half of 2022, that 11%, on a blended rate for the first half is 18%. So our go-to-market strategy is working. Our disciplined ramp up, back to the market is working. We are protecting price. We've said over and over. We believe this product is undervalued vis-a-vis our true competition, i.e., land resorts. We're going to continue to push on price. We're going to continue to spend marketing to make sure we're getting pricing power because this is an opportunity for the industry. This is an opportunity for the industry to change the paradigm, to change the level of pricing that the consumer is getting for this phenomenal value. And we're going to stick to that. And the proof is in the pudding. It's right there. And if you think about third quarter, we've talked about that in our earnings release that third quarter, we believe pricing on a gross basis is going to be up about mid-single -- about single high digits, and that would translate obviously to low single digits on a net basis. But keep in mind, we are rolling over a summer of 2019 versus '23 where we don't have the Baltic as a result of the Ukraine-Russia conflict. So that is a big headwind. But despite that, we are gaining significant pricing power. So financial update and outlook. I love that picture. I think, it's important to set the stage to see how we, as a company, have done through prior economic cycles. You can see, this chart goes back all the way to 2008. And what it does is, it highlights our trailing 12-month EBITDA. And if you look at that over -- across the various cycles, whether it's the Great Recession, the major geopolitical events in 2016 and 2017, we have continued to grow EBITDA in this company and related margin, culminating to $1.9 billion at the end of 2023 or at the end of 2019. This business has proven time and time again, in this industry, that no matter what event in the world, whether it's geopolitical, economic cycles or anything of the like, this industry bounces back and it does so quickly. Just think about it. This time, last year, the industry was just restarting after being shut down for 500 days, and look what we're doing already as a whole, more in particularly us, as a company, we are operating. We're here. We're back. So what are our key financial recovery milestones? At various conferences, whenever I speak to any of you and equity analyst. The 1 thing I always want you guys to take away is that we want to -- our reputation is #1. We want consistency, which builds confidence. So what we tell you is what we're going to hit. We tend to be a conservative management team, but we are not a group that dangles the carrot and says, "Oh, yes, we might hit this number." And then we underperform. We want to build confidence, and we're hitting our milestones. You can see, it started with positive contribution from the fleet in Q3 of last year. We reached positive operating cash flow in March of this year. Positive operating cash flow for the second quarter, the first quarter since the pandemic started. We expect to achieve positive EBITDA for the second half of 2022, as we outlined in our earnings call. And the next big milestone is, we expect to generate adjusted free cash flow for the fourth quarter. Again, we are rebuilding this business, but these are milestones we're going to hit, we intend to hit and that we're on track to hit. And all of that is going to result in historical load factors for 2023 and record yields and record EBITDA for 2023 based on everything we've seen today. We are extremely well positioned going into 2023, and we're finishing out 2022 strong. So we are in a great position to continue to hit our milestones. So debt maturity profile. We've seen -- when we look at the 2 competitors, we've seen that there's been some refinancings lately. But I want to tell you, during the pandemic, we were pretty methodical. We were pretty deliberate in terms of when we were raising debt, how we are raising debt, we were very cognizant of the debt maturity towers of how that was going to come to play in the future. And that's what this represents. If you look at 2023, '24 and '25, we have, call it, plus or minus about $1 billion, $1.5 billion of maturities, which is a pretty clean debt tower, allowing us to rebuild as we come out of the recovery. Now you can see in 2024, you'll see $1.5 billion. That's our normal amortization. We are going to be in the marketplace later this year. I think I've communicated this many times. Our operating facilities, our revolver and Term Loan A will become current in January 2023. They mature in January 2024. But from a balance sheet perspective, they become current in January 2023. So we are in discussions. We -- you will see us in the marketplace this quarter to amend and extend those facilities. And I've said this time and again, based on everything we've seen with all of our relationships and the banks and all of our partners, we don't anticipate that there's going to be any material change to those terms, again, because it's going to be a short extension, amend and extend. But beyond that, we have a relatively clean tower, leading up to -- as we continue to generate cash flow and leading up into 2026. And another phenomenal fact, pro forma for the Prima delivery, our fixed debt, 75% of our debt is fixed, and that's at a weighted average cost of debt of about 5%. Fast forward to the end of 2023, that 75% goes to 80%. So in a rising rate environment, again, we are well positioned from an interest and debt standpoint, given our overall cost of debt. Liquidity. Liquidity, liquidity, liquidity. So we're ending the quarter, it's very preliminary, of course, but we believe we're ending the quarter at about $2.2 billion of liquidity. That consists of about $1.2 billion of cash plus the $1 billion backstop facility that we have. And if you go back to the second quarter, our liquidity was $2.9 billion. So yes, we did have a decrease in liquidity. It's expected. If you think about what we've said in our milestones, we expect that we're going to generate adjusted positive free cash flow in the fourth quarter. So we wouldn't expect that we're going to generate incremental cash until that point. But what I'm here to tell you is that we are right on plan. And in fact, I believe we're actually doing better than our plan. But we ended the quarter with $2.2 billion. As of today, we currently have about $500 million of available debt capacity, should we need, and that is in addition to the $1 billion backstop that we have in place today. And I talked about the amend and extend that we're looking to do with -- in this quarter. And as part of that, we will -- we are -- as another backstop, we are discussing with our lenders about increasing our available debt basket capacity. Not that we have intention to use any of it, but we want to have the flexibility, should there be some worldwide significant event that impacts the industry. We will always want to have the flexibility. But based on our outlook and most importantly, I want to reiterate this, we believe we can fund our operations based on our existing cash and our organic cash flow that we see as we look at our models. I'm here to tell you, I've told people this before, our Board of Directors, our management team has 0 appetite to issue equity, to reduce debt or to delever. When you look at the cash this business spins off and you go back and you look at '19 and prior, we were spinning off about $1.5 billion a year, plus or minus. This business produces cash and it's starting to ramp up. So we believe we have sufficient liquidity and sufficient cash on hand to fund our operations. Why do we have confidence in that? Well, this is it. The advanced ticket sales. That is the cash engine. That's the cash flywheel that funds this business. It's essentially free money. If you think about it, a consumer is making their final payment on average, 120 to 150 days prior to sailing. That cash adds up. That's what funds this business. And if you look at what our advanced ticket sale balance did, obviously, it was healthy in '18, the pandemic, we had the all-time low. And then look, what's happened in Q2, we hit a record high of $2.5 billion, $2.5 billion, and we were down to about $1 billion in 2020. And of which, if I recall, about $800 million of that were future cruise credits. And if you look at the build, which is the true cash coming in the door, irregardless of what's being recognized from a revenue standpoint, look what's happened on the right-hand side. Cash, this is true cash coming in the door. It increased 40% to almost $1.5 billion during the second quarter. So again, demonstrating that cash is coming in the door. This is why we're confident as we look at our models and we look at our outlook, we have sufficient cash to fund our