Norwegian Cruise Line (NYSE:NCLH) held its first-quarter earnings conference call on Monday. Below is the complete transcript from the call.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=nrlnZej1
Summary
Norwegian Cruise Line reported a mixed financial performance for Q1 2026, with net yield down 1% but adjusted EBITDA exceeding guidance at $533 million.
The company is undertaking significant strategic initiatives, including cost reductions in SG&A by $125 million annually and optimizing its revenue management and marketing systems.
Future outlook includes challenges due to geopolitical tensions and internal missteps, particularly in Europe, leading to a reduced full-year guidance with net yields expected to decline by 3 to 5%.
Operational highlights include the christening of Norwegian Luna and the upcoming opening of Great Tides Water Park, expected to drive demand in 2027.
Management emphasized the focus on internal improvements, leveraging strong brand assets, and reducing leverage as top priorities, despite a challenging macroeconomic environment.
Full Transcript
OPERATOR
Good morning. Welcome to the Norwegian Cruise Line holdings first quarter 2026 earnings conference call. My name is Rob and I’ll be your operator at this time. All participants are in listen only mode. Later, we’ll conduct a question and answer session and instructions for the session will follow at that time. If anyone should require operator assistance during the conference, please press Star zero on your touchstone telephone. As a reminder to all participants, this conference call is being recorded. I’ll now turn the conference over to your host, Sarah Inman. Ms. Inman, please proceed.
Sarah Inman
Thank you and good morning everyone. Thanks for joining us for our first quarter 2026 earnings call. I’m joined today by John Chidze, Chairperson and 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 first 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 25 and 26 net yield 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’d like to turn the call over to John.
John Chidze (Chairperson and CEO)
Thanks everyone for joining the call. It’s my pleasure to be joined by Mark today as we discuss our first quarter results. I’ve now been in the seat for roughly three months. I’m going to start the call by spending a few minutes covering what I’m seeing so far across the business and then we’ll update you on the actions we are taking to position the business for long term success. It has been a very active start. I have spent a meaningful amount of time meeting with various stakeholders including shareholders, travel partners, guests and team members, listening carefully to their perspectives on the business. Our proactive work this quarter is setting the tone for the remainder of 2026. My key focus is on driving sustainable improvement at NCLH and that starts with disciplined execution, operational rigor and a clear focus on the fundamentals. I continue to believe that NCLH is a special company with strong brands, world class assets and dedicated guests. This was especially evident at the christening of Norwegian Luna that was held about a month ago. The excitement on board from travel partners and guests was palpable at Great Stirrup Cay. We witnessed the significant progress being made on the island, particularly at the Great Tides Water park which remains on track to open later this summer. This water park will be a demand driver moving into 2027. It will elevate the island’s offerings and enhance the guest experience. Experiencing our newest ship and upgraded private island amenities firsthand brought to light the strength of our brands and the size of the opportunity ahead of us. It also reinforced my view that cruising remains one of the most attractive propositions in travel. Day in and day out, we offer a differentiated vacation experience across multiple destination, focusing on convenience and quality to deliver enhanced value for our guests. As cruising continues to benefit from healthy industry fundamentals, including record passenger volumes and encouraging indicators of both repeat and first time cruise demand, I am confident in the industry’s long term trajectory. We are focused now more than ever on where we need to enhance operations so that NCLH can capitalize on these broader industry trends from a position of strength. To that end, I now have a good sense of the core areas where we will be dedicating the most focus to drive the most meaningful impact in the near term. Since stepping into the CEO role in February, one of my top priorities has been strengthening our internal culture across the organization. This includes building a greater sense of urgency, sharpening accountability in fostering a one team mindset across our operational segments. Of course strategy matters, but my turnaround experience has reinforced that culture is essential to improving how we operate, how we make decisions, how we deliver results and the speed at which we do it. We are already taking steps to build and enhance a cohesive culture, including our recently completed search for a new Chief People Officer whom we expect to officially welcome to the team soon. On the cost side, we are working efficiently and effectively to optimize our SGA structure, streamline the organization and better align resources with the areas that matter most to drive performance and long term value creation. While ship operating costs have remained relatively consistent over the past several years, we see a meaningful opportunity to reduce shoreside cost. As part of that effort, we are streamlining the shoreside organization and making targeted role and position adjustments to improve efficiency and better align resources. As a result, we expect our salary and benefits costs to decrease by approximately 15% on an annualized basis. Actions like these are never easy, but are intended to better align resources, improve productivity and strengthen execution across the business. As part of these efforts, we are also exploring additional opportunities to improve efficiency in our operating