Norwegian Cruise Line Stock

Good morning, and welcome to the Norwegian Cruise Line Holdings Second Quarter Earnings Conference Call. My name is Samantha, and I will be your operator. [Operator Instructions] As a reminder to all participants, this conference call is being recorded.

I would now like to turn the conference over to your host, Sarah Inmon, VP of Investor Relations. Ms. Inmon, please proceed.

Thank you, and good morning, everyone. Thanks for joining us for our second quarter 2026 earnings call. I'm joined today by John Chidsey, CEO of Norwegian Cruise Line Holdings; and Mark Kempa, Executive Vice President and Chief Financial Officer.

As a reminder, this conference call is being simultaneously webcast on the company's Investor Relations website. We will be referring to a slide presentation during the 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 second quarter 2026 results were 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 2025 and 2026 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.

Thanks, Sarah, and thanks, everyone, for joining the call. I'm joined today by Mark as we discuss our second quarter results. At a high level, we delivered solid second quarter results. Top line grew 5%, driven by increased capacity days, while we lowered unit cost 0.5%, leading to profitability ahead of guidance. At the same time, the team made substantial progress during the quarter to advance our turnaround priorities. I'm going to talk with you today about actions underway and why I am confident in our pathway to revenue recovery which, combined with our cost control capabilities, will drive meaningful growth and profitability and improve shareholder returns.

Successful turnarounds are never linear and take time to demonstrate tangible performance improvements which translates into financial success. Rest assured, our teams are moving with urgency and enhanced accountability across internal functions to continue executing on the initiatives we have underway and are building on our strong foundation.

As you can see on Slide 4, during my first months as CEO, we have moved swiftly. We have made leadership changes across the brands, adding new revenue management and marketing leadership at NCL and building key commercial capabilities, all while remaining focused on improving our booking curves and delivering on critical initiatives such as Great Tides Waterpark on Great Stirrup Cay on time. At the same time, we have not let up on cost discipline and organizational efficiency. Mark will provide more detail later in the call, but during the quarter, we identified an additional $100 million of annualized savings and cash benefits. Combined with the $125 million of annualized run rate savings we announced last quarter, this brings the actions announced over the past 2 quarters to approximately $225 million of annualized savings and cash benefits.

Importantly, we are actioning these initiatives as demand for crews and the long-term fundamentals for the industry remains strong as consumers are prioritizing travel and experiences. We have strong brands, attractive assets and a product that continues to resonate with guests, but those advantages only matter if we execute with greater discipline and translate them into better financial performance.

Turning to Slide 5. Our approach and priorities are consistent with what we outlined last quarter: build the team, culture and capabilities required to execute, sharpen brand positioning and marketing effectiveness; rebuild demand and improve our book position and optimized pricing and yield through that strengthened demand base. This is the path to enhance our fundamental business model and operations to position NCLH for success. Among the top of our priorities list has been ensuring we have the right leaders, talent and operating discipline in place to guide NCLH forward. This is foundational because the opportunity in front of us is not about strategy, as we have discussed previously, it is about changing how we operate. We recognize the need to work with a true 1 team mindset across functions internally.

During the quarter, we made meaningful progress by welcoming our new Chief People Officer, Heather Jacobs. Heather brings more than 25 years of global people and cultural leadership experience across travel and hospitality. We strengthened commercial leadership at the Norwegian brand with the appointment of Lee Applebaum as Chief Marketing Officer. Lee brings more than 25 years of experience building and transforming global consumer brands, including Petrone, Bacardi, and Wheels Up.

Additionally, we have continued to build out the teams in other critical areas, including NCL revenue management, digital commerce, casino, and itinerary planning. These appointments build on the leadership updates we have made over the past year across other key functions such as technology and strategy in addition to changes made at the brand level. In total, half of my direct reports are new in the role over the last year, and we have substantially rebuilt and strengthened the region brand leadership team. Having this experienced team in place is essential to implementing meaningful operational changes. With the team now in place, our next step is to build our operating rhythm and culture and translate that collective experience into better execution and ultimately, better results.

I'll now turn to our plans to sharpen our brand positioning, particularly with respect to NCL's marketing engine. As seen on Slide 6, the starting point is important. We believe we have the right product and the right target consumer. We see that in our guest satisfaction scores, repeat rates and cruise neck sales, which reinforces that the product and service experience continue to resonate once guests are on board. We have also identified and sized our priority consumer, premium families and seasoned travelers, which represents over 35 million consumers. Additionally, we already have work underway to develop a clear understanding of what motivates them and determine how best to reach them.

In parallel, we are inventorying our products and services to define what truly differentiates NCL and mapping those strengths against the needs of our target guests. The work thus far gives us confidence in the fit between the NCL offering and our target consumer. We provide a flexible premium vacation experience with something for every member of the family, while still creating shared moments together. The gap has been connecting the right consumer with the strength of our offering through our messaging and media. We have the right product and are focused on the right consumer. Now we are focused on effectively reaching that audience through the most impactful channels. Great Stirrup Cay is a clear example of this, and you can see that Great Tides Waterpark is coming together on Slide 7.

Great Stirrup Cay has long been 1 of our highest rated destinations. But historically, the island did not fully deliver the breadth of the experience that premium families are looking for. While we had elevated experiences like Silver Cove and our Private Villas, we also had an opportunity to create more for families to enjoy together. We are addressing that opportunity with Great Tides Waterpark, which is preparing for a preview period beginning next week, ahead of the official brand opening on September 4. The nearly 6-acre water park will feature 19 water slides anchored by the 170-foot title tower and over 800-foot high-energy river and the industry's first cliffside jumps. These attractions complement the recently opened Great Life Lagoon, a 1.4 acre pool area larger than 2 Olympic size pools combined as well as existing experiences such as zip lining and Silver Cove.

Combined with the peer, which is also expected to open shortly, the island experience will be more reliable, easier to access and better align with what our target guests want from a premium family vacation. Together, these investments should enhance the island's revenue potential by increasing guest throughput and expanding the range of paid experiences available to guests. I was on the island a few weeks ago and what stood out to me is the breadth of the experience. Teams can enjoy the slides, cliff jumps and wandering river at Great Tides Waterpark, while adults have places like Bike Shore Club, Silver Cove and our private villas where they can relax and enjoy the island in a more elevated way.

It is exactly the kind of differentiated experience that allows NCL to create memorable vacations for guests across generations. Importantly, we are not waiting for the 2027 way season to act. We are already changing the way we communicate great Star at the broader NCL value proposition. In the coming weeks, we will introduce interim creative that more directly speaks to premium families highlights the breadth of the NCL experience and includes a clear call to action. The goal is straightforward, communicate more clearly why NCL is different, why that different matters to our target guests, why now is the right time to book?

Improving our brand positioning and rebuilding demand are critical to returning to our optimal book position. We are also strengthening how we manage that demand through improvements to our team, tools and processes, as you can see on Slide 8. During the quarter, we began making changes to the way we sell cruises at NCL. As we evaluated our prior approach, it became clear that in certain areas, we were holding price too high too far out, which limited early demand generation and left us more exposed to close in discounting. We are now moving toward a baseloading methodology, which establishes more competitive pricing earlier in the booking curve to build demand sooner and support stronger close-in yields.

This is not about discounting the product. It is about managing the full booking curve more effectively, building a healthier book position earlier, maintaining better price integrity as we move closer to sailing and being more strategic about our promotional activity. As part of this shift, we have taken pricing initiatives on select sailings in 2027 and opened 2028 sailings. The greatest opportunity is on sailings further out in the booking window, particularly later in 2027, where we have more time to shape the curve. For new 2028 inventory and beyond, all NCL sailings will be managed using this methodology from the outset.

Taking a step back, we are focused on managing inventory and price in a more disciplined way, maximizing yield over the full booking cycle and reducing our exposure to close-in demand volatility, particularly in periods of external disruption like the 1 we are navigating today. With many of these operating changes already in motion, we are moving swiftly to ensure the company is better positioned to capture the revenue opportunity we know exists across our brands. It is important to remember that we are still early in this process, however, and we expect the financial benefits of the actions we are taking today to build over time.

I have spent significant time discussing the NCL brand but I also want to address the work underway across our luxury portfolio as shown on Slide 9. The work here is focused on 3 areas: sharpening brand positioning, elevating the product and guest experience and strengthening commercial performance over time. At Oceania Cruises, our focus is on aligning the fleet more closely with the brand's luxury positioning. That is why we are reimagining Oceania Nautica to Oceania Aurelia, creating a more intimate sweet forward ship designed for fewer guests with enhanced service levels. Today, we are also announcing that we have entered into a binding memorandum of agreement to sell Oceania Sirena. The transaction includes a leaseback arrangement that will allow us to continue operating the vessel until the ship is transferred in spring 2028.

This is a deliberate portfolio action to move the Oceania fleet toward a product offering that better supports the brand's positioning and long-term return profile. It also represents another step toward improving Oceania's product market fit and simplifying the portfolio to more fully reflect the luxury experience our guests expect.

At Regent, we are taking similar actions to further strengthen the brand's position in the ultra-luxury market. Today, we are announcing a new suite category on the Seven Seas Explorer class ships, where we will reimagine and expand our entry-level suites on these vessels. As a result, Regent will offer the largest entry-level suites in the luxury cruise industry, while also improving 2 important luxury metrics, space ratios and guest accrue ratios. Taken together, these actions are about making the products match the positioning creating clear differentiation for our guests and improving the financial performance of our luxury portfolio over time.

We've learned a great deal over the 2 quarters and made meaningful progress executing against our strategic priorities. While the financial benefits will take time to build, we are confident that the actions we are taking will support stronger performance over time.

With that, let me turn it over to Mark.

Thank you, John, and good morning, everyone. I'll begin with our second quarter results on Slide 10, which were ahead of our expectations. Net yield in the second quarter was down 2.6%, which is 100 basis points above our initial expectations. Adjusted net cruise cost ex fuel of $163 was better than guidance, declining 50 basis points, driven by strong cost controls, which ultimately drove adjusted EBITDA of $666 million, exceeding our guidance by $34 million.

Lastly, adjusted net income for the quarter benefited from several below-the-line items and was $222 million with adjusted EPS of $0.48, $0.10 better than our guidance.

Turning to Slide 11, you can see our third quarter and full year guidance. Our outlook continues to reflect a challenging backdrop as we are in the early stages of the turnaround and continue to build our commercial engine especially on the Norwegian brand. Starting with full year net yields, we now expect to be at the low end of our guidance range, with net yield declining approximately 5%. This reflects the softer demand environment I just mentioned as well as the fact that many of the changes we are making to drive revenue higher, particularly on marketing and revenue management will take time to translate into financial results.

In the near term, the back half of the year remains pressured. The marketing and demand generation challenges John described have left us below our optimal booked position. The change is now underway, including new creative and media plans are only beginning to roll out and have not yet had time to materially influence booking behavior. And given the proximity of many of these sailings, there is limited runway for those actions to benefit 2026 results.

Looking at net yields in the third quarter, we expect a decline of approximately 8.9% with load factor of 104%. This reflects demand pressure across the portfolio with the most pronounced impact on our European sailings, which represent approximately 39% of our deployment in the quarter. This is particularly relevant as approximately 2/3 of our guests on these sailings are sourced from North America, where elevated airfare and broader macro conditions have put some pressure on demand. This implies that for the fourth quarter, net yields are expected to decline approximately 6.5% with a load factor of 99%. We are disappointed in this outlook, which is a reflection of our current book position that is challenged due to the previously mentioned marketing and demand generation issues.

Looking ahead to 2027, and as John noted earlier, our efforts underway on marketing and demand generation will take time to manifest themselves in revenue due to our elongated booking curve. As a result, we expect the first half of 2027 to have continued demand challenges with the most pressure in the first quarter. That said, we are confident that these actions underway are the right ones. As the year progresses, and particularly as we move into the second half of 2027, we expect to see improvement as the booking curve better reflects the changes we are making across marketing, demand generation and revenue management.

Moving to costs. As John discussed earlier in the prepared remarks, we have continued to make meaningful progress in improving our cost structure and identifying additional cost savings. We now expect our adjusted NCC ex fuel to be down approximately 25 basis points for the full year as we carry some of the additional savings from the second quarter into the full year. As a result of softer-than-expected top line performance, partially offset by better cost performance, we now expect adjusted EBITDA of approximately $2.5 billion and adjusted EPS of approximately $1.50.

Moving to Slide 12. You can see the cumulative impact of the savings and efficiency actions we have taken across the business. This quarter, we have identified another $100 million of annualized savings and cash benefits related to the consolidation of technology vendors and other employee compensation. Due to the nature of these savings, it is important to note that the vast majority of the benefits relate to capital expenditures with the remainder tied primarily to salary and benefit efficiencies. These savings build on the $125 million of savings announced last quarter and the approximately $300 million of saving efforts identified from 2024 through 2026, which brings total savings over the past 3 years to more than $500 million. We expect these cost actions to benefit the business over time, supporting both margin expansion and free cash flow as the top line recovers.

It is also important to note that our work here is not done. We continue to see additional savings opportunities across the business, both within SG&A and on the shipboard side, and we expect to build on these efforts going forward. These savings have been reflected in our unit cost growth, which is detailed on Slide 13.

We began the year expecting NCC ex growth of approximately 1%. Last quarter, we reduced that outlook to approximately flat, and we are now reducing our guidance again to a year-over-year decline of approximately 25 basis points. This marks the third consecutive year of NCC ex fuel growth of 1% or less underscoring the cost discipline we have embedded across the organization and the continued opportunity we see to operate more efficiently. Importantly, these efficiencies have not come at the expense of the guest experience. As John discussed earlier, guest satisfaction scores have continued to improve over the past several years even as we have maintained discipline on cost performance.

Moving to Slide 14. Another important factor to keep in mind is that our order book should be viewed in the context of our broader fleet optimization strategy. While we have a strong order book with 16 ships on order across our 3 brands, the signed MOA for the sale of Oceania Sirena means we now expect 5 ships to leave the fleet over the next 3 years. This is important because we are not simply adding capacity for the sake of growth, we are actively managing the portfolio to improve fleet quality, better align capacity and product offering with each brand's positioning and support stronger returns over time.

Turning to Slide 15. I want to highlight an important CapEx inflection. Over the last several years, we have invested heavily in our fleet, adding 2 to 3 ships annually and driving strong capacity growth, including an expected 7% increase in capacity days in 2026. While we take delivery of 2 ships in both 2026 and 2027, the cadence moderates meaningfully beginning in 2028 with only 1 ship scheduled for delivery in each of 2028 and 2029.

As a result, our capacity growth will moderate meaningfully to a 2.5% CAGR from 2026 to 2029, and we expect gross new build and growth CapEx to decline by nearly $1 billion annually, materially improving free cash flow generation. This is especially important as our revised adjusted EBITDA outlook for 2026 increased our year-end net leverage expectation, and we now expect to end the year above 6x. Reducing net leverage remains a top priority. As top line performance improves and our newbuild delivery cadence moderates, we expect stronger free cash flow generation to support debt reduction and meaningful progress on deleveraging over time.

As shown on Slide 16, 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. We have continued to simplify our balance sheet. In May, we announced our election of a cash settlement for our 2 exchangeable senior notes due 2027, which mature early in the year. This election allowed us to reduce our diluted share count by 2 million shares in the quarter and approximately 4 million shares for the full year. Overall, the actions we are taking on cost, capital expenditures and the balance sheet are strengthening the company's financial foundation. While the near-term revenue outlook remains challenging, we are continuing to move with urgency on the areas within our control and remain focused on improving free cash flow and reducing leverage over time.

With that, I'll turn it back to John for closing remarks.

Thanks, Mark. Before we open the call for questions, I want to close with a few thoughts. As you heard today, we are moving to make meaningful change across the business. We have strengthened the leadership team, identified additional savings began changing how we market and price the NCL product and taking steps to sharpen the positioning of our luxury brands.

I also want to recognize the team. Across the company, our team members are working incredibly hard to move the business forward while continuing to deliver great vacation experiences for our guests every day. The changes we are making are not small, and they require focus, accountability and a willingness to operate efficiently and effectively. I appreciate the way the organization is leaning into that call to action. As I touched on before, we also recognize that the actions underway will take time to fully translate into financial results. Rebuilding demand, strengthening the booking curve improving marketing effectiveness and embedding a more disciplined revenue management approach will not happen overnight. That said, we are confident that we understand where we need to improve and are making the right changes now to position NCLH for long-term success.

It is important to note that all the changes we are implementing today are against a backdrop in which the demand for crews and long-term fundamentals for the industry remain strong. At NCLH, we have strong brands, attractive assets and a product that continues to resonate with guests. There's more work ahead, but our priorities are clear, and we are moving with greater discipline to translate those advantages into improved financial performance.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question is from Lizzie Dove with Goldman Sachs.

So Mark or John, I appreciate all the color here and the comments that you gave on 2027. I know it's still early, but could you maybe elaborate on how you're thinking about the setup for 2027 on the net yield side, I guess, particularly in terms of maybe how booked you offer next year at what price? And with that in mind, when do you think that we can start seeing some of these green shoots on the net yield side of things?

Thanks for joining us this morning. So to reiterate what you just said, of course, it is early to be talking about 2027. But as we think about it, when we look at our current company-specific execution issues, we do expect that to weigh more in the first half than the second half of 2027 and really primarily in the first quarter. We do expect that our first half yields will be negative, again, primarily as a result of the first quarter. But as we think of it going forward, we expect yields to accelerate in the back half of 2027, primarily as a result as we see the benefits from the changes we're making in the business today. .

And Lizzie, I would just throw in one other thing just sequentially when you -- I mean, I know the back half of '27 that's not as booked, so it's a little hard to tell. But you can sequentially see improvement just where we sit today. You can see second quarter better than the first, third quarter. So it's building in the right direction. So I mean, early days, but it's encouraging.