operations. This says it all. And the demand is still there. Again, I touched on this earlier, meaning growth potential -- meaningful growth potential. So if you look at 2019, our capacity was about 19.2 million days. And you look at where we are today based on what we know for 2023. So from '19 to 2023, we had some ships that we took delivery of in late '19 that we really didn't get the benefit of, Norwegian Encore. And then at the start of the pandemic, we delivered a Seven Seas Splunder for the Regent brand. And then in between that, we just took delivery of this wonderful ship, and we're going to take delivery of Veeva next year, Vista next year and Seven Seas Grandeur. So if you look at the growth, on an annualized basis from 2019, we're growing our capacity at 23%. That's going to translate into outsized earning potential. So when we sit here and say today, we expect to generate record yields next year and record EBITDA. That's part of the reason why, and that's with the headwinds that we're seeing today in some of the inflation, the cost pressures. We are well positioned to capture this growth. And I go back to the beginning, if you invest in this company today, and you believe in this industry, there is significant potential as you look in years 1, 2, 3, 4, 5 in terms of the growth opportunities. And then, of course, if you fast track that down to 2027, that's almost a 50% growth in capacity. That's new ships. Keep in mind, we don't forget about the old fleet. And it's not an old fleet. We have the youngest fleet in the of the North American operator. We continue to invest. We continue to take the ideas that work on our newer ships. We retrofit some of our older fleet so that we're harmonizing. We're having a consistent product across our fleet. That's what generates the bottom line. So financing. Frank touched on this. Norwegian Prima, fixed rate financing, 2.7%, 12-year amortization, it starts the day you take delivery of the ship. Fast forward, we look at our next ship, Oceania Vista, 3.6% and Veeva 2.8%. I mean you guys can read the numbers. I don't need to read the numbers. But all of these rates are fixed. There is 0 opportunity for any of the export credit agencies or banks to renegotiate the rates. They are fixed. They can't change. And these are rates for ships that are not even being delivered -- that are being delivered over the next 5 years. So when you look at the low fixed rate financing and we talk about -- we've talked about the mechanics of some of our new builds, where we always expect when we build a new ship, we expect a 5-year cash-on-cash payback. That's part of the reason, but that's free money. That's free money in today's environment. And it's government-backed, low rate. So if you guys were in our shoes, yes, given our size, given our fleet of 29 ships, we need more ships. You want us to have more ships because that's going to help drive the growth story. So I don't want to get into details on this slide, but I think one of the things that people tend to overlook with our new building program is everybody says, "Well, Mark, you're building ships, but you have a huge equity or cash outlay ahead of the ship." Well, that's partially true depending on how we structure the financing because some of the financing supports some of our predelivery payments which, by the way, generally what happens is you sign a contract for the ship. We never contract a ship without fixed financing in place. There's generally 4 installments that occur prior to the ship delivery. Timing could be anywhere from 24, 18 months, 12 months, 6 months. Then you have the big lump sum delivery of 80% at ship vessel delivery. But the thing that people overlook is that prior to the ship ever entering service or us taking delivery of it, keep in mind, I talked about the advanced ticket sales. That cash flywheel starts churning about 180 days or longer before we ever even take ownership of the ship. And that generally results in about $100 million to $150 million of permanent incremental cash infusion to the business. So while we are making some progress payments ahead of the ship delivery, some of that is already financed. So it's not true cash out of the system. We are getting cash in our system before we even sail. So when you look at it on a holistic basis, it's not a huge drag on the numbers. It's really a magical formula if you think about it. But I think people tend to overlook that when they're looking at their models and they're looking at the cash generation of the business going forward. That's something that we wanted to point out for the audience. So what's our medium and long-term financial recovery? I've said this before. It's really 3 pillars. We're going to focus on rebuilding and improving our margins. I've been asked a lot, can this business bounce back? Is this business still capable of generating 30-plus percent margin -- EBITDA margin? And the resounding answer is yes. Everything we see indicates, whether it's record pricing, our cost structure, our scale, this business will return to historical margin levels. Now that's not to say that we don't have near-term pressures today. We all do. I mean we all go to the grocery store. We all have to fill our car with a tank of gas. There is near-term pressures. But the good thing is we're starting to see significant decreases in commodity prices, fuel prices. We're starting to rightsize our business. As our load factors get back to historical levels in the second quarter, that's going to help us. So absolutely, we see this business going back to generating 30-plus percent margin without a doubt, and I want to make sure that is very clear. We're focused on maximizing cash flow generation, I talked about it, through our advanced ticket sales, through the new ships. The numbers don't lie, folks. If you look at second quarter, the cash that came in, 40% higher, $1.5 billion. It continues to come in. The customer is back. And then, of course, optimizing our balance sheet. Look, we've made some hard decisions during the pandemic. We had to, just like everybody else. Unfortunately, we had to float more shares out in the marketplace. We took on additional debt. But we as a management team, we as a company, we've been here before. We know how to do this. We've taken this company from I think it was 12 or 13x levered in 2008, 2009 to where we ended 2020. I'll show -- or 2019, I'll show you shortly, in the low 3s. And we are planning to be in the 2s. The point is we know how to do it. And this management team, our Board is squarely focused on delevering and derisking this company. We're not going to do it by issuing equity. We're not going to -- it's going to come from good old-fashioned organic cash flow, good old-fashioned earnings plus the significant growth that we have coming online. We have every confidence in that. And this is what I'm talking about. This only goes back to 2014. But you can see, in '14, we were almost 7x levered. And by 2017, we were already in the 3x, and we ended 2019 at 3.2x. It was 3.4x, but we had taken delivery of a ship at the very end of the year, 3 times. And we were expected and we were signaling to the marketplace that we are going to be in the 2x handle in 2020 prior to the pandemic. And we did that on the back of also returning $1 billion to shareholders over the course of that. So that goes to demonstrate not only the cash potential that this business has and the cash that it generates, that's proof in the pudding. This management team, we know how to do this. We've done it before. It's in our DNA. We will delever this company. And I didn't want to put this in writing, but I've told several of you. Our goal -- if you look at where we are today, depending on how you look at our leverage, and if you look at the estimates for next year, one could say we're probably in the 6-point X area of leverage today or early next year. Based on everything we see and what we're targeting as a management team and as a company, we want to turn 2023 with leverage of a 5x handle; in 2024, a 4x handle; and in '25, a 3x handle. Not easy, not guaranteed. But where we see the business, we think there is real potential to do that. And that's what we are squarely focused on as a management team. We're focusing all our efforts around that because we know we have to delever the company. We want to derisk the stock, and that is our #1 priority. And again, we're not going to do that issuing equity. Here to tell you that today. So we've done it before. We know how to do it. We're on track. 2023 is looking great. Business -- demand is strong. Pricing is strong. We have a great setup. That, combined with our growth potential, the future looks bright for us. So with that, I'll turn it back over to Frank for some key takeaways before we go into Q&A.

