Royal Caribbean Group Q3 FY2024 earnings call

• Third quarter results exceeded expectations due to strong demand at higher prices and onboard revenue strength.
• Increased full-year yield growth expectations to 10.8% to 11.3%.
• Announced expansions of private destinations portfolio, including Perfect Day Mexico opening in 2027 and Silversea's new hotel in Puerto Williams, Chile.
• Achieved Trifecta financial goals 18 months ahead of schedule and expect double-digit reduction in carbon intensity compared to 2019 one year ahead of original expectation.
• New ship Utopia of the Seas completed inaugural transatlantic crossing using bio-LNG, Icon will use shorepower, and Celebrity Xcel is methanol capable.

Third quarter results exceeded expectations with strong close-in demand at higher prices across key itineraries and continued strength in onboard revenue. Net yields are up 7.9% year-over-year. Adjusted earnings per share was higher than guidance. Product segments included Royal Caribbean International with strong performance from new ships like Utopia of the Seas and existing ships, and Silversea with developments in private destinations. Revenue contribution from key itineraries such as Alaska, Europe, and Caribbean was strong, with onboard revenue also contributing significantly.

• Increased full-year yield growth expectations to 10.8% to 11.3%.
• Expect net yield growth of 5.1% to 5.6% for the fourth quarter.
• Adjusted earnings per share expected at $11.57 to $11.62 for 2024, and $1.40 to $1.45 for the fourth quarter.
• 2025 outlook includes $14 handle on adjusted earnings per share, with 5% capacity growth, opening of Royal Beach Club Paradise Island in 2025, and developments in other private destinations.
• Returned to a fully unsecured capital structure and refinanced debt, lowering rates by 300 basis points.

• Impact of storms and hurricanes on local communities and potential impact on operations.
• Market uncertainties and competition that could affect demand and pricing.
• Economic conditions that may impact consumer spending on vacation experiences.

Q: Good morning, everybody and congrats on another really solid quarter. The first question is about pricing and kind of thinking about the exit rate that you're seeing in the fourth quarter. And I want to take a sort of a broader look and think about if you can kind of talk about like-for-like pricing cumulatively versus 2019 and just sort of level set where you think you're at? And if you're still trailing sort of cumulative U.S. inflation, does inflation coming down next year act as some sort of governor a little bit how strong yields can be? Or how do you think about that?

A: Sure. First, good morning, Brandt, [indiscernible] as well. I think, first, just kind of starting off is when you compare to 2019 levels, whether it's the – fourth quarter is up about 25%. The year is up about 26% versus 2019 levels. And so I think when we look at that, there's a lot of things that's inside of that, which is not only just like-for-like growth. It's not just the new capacity. It's also great assets like Perfect Day, fully normalizing within our business. And while there has been a lot of growth on the pricing standpoint, a little bit of growth on the occupancy standpoint, the trends show that we continue to be able to elevate demand, elevate pricing each day. And so what you see in the overall trends, is that we continue to see strong volumes, the customer's willingness to pay more. I don't think this is an inflation-related type of driver. I think the driver is, is that cruise or propensity of cruise is at a significantly high level. I think that the cruise experience is now considered to be a very mainstream vacation product. And there's still a significant value proposition versus land-based vacation. So I think the combination of really understanding what our guests are looking for and leveling up our business with our brands, meeting those expectations, the ships meeting those expectations, the destinations meeting those expectations. And having the tools and technology that really allow us to harvest quality demand, I think, is all leading to why we keep seeing outperformance on the yield growth side. And we do not, in any way, see anything, any ingredients that say that we're hitting some type of ceiling. If anything, we see continued acceleration in demand for our business.

Q: Hey, guys. Good morning and congrats on another very solid quarter. So Jason, if we think about your 2025 $14 handle earnings comment. And look, I know it's early on in your planning stages for next year, but just wondering how you guys are thinking about what are maybe some of the pillars that are going to get you to that $14-plus in earnings? I assume you're going to tell me the company line of moderate capacity growth, moderate yield growth and strong cost control. But is there anything else you can help us with as we think about next year based on your current book position? I mean Naf gave us some really good color on the cost side. But anything we should be thinking about from the yield side or how we should maybe be thinking about interest cost next year? And does that $14 a share plus include any buybacks or would be – or would buybacks be accretive to that number?

A: Sure. Well, Steve, I think you said our company line really well, and it is something, obviously, that we're very religious about. To get to the, to – I would say, it's not $14, we're saying it's going to have a $14 handle on it, is you really just need moderate yield growth and you need us to continue to manage our costs effectively. And of course, we're going to benefit from interest costs. A lot of the great activity we've been able to do over the past couple of quarters to get our balance sheet back to pre-COVID, leverage levels as well as getting to an unsecured state. So I think that will help drive that. So on the share repurchase standpoint, obviously, we were able to take some action here last quarter in being able to recapture about 5.1 million shares that were dilutive to us. But I would say in that number, that does not contemplate us buying back shares, which, of course, when you look back in time, we've always had when we think about capital returns, a mix of having a competitive dividend and opportunistically buying back shares. So it's – but that is not something that is in the consideration set in that early guide of the $14 handle.

Q: Thanks, and congrats on another really nice quarter. So Jason, could you elaborate on the continued elevated demand patterns that you cited, maybe just trends across regions through October that you're seeing? And then for 2025, Naftali, maybe just if you could elaborate on the booked position being exactly where you want to further optimize yield. What exactly that means? How it translates to continued margin expansion?

A: Yes. So I'll take the first one, of course, team can chime in. We have – I think each month that goes by, our expectations rise, and you're seeing that in the close-in demand. And even as we saw through the month of October, we saw that demand continue to rise. We're able to increase pricing as well as being able to successfully build our book position, whether it's for the quarter or whether it is into next year. So that's what our commentary around the elevation is that it continues to strengthen. And that is despite obviously having a couple of off days around the hurricanes, right? Because when we have hurricanes, there is – people are concentrated on, I think, more important things like making sure their homes are secured or they're focused on the news. And so there's always a little bit of softness that can come a couple of days in or around a storm. But we were able to assume when we look at the month, we were at an elevated position. We saw the same thing happen in September, an elevated position above and beyond what had already risen through the course of the year. And I think that helps us kind of build not only a strong quarter but also a strong period into next year. And I'll let Naf comment on the optimal book position.

Q: Thanks. I wanted to zoom in a little bit more on the bookings trends recently. It sounds like things – I think you used the term accelerated since the last call, despite maybe a little bit of a hurricane noise within bookings in October. Can you comment on what you expect bookings growth to look like through the course of the quarter? I imagine that pouring out dollars at a time when there's hurricanes or election noise, maybe isn't the best strategy? And how you imagine managing your ad budget through the course of 4Q into early next year as you get a kick in the wave season?

A: Well, obviously, our guide for the quarter, we typically try to guide at a 50-50 position. I think what we have not been able – or it's probably a good problem to have, but when we see demand patterns elevate. And I think that's through really just great advocacy from our guests who are coming off of our ships, having the best vacations of their life. And then, of course, we're seeing them book more frequently on occurring. And then we – that advocacy is building more demand, and that helps feed all the great marketing that our teams do each and every day. So I think we continue to expect that we're going to invest in marketing the way that we have, and the types of marketing that we have been doing. And that's driving really healthy demand for our business. So we're obviously not guiding on the quarters for next year or for next year outside of saying moderate yield growth. But I think that we're focused on generating high-quality demand across our different channels in our different markets.