Our next question is from Steve Wieczynski with Stifel.

So I know I'm supposed to ask 1 question, I'm going to do that, but it's going to have 2 parts to it. So okay, first of all, if we look at the change in your second half guidance, you're basically -- you've lowered your occupancy levels by just about 200 basis points. So I guess my first question is that the decision to essentially start to hold price now moving forward and willing to let that occupancy kind of drift a little bit? You kind of outlined that a little bit on Slide 8. Or is there something else in the fourth quarter that's limiting those load factors?

And then second question, John, it seems like you essentially have your whole team in place or mostly in place at this point. This turnaround is not going to happen overnight. So as Mark kind of just talked about, I'm guessing 2027 is still going to be somewhat of a transitory type year. Is it fair to think as we kind of move more into that should be the first so-called what we call kind of a normalized year and based on the recent cost cuts that you guys have identified. At that point, could you see your margin profile start to get back into that low 30s type range?

Yes. Let me take a stab at the first, and Mark can give you and I'll certainly answer your second. But yes, in terms of what you're seeing in the fourth quarter, a conscious decision on pricing. No, we try to balance everything here between load factor, pricing, whatever, just to optimize overall net yield and revenue. So it's not a conscious factor 1 way or the other. I think it's just more a function, as we said in our remarks that really our demand generation is where we really have to work hard, and that's sort of where our marketing. That's why we made all the changes in the marketing group at the NCL brand. So we've really got to drive the top of the funnel. And I think all the stuff we're doing around revenue management and a new person running casino, new itinerary team, all of that will pay dividends, but you got to start rating more names down through the top of the funnel. So that'd be my answer that. Anything you want to add to that piece, Mark.

Yes. No. I think that John is right. And I think, Steve, as you think about the margin profile and the margin expansion, you're certainly going to start to see that accelerate toward the back half of 2017, especially into 2020, not only from the continued cost efficiencies that we're proving to effectuate, but again, as our demand and marketing engine starts to get rightsized and we start to create that flywheel.

Going back to, I think, your first part of your question on the load factor for the back half of the year, Yes, load factors are down 200 to 300 basis points. And I think, as John said, we're not just looking at price and load in isolation. We're really trying to balance the entire equation for the best overall net revenue and yield. And again, it's primarily a result of we've got to correct our demand-generating engine. We've got to get more names on the top of the funnel.

As we think ahead, we will have -- as we said in our prepared remarks, we do have new marketing, new branding campaigns that are about to launch that and combined with the opening of our island actually previewing next week, officially opening in early September. Again, we're hopeful that, that's going to start to create more awareness and names at the top of the funnel.

And then to your sneaky way, Steve, to get a second question in, I'm joking with you. The answer, yes. I mean, so we do have the whole team in place, although I would point out that the Head of Marketing and the Head of Digital, they literally started, I think July 6th, so we've had the team together all of 3 weeks, basically, the whole thing built. So as I said, it will take a little bit of time for us to learn how to work together. And again, the culture journey is really just beginning. So I think you're right to say that 27% is a bit of a transitory year, as I said, certainly, we're expecting better things in the back half of 27 where we see today because I think a lot of these things will have time to sink in. So yes, I think you would call 28 probably the first normalized year.

And then, I guess, lastly to point out, I would say, really, again, it's all around the region. If you look at Oceania and Regents, it's not like we have 3 brands that have issues. So I would say we clearly are running 2 brands well. And that obviously gives me a lot of confidence we can sort out our issues in this brand. So I think it's a fair assessment the way you looked at it.

Our next question is from Ben Chaiken with Mizuho.

Maybe another 1 on 27, but specifically as it pertains to the North American to Europe customer. And I guess this is obviously separate from baseloading. I guess what does the pace look like today? Has it recovered since the beginning of the conflict? And then maybe part 2, should we expect a drag as those customers are presumably booking in at a lower price, at least historically, given the conflict?

Yes. I think again, as you think about 2027, as John said earlier, we are seeing better trends. We're seeing sequential improvement each quarter in 2027. I think it's very early to determine how North Americans are going to Europe. But I can say that the business on the books, again, in the latter part of 27 continues to improve.

And in terms of the back side of your question, in terms of a drag customers booking 2027, look, I think when we look at what happened this year, we were clearly behind the booking curve for our European 2026 season. that forced us to do some more -- have a more promotional environment, combined with the higher airfare, but I think it's very early to make any sort of assertions on 2027 Europe other than to say that it is continuing to improve.

And who knows where the conflict will be 3 months, let alone 6 months down the road.

Our next question is from Brandt Montour with Barclays.

I was hoping, John, you've been obviously studying what your competitors are doing, and you've been talking for a few months now on converting to a more traditional base loading revenue management style. Have you guys thought at all about how your consumers and your travel agents will react to this new strategy from Norwegian. Obviously, sort of trying to convince them that not to wait for a lower price and that the price is not going to go lower into sailing date, which, again, they probably have been used to from the Norwegian brand over the past decade. So I guess the question is, do you expect them to sort of adjust to this new plan?

Yes. I mean, I think we talked about that on our last call that when you do this, you don't really know how long it will take to retrain, so to speak, the guest and the travel community. But I think given, again, that this will align us more with where the industry is as a whole. I think -- I don't think this is a multiyear thing. Does it work instantly right out of the shoot, I guess we're going to find that out. But I also think we have some plans and ideas which we need to like further develop them that will help expedite this process. So I think there are things we can do to ensure that it goes quicker rather than longer. It's clearly the right thing to do over the long run. And again, when you look at our other brands, you see that it works better, no great surprise. So I know we have a lot of confidence in this. So the right thing to do. .

Our next question is from Matthew Boss with JPMorgan.

Great. So John, on your current booked position, which you cited as below optimal for the next 12 months, how much of this do you attribute to macro or items out of your control? And then Mark, just relative to the 4Q exit rate for net yields now expected down 6 to 7, could you just help bottoms-up bridge the opportunity you see in the back half of '27 versus the baseline, it sounds like negative yields in the first half?

Yes. Matt, as to the first part, I would say being below the curve is -- I mean, maybe on the margin, it's slightly due to macro events, but the vast, vast majority of our problems, as I've said all along, are self-inflicted, which, again, we love the industry love the environment. They're just execution issues, which we can fix because that's totally in our control. I think hopefully, we prove that to you guys by -- I've been here all of 5 months, but 2 quarters in a row, 200 million-plus quarters of cost takeouts, you'll see more to come there because there's more to go. So we just have to execute work as a team and we can fix this. So no, I'd say it's mostly on us, not the macro.

Yes. And Matt, in terms of the exit rate on yields for Q4. Obviously, as I've said in my prepared remarks, we are expecting the first half to be negative, but that's primarily as a result of Q1. So we are expecting to see sequential improvement in the quarters over the course of 2027. So we're seeing improving trends. I think when you think about load factors, there's opportunity for load factors. There's opportunities to get better base business on the books. And of course, just managing our overall revenue management funnel better. So certainly a lot of opportunities, and I think it's going to come down to, again, getting our team -- we have our team in place executing and making that slow change. But we are starting to see that in the latter part of 2027. But it is early. Yes, I want to caution everybody. It is early. .

Our next question is from Conor Cunningham with Melius Research.

We've kind of danced around this, I think, a bit the past few quarters. When you talk about being behind on the booked position. I was hoping you might actually put a number on what that might mean. Like how far behind are you on the first half of '27 versus a normal year? And I'm not trying to spin this as a positive, but it seems like it's actually good that you are behind as you let your changes to your RM strategy kind of take hold. So I'm just I was hoping for an actually more granular discussion around it. I just think it's important given the expected inflection in the second half of '27.

Well, I certainly don't think we're dancing around it. I think it would be hubs. We don't provide that level of granular detail. I will remind everybody on the call, generally speaking, our targeted range is around between 60% to 65% as a system at the holdings level. And obviously, when you look at our performance, both in Q3 and Q4 and expected in Q1, that is a reflection of us being behind the booking curve. So we are improving that. That is part of our overall strategy to get back on a normalized booking curve, which will just pay off in many different ways. But I think to get granular between quarters really is not going to serve a great purpose. .

Our next question is from James Hardiman with Citi.

So John, you've now been at the helm for a little while now and obviously doing a lot of sort of background work here. I've asked this question a million times and 1 million was, but I'll give it a shot again, and it's a product-related question. Just given the magnitude of the yield declines that we've seen not only this year but not keeping pace with the rest of the industry in previous years. I'm curious if you could dig in a little bit on sort of how you see the Norwegian product from a competitive perspective.

You talked in the prepared remarks about how customer satisfaction scores are, if anything, they're up. But it seems to me like the whole industry is just getting better in terms of their product offerings. And so I guess, the long-winded way of saying, is it possible that even if you've kept pace with sort of historical Norwegian standards, maybe you just haven't kept pace with an industry that's growing their ship offerings and their private destination offerings. And if that's the case, how is that going to work as you try to remove $225 million of annualized costs and $1 billion of CapEx moving forward. Is there the potential that ultimately, you're going to fall further and further behind from a competitive perspective?

Yes. Okay. Yes. So you're right. I've been here all of 5 months, but I'll tell you what I think. No, I don't think it's a product offering issue. And when I talk to lots of people in the trade, big travel agents, in consumers. I think people generally say our hardware is definitely competitive and you have great ships, you have a great crew, you have good experiences. I think our island. I'm hoping as many of you will see this new island that, as Mark said, has its soft opening next week. I think our island is top notch. I think our water park is going to be unbelievable. So no, I come back to -- I really think our issue is all in how we've marketed or not marketed. I think it's a combination of both. We clearly spend way too much money at the lower end of the funnel, not at the top of the funnel. So when we all came in here and I was like, okay, let's go do media mix models, which sounds very basic. And no great surprise, we weren't really spending money where we needed to, and we weren't being very efficient.

So in my mind, it's all about marketing and getting the product back in front of the consumer, because when we get them there, like we said, the scores are great, repeat visits are great. So it's just driving that demand. I really don't think that we have a product issue at all. I think we just got to get the top of the funnel going faster and better.

And James, just to elaborate on that, when you think about the customers who are on board, we continue to see very solid trends in terms of their overall onboard spend. So it just does reinforce the fact that we've got to sharpen our marketing message on the Norwegian brand.

And just 1 follow-up. I think you had mentioned somewhere in your question around the cost and the impact on product. I want to reiterate that the items that we've announced this year over the last 2 quarters, none of that touches product. That's all behind the scenes, efficiencies, corporate back office. So I just want to be very clear about that. In terms of going forward, we expect similar things, again, not impacting the product and, in many cases, enhancing it.

Yes, I was about to point out. In some cases, we've actually enhanced. So it's a good point.

Our next question is from Robin Farley with UBS.

Great. I wanted to ask, you've talked about in 2025 and 2026, how some itinerary plans in Europe were not ideal in terms of like the length of the itineraries and the amount of open jaw cruises. And I know that itineraries can take a while to turn around. So the 2027 maybe was planned before a lot of other changes that you've been making. So is there anything that you would call out for 2027 that we should be aware of in terms of itineraries that like might not quite be ideal? Or would you say that 2027 is going to be a change compared to, I think, some of the issues you've called out in prior years.

And then I don't know if you're allowing part of question one. But just Mark's comment about the first half negative yields being mostly due to Q1 and then sequential improvement. Does that actually mean Q2 would not be down? That's kind of what it sounded like that maybe that would be not negative in Q2. So just to clarify that, if you're allowing that sort of [indiscernible].

Yes. So Robin, I'll just jump on the last part of the question in terms of first half. We've said we expect it to be negative, primarily from Q1, but I'm not going to parse it out between quarters. But other than there is, we do expect sequential improvement.

Yes. And on the question about the open jaws, yes, obviously, now that we're working better as a holistic team we're working to see what changes we can make in '27 and '28, so that we don't have as many open jaw itineraries going forward. But I think as you sort of indicated in your question, some of that is dependent on when you can find slots in different ports. So it's not like if you could flip a switch and change everything today, you would. So some of this just takes more time because it's not all in our control when we can make some of these changes. But each year, it should get better and better and sort of revert back to what we saw 4 or 5 years ago is our norm. So I would just say you'll see sequential improvement over the years as we head back in the opposite direction there.

Our next question is from Vince Siebel with Cleveland Research Company.

You talk about improving trends as you look at the '27 position moving through the year. Just curious if you could comment on what you've seen in bookings more recently in terms of the cadence over the last few months. And if this conflict kind of reigniting that's been noticeable or if you think cruise bookers are kind of looking through it into next year and putting those sailings on the books regardless.

Yes. Look, yes, when you look at where we are today and we look at the geopolitical landscape, there's certainly been a lot of volatility. When you look at what we just did with our semiannual sale, we did get some -- we did see some improvements there. So generally speaking, I think going back to what John said, this industry is still very strong. I think the macro environment, while sometimes volatile, still is very productive for cruise demand. So I think as we can continue to execute and change -- improve our demand-generating engine and, of course, get the right marketing message out there to the targeted customer I think that's just going to continue to help us. But again, that takes time. That doesn't happen overnight. And I think we're going to continue to see, as we've said, continued improvement sequentially in 2027. .

I wouldn't say because you used the word, I think you said noticeable impact. I would say maybe the booking curve on certain things has moved in a little bit closer just due to global uncertainties, but I don't think that's material. But I think you see that on the margin.

Our next question is from Richard Clarke with Bernstein.

If I look on your Slide 11 about your implied 4Q guidance, obviously, a fair shift in the NCC ex fuel guidance from down 0.9% in Q3 up 1.1% in Q4. Just anything one-off in why costs start growing again in Q4 and maybe how we should think about, therefore, the exit rate on cost growth into 2027?

Yes. No, great question. So look, I think that's primarily around timing in terms of some of the quarterly cadence and as well as, as we think about doing some of our new marketing initiatives and creative that obviously we would expect to start hitting in Q4. But nothing structurally that would indicate that carries over into 2027. Again, as we continue to reemphasize, we continue to push hard on the cost front. We've announced $225 million in the last 2 quarters. We continue to believe that there's going to be more efficiencies to be had. So we're going to continue to make solid progress on that front.

Our next question is from Anthony Burney with Jefferies.

Anthony on for David Katz. Sticking with that cost bit, how do you feel about the $100 million cost savings you noted. Should we be expecting more 9-figure programs in the future? Are the remaining cost takeouts you've mentioned a little bit more incremental? And could you give us any color on where we should expect to see those?

Well, I would say -- Mark can jump in here. I would say, yes, we continue to see meaningful cost opportunities. I'm not really going to size them, but I would say they're meaningful. Again, as Mark said, they're not guest-focused at all. I mean it's just inefficiencies and ways we can use technology better. I think we've talked in the past that we have lots of tests underway, whether it's AI based, whether it's offshoring. So no, I think there's plenty more we can do on that. So I would say I think we said on the last call, a lot of these cost cuts we can get done in the next 2, 3 quarters. So we'll just keep marching quarter-by-quarter and reporting back to you. But I think you'll see meaningful improvements as we move down the road.

Yes. Just to add a bit more color. As we've talked about before, our global sourcing initiatives program, that's still in its early stages. So we certainly believe that there's broader opportunity around that. But again, our aim, as we've done the last 3 years is really to deliver sub-inflationary or better unit cost performance. So that's our goal, and we continue to march along that path, and we're pretty confident that we will achieve that. .

Our next question is from Trey Bowers with Wells Fargo.

Just a couple of questions on the island and the water park. I see that the water park went on sale in May. Just if you guys could put some numbers around what kind of early action you're seeing on buy in, what you're kind of embedding in your guide starting in Q4 and into next year in terms of use utilization, how much yield impact? I don't know to what extent you're willing to do that, but if we could just get some numbers for a feel for what the benefit of the island could be.

And then I guess related to that, with the new Head of Marketing on board, when should we expect to see a real marketing push around Great Stirrup Cay.

I'll do the -- I mean, you're right, we're not going to go into granularity, which you kind of guessed that. I would say the new marketing interim marketing will literally roll out in the next week to 2 weeks. I mean, you've started to see some, but I think what I would really call the sort of marketing that I think over you probably think of. We'll roll out literally in the next couple of weeks. When you think about the soft opening is next week, I think once that word of mouth gets out there, you've got a lot of social marketing people that will hit the island over the coming weeks and certainly for the grand opening. So I think once all that sort of starts to blast out, I think we'll see a much bigger impact. But in terms of granularity, it's too early.

Yes, I agree with John. It's just too early. We do have a lot of good activations that are coming up in not only the grand opening, but some other activations. So we're hopeful that, that's going to be a momentum driver, but a bit early to make any assertions in terms of what that's going to flow through to '27. We obviously do believe that the island will be an enhancement not only to our guests, but obviously, at the end of the day, bottom line, but it's very early. We just really haven't hit hard on the marketing front yet. .

Our next question is from Andrew Didora with Bank of America.

So on the presentation this morning, you outlined your 2027 deployment strategy I know nothing has really changed too much on an annual basis, but there was some shifting in the Caribbean, maybe a little bit more growth in the seasonally weaker 3Q. Just curious what is driving that? And I guess, bigger picture, how do you think about your deployment strategy next year as it relates to just your overall booking strategy?

Yes. Andrew. Look, I think as you think about 2027 and our deployment box, when you look at holistically, you're right, you're not seeing any broad swings or broad major strategic changes. As we've said before, we believe in the strategy. You do see some marginal on the margin changes. And I think your reference to the Caribbean in Q2 and Q3, it was probably about a 1 to 2 percentage point shift between quarters and things of that nature, that would just be natural redeployment of certain vessels or certain assets. So nothing indicative of a larger change. .

Our next question is from Kevin Kopelman with TD Cowen.