When we started this morning, I asked you all to focus on the handful of bullet points that we want you to remember after today. And the first one is not all cruise operators are created equal. What happens to Carnival isn't going to happen to us. Many of you believe that, and you believed it for years. "Geez, if the biggest operator has these issues, the #3 guy certainly will succumb to the same fate sooner or later." Hasn't happened in the past. Certainly isn't going to happen in the future. It's a completely different business. Don't believe it. I think between Mark and I, we've demonstrated to you through facts, through numbers, through trends that we have specific drivers that makes our investment thesis very different than others in our space. And I hope you take that to heart. We've been clear and consistent in our strategy. We've delivered what we said we're going to deliver. We're not trying to window dress. This is not about optics. This is not a race. We manage the business for the long term. And others might have higher occupancies than us early on. Great. Look at their pricing. Pricing lingers. After a sailing ends, whether it's full or empty, no one knows, no one cares, it happened. Pricing lingers. Pricing has a tail. If you charge $100 for this cruise today, don't expect to charge $300 for the same cruise tomorrow. It doesn't work that way. And so what we have seen through time and time again, those who discount take forever. And I mean forever because some cruise companies have yet to return to their pre-Great Recession pricing. Our 3 brands took less than 3 years to do so, Great Recession pricing. Everything we showed you demonstrate that there is a healthy consumer out there, at least those ones that we target. We don't target those making less than $50,000. Just yesterday, one of our major, major banking partners, who's also one of the country's largest credit card operators, told us the following. What they're seeing is those who have household incomes of less than $50,000 are seeing a major drop in their purchasing of hospitality-related expenditures. We don't fish in that pond. Between $50,000 and $100,000 in household income -- annual household income, slightly down. Maybe around the edges, we fish in that pond, not at the $50,000 level, but closer to the $90,000, $100,000 level. And those who make more than $100,000, and you saw that certainly coalesces with the net worth that we showed you, volumes of 250 plus, hospitality spending is actually slightly up. So we're confident based on what we're seeing, the numbers that we have on our books today, our marketing strategy, that, that healthy consumer is going to continue. The labor markets are still strong. Wages are up. So is there going to be an economic slowdown? There might be. But my sense is that if there is one, it will be more in the business world than in the consumer world. And as you know, the U.S. economy, 2/3 of it is run by consumers. As long as people have jobs and they're making good money, they're going to spend. And they're going to spend on vacation, and we're going to be there to take it. And the value proposition comes in because if there is a little bit of fragility around the edges, value becomes more important than ever, and you saw the value proposition of a cruise versus land. It's all about, at the end of the day, cash, right? We do all this to generate cash. Cash is king. I'm not going to belabor the point. I think Mark did an excellent job of communicating to you where our cash position is and what we expect to generate to delever the company, fund operations without having the need to raise any kind of capital. We're confident of that. So we've been up here a long time. I think we're over by half an hour. But we want to give you plenty of time and those who are live streaming to ask questions. We are going to ask -- or answer some questions from those in the Say platform. So we've got 45 minutes of that, and we're going to open up the audience for questions. Thank you very much for listening.