model and drive incremental savings over time. For example, we have started to pilot select offshoring initiatives across different areas of the company. These efforts are in their early stages and we are testing and learning as we go. We plan to utilize this lever as we move ahead, expanding upon and scaling our efforts where and when appropriate and most beneficial to the business. We are also taking a hard look at other spend across the business, including marketing and advertising, and we see an opportunity to not only improve effectiveness but also efficiency from a marketing perspective. Our focus is on correcting missteps we have made in recent years as we enhance our ability to target the right consumer with the right message through the right channels, while ensuring that our spend is translating into demand returns. In line with this focus, we are planning to reduce our marketing spend in 2026 while sharpening the effectiveness of that spend. As a result of the marketing spend reductions as well as organizational optimizations, we expect to reduce our SGA by $125 million on an annualized basis. These are long term structural actions that we believe will help offset near term pressures and position the business for stronger performance over time. Beyond this, we have been evaluating our bundled AIR program through the same lens of discipline and return on investment, and we have continued to make targeted changes to improve economics. In many cases, this program has effectively served as a promotional tool but hasn’t always delivered returns commensurate with its cost. We will continue to assess these offerings to ensure they remain commercially sound while offering convenience to our guests. I am confident in the efforts underway to capitalize on opportunities we are identifying on the cost side, and while the revenue side of the equation is more complex, I recognize that it undoubtedly represents our greatest opportunity from a revenue management perspective. As you know, this is not a function that changes overnight, but we are actively taking steps to strengthen it. To that end, we recently implemented Phase one of a new revenue management system, and while its capabilities are meaningfully stronger than our prior tools, its effectiveness will depend on correctly calibrating the underlying data, refining and turning it to better align with our deployment. A system like this is also only as strong as the people using it, and we are continuing to build out the team and capabilities needed to fully leverage it. We are also continuing to refine and tune the system to better align with our deployment. Additionally, for revenue management to be effective, we need to generate stronger demand at the top of the funnel. As clearly evidenced by our shortfall in occupancy for this year. Our marketing function has not been operating as effectively as it needs to and we have to get those fundamentals right in order to drive demand more consistently and and put ourselves in a better position to optimize pricing. As I mentioned earlier, we have had missteps over the last few years where we were not consistently and effectively speaking to our core customer. We were not always putting the right commercial support behind the itineraries we were trying to fill and our marketing was not as demand generative as it needed to be. To address that, we are looking to bring in new leadership and marketing at NCL and better align that function with revenue management, deployment and sales. This work is critical and will strengthen the business over time, but it may result in some near term variability in top line performance as we work through these initiatives. While we’ve identified key internal priorities and are making progress addressing areas of underperformance, the external operating environment has turned more challenging. We entered the year behind our ideal booking curve in certain areas and recent geopolitical developments have added pressure to an already challenged backdrop, particularly in our European market this summer and demand for close in bookings. Rest assured, we are monitoring this closely and making adjustments to our business model when and where needed. I want to be clear, while the macro environment continues to rapidly shift and evolve beyond our control, many of the issues we are addressing are internal and fixable. They come back to execution, alignment and discipline. As I noted at the outset of this call, Mark will go into our guidance for the year, but we recognize that our 2026 outlook is below expectations. We are not satisfied with that and I know our shareholders aren’t either. I stepped into this role to address these issues and we are here to do just that with the support of our talented team. We have the assets, we have the brands and now we have the focus. Our job is to execute better, operate with more discipline and build a stronger, more cohesive organization. While progress will take time, I am confident we are moving in the right direction to deliver stronger, more sustainable performance over time. With that, let me turn it over to Mark.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Thank you John and good morning everyone. I’ll begin with our first quarter results on Slide 6 which were in line with our expectations. Net Yield in the first quarter was down 1% which is above our guidance adjusted Net cruise cost ex fuel of $168 was slightly better than guidance, declining 1% driven by strong cost controls which ultimately drove adjusted EBITDA of 533 million exceeding our guidance. Lastly, adjusted net income for the quarter benefited from below the line foreign currency exchange and was 108 million or an adjusted EPS of 23 cents. Turning to slide 8, you can see our second quarter and full year guidance. Our outlook reflects an extremely challenging backdrop for the balance of the year. Keep in mind our prior guidance did not include any impacts from the disruptions in the Middle east which is creating incremental headwinds including pressure on the top line and higher fuel expense. These external pressures