I just had a follow-up. You talked about Q1 being pressured a few times. I was hoping you could just level set us, putting a little bit of finer point on that. Should we be thinking of it as similar to Q4? Or any other color you can basically give us on how you're seeing today beginning of next year's shape up?

Again, we're not really going into any sort of granularity like that. But if you think about what I said in the prepared remarks and in my answers to questions, Again, if you just think about the demand generation, a new group of people, changing how you're doing base loading, which obviously will take time, that's going to have much more of an impact in later quarters in '27, and as I said, really, that piece, 28, the base loading, all those things take time. So again, half of our team showed up in the last 2, 3 weeks. So really impact in Q1 is just very difficult. So it's not that the macro environment changed or anything like that. It's sort of all these pieces that we're putting in place as they come together, they're going to benefit us, I guess, is the right way to say as we move through the year. And I think as we said, given that sequentially each quarter looks better, I think you can already start and we can start to see some of this falling into place, but it's just going to take a few quarters here.

I think we have time for 1 last question.

Our last question is from Chris Stathoulopoulos at SIG.

So appreciate the graphics here on Slide 8 with the new RM tax. I just want to understand why the, I guess, for lack of a word, not delay, but the new tactics here in the base loading pricing strategy, so later '27, '28? Is that really a function of testing? Or is there some required IT or stack build out there? I'm just curious why that can't be accelerated? I also understand that how that might work with more of the contemporary Norwegian brand. Curious as part of this build-out requires some further back testing and evaluation across the more premium brands like Oceania and Regent, and how that might be received in the marketplace.

Those are very different things, and there's no test. And we're not saying we're delayed. We are going forward right now. Just if you think about the '27, the first quarter, it's obviously much more booked the second quarter to a certain extent. So we're starting now. I'm just saying the impact will obviously be much more consequential in the back half because there's less stuff booked in '27. But no, there's no delay. There's no -- I mean, we've already begun to work on all this in terms of changing pricing in select markets. So we're doing it sort of from the ground up, market-by-market, saving by sailing because it can't crop us here. So no, if I gave you that impression, that's not right. It's really more when will the impact happen. It's underway as we speak.

All right. I think that's it. Thank you, guys, very much for joining us, and thank you for all the questions, and we look forward to following up with you in the coming days.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to the Norwegian Cruise Line Holdings First Quarter 2026 Earnings Conference Call. My name is Rob, and I'll be your operator. [Operator Instructions] As a reminder to all participants, this conference call is being recorded. I'll now turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.

Thank you, and good morning, everyone. Thanks for joining us for our first quarter 2026 earnings call. I'm joined today by John Chidsey, 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 yields of adjusted net cruise costs 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.

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 3 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've 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 cresting 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 destinations 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 and 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 SG&A structure, streamline the organization and better align resources with the areas that matter most to drive performance and long-term value creation. While ship or operating costs have remained relatively consistent over the past several years, we see a meaningful opportunity to reduce shoreside costs. 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 and 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 SG&A 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 1 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 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 have 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.

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 $0.23.

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 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 NCC ex 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 billion 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 SG&A 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 approximately 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 conflicts 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 3-year savings target of $300 million. We are now approaching $400 million in savings between our shipboard efforts over the last 3 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 SG&A 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 [indiscernible] trend 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 2 to 3 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 2 years with 2 ships in 2026 and another 2 in 2027. Beginning in 2028 and 2029, however, that pace moderates meaningfully with only 1 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.

Thanks, Mark. Before we open the line for questions, let me leave you with a few closing thoughts. First, as Mark noted, the operating environment has become more challenging since our last call, and that is clearly weighing on the business. But I also want to be very clear, many of the issues we are actively addressing are internal, operational and fixable. This is a company with strong brands, attractive assets and a product that continues to resonate with guests. Our focus today is on executing better, operating with greater urgency and aligning the organization more effectively around revenue, cost discipline and returns.

Second, we are swiftly taking action to address any issues that were within our control. We have already moved decisively to streamline the organization, reduce cost and strengthen accountability, but we know our work does not stop there. The actions we have taken to date and those we are continuing to pursue will support a healthier cost profile this year. More importantly, they are beginning to build a stronger operating foundation for the future.

On the revenue side, improvement will take more time given booking lead times and the work currently underway in revenue management and marketing, but we are focused on making the right changes now so that the business is better positioned as we head into 2027 and beyond.

Third, reducing leverage remains a top priority. While leverage is not improving during 2026, we do have a path to improving free cash flow and strengthening the balance sheet as capital spending moderates and earnings recover over time as we turn around the business.

As I said on our last call, we have the assets, we have the brands and we now have the focus. Our job is to execute with greater discipline, restore credibility through consistent delivery and unlock the earnings potential of this business over time. That work is underway, and while progress will take some time, I am confident we are moving in the right direction.

With that, operator, please open the line for questions.

[Operator Instructions] And our first question is from the line of Matthew Boss with JPMorgan.

Great. And I appreciate all the color. So John, could you elaborate on the roughly 400 basis point revision to your full year net yield outlook now calls for a 3% to 5% decline? Just how much of this you see is macro versus company specific? And any breakdown of the impact across regions would be helpful.

Sure, Matthew. Yes. So I'm not going to break it out exactly because I think that's very difficult to parse all that out. But clearly, as Mark noted, we didn't have any impact whatsoever from the Iran conflict in our last earnings call. So this was sort of our first attempt at trying to assess what's going on, particularly given the amount of capacity that we have in Europe coming up in the second and third quarter, and particularly, as we noted in our earlier call that we were already behind the booking curve. So I think it has sort of an outsized impact on us compared to our competitors given how we came into the year. But I think most of it really is I think the situation in revenue management and marketing, and I know you guys asked me that on our last earnings call, but it was Day 4. Now that I've had a chance to dig in a lot deeper, I think our opportunities are much greater than I thought. But on the flip side, I think what we need to fix in those areas is also greater in terms of building out the team, getting the team to work better and I think that just takes time. So part of that reduction is just a reflection of while I have confidence in the people that are building it, I just think it's going to take some time, and I wanted to make sure that we sort of adequately addressed really sort of the complexity of what we have to accomplish in the coming quarters as we build out those 2 functions.

And again, I think the revenue upside far outstrips the cost. So I think I still feel really good about that, feel really good about the industry, but that really, in my mind, explains sort of the the change, if you will, in the guidance around yield.

Great. And then, Mark, could you walk through on the bottom line, just the puts and takes embedded in this year's EBITDA margin forecast? Maybe specifically, flow-through of the $125 million identified cost savings versus cost you see as transitory this year? And then if we just take a step back, is there any structural change in your view to the roughly 39% margin target for the business that you had quoted prior?

So to address your latter part of the question, no, I don't think there's anything structural in front of us that would preclude us from getting back to 39%-plus. I think when you step back and you look at the EBITDA reduction, primarily that's coming in as a result of revenue -- our revised revenue guidance. That said, we have made significant and quick actions on the cost side of the equation. We noted in our prepared remarks that we've reduced cost by about $125 million on a run rate basis and probably about 2/3 of that or so are coming to fruition in 2026.

That said, we are seeing some elevated costs directly as a result of the war. As you can imagine, it's really around transportation, both logistics and crew movement. But we think those are transitory assuming the conflict resolves itself in the near future. So between the additional run rate savings from our initial first 60 to 90 days with John in the seat, plus some of the transitory costs, we certainly think that should be a tailwind for us going into 2027.

The next question is from the line of Steve Wieczynski with Stifel.

So Mark, another yield question here. So as we kind of think about the revised yield guidance, I think a lot of us were obviously expecting a pretty significant yield cut given the headwinds from Europe this summer. But look, I'm not sure a lot of folks were expecting a negative 5% on the low end. So look, if we think about the midpoint now, so call it, down $400 million, can you help us think what would get you to the down 5% versus the down 3%? I'm just trying to figure out that what that delta would be between getting from negative 3% to negative 5%.

Look, I think in our revised guidance, as John said in his prior answer, we do have some more structural issues, both in our marketing and demand issue structures versus -- and that's resulting in some issues in our revenue management system. You have to have the right marketing at the top of the funnel to generate the demand, and we're seeing that, that's just not functioning as it should be.

When I think about the 3% to 5% range, Steve, I think it's important to note that roughly about 1.5 points of that is as a result of the load reduction from our prior guidance. So yes, it is a wide range. But again, it's based on what we're seeing today. And most importantly, I think this is a very -- not necessarily appreciated. It takes time for teams to gel and get that opportunity, that engine going. As we've said over the last 4 to 5 months, this is a completely new team. And we've recently announced the change in our marketing leadership as well as the Norwegian brand. So that will take time to turn around. And of course, as we get that going, we'll continue to see green shoots going forward.

Okay. Got you. And then second question Look, your booking commentary or demand commentary, I would say is a good bit different than what we're hearing from some of your peers right now, especially in the -- around the North American deployments. So am I thinking about the right way that maybe the Norwegian brand itself is kind of getting lost at this point with agents and consumers, meaning the brand really now needs to kind of show what the brand really is? I'm not sure if I'm asking this the right way, but does that make sense?

Yes, it does, Steve. It's John. I mean, let's face it, we're not comparable to our out. I mean I said this is a turnaround. I think we've been very clear that's why the change was made. That's why I'm sitting here now. So when you're making comments about why we look different from our peers, I would say, yes, we do. But again, as I said, I have confidence in the industry. I have confidence in all the growth trend. So to me, these are self-inflicted wounds that we need to go fix or missteps. And so I wouldn't say that we've completely lost our way by any sense with agency consumers, but I wouldn't say we're hitting on all cylinders by any stretch. So I think, again, we sound like a broken record, but getting the right team in place and getting them to work well together is how you're going to optimize or maximize the optimization in those areas. So I'd rather just say we're not firing on all cylinders, but structurally, nothing wrong, great industry. It's just we need to execute with better discipline.

The next questions are from the line of Ben Chakan with Mizuho.

To the extent, maybe one on '27, to the extent that our bookings taking place today for '27 in Europe, what color can you give us? I think the concern being, as we've seen in the past, these type of disruptions at times have had a tail to them in part because of your booking curve and customer exposure. Just any color there or asked maybe differently, what are you doing today to make sure this isn't something that sticks with you for the next 6 to 12 months?

So Ben, first of all, I'd say, when you look at the luxury brands, I'd say they're in pretty good shape just like they have been this year, I'd say they're performing to expectations. So again, I think that's another proof point that the industry is fine and the industry is growing. I think what we said about NCL, when you said how can we make sure it doesn't happen going forward? I would say, again, let's get a great marketing team built. Let's get a great revenue management team built. Let's make sure they work as a cohesive group between sales, revenue management itineraries, deployments, et cetera. So I think that -- if we can get all that in place, which is not a short-term thing, it's a couple of quarters at least to build out of that, that's what's going to cure your '27 and year '28 look differently on the NCL side. On the luxury side, I think things are pretty good.

Got it. Just to be clear, I was coming from a Europe perspective, just given the disruption we've seen and and the fact that you guys booked North American guests there just to see you know where else coming from, maybe it's the same answer?

Well, Ben, I think it goes back to fundamentals. It's making sure we're getting back on the right booking curve well in advance. And I think that's where we entered 2026 sub optimally. And with the exacerbation of the war, that's just -- that's hurt us more. So we're very focused on 2027 across all itineraries to ensure that we have the right booking curve, we have the right base loading of business on the books and we think that will start to help us again in 2027, but that will take time to turn around.

Okay. And then I think, if I'm not mistaken, I believe Q4 yields are negative. I think in the prepared comments, you mentioned they'll continue to be pressured. Maybe that's kind of saying the same thing. Is that correct? Can we confirm that? And if so, can we kind of deconstruct maybe some of the high-level assumptions for Q4 if possible? Europe is 13% of mix, I think we all imagine that's probably negative year-over-year. It's just a large swing between maybe the previous implied versus today. So could you help us?

Yes. I think when you look at the -- both ends of the guidance range, there certainly could be a scenario where Q4 could be negative. That said, we still are a ways out, and we still have a lot of booking momentum to go. I think we're very, very excited that we've now started to see marketing in earnest starting over the last week or 2 around our exciting island, which is going to open in late summer. So we would expect that will help turn the corner and help with demand generation. So -- but certainly, if you're looking at the high end of guidance, there is a scenario where Q4 could be negative. And then if you look on the other book end of that, I think you're in positive territory. So look, we're focused on the future. We're focused on turning the demand engine around and the marketing engine, and that's going to take some time. So we'll continue to look for those green shoots coming forward.

The next question is from the line of Conor Cunningham with Melius Research.

Maybe to just clarify what you just said there. So you have a second half implied net yield guide of negative [ $3.4 million ] to negative [ $7.2 million ]. You just talked about potential for positive yields come in the fourth quarter. So that would imply like that third quarter is well below the low end of the [ $7.2 million ] range. So I just trying to understand the puts and takes. There's been a lot of moving parts from quarter-to-quarter. Totally understand that Europe is a larger portion. So if we could just get a little bit more granular on the 3Q, I know that you're not specifically guiding to, but I think it would be really helpful.

Yes. Conor, so obviously, yes, the implied second half is a wider range. But I think when you look at Q3, given our significant Europe deployment being behind the booking curve, with the war exacerbation. I think there's a scenario where you could see high single-digit negative yields in Q3. So hopefully, that will help you kind of back into where Q4 could be. And that's on the worst that -- that's on the high end of the -- or the low end of the guidance, I should say, at a negative 5% for the year.

Well and Conor, I think the other thing, it's John. Again, you guys are trying to like really nail this down. I don't know how many times to say it, we are not comparable to our peers at the moment. And so with the reason I said it in my prepared remarks that we have the rights that we gave and said in the question earlier, the wider range is just letting these teams gel. They're not even completely higher. I mean we're hiring people and revenue and the teams are being built out there gelling. So by definition, I think it would be irresponsible to have some super tight range, and we could explain it to you exactly down to the every 10 basis point change. That's just not possible with the Norwegian brand. So it's more of that than there's anything that we can singularly point to and say, that's your issue. So if you keep thinking about this as a turnaround story for the Norwegian brand, again, the luxury brands are operating as you would expect, that's really what accounts for the variability. So I wouldn't be making assumptions. It's more just letting this whole thing gel together.

I totally understand, it's just that things have been moved around so maybe just to stick with that. So Again, this is a gradual turnaround, and I understand that it takes a while to build. So as we think about '27, maybe just like whole company rather than just specific parts, it seems that this will take at least the first half of '27 to start to see a lot of the fruits of your labor start to play out. Is that a fair time line? It just -- you talked about gradual improvement, and I understand that. But just if you could just help bridge us to how you start to see this thing from a commercial strategy standpoint term?

Yes. I mean as we've said all along, I think the costs you'll keep seeing the costs come out. I mean over the next 2 to 4 quarters, you're just going to see one thing sort of on top of the others we keep turning over rocks and there's plenty more to go there. But yes, I think on the revenue side, when you think about getting your marketing message out there, getting back to the things we've talked about, premium families with kids, seasoned travelers, things of that, that we've sort of walked away from for the last couple of years, which Mark has talked about. You've seen that in the decline in our occupancy rates, all of that, you can't just flip a switch and go, oh, we're back to where we were in 2018 or '19 and the consumer just reacts immediately. So I do think that's going to take some time. So yes, I think it's accurate to say you're going to see your green shoots in '27. And as you get clicking into '27, that's going to roll over into '28 when hopefully, we're hitting on all cylinders. So I think you're correct to me. The cost and the revenues are on 2 different tracks. The costs will come quicker, I think the revenue will come a little bit later, but again, the revenue is far outstrips the cost opportunity.

Our next question is from the line of Brandt Montour with Barclays.

So the first one is a bit of a near-term question because I don't think we really kind of got into the nooks and crannies of the third quarter. Have you guys seen any sort of signs of stabilization over the last couple of weeks? I mean -- and sort of how much left do you have to book for that quarter? Just trying to get a sense where we're at in the calendar in that booking cycle? If even the numbers you did put out for the third quarter feels fully derisked here and what you're seeing real time?

Look, I think, fundamentally, when you -- at the core, you have to consider where we entered the season. We were behind the booking curve. We had more business to go after, that was exacerbated by the war. Again, when you think about that, we had a higher hill to climb than some of our competitors. And as John said, we're just not comparable. So we've seen elevated cancellations in Europe across the board. And again, here and there in certain areas of Europe, you start to see some green shoots, but given the fact that we're sitting here in May, it's going to be very hard to dig out of that hole that we've created ourselves for ourselves with that being behind in the booking curve.

Again, on the luxury brands in the last 3 or 4 weeks, we have seen I would call it even slightly better than stabilization. We've seen some encouraging signs over the last 3 to 4 weeks for Regent and for Oceania.

Okay. That's helpful. And then noncommissionable fairs, I believe, went into effect this week for you guys. And I know that forecasting '27 in the second half of '26 is a bit difficult with all the teams gelling and everything you sort of talked about already. But hopefully, you have an idea of what you're sort of internally modeling for NCS in terms of those being either net dilutive or net accretive to yields? And so maybe just take us through sort of the model specific to NCS effect on the business for the second half of '27 as the how much of a bad guy is that and when it can kind of flip positive if that's in '27 and if that's how you think about it overall?

Brandt, and again, I think we probably talked about this on our prior call or a call before that. The whole statement was really about, again, trying to garner and garner attention around the Norwegian brand, getting back to the -- getting the travel agent community instilled with the Norwegian brand as we obviously go to shorter and more domestic cruising. So very, very early in the stage to say what that quantification is going to be in 2027. But again, the thesis was getting back the attention in front and center of the travel agent community. So as you think about that, it was only related to the travel agent distribution channel. It was not a policy that went across our direct channels. So we think, over time, the volume will outpace any potential impact as a result of that minor cost impact.

The next question is from the line of James Hardiman with Citi.