All right. Thank you, Frank. All right. To kick off our Q&A, we actually have partnered with Say Technologies for the first time with this event to open up a new shareholder Q&A platform which allows all of our shareholders to submit and upvote questions to management. We chose to use this platform because we wanted to make sure that all of our shareholders, large or small, have a voice and are engaged with us. So we're going to start off today by addressing the top-ranked questions that came into the platform, and then we will kick it off to the audience here. Okay. So the first one here, the top-ranked question here was what are the major revenue obstacles your data shows right now? Is it COVID, the economy or any other reason? And I think Frank is probably the best one to answer this one for us.

Thank you for those questions. It's not COVID. COVID is over. President Biden said so. But look, it's over. It's over. Look what the CDC has done over the last couple of weeks, not that the CDC is the -- you know where I'm going with that, right? But last week, if you go to the hospital, you don't have to wear a mask. That's about as telltale a sign that it's over. So the short answer is it's not COVID. And you just heard my comments about the economy. Yes, there are strains around the edges. So far, the economy, the inflation is hitting those in the lower-income categories harder than those who are higher. Thank God, for us, our strategy is to [ have ] quality customer, that more upscale customer. It melds with our strategy of having each of the brands at the top tier of each of those categories. So I'm the CEO of the company. I worry about everything. And it's my job to worry about everything. But I'm not any more worried today than I normally am about the revenue generation capacity of this company. The numbers suggest so. So we're hoping for the best obviously, but we're prepared for the worst. We know how to market during good times. We know how to market during bad times. We think our product supports a higher price. We're getting it, and -- yes.

