NCLH 4Q 2014 CONFERENCE CALL NOTES

Takeaway: Mgmt focused on raising Prestige synergy targets on the cost and revenue side. NCLH should outperform in 2015

CONF CALL

  • 2014:  strong Europe/Alaska offset promotions in Caribbean
  • Synergies:  certainly will achieve cost synergies of $25m
  • Investing in marketing initiatives to stimulate demand via TV in 1Q 2015.
  • Broke 2M guest mark for 1st time in Norwegian history.  
  • Harvest Caye:  serve anchor for Western Caribbean itineraries beginning in Fall 2015
  • Norwegian Escape bookings in-line with expectations and well ahead of Getaway/Breakaway
  • Regent:  free air transportation, free shore excursions, dining, premium wine spirits, free internet.
  • Oceania/Regent:  target  customer base: net worth of $1m, age >55
  • Oceania/Regent:  44%/51% were repeat guests
  • Prestige:  97% cruise experience met or exceeded expectations
  • Sirena:  $40m drydock in March 2016 
  • Prestige:  Ebola impacted exotic sailings.
  • Norwegian brand:  increased booking activities in 2016 with Explorer had slight negative impact as it relates to 2015 bookings
  • Prestige:  Booking velocity negatively impacted by announcement of NCL/Prestige combo.  Customers saying they will wait until booking on Prestige. But that has reversed course since Frank assumed role of President/CEO.
  • Experienced $10.3m fuel derivatives loss in 2014 (5 cents/share)
  • Leverage ticked up to 5x as a result of acquisition...will be below 4x in the next 18 months
  • 1Q 2015:  tough comps; promotional environment in Caribbean will continue
  • Fuel derivative loss for Q1 and 2015:  $35m or $0.15 EPS; $120m or $0.52 EPS
  • 2015 capacity on a combined basis vs 2014 on a Norwegian stand-alone basis:  
    • Caribbean: 40.4% (47.9% in 2014);  Norwegian-only brand: 45.5%
    • Europe: 22.8% (20.7% in 2014)
    • Bermuda/Alaska:  7.5% each (unchanged from 2014)
    • Hawaii: 5.3% (6.4% in 2014)
    • Asia/Africa/Pacific:  3.3%
    • South America: 1.6%
  • 1Q deployment:  
    • 67.9% Caribbean (72.1% in 1Q 2014): Norwegian only brand 74.1%
    • Europe is flat YoY at 11% 
    • Asia/Pacific 7.4% (unchanged YoY)
    • South America 1.9% (unchanged YoY)

Q & A

  • Bookings volume pickup recently:  across all brands.  Norwegian brand saw most pronounced spike.  Norwegian has a good promotion in the market (focused on delivering more value, rather than low pricing).
  • Q1 2015:  pressures in the Caribbean continuing
  • Q2/Q3/Q4 2015: no area of concern:  Europe and Alaska is shaping up
  • Are there more cost synergy opportunities? Probably.
  • Prestige:  highest per diem in industry
  • Scale opportunities are tremendous. 
  • Have not had a Regent newbuild since 2003
  • Slightly above $5.00 for EPS 2017 target
  • 2013 ROIC:  7%...will be in double digits in 2015.  In 2018, will double to 14%.
  • Lower commissions/other line:  fundamental changes in cost of sales structure. Changing agreements in casino, port agreements and lowering air subsidies.  There will continue to be ongoing improvements.  Prestige costs are higher since they operate in an all-inclusive business but there is room for cost improvement.
  • Commissions/other line: Norwegian running at 15% clip. Prestige in the 30%s. On a consolidated basis, should anticipate upper end of 18% range.
  • Regent:  could take a new ship every 5 years
  • Think there are ways to keep Apollo on board
  • Sourcing from other markets:  Fx aside, biggest opportunity international
  • If Norwegian is able to source same # of guests internationally that Prestige has done, Norwegian can generate an additional 210k passengers a year 
  • With Prestige acquisition, want to get back to hedging at 50% 
  • 2016 bookings at best levels ever at this time of year
  • Seeing shipyards being less aggressive in pricing than in 2009/2010 

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