I'm going to ask the 2027 question a little differently. I don't know, I mean there's a lot of unknowns here. So I don't know how much of this you can help with. But I guess, a, as we think about the booking curve, obviously, 1 of the issues, 1 of the main issues for 2026 is that you entered the year behind and so some of the external issues were so much more difficult to overcome. Anything you can tell us about where you sit on the booking curve with regards to 2027?

And then as I think about the different possibilities for 2027, the Street kind of had you getting back to your algo, right, next year? Obviously, it's going to be off of a much lower base. But should we think about the opportunity, '27 versus '26 is still sort of a normal opportunity? Could it be greater than that because there's a lot of one-timers as we think about 2026? Or is this stuff going to carry over so much so that we should not be anticipating meaningful yield growth in 2027?

Yes. I think it's a little difficult to know. Again, I think we know where we made our mistakes in terms of getting behind the booking curve. And I think the team that is being built knows where the mistakes were and is working to correct that. As we go into '27, I think the proof will be in the pudding, obviously, because, again, that team is being built out, the systems being refined, calibrated, whatever word you want to choose. So I would certainly think it's going to be better. I wouldn't sit here and tell you it's going to be all the way to bright. I don't promise you that. But I think meaningful improvements are being made in those areas. So I'd say, again, I'm optimistic. Whether it plays out perfectly in '27 versus '28, only time will tell, but I feel better about at least we understand where we made our mistakes, and I think we're working to correct them.

Again, on the luxury brands. I think they're right where they should be from an expectation standpoint in '27. So again, it's all about Norwegian.

And James, on the cost side of the equation, again, we've talked about we're taking quick and decisive action. We've already seen that with some of the numbers we talked about today. That's not going to stop. So you're going to see a much quicker change on the cost side of the base of the business. And again, getting our revenue management and demand engine via our marketing engines correct, again, will take more time. So we're going to move quick and decisive on that, but that's not something you turn around over time. Definitely, on the cost side, you're going to see a much quicker results flowing through.

Got it. And to that point, I know I've asked this question a bunch of times, Mark. But maybe assure us that some of the outperformance on the cost side isn't contributing to the underperformance on the top line. i.e., cutting a little more muscle and not entirely [indiscernible].

And then I guess big picture, John, you've talked a couple of times here about how you're not really comparable to your peers right now. I guess I'm just trying to think through the brand damage that's been done here, how consumers are thinking about your brand from a big picture perspective? And how much needs to be repaired as we move forward?

Yes. Well, I'm going to answer both parts and then Mark can jump in. No, we're actually investing more money in revenue management and marketing -- not marketing, but I'm talking about a team in the horsepower. So we've been very careful where we took cost out to have it not impact in any way revenue-producing opportunities. So we will be spending more money in those areas, not less. Again, marketing dollars per se hasn't been done as efficiently or effectively as possible. So that's obviously an area you can cut, but I can assure you, in terms of intellectual horsepower, we are definitely continuing to upgrade in those 2 areas. So do not worry about that at all.

And then in terms of brand damage, I don't think there's going to -- when you look at guest satisfaction scores, you know what the consumer thinks, I think there hasn't been any brand damage. Again, I think the brand is functioning. If you recall in an earlier call, I said, I just don't think we've maximized what we can get out of the Norwegian brand because we haven't been doing things as effectively or as coordinated as we should. So I don't look at it as you have to repair damage. I look at it as we just got to get back to maximizing what we can get out of that brand. And that's, again, just through operational missteps over the past 4 or 5 years, whether it's our itineraries, whether it's how we went to market, whether it's ineffective air spend and as we said, is more akin to a subsidy marketing. So there's lots of things like that, but I don't see any brand damage.

Yes, I would agree. I fully agree with John. We're not talking about a brand damage issue here, james. Again, this is about making sure we're putting our dollars to work in the right places, and equally as important, having the teams focus on the right priorities versus too many priorities. And by doing that, you actually get a lot more productivity and intellectual horsepower. So we're investing in the right places, and we're focusing on the right priorities. It goes back to a lot of fundamentals.

Our next questions are from the line of Lizzie Dove with Goldman Sachs.

Understandably, we've heard a lot about Europe, you've touched on Alaska. But maybe if we could just touch on what's going on in the Caribbean right now and what you're seeing there. You had a lot of capacity to absorb this year. We've seen some recent deployment shifts from MSC and whatnot. And so I would love to hear the kind of latest of what you're seeing in the Caribbean and just the broader kind of competitive environment there more broadly?

Yes. Look, Lizzie, we've been pretty transparent. We did have a large Caribbean deployment shift this year, and we were very [indiscernible] on our last call that we did not have the right tools in place. We didn't have our marketing in place. We just -- we didn't have our island in place. We've now launched the marketing of our island in the last week or 2. So we're hopeful that, that's going to start to improve demand generation. So again, those go back -- that goes back to a lot of internal missteps that the company took along the way. So as we've seen the Caribbean, we believe in the Caribbean, we think it's going to be a good market for us, but we have to have the right tools in place and we're working on that.

Got it. And then I wanted to ask just about long-term deployment. Obviously, Europe has its challenges this year with the conflict. But I think even pre that, I think Europe was tracking a little bit down. You mentioned some of the open [indiscernible] itineraries and whatnot. I guess, how do you think about Europe in the long term? Like is your mix of deployment? Are you happy with that current mix that you have? Or could you see kind of making some shifts over time, whether it's out of Europe or kind of anything else?

I mean, I'll give you my take. I think we're happy with the current mix. I think, again, when you think about how much of our business we source from the U.S. for our European itineraries, it's huge. So obviously, the Iran war has a much bigger impact on us than some of our competitors in that sense. But I think, again, when we get everything aligned the way it should, whether it's in the Caribbean or whether it's in Europe, the Norwegian brand should perform better because all the fixes we're talking about aren't for one specific region in the world. There -- they'll flow across all the different areas of the globe. So I think we feel good about Europe long term.

Our next question is from the line of Vince Ciepiel with Cleveland Research.

I wanted to unpack [indiscernible] a little bit more. Could you just talk in more detail on review scores, guest impression? I know that you still have the water park to go, but there was considerable investment already to this point. I imagine more people enjoying the lagoon, going to Silver Cove, just kind of like what the guest feedback has been? And when you think about quantifying that, if it's possible, at one point, you had thrown out some potential yield benefit the island could generate. and just [indiscernible]?

Yes. Vince, it's Mark. Look, as we've said, with a Phase 1 opening of Great Stirrup Cay, we've seen our guest satisfaction scores improve dramatically. And so the feedback from the guests who are touching the island and getting to the island has been nothing short of great. That said, as we've said before, we have not opened some of the primary monetizing events or activities on the island, which are scheduled for late summer this year. So we think when those open, together with a solid marketing campaign behind that, we absolutely believe that the island will generate incremental yields, not only from the on-island monetization, but over time, getting premiums for itineraries that are calling on that, which is, of course, underscoring the thesis of the investment there. So again, we're very happy with the results to date, and we look forward to, again, late summer, opening up the monetization activities, which we believe we'll really start to spark incremental demand.

Great. And then just kind of a longer-term question. You look at the occupancy levels and there's always the balance between price and load. But this business, you'd be at [ 107 ]. I think you got more Caribbean capacity now. Perhaps there's room to even get above that [ 105 ] just a couple of years ago. How are you thinking about just the occupancy opportunity over the next few years as you start to get some of these missteps addressed, get the teams gelled, the marketing message, right, how are you thinking about where occupancy could go?

Look, Vince, that's absolutely -- that's one of our items, front and center, where we think there's opportunity on the occupancy side. We want to get back to not only historical levels of our occupancy, but also to exceed that. We said on our last earnings call or a couple of calls ago that we're not just looking at maximizing our existing -- our new ships from an occupancy standpoint. But taking our existing fleet and ensuring that we're maximizing space across our existing assets so we can add more thirds and fourths and get more of the families. But I'll go back to, again, we have to get the brand, specifically the Norwegian brand front and center. We have to get the marketing and demand engine front and center. And over time that we believe that will help drive both price and occupancy.

The next question is from the line of Robin Farley with UBS.

I just wanted to go back to clarify some of the comments in the release in your earlier comments. Do you believe the situation in the Middle East is negatively impacting bookings for Caribbean and Alaska because the wording in the release sounds like you may be thinking of the Middle East is impacting things outside of Europe as well. So I just wanted to clarify that.

And then when we think about your change in Q4 guidance, and I know it's -- these are broad strokes, right? We're not trying to nail down tens of basis points. But going from something a couple of hundred basis points positive to something flat or a couple of hundred basis points negative, just since Europe is not as much of a factor in Q4, can you help us think about how much of that impact in Q4 you think is kind of impact from the Middle East versus what you were describing as kind of self-inflicted?

Yes. So I would say, yes, it is having some impact on the U.S. I mean, gas prices, everything, I mean it's kind of across the board. You can look at airlines, you can know the premium end of the airlines, which if you look at our premium brands, they're different. But mass mass are you have to do look at Spirit. Yes, it is having some impact for sure, but in terms of the fourth quarter, how much is the Middle East, again, I'm not -- we can't really parse what's -- how much is one versus the other. Again, we just said we're assuming the environment doesn't change from where it is today. We're not assuming it gets any worse. We're not assuming magically, it goes away next week and oil goes back to $50 a barrel. We've just sort of assumed that the environment stays the way it is. And given all the issues we've talked about sort of our turnaround in that brand, that's really what's driving that spread. It's nothing specific around the word. But yes, overall, for sure, the environment has softened to some extent.

And Robin, I think those are just downstream ancillary effects that we're seeing. What's interesting of course, as John has said several times, our luxury brands are just fine, and we're seeing great performance out of there. Even further, I think once we have our guests on the vessels, we're actually seeing healthy onboard spend. So it's a matter of, again, making sure we're getting in front of the consumer having our right demand and marketing engine going and getting the guests on board. If we can do that, I think that's really going to help turn things around.

Great. And then just a quick follow-up on your leverage levels at the end of the year. I know we'll be able to do the math in more detail after the call just with the change in guidance. Where do you see that getting your leverage levels at year-end?

Yes. I think based on the range of outcomes that you're probably looking at somewhere in the high 5s. And so obviously, we're not happy with where that's going. But as we've said before, it will take time to turn around the revenue side of the equation, but we are moving quick and decisive on the cost side. So to the extent over the next couple of quarters, we can announce some more actions around that. Hopefully, that will give us some more insulation.

The question will be coming from the line of Trey Bowers with Wells Fargo.

You said a couple of times on the call that the luxury brands are just fine. I assume that is a statement of kind of where you see the marketing engine and the brand strength. But is that also a signal of just kind of yield dynamics? And if so, could you give us a sense for kind of order of magnitude differential between what you're seeing in Norwegian versus what you're seeing at the luxury brands? And then I have a follow-up.

No, we don't break that out. I'm just saying that from an overall standpoint, we like what we see. And as we've said along, there's cost opportunities in those brands, which we're going to continue to go after those just like we are in NCL. Might not be on an absolute basis as much, but plenty of opportunity there, but it's definitely a more resilient consumer, no great surprise.

And then on the $125 million of kind of SG&A saves that you expect to see going forward, can you guys just -- one final time just try to unpack a little bit? You're talking about kind of needing to improve the marketing messaging of the Norwegian brand and you're improving the people, so there's investment happening there. So just help us understand how it makes sense to kind of maybe marketing spend is where exactly was that in efficiency? Just any incremental detail of a marketing spend that sounds like it's getting cut as you need to kind of increase and improve awareness of the brand would be super helpful.

Yes. I don't -- without going to any detail, all you need to do is just sort of look at our marketing spend over the last 3 or 4 years vis-a-vis our competition. And you would see that we spend -- our spend increased dramatically, and we're not nearly as efficient as our competitors. That's mostly not around heads, that's just around where we're spending it, how we're spending it. So again, we're investing more in the quality of the people, but there's plenty of room to cut. So it's -- I mean given the disproportionate amount of spend, there are plenty of places to look for money there.

Yes, Trey. It's about putting the dollars to work in the right places versus volume. And again, you can see our numbers when you look at our year-end filings vis-a-vis our competitors, I think we've been spending probably 2x on a per bed basis, but it's about effectiveness, and that's what we're focused on going forward.

Okay. Well, thank you, everybody, for joining us this morning. Appreciate all the questions and talk to you later. Thanks.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

Good morning, and welcome to Norwegian Cruise Line Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Rob, and I'll be your operator. [Operator Instructions] As a reminder to all participants, this conference call is being recorded.

I would now like to turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.

Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings call. I'm joined today by John Chidsey, President 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 event.

Before we begin, I would like to cover a few items. Our press release with fourth quarter and full year 2025 results was issued this morning and is also available on our website.

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 2025 and 2026 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 our CEO, John Chidsey. John?

Thank you, Sarah, and good morning, everyone. It's my pleasure to be here with you today, and I'd like to thank my Norwegian Cruise Line Holdings colleagues for their warm welcome, and Mark, for his partnership. There are many reasons that I agreed to join the Board last February and now become CEO. This is a special company. It founded the modern cruise industry. We have iconic brands and extremely loyal guest base and a dedicated team. At the same time, NCLH has clearly not been performing to its full potential.

Over the past 2 weeks since becoming CEO, I have been moving quickly to immerse myself in all aspects of our business and culture. I've begun a deep review of operations, spending time with our leadership and beginning to engage across the organization to better understand where we are performing well and where we are not. As someone who has built a career in consumer-focused companies, I share the team's passion for delivering an unbeatable guest experience. I've seen our company at moments of real strength as well as through some of its most challenging periods, including the pandemic. I've experienced firsthand the resilience of this company and its people.

I bring deep familiarity with the cruise industry for my prior years on the NCLH Board of Directors. We span transportation, hospitality, entertainment, construction, logistics, revenue management, touring and more. We do this while managing various distribution channels and regulatory frameworks around the world. Our industry relies on guests booking their voyages months, sometimes even years in advance.

I've also successfully led a number of yield-driven asset-intensive businesses through periods of transformation and performance improvement. Those experiences have reinforced a simple lesson: Sustainable improvement comes from disciplined execution, operational rigor and a clear focus on the fundamentals. This is the approach I intend to bring to NCLH.

We are operating a capital-intensive business with a balance sheet that is overly levered and a cost structure that must continue to be streamlined. Indeed, we have some challenges that need to be addressed immediately and others that will take more time. We also have strengths to leverage.

My takeaway after these first 2 weeks: We have to create a burning platform sense of urgency balanced against optimism and excitement for the opportunities ahead of us. Let me be clear, our strategy is sound, our execution and coordination have not been. And a culture of accountability is essential and necessary going forward. The good news is that we have the assets, we have the brands and we now have the right focus.

Job one is fixing execution and driving accountability and urgency. This comes from optimizing the organization and eliminating bureaucracy. There were clear failures in the basics of developing coordinated plans and a clear operating cadence around key enterprise-wide initiatives. The culture was very siloed with the lack of a one team mentality, which fed into this lack of cohesion. And I found that while there was work being done, the alignment and focus was not where it needed to be.

Job two is improving efficiency and return on invested capital, ensuring that our capital allocation decisions are grounded in measurable returns. The company invested heavily in our ships. And as a result, our product is strong. However, we under-invested in technology, revenue management capabilities and customer-facing systems. Correcting this imbalance is one of our top priorities.

And Job three is unlocking operational upside in revenue management, itinerary optimization and monetization of our private destinations.

There is important work ahead to return our company to sustained growth and value creation. It is the combination of my turnaround experience and tenure leading consumer-focused companies and industry understanding that provides me with the confidence that we can deliver for our shareholders, guests and team members.

What will make this possible is our leadership team. As of the past few months, we have put in place essentially an all-new leadership team in most of our critical functions, with a skill set and experience level that is well suited for the work ahead. Now this group needs to bond, and we need to create a culture of accountability and empowerment. The pieces are definitely here, and I'm already encouraged by the team's excitement and commitment to this turnaround.

Some actions are already underway and you will see further announcements over coming quarters as we streamline and reorganize the business to better execute. To that end, I'm working closely with our brand and executive leadership teams to take a fresh look at how we can improve day-to-day execution and drive more consistent results.

Marc Kazlauskas was named President of Norwegian Cruise Lines in December, bringing more than 3 decades of experience across sales, operations and innovation in the global travel industry. Marc has a strong track record of driving commercial performance and enhancing the guest experience and his leadership will be instrumental at the brand level.

I'm also working closely with Jason Montague, our Chief Luxury Officer, as he continues to lead Regent Seven Seas Cruises and Oceania Cruises. Together, we are focused on ensuring that each of our brands continues to deliver distinctive, high-quality experiences that resonate with our guests.

Our executive leadership team brings together experienced company and industry veterans alongside new seasoned leaders from outside the industry, particularly in areas like technology and strategy. At the Norwegian brand, we recently onboarded a seasoned industry veteran to lead that brand's revenue management function, along with the Chief Marketing Officer, that is honing our brand messaging and the way we engage with our guests. Going forward, our decisions will be driven with a focus on revenue management, which we'll work with, and direct sales and marketing to better align our resources. This is just one example of our teams coming together across the company around a common goal of improving performance.

My priorities are straightforward: improve execution, strengthen financial discipline, reduce leverage and focus the organization on the areas that will drive sustainable value creation over time. Once we complete our review and finalize our operating plan, progress will require patience, discipline and consistent execution. I look forward to sharing more detail on these priorities as we progress.

With that, I'll turn it over to Mark to walk through our fourth quarter results and our outlook for 2026. Mark?

Thank you, John, and good morning, everyone. I'll begin with our fourth quarter results on Slide 5, which were ahead of or in line with our expectations.

Net yields in the fourth quarter grew 3.8%, while adjusted net cruise cost ex fuel of $158 was below guidance, increasing only 0.2%, driven by strong cost controls, which ultimately drove adjusted EBITDA of $564 million, exceeding our guidance.