Great. Thank you, Frank. And so our second question here is what are your financial plans for 2023 to pay off some expiring debt? Are any more share sales planned? Just in case you didn't hear it 3x Mark already told you, he will tell you again.

Look, when we talk about, I guess, expiring debt, I guess that's maturing debt, I talked about that in our maturity tower. We have a pretty clean maturity tower next year, about $1 billion, and we're generating -- the cash engine has already started. And as I said -- if I didn't say it clearly, we do not plan to issue any more equity to raise capital. We don't think we need to do anything. We think given the trajectory of the business, our cash is more than sufficient, cash on hand, plus the cash that we expect not only to fund the business but to support the $1 billion or so that we have coming maturing next year. So this is actually not something we're significantly worried about it, and I talked about the confidence of why that is. It's because of the advanced ticket sales. That engine is revving, that flywheel is going and we continue to see it accelerating. So it's full steam ahead for us, and it's just going to improve as we get back to historical load factors in Q2.

And to be clear, we don't always comment on our capital market activities. But given the current volatility, we are just doing this one time because we feel like it's appropriate to reassure and to give you guys a little bit more confidence. But don't ask us every quarter.

Because our legal -- our counsel's here. We blame it on them.

All right. So now we can take some questions from the audience. Let's start with Vince over here, right in the front.

So a question for you, Frank. I remember years ago when you guys were talking about your capacity expansion plans, it involved building up more sourcing on the West Coast, looking more into Canada and growing in China. And when you look at the capacity that you have arriving now, it's substantial. You provided that sourcing chart up there for guests by region. Can you talk a little bit about your plan to grow sourcing and how you think you're going to fill these ships and in which markets you think are most prime for additions?

Yes. Well, it won't be China. I'm glad we left China when we did, and that's a whole different story. Like I said earlier in my remarks, we've always been a U.S.-centric business. We have diversified to the point where today, we're roughly 80-20. I think if you ask our brand presidents where they like to be, they'd probably be more 75-25. We probably won't be pushing that 75-25 balance today given what's going on around the world. Typically, Europe is our second -- Europe as a whole is our second largest source market after North America, which includes Canada. So we've grown our Canadian business well. I think we've grown our U.S. business as well, both in absolute terms and in relative terms. So we now have the infrastructure in place that if we need to flex more business out of the U.K., out of Europe, out of Australia -- which is a very nice market for us. I think Australia is #3. After U.S., Canada, Australia is #3. We now even have a presence in South America we can flex. But let me be clear: if possible, I'll take an American customer any day over anybody else.