are occurring as we continue to calibrate our revenue management system, improve commercial execution including marketing and demand generation, and work through the impact of entering the year behind our targeted booking curve. As a result, we are reducing our full year guidance for net yield, adjusted EBITDA and adjusted earnings per share. Starting with net Yield in the second quarter, we expect a decline of 3.6%. This reflects pressure mainly on our European sailings, which represent approximately 26% of our deployment in the quarter as well as weaker than anticipated domestic demand as consumers reevaluate travel plans. In the current macroeconomic environment. Looking to the full year, we expect net yields to decline 3 to 5%. This updated guidance reflects both the impact of the macroeconomic environment and the extent to which those pressures have compounded the execution and commercial challenges already facing our business. In terms of pacing through the quarters, we currently expect the third quarter to be significantly weaker than the second quarter, reflecting our greater exposure to Europe, which represents approximately 38% of our deployment in the quarter and as well as continued softness in markets such as Alaska, which we discussed last quarter. Looking to the fourth quarter, we are assuming the consumer environment remains pressured, although net yields should improve from Q3, supported in part by the opening of Great Tides Water park at Great Stirrup Cay by the end of the third quarter. Moving to Cost John discussed earlier in the prepared remarks, we have made great strides to take quick and decisive action on the cost management side of the equation. I will go into this in a bit more detail, but we now expect our adjusted NCCX fuel to be approximately flat for the full year and up 1% in the second quarter due to the timing of certain costs. Moving to fuel, we now expect fuel expense to be approximately 800 million based on the current spot prices. However, fuel expense would be approximately 6% lower if rates were based on the forward curve as a result of softer than expected top line performance and higher fuel costs partially offset by better cost performance. We are reducing our full year adjusted EBITDA guidance to between 2.48 and 2.64 billion and our adjusted EPS guidance to between $1.45 and $1.79. We recognize these results are significantly below expectations. That said, we have moved quickly to focus on what we can control, particularly on the cost side which I will detail on slide 9. We have taken swift action within SGA to drive efficiencies and identify savings. To start, we are taking steps to optimize our organization and reduce our marketing spend which combined are expected to generate annualized run rate savings of 125 million in 2026. These efforts will result in an expected approximate 2 percentage point reduction in adjusted net cruise cost ex fuel. Unfortunately, a meaningful portion of these savings is being offset by incremental direct costs related to the conflict in the Middle east, including higher crew airfare and increased logistics costs. Together, these impacts represent an approximate 1% increase in adjusted net cruise cost ex fuel. As a result, we now expect full year adjusted net cruise cost ex fuel to be approximately flat for the year. The important point to keep in mind is that while these savings are being partially offset by war related impacts in 2026, the actions we have taken are structural in nature. On a run rate basis, we expect to carry these savings forward and see a benefit in adjusted net cruise cost ex fuel as we move into 2027. As shown on slide 10. These actions position us to keep adjusted net cruise cost ex fuel sub inflationary and in fact 1% or lower in 2026 for a third straight year despite the current macroeconomic headwinds while also meaningfully exceeding our cumulative three year savings target of 300 million. We are now approaching 400 million in savings between our shipboard efforts over the last three years. Combined with our recent shoreside cost savings. We expect these actions to continue to benefit the business over time, supporting margin expansion as top line performance begins to recover in 2027. It’s also important to note that our work here is not done. We continue to see additional savings opportunities across the business both within SGA and on the shipboard side and we expect to build on these efforts going forward. The reduction in our 2026 adjusted EBITDA outlook has also impacted our expected year end net leverage. Reducing net leverage remains our top financial priority and we remain confident that leverage will improve over the coming years as earnings grow, capital spending moderates and cash flow strengthens as we turn around the business turning to Slide 11 our gross new build and growth CapEx detail highlights that we are beginning to move beyond a period of elevated capital spending. Over the last several years, we have invested heavily in our fleet, adding two to three ships annually and driving strong capacity growth, with capacity days expected to increase 7% in 2026. We will continue to take delivery of new ships over the next two years with two ships in 2026 and another two in 2027 beginning in 2028 and 2029, however, that pace moderates meaningfully with only one ship scheduled for delivery in each of those years. As a result, we expect Gross New build and growth capex to decline by nearly 1 billion per year, which should materially improve free cash flow generation. We view this as an important inflection point for the business and a meaningful opportunity to accelerate deleveraging. Also important to note, as shown on Slide 12, our debt maturity profile remains manageable with no significant debt maturities until 2030. That gives us added financial flexibility and supports our ability to focus on deleveraging over the next several years. With that, I’ll turn it back to John for closing remarks.
John Chidze (Chairperson and CEO)
Thanks, Mark. Before we open the line for …
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