Adjusted net income for the quarter was $130 million, adjusted EPS of $0.28, which excludes an approximately $95 million or $0.20 write-off related to certain information technology assets included in depreciation and amortization expense.

Now moving to our full year '25 results on Slide 6. Starting with our top line performance. Net yields rose 2.4% compared to the prior year, as expected. We continue to have a disciplined cost management approach and our adjusted net cruise cost ex fuel per capacity day rose only 0.7%, slightly better than our guidance and well below inflation.

Overall, we made important strides in 2025. Our adjusted EBITDA increased 11% to $2.73 billion. Our adjusted operational EBITDA margin improved 160 basis points to 37.1%. And our adjusted EPS increased 19% to $2.11.

Moving to Slide 7, I'll touch on a few operational highlights since our last earnings call. At the Norwegian brand, under the leadership of our new Chief Marketing Officer, we launched a refreshed brand platform, reintroducing our iconic 1990s tagline: "it's different out here," and anchoring the brand and the values that have always set Norwegian apart: freedom and flexibility. Norwegian also opened bookings for Norwegian Aura, the largest of our premium class ships, with her first voyages setting sail in 2027.

At Oceania, we continue to sharpen the brand's positioning in the luxury space, announcing an adults-only policy fleet-wide. This shift is already yielding results. The sales of Oceania Sonata delivered a record-breaking opening day with bookings surpassing the launch of Oceania Allura by 45%. Strength in our luxury portfolio was also evident at Regent Seven Seas where January bookings were up 20% year-over-year with robust demand across the destination portfolio.

In addition, we recently announced new ship orders across all 3 brands: 1 for Norwegian Cruise Line, 1 Sonata class ship for Oceania Cruises; and 1 prestige class ship for Regent. We now have 17 ships on order through 2037, securing coveted shipyard building slots and locking in our long-term growth plan. Importantly, given the timing of the deliveries for these new ship orders, they require only modest initial capital outlays. And we do not expect them to have a material impact on our near-term leverage.

Turning to Great Stirrup Cay on Slide 8, we are very encouraged by the early results following the opening of the pier, a new expansive pool and enhanced guest amenities on the island. Initial guest feedback has been incredibly positive, with strong guest satisfaction scores across the board. The early feedback reinforces our confidence that our investments are improving the guest experience and will drive strong returns. Importantly, we remain on track to open the Great Tides Water Park later this summer, which will further elevate the island's offering and strengthen demand as we move into 2027.

Great Stirrup Cay is a central pillar of our Caribbean strategy. We remain highly confident in the long-term opportunity in the region, which delivers strong financial returns, attracts a broad and growing guest base, provides a stable operating environment and allows us to target more new-to-cruise and premium family guests.

While our Caribbean strategy required a shift in deployment to the region, in hindsight, it is clear that this shift, which resulted in a 40% capacity increase in Q1, was executed without the necessary enterprise-wide coordination, as John referenced. In addition, the capacity increase was premature as the supporting infrastructure and commercial initiatives around Great Stirrup Cay were not yet ready to support and accommodate the additional capacity. While phase one of the enhancements opened at the tail end of 2025, we increased capacity into the region ahead of the full build-out at Great Stirrup Cay, which includes the Great Tides Water Park.

Importantly, we did not sufficiently align revenue management, sales, marketing, itinerary planning and on-island monetization strategies to support that deployment shift. The individual components were moving forward, but they were not integrated under a single, cohesive operating plan designed to absorb the capacity at the right yield. As a result, the headwinds we are experiencing in the first quarter are more pronounced than we anticipated last quarter, which I will address in more detail shortly.

As we stepped back and evaluated our 2026 deployment, it became clear that our commercial strategy, including our sales, marketing, pricing strategy and revenue management tools were not aligned with our deployment. As a result, certain itineraries did not receive the coordinated commercial support required to maximize performance and yields, which is weighing on our expected performance for the full year.

We entered 2026 slightly behind our ideal booking curve in certain itineraries, creating near-term pressure on pricing and yield, which is evident in our guidance. Moving forward, we expect that creating tight integration between deployment planning and commercial execution will ensure itineraries are fully supported by a cohesive plan around revenue management, pricing and marketing from day 1.

We are embarking on a disciplined business review to ensure full alignment across our deployment, marketing, pricing, and look forward to sharing more with you on this process in the coming quarters. As John mentioned earlier, we are moving with a sense of urgency to overcome these challenges. However, given the booking lead times, the benefits will phase in over time. We are confident that these steps will position us for stronger, more sustainable performance over the long term.

This leads me to our 2026 guidance on Slide 10. Let's start with net yields. As a result of the headwinds I discussed earlier, we expect net yield growth in the first quarter to decline approximately 1.6% as higher occupancy was more than offset by pricing pressure. Looking to the balance of the year, we expect net yields to stabilize and modestly improve, growing at approximately 0.6%, bringing our full year net yields to approximately flat. However, we do not expect this gradual improvement to be symmetrical across all 3 quarters.

At our Norwegian brand, we are experiencing pricing headwinds in select markets as a result of certain execution missteps, including sailings in the Caribbean and Bahamas and itineraries out of our new home port of Philadelphia. In Europe, the tailwinds we had expected to occur in Q3 are not as strong as previously anticipated given the aforementioned execution missteps. Outside of these markets, we note that heightened competitive activity in Alaska has also pressured yields due to elevated industry capacity levels. That said, we remain focused on improving our commercial strategy and expect these headwinds to fade as we better align our strategy with deployment.

We recognize that this level of top line performance falls short of our expectations and our long-term objectives. As I mentioned earlier, we are undertaking a disciplined business review to fully assess the drivers of this underperformance and to ensure we realign deployment, pricing and marketing to restore sustainable net yield growth.

Turning to costs. Our discipline on the expense side remains firmly intact, and this marks the third consecutive year of strong cost control. In the first quarter, we expect adjusted net cruise cost ex fuel to decrease approximately 0.8%. Looking to the remaining 9 months of the year, we expect unit cost to grow approximately 1.4%, bringing full year unit cost growth to approximately 0.9%, well below inflation.

Our cost savings program represents a structural change in culture. We are building the muscle to continuously identify efficiencies, remove wastes and improve processes. That work will continue throughout 2026 and beyond as we remain focused on driving sustainable margin expansion.

As a result, we expect first quarter adjusted operational EBITDA margin to improve to approximately 29.1%, compared to 28.4% in the first quarter of '25, and adjusted EBITDA of $515 million. For the full year, we expect margins to remain essentially flat year-over-year at approximately 37%, while adjusted EBITDA increases approximately 8% to $2.95 billion.

Adjusted EPS is expected to be approximately $0.16 in the first quarter. And for the full year, we expect adjusted EPS to increase approximately 13% to $2.38.

Deleveraging remains a top financial priority, and for the full year 2026, we expect net leverage to remain approximately flat at 5.2x. Keep in mind, this reflects the delivery of Norwegian Luna in March and Seven Seas Prestige in December, which temporarily increases reported leverage by approximately a 0.25 turn as the associated EBITDA contribution phases in.

While we continue to grow capacity at a healthy pace, we are focused on driving stronger top line performance and margin expansion to support further net leverage reduction over time. As these new ships ramp and contribute meaningful to EBITDA, we expect net leverage to resume its downward trajectory.

At the holding company level, at the brand level and within revenue management, we are taking an appropriately disciplined approach to guidance. Rebuilding credibility with the market starts with setting clear, realistic expectations and delivering on them consistently. We are acting with urgency to strengthen the business, but we are also realistic that meaningful improvement requires deliberate execution over time. Our focus is on building a stronger, more durable foundation and restoring performance in a way that is sustainable and credible.

Before I turn the call back over to John, I want to take a moment to highlight the progress we've made on our cost savings initiatives over the past several years on Slide 11. We expect 2026 to mark another year of sub-inflationary adjusted net cruise cost ex fuel growth. That would represent nearly 3 consecutive years of essentially flat unit cost growth, while we deliver on our $300 million plus savings target. These results are the product of a disciplined work of our transformation office, which has methodically reviewed cost structures across the business, identifying efficiencies and removing waste, all without compromising the guest experience.

While much of the early focus was on shipboard efficiencies, we are now expanding and accelerating the program to drive further operating leverage by optimizing SG&A. Importantly, this is not a onetime program. We have embedded cost discipline into our culture, and we intend to continue driving efficiencies and margin expansion well beyond 2026.

With that, I'll turn it back to John for closing remarks.

Thank you, Mark. Before opening the call to questions, I want to underscore our focus going forward. Together with our Board and executive leadership team, we are focused on improving execution, strengthening financial performance and reducing leverage over time, while remaining firmly committed to delivering the exceptional vacation experiences our guests have come to expect across our 3 incredible brands. As I said before, we have the assets, we have the brands, we now have the focus.

I recognize that our 2026 outlook is below the long-term aspirations we previously communicated. Closing that gap requires focus, rigor and accountability. And that is exactly what we are bringing to this next phase. We look forward to keeping you apprised of our progress.

Before we move to Q&A, I want to briefly address the current conflict in the Middle East. We are closely monitoring the situation in Iran and the broader region. The safety of our guests and crew is always our top priority. At this time, we are not operating in the affected areas, and there are no impacts to our scheduled itineraries.

As it relates to fuel, the longer-term impact remains uncertain. However, we are currently approximately 51% hedged for 2026 and 27% hedged for 2027, which helps mitigate near-term volatility. We will continue to monitor developments closely and will adjust as necessary.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Steve Wieczynski with Stifel.

John, welcome and congratulations on the CEO appointment. So I have 2 questions that I'm going to try to ask here in one. So John, obviously, you've only been in your seat for a very short period of time. But you noted, and Mark commented in his prepared remarks, that there had been execution missteps with aligning your strategy with your deployment. So I guess my first question is about these Caribbean deployments and maybe how you address these capacity overhangs moving forward. I mean -- or if you start to pivot away from decisions that previous management implemented in the Caribbean.

And then second question is probably for you, Mark. But if we look at Slide 10 and look at the implied guidance for 2Q through 4Q, you obviously have a negative yield cost spread. But from our seat, that seems somewhat conservative even with your deployment headwind. So Mark, not sure what you would say about that, but any comments would be helpful, especially given the fact Caribbean capacity starts to ease after the first quarter and maybe it's more about Alaska and Europe, that you called out in your prepared remarks. But any comments there would be super helpful.

Yes. So in terms of your question about Caribbean deployments, clearly, I think the Caribbean is the place to be. I think it really ties back to when I said it was a very siloed effort organization, not a cohesive plan. So I think clearly, as we said in our remarks, our timing was off. I think we got a little ahead of ourselves. Again, there wasn't a great cohesive plan. Marketing was going in one direction, the island was going in a different direction.

So I think in the intermediate to long term, we are very confident about the Caribbean. Again, I just think this is where we've got to do a better job of running a very well-coordinated, well-executed plan, and I think we'll be fine. There was just a lot of short-term misfires. That's kind of how I think I would describe it.

Yes, Steve. So the strategy around Caribbean is sound. We've said that our private island Great Stirrup Cay is a central pillar of that. I think this squarely reflects the pretty dramatic shift in capacity toward the region, without the right commercial apparatus working in sync as a cohesive unit across the board. Hence, why we've seen some changes over the last few months of our various leadership. So I think going forward, as we correct those missteps and we align our strategies as one unit, I think we'll continue to see improved performance around that.

I think, Steve, on your second portion there was a mouthful, but I think you were referencing the implied guidance Q2 to Q4 as well as maybe a negative spread there. Apart from the Caribbean and Bahamas where we've had a significant capacity increase, I think when we reference some of the commercial missteps or execution, that is also affecting us in Europe. While Europe as a whole, the market is fine. We are not seeing the expected tailwinds that we expected to harvest over the summer as a result of some of our own missteps. So we are in the process of, again, working on that and correcting that.

Apart from that, I think we are seeing softness in Alaska. I think Alaska has seen mid-single-digit increase in capacity across the industry. And I think that is putting pressure on the broader industry around that. So that is a little bit of a drag for us this year.

Our next question comes from the line of Ben Chaiken with Mizuho.

Just maybe a follow-up on Europe. So last year, you kind of did these long-duration immersive strategies into Europe in 3Q, and you did in the heels of April 2, which seems like an obvious formula for weakness. But as you were kind of suggesting the previous comments, that you were not expecting 3Q this year to be a tailwind as a result of your own missteps. I guess I'm just -- can we flesh this out -- can we unpack that a little more? I believe Caribbean should be either your lowest or close to your lowest from a capacity mix standpoint. Yes. So help us unpack like how the missteps in the Caribbean impact that 3Q kind of year-over-year comparison versus last year?

Ben, look, you're absolutely right. We did have a shift in itinerary deployment that was already preplanned for 2026 prior to any events last year in March, April. I think the issue around Europe is we, in fact, did decrease our longer deployment itineraries. In fact, as a stat, I think we had about 160 voyages last year which were 9 to 14 days. This year, those same voyages are down to the low 60s. So we did, in fact, reduce it by 50% to 60%.

Where we're seeing some pressure is on a good portion of those sailings, we do have quite a bit of open jaw itineraries. And as a result of that, we're seeing a little bit of pressure from our consumers around those open jaws. And that's something, again, that goes back to what I would call commercial misalignment in terms of our deployment and commercial strategy. So while we cannot correct that for 2026, it is something that we are focusing on in the future that we believe is very correctable. But of course, we will not see the fruits of that until 2027 and beyond.

Okay. And then John, in your prepared remarks, I believe you spoke about, these are a mix of my words and your words, but I believe you spoke about a culture of inefficiency and bureaucracy. Maybe you could expand on this. How did this manifest in results? Was this a cost headwind or more of a strategy and capacity allocation related? And then what are you doing specifically to change this culture?

Yes. I think it was a little bit of both. I think as I said, it was very siloed and not -- I hate to keep using the word cohesive, but cohesive strategy and cohesive execution, which allowed a lot of these sort of missteps. I find a culture that really has no sense -- not no sense, but it needs a much greater sense of urgency and accountability. I think both of those were missing. And yes, they're clearly, as we said in our remarks, I think the company has done a great job shipside in terms of looking at cost, but I think we have definite opportunities on the shore side to optimize the company.

And so what am I doing to get after it? Again, trying to create that culture of one, trying to create cohesive plans, trying to go after the cost. But I also think the other huge opportunity is revenue because it was so disjointed, under-invested, as I said, in technology, in revenue management, sales going in one direction, marketing in another, itinerary planning in another, lack of real focus on revenue management. I think pulling all that together, I actually think our biggest opportunity is revenue. And while you might not see that immediately given the nature of our industry and people are already fairly well booked in '26, but you should definitely start to see the fruits of that in '27.

So I kind of look at it as a tale of 2 cities. I think both sides of the coin are opportunities for us, and the culture is what will drive both of those at the end of the day.

Our next question comes from the line of Conor Cunningham with Melius Research.

John, maybe we could just stick with you on -- and maybe following up to John's comments a little bit there. Just you mentioned that you're going through a full review process now. Just curious on when that will actually be [ completed ], I understand a lot of its culture and more of a broader strategy as you kind of take the rein.

Well, as I said, I think our strategy is correct. I like -- as Mark noted, we have as a company invested in a lot in our ships. So I think our ships and our guest experience, our sort of crew enthusiasm and crew dedication is good. Whether it takes 3 months, 4 months, 5 months to kind of really dig into where we've gotten a little bloated, where are we not efficient, where should we be looking to invest short term, I can't tell you exactly. But I mean it's not a 1-year process by any stretch of the imagination to kind of pull together what do we want to do immediately, what do we want to do. But for certain reasons, maybe we can't get after until '27 sort of racking and stacking those priorities. So I would say in the next couple of quarters, we should have that pretty buttoned up. But I don't know, I can't give you an exact date by any stretch. I've been here all of 2 weeks, so.

Yes. No, I realize that you've been here for a short period of time. Okay. So just as a follow-up, maybe, have you guys actually been in contact with Elliott? And then when you look at their presentation, what would you actually agree with as you kind of digested what they've...

The answer is yes, we have been in touch with Elliott, like we have with all of our shareholders. And we're actually headed out for like a 2-week roadshow basically with our investors, which we're literally hitting the road this week and next week. So that was already set up. That's one of the first things I wanted to do when I stepped in, is go talk to shareholders and get their perspective on what we've done well and, clearly, what we haven't done well. So that's all underway. And obviously, hearing from Elliott is just like any other shareholder, meaning we're very interested in what they have to say, and their thoughts on how we better drive long-term shareholder value. So that's what I would say.

And Conor, I think as John had said, I think there's a huge opportunity here as we focus on the revenue side. We've brought in a top-notch commercial revenue officer, who is an industry veteran who has significant experience in other areas of the industry of correcting this issue. And while that's going to take some time to harvest, we believe that, again, we're putting in the right structural components underneath that to really drive the top line as well.

Our next question comes from the line of Matthew Boss with JPMorgan.

So John, as you enter '26 slightly below your optimal booking range, could you speak to actions, maybe more in the immediate term, to support improvement in booking trends? And maybe specifically, your mindset on preserving price relative to load factors?

I think, again, having been here 2 weeks, I'm going to defer to Mark on that one. That's -- I'm not that deep in the weeds yet, to be honest.

Yes, Matt, great question. So yes, we are slightly behind the optimal booking curve, as we mentioned. And as a result, when you look at our guidance, I think that's reflective of both the first quarter as well as the remaining 3 quarters. It is always a delicate balance between price and load. But I think when you step back and you think about our longer-term strategy of a central pillar around the Caribbean, getting more premium families on board, monetizing our island, we will be continuing to focus on load factor. And in fact, I think our load factor this year is increasing by over 200 basis points.

So the balance is going to be finding that right price together with the right yield and load factor. And I think, again, as we align all of our commercial departments rowing in one direction, I think you're naturally going to see increases in both.