And just to put some more end caps around that, if you think about it, we only carry about 3 million or so passengers a year between our 3 brands. And I think Frank said this earlier, something we can't overlook, this industry in 2019, only 30 million people cruised worldwide. So Frank talked about if you look at the penetration in terms of the overall demographics that have the ability to travel and then where we're positioned within that, there's tremendous opportunity from all different source markets. We're barely scratching the surface.

Mark, 2 questions. Chris Stathoulopoulos, Susquehanna Financial Group. Just if you could give a little bit more detail on the cash flow bridge from June to September. I think that was a little bit more than $0.5 billion decline. And then two, any color on your exit rate for unit costs this year in areas that you feel are stickier or harder to work off as you work into 2023?

Certainly. So if I think if I heard it correctly, it was the cash burn from Q2 to Q3, and then in terms of costs that are improving over the back half of the year?

Yes.

[indiscernible]

Yes. Look, as I tried to say -- tried to communicate before, our cash burn from Q2 to Q3, it was about $700 million or so on a net basis, $2.9 billion to $2.2 billion. That was expected. Again, if we -- if you look at where we are, we did have debt that was amortizing in the normal course over the course of the third quarter. And if you think about where we're going, we have said that we expect to turn adjusted free cash flow positive in Q4. At that point, that's when we expect to start building cash. So not unexpected, not surprising. It was actually slightly better than we thought it was going to be going from Q2 to Q3. So again, the trends are improving. But until we hit that adjusted free cash flow metric in the fourth quarter of this year, you will see a slight decline in cash. And then in terms of the cost structure, look, we're working hard everywhere we can. Our #1 focus was to get the business back, get it going. Did we probably overspend purposely that when customers came on board, they were getting the best product possible? Yes, I think, generally, we did. But that was by design because we wanted this industry -- we wanted our company to come back with a splash. Now there's still inflationary pressures out there. But when you look at proteins and you look at vegetables and consumables, I just got some charts from our supply chain group 2 days ago, things are starting to go down and they're getting -- they're starting to get back into their 5-year average. So we're going to take advantage of that. It's not going to happen overnight. When you look at our costs, you have to keep in mind that this is a fixed cost business. Our capacity days, so when you look at it on a unit cost basis, our capacity days are not fully ramped up yet. So as you look at the unit cost between third, fourth and first quarter, it's going to be improving. But there is a little bit of a hurdle there just by the mere fact that we're not operating at full loads. And some of the costs, you just can't get rid of and you can't get the scale out of it. So costs are improving. We're focused on it. We're also focused on the top line. But again, it takes a certain investment to get them per diems that we want, and we'll continue to be smart about it.

James Hardiman at Citi. Thanks for having us on board. Really appreciate it. A lot of discussion about pricing today. I guess I struggle a little bit connecting the dots between what's been reported in terms of your peak [ premiums ] and how we should think about next year. Obviously, pricing is up significantly next year. But it seems like there's a lot of puts and takes with what's been reported versus how we think about next year. So maybe connect the dots, give us some puts and takes. One of your peers, who will remain nameless but was in the red in the presentation, had significant declines that they reported, and yet they're still talking about significant growth as we look to next year. Your strategy has obviously been different than theirs. But just versus where you've reported, should we think about pricing next year being similar, better, worse? Obviously, there are some moving parts there.

Look, I think we were pretty clear. First of all, you look at our second quarter results, up 11%. I think if you look at our earnings call commentary in the second quarter, we had given a what we said clearly was going to be a onetime fact, that our revenue on the books was up 40%. Some of that was related to our 20-plus percent capacity increase for next year. But we also said pricing was up 20%. Now we did say that, that will level off because it naturally will level off. But I also said pricing was significantly up for next year at the same load factors that we saw in record 2019. So everything we're seeing from our customer base -- and I think that's important to hit on. Our customer base is not the same as one of our peers in the red group or some of our peers in the blue group. Our customer base across our 3 brands tends to be a higher-level customer. They're not immune to economic cycles. They're not insulated -- they're more insulated. They're more resilient. Frank gave some stats on one of the largest banks that we just got in terms of credit card processing the other day. So our customers are there. They're booking. They're paying. It's about the deal. It's not just about the [ 999 ] cruise. It's about everything you're getting. Consumers are willing to pay if they feel that they're getting value in a deal. And again, all that goes on the back of our go-to-market strategy. This is a huge opportunity for the industry to change the pricing dynamics. The industry has never been stopped like this. Let's take that jump. Let's reset the index on pricing for this severely undervalued product vis-à-vis our land-based competitors and get the consumer and the broader community used to higher pricing. We're all seeing it across the board. Why shouldn't we participate? It takes marketing to do that. I said somewhere -- a few minutes ago, only 30 million people worldwide cruised. If you think about that worldwide, we have to continue to educate. We have to continue to bring this value proposition to the marketplace: U.S., Canada, Europe, worldwide. So we're going to spend to do that, and we're seeing it in our 2023 trends. Turn it over to you.

No, I -- not much to add to that. Look, yield growth is one thing, and we're telling you squarely, our '23 yield will be the best ever: better than '19, better than what '20 was going to be before the pandemic. But also look at the absolute number. In Q2, $277 per person per day net revenue. Red peer, $154 using the same math. 80% higher. What does that tell you? We've got a different customer. We've got a different business. 80% higher. And I went through great lengths to show you why at $277, we still have a lot of headroom to grow. Mark just mentioned it, the gap between us and alternative vacations to cruising. Everybody talks about, "Oh, we need to close the gap." We're the ones closing the gap: $277 a day, 80% better than the red, 38% better than the blue. Pretty good.

Robin Farley with UBS. So clearly, your 2023 cumulative book position, very solid. But it seems like the last 6 weeks would be incrementally even better, right? In other words, since the protocols have been dropped, that the run rate is even better than what your cumulative 2023 position is in terms of price and load build. Can you give us any insight into kind of how much stronger the last 6 weeks is rather than -- because cumulative includes bookings from, obviously, months ago when there were more restrictions. Just to get a sense of that run rate for demand.

Robin, look, if I look back at the last 6 weeks, what sticks out to me is how much business came on for 2022. '23 is marching along the way it's marching along. Our marketing machine is focused on '23 forward. So that kept the party going on '23. The surprise to me was without much marketing for '22, '22 started looking a lot better in late Q3 and in Q4. So look, these are all steps towards getting back to full normalcy, okay? We think we've taken the lead on these steps. We were the first cruise company to eliminate -- to allow [ unvaccinated ] to come online. Monday, we announced at the Norwegian brand, no protocols. Every day, every week, more destinations open their doors to cruising. I think we're down now to, if I remember correctly, the Comoros, Nicaragua, China and Japan. Out of those 4, I only want Japan. We need Japan, quite frankly. We have quite a bit of business in Q1, early Q2. And Japan -- we're talking to Japan, the whole industry is, and we think that's going to happen. So these are all data points that you string along. You hear the commentary from our peers, from ourselves. It's happening, Robin. It's happening. Perhaps the broader community doesn't understand what it took to bring the companies back to life. We weren't shut down for a week or 2 like hotels were or restaurants were or airlines were. Never shut down. 500 days, everything went dark. To bring it back up, not just the operations, that's sort of the easy part, but to go from 0 to 100 miles an hour like we need to be, to fill the vessels on a consistent basis short term, midterm, long term, it's a yeoman's job against the backdrop of COVID still in the background and then someone started talking about recession. And it's happening. It's happening. And it's too early to talk about '24, but '24 is better booked than it's ever been this far out. So unless something changes in that trajectory, all the steps, all the building blocks are there to have a wonderful '23 and put this whole 2 years behind us.

Thanks for that, Frank. It's not lost on us, the mammoth lift you guys have gone through over the last 12 months. Brandt Montour from Barclays. And thanks for doing this in, obviously, a gorgeous ship. First question for Mark. The '23, '24, '25 net leverage targets that you commented, I want to clarify, that's a handle, not a [ dot zero ] sort of target? And then -- that was part one of the first question. Part two is do you need to run net yield growth at a higher CAGR versus your pre-COVID run rate to get to those targets?