Great. And then maybe, Mark, to that point, could you elaborate on your cost growth outlook for this year? Meaning I know this has been a strong area of focus, in particular, for you personally over the last couple of years. But any areas of incremental low-hanging fruit that you see to further rationalize the cost structure? Or maybe on the flip side, investments needed to drive yields multiyear in your view? Just what's the best way to think about the balance that we should consider here?

Yes. I think as John mentioned, one of the areas that we have not invested enough is customer-facing systems technology and both marketing and revenue management technology. I think as you guys all recall, we did -- we started investing in a new revenue management system last year. It has just started up and running over the last 6 to 8 weeks. So that will take some time.

But I think, again, when you step back and you look at where our cost culture over the last 2 to 3 years has been, yes, we've made good progress. We've always said this is a $300 million-plus program. But a lot of that was focused on shipboard efficiencies. And now our eyes are squarely turning on the SG&A component, using that same muscle.

So while you dig down, there's never any low-hanging fruit, but I think you're going to see us taking much more methodical urgent actions around that side of the equation going forward to rightsize that piece of the business.

Our next question is from the line of Brandt Montour with Barclays.

So John, I want to get your sense, I mean, in your prepared remarks, you touched on technology and revenue management, customer-facing systems. Putting this together, do you think that there is a disadvantage at Norwegian of scale? And the reason I ask is, you said that this would require patience. How long in your experience does it take to see these types of turnarounds start to come to fruition?

Yes. I do not think we're at a disadvantage at scale. I think, again, if we show the same discipline on the shore side, the SG&A side, that we've done on the ship side, I think we can definitely see some improvements over the next '26 and '27, because cost, you can go after faster than the revenue side given again how far out people book. But I think our investments in revenue management, as Mark said, and some of our guest-facing technology, the island coming online, better monetization of that island, I think he revenue side, again, you're going to see more '27, '28, so they kind of go at slightly different paces just given how our industry sets up. But I think we're all -- Mark might not say it's low-hanging fruit, but I would say there's lots of opportunities. So I'll quibble with them a little bit there. And that's our job to go after that and go get it and, again, focus on it as much as we did on the ship side costs, so.

And then just a follow-up question. It's been all of 1.5 days since the geopolitical events unfolded in the Middle East, understanding that you don't have direct exposure there. But have you seen or do you expect to see near-term bookings pressure on other international itineraries, namely Europe, from Americans? And have you baked anything for that into your guidance?

Yes. So far, we're at a day or 2 into this, and I cannot say that we've seen anything noticeable around that. In terms of the guidance, our guidance is our best view of what we -- how we see the world. But I would -- certainly would not say we've baked anything in for the last 2 days of geopolitical issues.

As I think John noted in his prepared remarks, we will see -- obviously, we could see a little bit of pressure on fuel. The good news is that we're over 50% hedged for the year. And the one thing that we can control is fuel consumption. And I think when you look at this year where we're heading, our implied forecast implies that we're going to be down about 3% in fuel consumption per capacity day. And that comes off of 2025 where we were down 6% per capacity day.

So we're controlling what we can control. And hopefully -- we're hopeful that this unrest in the Middle East area settles soon.

Our next question is from the line of James Hardiman with Citi.

John, welcome aboard and good luck. So we've talked a lot today about some of the missteps along the way, the misalignment. And I think investors very much appreciate sort of the ownership on that front. I maybe wanted to dig into if there might be other factors also at play here, namely sort of the cyclicality piece, right, the strength of the consumer broadly, and then maybe the competitive piece, right? Your relative positioning within the industry. Obviously, you guys have some really impressive peers. And so just trying to dig in a little bit more, do you think the consumer is slowing? Do you think that you've lost any credibility with consumers as we think about fixing this going forward? Just trying to make sure we understand all the pieces.

Yes. So I would start out by saying -- I'm going to let Mark get a little more granular. But I think the other thing besides our missteps, I think the other thing investors really need to focus on is that, as we talked about, it really is a whole new team, which I was kind of -- I mean, a lot of people have been brought in, not just the head of Norwegian, but we have a new Head of Technology who came from 2 Fortune 500 companies and a new Head of Strategy and new revenue management. I would say just even having been on the Board, got back on the Board about a year ago, the quality of the team is instantly better. But the downside, which turns into an opportunity, is most of them, we've only been here 3 or 4 months.

So yes, we had missteps, but I think we have much higher caliber people in the key roles. So now we've just got a gel, as I said, and become one team. And I think they're equally excited about what we can accomplish. I would say yes, missteps, but also you don't -- in some of my previous turnarounds, you have to go in and kind of clear the field, spend 3 to 4 months going to find the right people to put in place. I think for the most part, we have that here.

I think in terms of what Mark is seeing with the consumer, I think he can give you a little more color on that, so.

Yes, James, look, I think overall, we're not seeing issues with the consumer. The consumers continues to be strong relative to crews and relative to our space. I think what we're seeing in terms of our specific results throughout the areas are really as a result of some of the missteps that we've taken.

Equally as important, our luxury brands continue to do very, very strong, and we're very happy with that. I think the big focus is really on our mass brand, Norwegian, aligning our commercial strategy and getting much, much sharper on our execution. So I would say from our standpoint, a good portion of this is probably self-inflicted wounds, that we can correct, course-correct over time.

Got it. That's really helpful color. And then maybe staying with you, Mark. You touched on a little bit of this. But as we think about the phasing of the year, I guess, particularly on the top line, I think most of us were bracing for a pretty rough first quarter. As we think about that sort of 0.6% yield growth in the back of the year, obviously, 2Q, you're still not going to have the benefit of Great Tides. So I'm assuming we should maybe still be modeling 2Q to be down in terms of yields before we get maybe some relief in the back half of the year? Also really just trying to get an understanding as to what the exit rate looks like and how that might influence 2027. And then anything to call out in terms of cost saving as well?

Yes, James, so look, I think when you look at the balance of the year, as we've said, Q2 is, for the most part, pretty well sold. As we did mention, we are seeing some pressure in Europe as a result of our own missteps. Alaska is seeing pressure from the broad industry. But I think when you start to look toward the fourth quarter and where we are, given that we will have our full island amenities as well as the water park, we'll have about 1/3 of our passengers touching the island in the fourth quarter, that's where -- I think that's where we're going to really start to see some of the turnaround starting to occur.

So don't want to get too far ahead of our skis here, but we've got some work to do over the next couple of quarters.

The next question is from the line of Vince Ciepiel with Cleveland Research.

Obviously, the old target for low to mid-single-digit yield growth in '26 versus the flat today, there's been some degradation in the last 90-plus days. And just trying to understand kind of the shape and pace of it. Is it -- when you look at your bookings, is it just things overall have been a little bit worse versus plan? Or when you look at it by month, has there been anything encouraging, discouraging when you kind of look at the more recent trend line in bookings? How it has informed kind of your perspective on the year?

And when you think about kind of this starting negative and moving towards, it sounded like, more positive yield growth in the fourth quarter, does that require an improvement in the bookings trajectory that you're seeing right now or just kind of assume more of the same?

Vince, look, I think when you think about bookings, it all starts with momentum. And as you start to see some changes in the momentum and you start to get slightly behind the booking curve, that has, as we all know, that has ramifications down the line over the next few quarters. The positive news is, again, we've gotten -- we've made some organizational changes, more of which you're going to see, I think, over the course of the next few weeks. We're aligning our organization to ensure that they're operating as one cohesive unit. And we've got some good industry talent that are now running the key areas.

So yes, it's going to take some time, but it is a -- it takes time to turn the ship, so to speak. But we are seeing some positive green shoots. It's just a time is needed. And we've got a lot of opportunities on the horizon.

And I think, Mark, as you noted on, I think, the last question, like the luxury brands are performing very well. So I think, again, our missteps and our lack of cohesion is really with the Norwegian brand, but because that's the largest brand by far, that's where you're seeing it hold the overall NCLH down. So I'm actually encouraged by the fact that we're executing well with 2 out of 3. I think, our -- not I think. I know our opportunity is really around the Norwegian brand as well as all the other things we talked about. We can do better on revenue management across all 3 brands. We can take SG&A, optimize SG&A across all 3. But specifically, I think our big opportunity on the revenue side is Norwegian.

Great. And maybe digging in a little bit more there. Like when you step back and think about flat yield for the year, Caribbean is 40% of the mix, and it's probably safe to assume that's negative. But based on some of your other commentary, it doesn't sound like Europe and Alaska are kind of like hitting it out of the park for you. So I don't know, I feel like going into this call, there was probably more concern that Caribbean would be even more negative than maybe what this overall guidance implies. So can you just talk about how you have managed price in the region, what you're seeing overall? And I think in years past, you've talked about how price matters a lot more, and it takes a lot longer to go earn it back. So just how you're navigating the pricing side in the Caribbean through this reshuffling?

Yes. So as I said earlier, it's always a delicate balance between price and load factor. And as we continue to build our presence in the Caribbean, we're going to continue to balance that. Obviously, we are seeing some pricing pressure as a result of our missteps, and we're working on correcting that.

When you think about Europe, I thought it was clear earlier, Europe as a whole is not -- we don't see issues with the market. We see issues with our execution in the market. And again, there's opportunities around the margin to fix that for 2026, but we certainly can fix that for '27. It's just a matter of we're not seeing the expected tailwinds that we would have thought year-over-year on that that we had expected earlier.

And Alaska, again, is a little bit of a soft spot. We are seeing some pressure there just from a broad industry standpoint. So again, these are all things that we believe are fixable and it's going to take time. But with the right alignment, the right leadership, I think we have a huge opportunity in front of us.

Our next questions come from the line of Lizzie Dove with Goldman Sachs.

John as you're stepping into this new role as CEO and taking a bit of a fresh look at things, I'm curious as you think about the portfolio long term, how are you defining like what is strategically core versus maybe noncore within the brand portfolio?

And I'll ask my second question at the same time, which is, obviously, Oceania and Regent have a different profile as Norwegian yield margins, et cetera. Any way that you can help us think about those relative margins or return profile of those brands versus the Norwegian brand?

Yes. So I think we absolutely, as I said, I like the strategy. I like the assets and the brands we have. I think the quickest and most predictable way to get back on the right track and deliver long-term shareholder value is, again, to execute, work on revenue management, work on making sure we have an aligned, cohesive plan, going after where we need to optimize the business. So I'm actually very pleased with the portfolio we have. I just think there's lots of work to do around all 3 brands. And I couldn't begin to tell you about the margins on the 3 brands because I really haven't dug in that much. I don't really think we go into that kind of level of detail anyway. But I look at them all as core, is my honest answer.

Our last question comes from the line of Trey Bowers with Wells Fargo.

I guess just quickly getting back to the Elliott question from before. They've obviously proposed one named new Board member and would like to have a few more. How open are you guys to some fresh set of eyes on the Board? I'll stop there.

Yes, I would say, like any company you would expect to say we're always looking at renewing our Board. I think we've added 3 or 4 Board members over the last couple of years. So I think that's a constant process [indiscernible] government committee goes over. So I would just say all kinds of people throw us suggestions, and we will definitely look at those as a Board and come from there.

And I guess just following up on Lizzie's question, if someone was to approach you guys and we're interested in one of the brands, would you explore that? Or do you feel like everything is so devalued right now that that will not be an option?

Yes. I think, again, I believe in these 3 brands. I think the best way to drive shareholder value is to go execute well, take out the excesses and let this team coalesce because, again, it's pretty brand new. And to me, that's the best path to go down. Obviously, you always reevaluate things like any company over a longer time period, but I'm pretty confident in what our plan is here.

So I think you said, operator, that was the last question. So I just -- again, I want to thank you all for joining us today and for your continued engagement and we look forward to updating you on our progress next quarter as we move down the road and put some plans together here. Thank you very much.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Good morning. Welcome to Norwegian Cruise Line Holdings Third Quarter 2025 Earnings Conference Call. My name is Sherry, and I will be your operator.

[Operator Instructions]

This conference is being recorded. I would now like to turn the conference over to your host, Sarah Inmon. Ms. Inmon, please proceed.

Thank you, Sherri, and good morning, everyone. Thanks for joining us for our third quarter 2025 earnings call. I'm joined today by Harry Sommer, President 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 the call, which can also be found on our website. Both the conference call and presentation will be available for replay for 30 days following today's call.

Before we begin, I would like to cover a few items. Our press release with third quarter 2025 results was issued this morning and is also available on our IR website. This call includes forward-looking statements that involve risks and uncertainties that could cause our call 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 2025 net yields and adjusted net cruise cost excluding fuel per capacity day are on a constant currency basis and comparisons are to the same period in 2024. With that, I'd like to turn the call over to our CEO, Harry Sommer. Harry?

Well, thank you, Sarah, and good morning, everyone. Welcome to our third quarter 2025 earnings call. I'll begin my remarks today with a discussion of the third quarter results and recent booking pace, and we'll then get into some recent highlights on our 3 brands and strategy. I'll then provide some brief comments on how 2026 is shaping up before handing the call over to Mark, who will provide a deeper dive into our financial performance and outlook. So side right in, I am pleased to report another record quarter with the results that met or exceeded guidance across all metrics. As a result, we are reiterating our full year adjusted EBITDA guidance and raising our guidance for adjusted EPS.

Our performance this quarter was driven by solid customer demand which drove load factors higher, reflecting the continued strength of our brands and the execution of our charting the course strategy. As previously stated, we remain committed to balancing return on investment with return on experience delivering exceptional vacations, driving sustainable financial performance and strengthening our balance sheet. Now delving a bit more into the details of our third quarter results shown on Slide 4, we achieved another quarter of strong performance and solid execution across the business. We met or exceeded guidance we provided in July and delivered the highest quarterly revenue in our company's history. Load factor finished ahead of expectations at 106.4% driven by stronger-than-anticipated demand for families, particularly at the NCL brand, resulting in net yield growth of 1.5% and costs were essentially flat year-over-year, which resulted in adjusted EBITDA of approximately $1 billion, a milestone achieved for the first time in company history.

As a result, our trailing 12-month adjusted operational EBITDA margin reached 36.7%, an improvement of 220 basis points from last year and another meaningful step towards achieving our charting the course margin target. Finally, adjusted EPS came in at $1.20, exceeded guidance by $0.06. In -- turning now to recent demand. Bookings in the third quarter marked the strongest third quarter bookings in company history with bookings up over 20% from last year. With this trend continuing into October, all collectively driven by strong demand, not only for short Caribbean sailings this winter, but also for our luxury brands. These results not only underscore the strength of today's demand but also provides a solid foundation for growth in the quarters ahead. Of course, there are other highlights in the subvenful quarter that I would like to share. First, on the financial side, which Mark will cover in more detail, we completed a multifaceted capital market transaction that, among other benefits, reduced our share outstanding on a fully diluted basis by more than $38 million or over 7%, materially improving our adjusted EPS.

On the guest experience side, we introduced several enhancements, including our new Tri-branded loyalty and recognition program, which I'll discuss later, and the launch of an enhanced website for the NCL brand. The new site is already delivering results with faster performance, better guest experience and higher conversion rates, resulting in increased bookings. We have also made it easier for guests to personalize their vacation with more targeted pre-cruise offerings. For example, we are now promoting high-value onboard products such as Vibe Beach Club passes, drinks and dining packages, streaming WiFi, spa treatments and shore excursions through personalized e-mails and push notifications. Pre-cruise sales at our all-time high levels, which drives higher onboard revenue and higher guest satisfaction and repeat rates. On the sustainability front, we recently announced a landmark agreement with Spain's Repsol for supplying renewable marine fuels at the Port of Barcelona.

This 8-year agreement starts this upcoming European season and is a first-of-a-kind partnership in the industry, underscoring our sale and sustained commitment. This agreement is a great example of cross-industry collaboration that could unlock meaningful progress and secure long-term access to renewable marine fuel in Europe. Now I'd like to take a few minutes to discuss the high-level strategies we're executing across our 3 brands, which are summarized on Slide 5. These strategies are designed to ensure we continue delivering exceptional experiences for our guests while advancing our charting the course targets and creating long-term value for our shareholders. At Norwegian Cruise Line, our focus is enhancing the family appeal and experience. At Oceania Cruises, we're working to firmly position the brand within the luxury sector. And at Regent Seven Seas Cruises, we're focused on maintaining its well-earned reputation as the pinnacle of ultra-luxury cruising.

Moving to Slide 6. I'll dive into the strategic evolution underway at Norwegian Cruise Line. This is a transformation that has been underway for several months and is now accelerating with sharpened focus under the brand's new leadership, including a new Chief Commercial Officer and a new Chief Marketing Officer with a robust search for a world-class leader to head the NCL brand well underway. As part of this evolution, the brand is executing a focused 3-part commercial strategy to drive yields and profitability higher over the next year and into the future. First, we're focusing more on families as a core demographic. We're building brand familiarity through our short Caribbean sailings, which give more guests, particularly families, a chance to experience our amazing product. That exposure helps build loyalty and creates a pipeline of repeat guests for the future.

Over time, this will increasingly support one of our key priorities, boosting load factors. We are working diligently to attract more families to the brand to experience everything Norwegian has to offer, both on board and at our destinations, particularly our upgraded private island Great Stirrup Cay and through enhanced onboard offering geared towards families. Second, we're strengthening our brand positioning and marketing. To reach the broader family market, NCL is developing a refreshed brand campaign designed to elevate awareness and strengthen emotional connection, which we should launch in early 2026. Alongside that, we're optimizing our marketing mix and spend to ensure we're getting the best possible return on every marketing dollar, creating efficiencies throughout 2026.