Thanks, Brandt. Glad you enjoy the ship so far. I would love it to be at a 5.0 handle, but I just don't think that's realistic. Hence, why I said 5.x. Look, the point is we're trying to get into the 5s. Is it going to be -- will it be on the high side of the 5s? Yes. I think that's a realistic target. And same thing when you look at 4 and 3 beyond. But we're going to work our tail off to do better than that and if we can. So when we look at our historical yield growth, our historical cost growth, when we talk about our targets, we're not talking about a blue sky every day, blue sky every day for the next 3 years type of scenario that has to happen. The normal course of business just has to happen. We just have to be able to continue to operate. Traditionally, we've grown yield anywhere from about 3% to 5%, sometimes higher. The cost, generally, if you look at it on a CAGR basis, it's probably going to be somewhere around 3% to 3.5% from 2019 on a CAGR basis. You put all that together, it just naturally generates the EBITDA and earnings expectations that I think we're expecting for next year and beyond. So there's no magic potion that we need to happen. We just need to be able to operate in a stable environment at our normal cadence. Now we don't settle for our normal cadence. You guys know that. We tend to be very conservative. I said that when I first walked up that we want to build consistency, we want to build confidence in our investor base and all of our stakeholders. So what we tell you are targets that we think we can reasonably hit in a normal environment. It doesn't have to be a blue sky day every day.

One of the big drivers is that capacity is coming online. You saw the chart of what we've actually done from 2015 to 2019: capacity CAGR of 7%, revenue CAGR of 11%, EBITDA CAGR of 13%, cash flow CAGR of 15%. We overperform. And I can't wait to get my hands on these 8 other ships coming because they're going to be more premium, more capacity growth than what we saw in '15 to '19. So it all boils down to this, in my view: Do you believe that we can fill the new ships coming online at the kind of premium yields that we've demonstrated in the past? If you don't think we can, run for the hills. If you think we can because we have the know-how, the machinery, the strategic vision to do it, then this is going to be one heck of a cash-generating machine, an EBITDA-generating machine, a net income-generating machine.

It's hard to bet against you, Frank. If I may also, Cuba, do you think that that's a near-term catalyst in terms of reopening? And if so, would you go in differently than you went in last time?

I don't think Cuba will open up anytime soon. I stay close to it in many ways. As you know, I happen to be Cuban. So I have a vested interest not just because I run a cruise company, because that's where I was born. I don't think it's going to happen in '23. I don't think it happens in '24. The administrations, there's back-channel conversations. U.S. just opened up the embassy in Havana after Trump closed it down. But look, we're hoping that it reopens. And if it does reopen, I think we will do exactly what we did last time. It was very successful. You saw those numbers for 2019. 2019 was hampered $100 million. We lost $100 million when Trump ordered us out of Cuba with a -- I think it was 14 hours notice. $100 million. So '19 would have been $100 million better: net income, EBITDA, everything. I guess $0.50 a share, right, if it wasn't for Cuba. So we'd love to have it, but I don't know. It's not included in our calculations that you saw today.

Maybe Patrick -- go ahead first.

Paul Golding from Macquarie. Thanks so much for having us on, I'll echo the sentiment, beautiful ship. I wanted to ask about wave season and how you're thinking about wave in the context of this year and versus how you thought about it in 2019? And also, I think you gave a 65% goal for booked volume at the end of '22 for '23. And I'd just like to see if there's some color you could give around marketing in that context and whether you see a smoother curve throughout the booking seasons relative to how booked you are and the demand that you're seeing and relative to wave?

Yes, look, we're not going to do anything extraordinary, anything different than what you've seen us do over the past few quarters to get to that 65% and at record prices, let's not -- always talk about load and pricing in the same sentence. The easiest thing in the world is to fill a ship. At $10 a day, I can build the ships like that. Those 2 variables have got to go together, else it's not a complete picture. So our 3 brands are -- continue to work to get to that 65% by year-end. By the way, a couple of the brands are already way past 65% for next year. And in terms of the wave season, I think wave is going to be really, really good. We didn't have one in -- the 2020 wave got cut short, right, because we all ended the party on March 10 and the wave was still going. We didn't have one in '21. We really [ didn't ] have one in '22. So I think it's going to be big. I know that our 3 brands are planning big marketing pushes to generate as much business as we can during wave. And that will be another touch point is wave back. If we have a strong wave, that's another check the box that we're that much closer to being normal.

Great. Let's go here and then Patrick in the middle here, but let's start over there.