Lastly, we're elevating the guest experience. We are pleased to reiterate that our previously announced enhancements at Great Stirrup Cay are all on track to open around the holidays, including the new multishipier, welcome center, trans system, an expansive 28,000 square foot gated pool, the size of an entire cruise ship with a swim of bar, kids flash zones, 5 shore club, new dining and beverage outlet and dozens of new cabanas. The upcoming summer '26 launch of the Great Tides Water Park will mark another milestone moment for the brand spanning nearly 6 acres, the water park will feature 19 thrilling water slides, a dynamic River, a huge kids splash zone, a 10 and 15 footwall cliff jump and an innovative jet cards attraction. It will be the perfect family-friendly addition to our already exceptional island amenities, which include Silver Cove and exclusive retreat offering magnificent villas at a beach Cloud. And that's just the additions at Great Stirrup Cay. We're also looking ahead to enhancements across other destinations in our portfolio.

In addition, we are expanding our kids and family programming with improved activities in entertainment, ensuring engaging experiences for guests of all ages. At the core of this approach is our ambition to be the brand of choice in the contemporary space for both seasoned travelers and premium families while maximizing profitability. Future travel intent, current bookings, guest satisfaction scores and future onboard cruise sales are all at or near record levels, clear signs that our strategy is working. We continue to actively balance between load factor and price with the goal of optimizing net yield margins and most importantly, profitability. Now turning to Slide 7. This strategy is already leading to tangible results. Our increased Caribbean presence, additional short sailings, which capitalize on demand for closer-to-home family vacations and continued investment in our private island destinations are already driving higher load factors.

The fourth quarter marked the first period where we're truly seeing the shift in strategy come to fruition. In Q4 of this year, we will have the highest mix of short selling since 2019, reflecting our deliberate move to rebalance Norwegian's deployment towards closer to home itineraries. This approach expands our reach, appealing to a broader mix of guests, particularly premium families and [indiscernible] travelers, while allowing us to better leverage our private island investments. In Q4, short selling capacity is increasing over 80% versus prior year, and our Caribbean deployment is moving to over 50% of our total capacity. As a result, we now expect load factors to improve over 100 basis points year-over-year to nearly 102%. Now I know many of you will probably ask why our fourth quarter yield guidance has changed from our prior implied guide to growth of 3.5% to 4%. So let me get ahead of that question.

As mentioned earlier, we are very focused on load factor and increasing brand visibility through our Caribbean product. It has been quite some time since we've had this level of short sailings in our deployment and demand has exceeded our expectations. In the fourth quarter, our Caribbean short sailings are performing quite well, particularly among our targeted family demographic, driving load factors higher than we had forecasted. On our Premian sailings, we are seeing more families, which means for children at each cabin. We expect core pricing for the first and seconds to be well up. The addition of child as third and force in the cabin, however, will naturally dilute blended pricing. The end result remains strong yield growth and strong margin expansion. This is an intentional planned trade-off to drive margins and profitability higher in both the short and long term. These early results from our increased short sailings creating deployment are encouraging and reinforce our confidence in this strategy. Now looking ahead, we expect this dynamic to accelerate in the first quarter of 2026, with load factor projected to be 200 to 300 basis points higher year-over-year, driven by a meaningful 40% increase in short sailings.

Additionally, this will coincide with the soft opening of Great Stirrup Cay new amenities around the holidays, while the more meaningful enhancements will be coming when great tied to water park opens later in summer 2026. While we returned next winter, we'll have the full benefit of the new amenities at Great Stirrup Cay and the word of mouth from thousands and thousands of satisfied guests, which will further strengthen performance. Moving on to Slide 8. We're confident this positive momentum will continue throughout 2026 and with load factors building on 2025 levels and returning to, if not exceeding 2024 levels, reaching at least 105%. This is sustained progress driven by this new deployment strategy. Now talking a bit about the Norwegian brand. And now I want to turn to our luxury portfolio, Oceania Cruises and Regent Seven Cruises on Slide 9. The opportunity we're seeing in luxury cruising has never been stronger. Global luxury spending continues to expand with experiences ranking as the fastest-growing segment in 2024. Both Oceania and Regent are perfectly positioned to capture this demand.

Oceania delivers luxury by choice, offering guests elevated personalized experiences with exceptional culinary offerings, while Regent is the pinnacle of the ultra-luxury all-inclusive luxury segment. To fully capitalize on this opportunity, we brought back Jason Montague earlier this year to lead both brands and drive the next phase of growth. Turning to Slide 10. You can see the tangible progress already underway. The first thing Jason did was optimize the organization, ensuring we had the right leadership structure and the right people in the right roles to support long-term growth. He's been deeply engaged in our fleet management program, including our pipeline of 6 luxury ships, overseeing the design and launch of Oceania Allura and Regent Seven Seas Prestige, both of which will set new standards for design, experience and efficiency. He has also been very focused on elevating our existing fleet and Seven Seas Mariner is the latest example of that commitment. The ship entered drydock just yesterday where we're undertaking the full transformation, refreshing suites, reimagining public spaces and introducing an enhanced pool grill featuring the new wood-fired pizzeria concept for relaxed or Al Fresco dining. Seven Seas Borger will be undergoing the similar revitalization when she enters dry dock next year coupled with our 3 new vessels and the upcoming prestige delivery in 2026, we truly will have the world's most luxurious fleet.

Finally, Jason has been laser-focused on enhancing brand positioning and marketing across both brands ensuring that Oceania is fully recognized in the luxury space, while Regent maintains its place as the pinnacle of ultra-luxury cruising. We know we had 2 extraordinary luxury products. Now it's about telling these brand stories more powerfully and consistently in the market. I want to take a moment to recognize Jason and the entire luxury team. They're doing an outstanding job executing on the strategy, elevating both the Regent and Oceania and positioning our luxury portfolio as a key growth driver for 2026 and beyond. Finally, moving to our loyalty program on Slide 11. I'm thrilled to share how we're taking guest recognition to the next level. We recently launched our new loyalty status honoring program, allowing members of Latitude Rewards, Oceania Club and the Seven Seas Society to have their tier status honored across all 3 of our award-winning brands. Our guests will now be able to enjoy the loyalty PERCs they've earned no matter which of our brands they use to sell. It's a major step forward that makes it easier than ever to explore the world within our NCLH family.

This change will also encourage our top guests to try our other brands. It's really about deepening our connection with our most loyal guests, rewarding their commitment and giving them even more ways to vacation better and experience more. And while it's early, the preliminary results of this program have well exceeded our expectations, proving again the power of our brands. And with that, I'd be happy to turn the call over to Mark.

Thank you, Harry, and good morning, everyone. Let me start with our third quarter results highlighted on Slide 12. We delivered another strong quarter, exceeding or meeting guidance across all metrics. Occupancy came in at 106.4%, nearly 100 basis points above guidance, driven by strong family demand across all itineraries. Net yields grew 1.5%, in line with guidance, fueled by strong pricing growth of over 3%. On the cost side, adjusted net cruise cost ex fuel was down 0.1 point coming in slightly better than expected as our cost control efforts continue to bear fruit. As a result of better-than-expected fuel consumption, adjusted EBITDA for the quarter was $1.019 billion, above our guidance of $1.015 billion. Adjusted net income came in at $596 million. Adjusted EPS came in $0.06 ahead of guidance at $1.20. Overall, this was a solid quarter, consistent with our expectations.

Moving on to fourth quarter and full year guidance on Slide 13. We expect occupancy to be approximately 101.9% in the quarter, roughly 100 basis points above the prior year and our previous implied guidance. As Harry mentioned, we are very focused on load factor and brand visibility at the Norwegian brand, and we are encouraged by the progress we have made this quarter as family demand surpassed our initial expectations driving occupancy higher. I want to reiterate that we continue to balance load factor and price recognizing the natural give and take between the two. As we attract more families, we are seeing more third and fourth guests in a cabin. And naturally, those guests come in at a lower price point which has a modest impact on overall pricing. As a result of this dynamic in the fourth quarter, we expect net yield to grow approximately 3.5% to 4% reflecting our deliberate decision to welcome more families while taking a slight trade-off on price, which remains healthy at nearly 3% growth.

As a result, full year net yield growth expectations have been adjusted slightly to 2.4% to 2.5% for the year. Turning to cost in the fourth quarter. Adjusted net cruise cost ex fuel is expected to be essentially flat, up only 50 basis points year-over-year. This is slightly higher than our prior implied guidance for the quarter, primarily due to the timing of certain expenses. As a result, for the full year, we now expect cost to increase 75 basis points, well below inflation. The second year in a row, we have been able to achieve this strong cost control, all while achieving record guest satisfaction scores and repeat rates. We expect fourth quarter adjusted EBITDA to be approximately $555 million and adjusted EPS to be $0.27. As a result, we are reiterating our full year adjusted EBITDA guidance at $2.72 billion and increasing our full year adjusted EPS guidance to $2.10, which represents almost a 19% increase year-over-year.

Moving on to Slide 14. A I want to take a moment to highlight the strong progress we've made on our cost savings program. Back at our Investor Day in May 2024, we set a bold goal to achieve more than $300 million in savings and we remain fully on track to deliver on that commitment. In 2024, we realized over $100 million in savings, and we're on pace for another $100 million plus in 2025 which has allowed us to limit net cruise cost growth to only about 3/4 of 1%. We are carrying this culture of cost discipline into 2026. we have full line of sight to achieving at least another $100 million in savings next year, keeping our unit cost growth well below the rate of inflation while continuing to deliver an exceptional guest experience. These cost savings have been a major driver of our continued margin expansion, as you can see on Slide 15. Our adjusted operational EBITDA margin has increased by roughly 600 basis points since year-end 2023, and we remain on track to reach approximately 37% by the end of this year.

Looking ahead to 2026, we expect this positive momentum to continue supported by our proven algorithm of low to mid-single-digit yield growth and sub-inflationary cost growth. The strategic initiatives Harry outlined earlier are central to this plan, from bringing more families to the Norwegian brand and increasing load factor, to refreshing our brand and marketing and the launching of new amenities at Great Stirrup Cay this year around the holidays and the new water park next year. At the same time, our luxury brands continue to benefit from strong demand trends and their truly best-in-class offerings. Oceania is building momentum as we position it squarely in the luxury space, and Regent remains the clear leader in ultra-luxury cruising, delivering an unmatched product and service experience. I'm confident that all of these efforts driving both the top and bottom line will enable us to further expand margins and achieve our approximately 39% target next year.

Turning to Slide 16. You can see our debt maturity profile, which has been extended and strengthened following our recent capital markets activity. In September, we successfully completed a series of strategic transactions that significantly enhanced our financial flexibility. We refinanced the majority of our 2027 exchangeable notes extending our maturity profile, and reduced our shares outstanding on a fully diluted basis by approximately 38 million shares, all while remaining essentially net leverage neutral. In addition, we refinanced approximately $2 billion of debt, including the replacement of about $1.8 billion of secured debt to unsecured. As a result, we have now fully eliminated all secured notes from our capital structure. These actions underscore our continued focus on optimizing our balance sheet, improving collateral utilization and positioning the company for sustainable long-term growth.

Turning to net leverage on Slide 17. I want to emphasize that reducing leverage remains our top financial priority. In the third quarter, net leverage increased slightly from the second quarter to 5.4x from 5.3x. This modest uptick reflects the delivery of Oceania Allura where we took on the associated debt but have not yet annualized the EBITDA contribution from the ship. We now expect to end the year at approximately 5.3x. And excluding the impact of noncash foreign exchange revaluation on our euro-denominated debt related to Norwegian Aqua and Oceania Allura, our leverage would end the year at approximately 5.2x. In a year when we've taken delivery of 2 new vessels, keeping leverage flat as a notable accomplishment and positions us well to achieve our 2026 target of reaching the mid-4x range.

Wrapping up our solid performance so far this year and the ongoing benefits from our cost initiatives reflect meaningful progress on our top financial priorities, deleveraging, expanding margins and fortifying the balance sheet. I'll hand the call back over to Harry to close out the call.

Well, thank you, Mark. Now looking at Slide 18, I'd like to once again highlight the significant progress we're making towards our key charting the course financial targets. By year-end 2025, we expect adjusted operational EBITDA margin to expand by more than 600 basis points versus 2023, adjusted EPS to grow nearly threefold net leverage to decline by 2 full turns and adjusted ROIC to continue its upward trajectory. I'm incredibly proud of what we've accomplished so far in 2025.

Looking ahead, 2026 is shaping up to be another outstanding year with capacity set to grow approximately 7% and as the Regional Luna and Seven Seas precede join the fleet, we expect to see continued strength across all 3 brands. At Norwegian, we anticipate even more families selling with us further lifting load factor and driving margin expansion. Our strong capacity growth, combined with low to mid-single-digit yield gains and sub-inflationary cost growth is expected to drive meaningful margin expansion and continued deleveraging in 2026. I'm confident in our trajectory and excited about with the last months of 2025 and the year ahead will bring as we continue charting our course to our sustainable, long-term value creation. With that, I'll hand the call back to Sherry to begin the question-and-answer session.

[Operator Instructions]

Our first question comes from Brandt Montour with Barclays.

So heard loud and clear '26 high-level targets are reiterated here. But guys, with a little bit of pressure from mix in the fourth quarter, based on the shift to families as well as it looks like incremental confidence in the occupancy lift for next year. Can you give us some sort of additional insights into how that mix shift would affect yields for next year, all else equal?

Good morning, Brandt, this is Mark. So first and foremost, our job is to maximize yield margins and, of course, earnings growth. And I think that we've been telegraphing consistent with our strategy, we aim to grow yields next year in the low to mid-single digits. But going back to in line with our strategy, we've been clear that we continue to expand the Norwegian brand into the family segment. As we do that, that obviously brings higher load factors, which we have clearly seen both in the third and more importantly, into the fourth quarter, we will see that a significant benefit from that in the first quarter of about a 200 to 300 basis point improvement year-over-year.

With that, families and children often bring slightly lower pricing in the overall mix. But importantly, our core customer, that first and second customer, we are seeing meaningful growth in pricing. So we expect to continue to grow yields in that low to mid-single-digit algorithm. And again, this is in line with our strategy, and we're executing as planned.

Really helpful color. A second question I have would be on the bookings comment -- are, you said bookings were up 20%. And maybe clarify if that was in the quarter or the month, I think it was the quarter. But either way, and I don't think that was adjusted for capacity growth, but either way, that's still a really strong figure. Could you kind of square that with the commentary in the release that you're still within the optimal range? I would think that this would sort of push you up toward -- well, at least would push you up within that range, but also the mix is going more Caribbean, you -- that's more shorter in. So again, all else equal, I would think that you're moving away from longer lead time bookings, and it would be something that would be a counter for us there. So maybe square those -- sorry, that's a lot, but could you square those things and what you're kind of seeing with that with that bookings -- what's driving that booking acceleration?

Sure, Brent. So just to -- there's a lot there. I'll try to cover as much of it as I can, or at least as I can remember. So first off, bookings were up 20%. That was for the entire quarter, not for a specific month. And then I also mentioned that, that increase went into October as well. So both for the quarter, the third quarter, and for the month of October, and I'll just provide further color that it applied to all 3 brands, NCL, Oceania and Regent all saw that growth. So the growth was broad-based. And of course, while Loan and region don't play much in the Caribbean, the growth on the Oceania and Regent has nothing to do with the [indiscernible] but more about the progress that the brand is making from a consumer demand perspective.

So on NCL, yes, there are some unique tailwinds, if you will, on bookings. You mentioned capacity. There's also a shift to shorter cruises, which would require us to have more bookings. But fundamentally, we are just seeing a stronger consumer in this Q3 than we saw in last Q3.

Our next question is from Lizzie Dove with Goldman Sachs.

I appreciate what you've said about the kind of dilution from families totally get that. But at the same time, there has been a lot of focus on the Caribbean and whether there is kind of more of a promotional environment there with so much kind of competition, everybody kind of moving the ships there. So curious what you're seeing and whether that has kind of impacted you at all or you expect it to going forward?

So Lizzie thanks for the question. We're not really seeing anything unusual in the promotional landscape, at least within the competitive set that we play in. What we're seeing this year is normal from both a price and promotional perspective, which is 1 of the reasons that it will allow us to have this 3.5% to 4% yield increase in Q4 that we've discussed. So no, nothing unusual.

Okay. Got it. And then, I guess, thinking about longer term, your Caribbean capacity is growing is the kind of strategy to kind of absorb that capacity in Caribbean? I know you've got the GSE development, but I'm curious if you feel like there's a need to kind of push marketing or how we should think about costs from those kind of private island investments? Just anything like we should consider as we move to 2026.

So listen, I think it starts with consumer demand, right? And our goal is to create both a brand construct and specific marketing vehicles that will appeal to the demographics that we think would find the [indiscernible] of interest. We've talked about the shift in both our branding and our marketing communications in my prepared remarks, so I won't repeat them again here. Between the new CMO and the new Chief Commercial Officer that we onboard over the last few months, we're definitely making progress along those fronts. I think things like the build-out of GSE is absolutely going to help.

I'll mention that about 1/3 of our guests next year on the NCL brand will visit GSE. It will be our most -- what sort I'm looking for, the destination we go to the most of any destination of the world. So clearly, our investments there are important. I think I mentioned that everything that we're hoping to launch over the holiday period, which is just about a month away is on track. I just personally visited the island about a week ago, and it really looks spectacular. I remind the analyst community that the footprint that we have on GSE is far greater and some of the competitive set, and we plan to utilize it. I think the next phase with the water park coming in the summer of next year, should be a second milestone and an additional game changer in terms of demand.

But I think ultimately, between the brand, the marketing vehicles and then the thousands, to tens of thousands of guests that will be visiting at least the initial set of amenities that come online in the holiday period we expect to get pretty good word of mouth. I want to address the second question you asked about marketing. So we have increased marketing spend this year. I want to get the analyst comfort that this flat cost year-over-year was not at the expense of cutting marketing. If anything, we've increased marketing by well over the 75 basis points that our overall cost structure increase, and we were able to save money elsewhere to fund that, and we plan to continue spending on marketing. Marketing is an important part of driving consumer demand. We think we're spending about the right amount now relative to our revenue generation and our goals for next year, and we will continue to spend at these levels into next year, while having strong cost control throughout the P&L, which will enable us to continue the tremendous margin expansion, the 600 basis points we've seen over last year, an additional 200 basis points that we're planning to do margin expenses next year will all be possible even with this increased marketing spend.

Our next question is from Steve Wieczynski with Stifel.

Okay, Mark, you'll probably hit this question. But if we think about next year, you basically just said you expect to grow yields kind of in that low to mid-single-digit range. And if I look at Slide 14 and I get my handy dandy ruler out to kind of gauge where costs are projected based on that bar chart. They look like they're going to be higher, but not anything crazy. So if we put all that together, it seems like there would be maybe a good bit of upside to your charting the course EPS targets, I'd say, especially now also including your recent capital market transaction. So I'm not sure what you can say or not say about that, but any comments there would be super helpful.

So first, I love all questions from you. Second, yes, when you get your ruler out on that chart, I want to reiterate through the broader constituency that our target, as we've been maintaining is to deliver sub-inflationary or better unit cost growth. And we've been very successful at doing that now for 2 years in a row. And we certainly maintain and have a clear line of sight on that for 2026. Look, I think when it comes to the charting the course targets as you've heard today, we are reiterating our confidence in hitting those targets.

We are executing on our strategy. Of course, it's early in the year. We do have a lot more Caribbean sailings. So bookings are naturally a little bit closer in. But everything we're seeing today indicates that we're well on our way. So we have confidence on our path. We have confidence in executing our strategy, and that's what we're maintaining. And we'll continue to deliver on that path.

Okay. Got you. And then second question, if we think about the fourth quarter yield guide, Harry and Mark, you kind of -- you obviously called out the yield headwind from adding the third and the fourth and the higher load factors. But did you guys embed any impact from things like -- obviously, we've seen an uptick in weather in the fourth quarter or things like the government shutdown? I'm just trying to figure out maybe what that like-for-like yield would look like, excluding the load factor lift.

It's hard to sort of break things down into their components. So I'll start out by saying that we believe a 3.5% to 4% yield growth on a year-over-year basis is strong, and we're very happy with it. If you're asking whether they were modest impacts by the government shutdown, hard not to believe that, that's a modest headwind to the business. I wouldn't necessarily say the weather was a big deal. It was actually a relatively a modest hurricane season as these go, we only had an impact to a handful of Bermuda cruises and 1 or 2 now to Jamaica, none of which had to be canceled, just rerouted.

But maybe on the government shut down a little bit. But the macro environment continues to be strong, [indiscernible] continues to grow and employment rates continue to be low. The things that we measure, cruise intent future crew sales onboard the sale are all at or near record levels. So we're pleased. And of course, the proofs in the pudding, I've gone out not just for Q3, but for the actual month of October, the month we just ended, that bookings were up over 20% year-over-year across all 3 brands. We think that's a pretty good setup, but we'll continue to move forward.

Our next question is from Robin Farley with UBS.

I think we lost Robin. Sorry.

Our next question will now be from Matthew Boss with JPMorgan.

So Harry, maybe a 2-part question. If you could elaborate on the progression of booking trends that you saw through the third quarter and into October. And then if you parse through the mix impact that you cited in the Caribbean, could you speak to underlying pricing trends across itineraries that you're seeing across both family and luxury?

Well, I don't think there's been a material change. If you're asking whether we saw an acceleration July, August, September, October, they were all 4 of them were good months. I wouldn't necessarily say that one of them stood up or that things have decelerated in any way, maybe a modest acceleration coming into October, but nothing that material. All 4 months were very good months for us. And on the pricing side, I'd make a similar comment. There's nothing that stands out, if you will. I think across the board, we've seen strength I just want to echo Mark's comments on pricing, you just have to think about NFL a little bit different.

We're seeing good pricing increases on the first and second in the cabin as we increase third and fourth, that naturally is a modest headwind to overall average price but still a benefit to yield margin and profitability. So I just want to emphasize that point. But across the board, nothing that stands out one way or another, we're seeing good strength everywhere.

And then maybe, Mark, as a follow-up, could you help break down the drivers of load factors in 2026 that you're expecting to exceed 2024, what you're embedding for the Caribbean relative to opportunity you see year-over-year in Europe?

Look, thanks, Matt. I think it's a couple of things. Obviously, when we look at '26, we've said we've clearly stated today that we expect to be at least 105% or better. That's clearly being driven by the increased family dynamic, which we have been very clear that we continue to go after. So I think you'll see some significant tailwinds in the first quarter, where we called out at least a 200 to 300 basis point improvement. And then I think as we transition into the latter part of the year, when GFC launch comes online fully, you're going to start to see that accelerate in the latter part of Q3 and Q4 of next year. That, combined with, I think, some further opportunity in Q3, all should contribute to a healthy increase in load factor year-over-year.

We've said we've committed, we want to get back to historical load factors and better. We're doing that not only organically but by expanding our segment into the premium families, and we're starting to see evidence of that.

And I just want to provide just a little bit more color because while the Caribbean is certainly the headline of the story for Q4 and Q1, when you go into the rest of the year, there are a few other modest tailwinds that will be helping us. On the NCL brand, we shifted from longer European itineraries to shorter European itineraries, primarily 7 nights in the Med, which should allow for a slightly larger family market as well, which is consistent, of course, with the brand strategy. And we're also focused on, if you will, minimizing the number of single cabins that we take across all 3 brands, not just [indiscernible] , but Oceania and Regent. I think '26 will certainly be a year where the entire cycle of the booking curve was booked under what we consider to be good booking conditions. And I think we're just going to -- we're looking for modest benefits in every single aspect of the business. So again, while the Caribbean certainly the headline for Q4 and Q1, it is not the only initiative we're working on to improve occupancy load factor for next year.

Our next question is from Conor Cunningham with Melius Research.

Maybe to just follow up on that a little bit more. So I understand that the customer dynamic [indiscernible] into the first half of 2026. But it seems like the mix headwind becomes a tailwind when great SRK comes online, like the water park comes online. So one, is that even right? And then two, can you just talk about the ramp around [indiscernible] as the new investments start to come online in general?

Yes. Look, Conor, I think you're absolutely right. When we look at the second half as we bring on GFC fully, we absolutely believe that's going to be a tailwind. And as a reminder, we -- in our last call -- prepared remarks on our last call, I think we had said that GST was going to be at least around a 25-point tailwind to yield next year, in part at a full point on '26. Recall that although we're passing about 1/3 of our overall system-wide customers through the island next year, by the time the water park gets on, about 2/3 of that base will have already gone through the island.

So we're not getting the full benefit in 2026, but we will certainly start to see that ramp up in the latter half. I think when you look -- when you think about Great Stirrup Cay and the announcements about the new amenities in the park, we have certainly seen and seen a heightened level of interest from the consumer. We've seen more website bookings, more intent to travel. I think that in part is why we've seen the 20% bookings increase as well. So it's creating excitement. That said, we view what's happening in the latter part of December as the first soft opening. Certainly, we're opening great amenities with one of the largest pools. In fact, I think it's about as large as an entire cruise ship if I recall correctly. So we are getting buzz. We're getting momentum. And I think as Harry said, as we start to see more word of mouth, on that to the latter part of this year into early next year, I think we're going to continue to see strength and momentum build out of that.

Okay. And then maybe I can ask a question on the cost side of the mix dynamics. So it seems like that as occupancy moves up, you get economies of scale, I mean, that naturally makes sense to me. But like are you seeing the cost offset that you would expect? Because at the end of the day, I think you really got -- you're out your whole thought process is around the spread between unit costs and in net yield. So just are you seeing the cost offset as yields are kind of partially -- there's a modest headwind from the ship, the mix dynamic?

Yes, Conor. I think it's across the board. We continue to see margin expansion. We've expanded margin this year by more than 150 basis points or 200 points of 600 basis points in 2023. That's in part to almost everything we're doing. It's not only the mix, the better and more efficient, closer to home itineraries. But more importantly, it's also the muscle and the scale that we continue to get that we've been demonstrating over the last 2 years. So I think when you put all that together, we continue to flex that muscle. We continue to improve.

And of course, in part to some of that is the mix, but that's starting to come into play now. When you look at the last 18 to 24 months, that has not been a mix issue. That just means we've simply been better at delivering a better unit cost overall system-wide. So we certainly are seeing the fruits of that. We're bearing fruit, and we expect to continue to see that into 2026 and beyond.

And I just want to emphasize not cost at the extensive product, our guest satisfaction scores and our future onboard bookings continue at record levels that it is super critical to get that message across.

[Operator Instructions]

Our question is from Ben Chaiken with Mizuho Securities.

Maybe the first question is maybe a partner. Maybe remind us to refresh us. You mentioned 26 costs or sub-inflation. What are -- I guess, part one, what are some of the specific opportunities you see next year. I remember at one point during the Investor Day, you went through a couple of kind of like critical examples. I'm not sure if there's anything you can share next year. Part 2, is higher Caribbean exposure on net benefit to cost? Or how should we think about it?

And then part 3, how should we think about the impact of occupancy as there should be around, I think it's like 200, 250 basis points of growth. I guess, mechanically, is there any rule of thumb you have on the translation between occupancy to net cruise cost?

All right. And I'm going to see if I can get all 3 of these. I think the first was on the 2026 detail larger and the larger opportunity. Look, Ben, we've been clear. In this business, there is no silver bullet to just snap your fingers and find a large cost. It is a deliberate and methodical way of looking at the business from the entire to the product delivery. So we are focused on a lot of little things and over time, that flywheel starts to turn, and we find more efficiencies across the board. So it's -- we're focused on everything. But again, we've been doing this in a very disciplined and methodical manner.

I think when you said -- when you talked about Caribbean capacity, is that a tailwind to cost? Absolutely. Sam, closer to home, sailing closer to home, obviously, gives you some benefits in terms of the ability to deliver the product at a better scale and at a better unit cost. But again, that's all just part of the broader mix. And I think on the last part in terms of the occupancy, when we think about increased occupancy from thirds and fourth, that's typically children or some or the teenage set, there's very little marginal cost related to that. Obviously, that brings in a higher revenue. But I think even when you look at our third quarter, where increased -- were occupant increased by 1 point, fourth quarter, our occupancy is increasing by a point, we're not seeing any significant shifts in the cost base for that.

So I think that's just another benefit in overall tailwind as we bring more of that third and fourth guest to our mix, we'll continue to improve on our overall unit cost.

Okay. Got it. That's very helpful. And then just for 26, a quick one. Obviously, capacity growth is higher in '26 than '25. Is there anything abnormal on the D&A side specific to the island investments we should consider?

No. I think when you look at D&A, and I think when you look at it historically, whether you're doing it on a gross or a net percentage of revenue, I think it's going to be pretty consistent. We've been very clear that our investments in Great Stirrup Cay generally have been modest. Our largest investment, obviously, is the peer where that was around $150 million plus, and I think that gets depreciated probably over at least 30 to 40 years, I don't have the exact number on.

So I don't think you would expect to see any sort of uptick in D&A as a result of the Island investments. I will remind you, we do take on -- we do have 7% capacity growth next year. So we will be taking on 2 new ships, Luna in March, April and then prestige in the latter part of December of '26.

Our next question is from Vince Ciepiel with Cleveland Research.

I wanted to dig into the yield set up a little bit more for next year. And there's been a lot of helpful commentary so far. But I guess I wanted to take it in parts. First, I imagine you have close to half of next year booked a good amount of the first half. Like the core trend line that you're seeing in like-for-like, any way to describe it? And then the second part, there's obviously some moving pieces. You already laid out GSE should be accretive, which is great and helpful. But the 2 other ones I just wanted to clarify. The first new hardware, like accretive, dilutive or probably somewhat neutral -- and then finally, the shift to the Caribbean, a lot of helpful commentary on occupancy should benefit, maybe some cosmetic dilutive impact to per DM. But at the end of the day, like does the shift to the Caribbean a tailwind, a headwind or neutral to yield in '26 as you sit here today?

So try to get through all 3 parts, if I remember everything, Vince. And by the way, good morning, thanks for joining us today. So you are right. We are about half booked for next year. That's about where we would be at the cycle at this time. When you ask about core trends, we have come out with our algorithm that on this type of measured capacity growth, we're looking for low to mid-single-digit yield growth and I believe that our book position right now confirms that, that will be attainable, which, of course, we need to attain in order to hit our target in the core targets, which we forcefully reiterate again today that we'll obtain.

In terms of the accretiveness of new hardware, listen, any time a new ship comes on board, we saw it with Aqua this year. We're seeing it with Luna next year on the NCL fleet, we absolutely see a modest tailwind. But keep in mind, it's one ship in a 34 ship fleet. So it's not going to be a tremendous tailwind at the NCLH level. Certainly, on the Oceania and Regent side. We have a new ship for Shannon, the Cira Laura, a new ship for region coming on. The very end of next year won't really impact 26 months to 26 months, excuse me, those also function as a modest tailwind in -- so overall, yes, new ships are accretive. But again, it's just 1 ship in the overall fleet.

On Caribbean, we absolutely view this. When you say a tailwind or headwind to yield, I'll make the question a bit broader. We viewed it a tailwind to margin, which is more important to us than a tailwind to yield. So yes, we believe Caribbean are good yielding cruises, but the more important thing is that we can deliver Caribbean at a higher margin than we can deliver some of the exotic itineraries in places like Africa and South America and Asia that these ships have replaced, especially the shorter 3- and 4-day cruises.

It's a really helpful overview there. And then maybe one final one. Just as you shift more Caribbean in the business, probably looks a little bit closer in, I would imagine. And when you watch that trend line in close-in bookings over the last 90 days. How would you characterize it?

So yes, these Caribbean cruises both in general and certainly the 3- and 4-day cruises, do look closer in. And I think that was one of the factors why we've seen record bookings in Q3 in October, clearly not the only factor, but one of the factors. I'd say the bookings have been nothing short of incredible. I mean, the demand we're seeing for [indiscernible] up until a week of sailing even has been unprecedented from at least recent history. So we're very, very pleased with the strength of the consumer and their ability to look across the entire length of the booking curve, including up to the day before cruise.

Our next question is from Patrick Scholes with Truist Securities.

Two questions. One, can you give us an update on the progress of finding a new brand President? And then secondly, can you talk a little bit about the changes in selling strategy with the Oceania brand, specifically recent unbundling.

Yes. Thank you, Patrick, and listen, on the Brand President, we are conducting an extensive search. We have been very pleased with the caliber world-class talent. We've been able to attract for the search I'll say we're pretty deep into it now. No announcement today or probably the next week or two. But I hope we're going to be able to see someone soon. The most important thing for us is to attract a world-class leader can continue on with the brand promise as we've been evolving it certainly over the last few quarters on top of the other wonderful talent we have with our new CMO, new Chief Commercial Officer, a new Head of Technology and other excellent internal and external candidates that we've brought into the brand to evolve and make NCL even greater in the future.

In terms of the promo strategy for Oceania, it was a -- I saw a lot of write-ups on it, but honestly, it was a relatively modest change. We've run a series, let's -- I'll call them different promotions over the last year. And we've gotten very good data on what it is that customers value and are willing to pay for one of the core strategies to provide guests with things they value and are willing to pay for. So the promotion we aligned with on Oceania, not really different that much in nature to what we've been doing recently, but really allows us to optimize the construct for our guests and maximize yields and margins. I will say, I've been incredibly pleased both with the level of bookings and the consistency been seeing on Oceania. I mean it's become almost like clockwork, that and the Regent brand in terms of their weekly bookings and revenue. So I find that as encouraging as anything else.

Our next question is from Andrew Didora with Bank of America.

Maybe Harry thinking about these brand changes a little bit more strategically. When you think about -- how do you think about the time line for repositioning these brands? I guess I think about particularly for Norwegian, how long do you think it takes to change that the way you describe it the brand familiarity with families, how long until you reach your targeted run rate?

So I think with Regent, we're already there, I think -- because the brand changes there were relatively minor. I'd say with Oceania, we're probably about 2/3 along the journey with the evolution of the Oceania brand to luxury and to focus not just on food, but on destination service experiences things that our guests truly value. Taking in sales a slightly longer runway. I think I mentioned in my prepared remarks that we're going to be launching some new brand campaigns in Q1 that will certainly help us along.

Clearly, the shift to families and the reliance or the focus, I should say, on GSE has already come forward as by our Q4 and '26 occupancy, so it's ready to getting to take hold. My guess is on NCL by the middle of next year, I think we would have reached the relative runway consistent with when the second set of amenities opened up on GSE. So I think that puts us in a very good position for Q3 and Q4. Although to be clear, we're happy with Q1 and Q2 as well.

Got it. Okay. That's helpful. And last one for me. Just, Mark, on the balance sheet, you obviously completed a very opportunistic refi in the quarter. When you look out across your cap structure today, I guess, what are your priorities right now?

First and foremost, what we've been -- what we've said is reducing leverage is our #1 priority. And we continue to look for ways to do that. Of course, margin expansion is the #1 driver of that, which results in a significant free cash flow. And we continue to see that -- expect to see that to ramp up over the course of the next 24 months. So of course, as we look at the remainder of our capital structure in terms of what's left on the debt side, we're always looking to be opportunistic and we'll continue to do so and we'll continue to strategically make opportunistic trades where it makes sense and our overall structure and ratings.

All right. So with that, I want to thank everyone for today's earnings call. For those of you listening, for those of you who have participated, particularly pleased with our record earnings our record revenue, our record EBITDA, our record future book position, in terms of new bookings, and all the other wonderful tailwinds that the brand is undertaking. We look forward to sharing the journey ahead with all of you. Thank you all very much. Have a great day.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.