Q3 2025 Earnings Call Transcript

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]. As a reminder, all participants, 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, Sherry, 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 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 net yields and adjusted net cruise costs 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 to dive 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 from families, particularly at the NCL brand, resulting in net yield growth of 1.5%. 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. 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 this eventful 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 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 short 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 guests -- 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 onboard and other 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 multi-ship pier, welcome center, tram system, an expansive 28,000 square-foot heated pool, the size of an entire cruise ship with a swim-up 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-foot tall cliff jump and an innovative jet karts attraction. It will be the perfect family-friendly addition to our already exceptional island amenities, which includes Silver Cove, and exclusive retreat offering magnificent villas and a beach club. 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 and 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 marks 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 sailings 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 unit cruise travelers, while allowing us to better leverage our private island investments. In Q4, short sailings 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 Caribbean sailings, we are seeing more families, which means more children in each cabin. We expect core pricing for the first and seconds to be well up. The addition of child as third and fourth 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 sailing Caribbean deployment are encouraging and reinforce our confidence in the 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 Tides Water Park opens later in summer 2026. When we return 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 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 I've spoken a bit about the Norwegian brand, and now I want to turn to our luxury portfolio, Oceania Cruises and Regent Seven Seas 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 have the right leadership structure and the right people in the right roles to support long-term growth. Next, 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 dry dock just yesterday, where we're undertaking a full transformation, refreshing suites, reimagining public spaces and introducing an enhanced pool grill featuring a new wood-fired pizzeria concept for relaxed alfresco dining. Seven Seas Voyager will be undergoing a similar revitalization when she enters dry dock next year. Coupled with our 3 new vessels and the upcoming Prestige delivering 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 have 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 this strategy, elevating both 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 Latitudes 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 perks they've earned, no matter which of our brands they choose to sail. 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 commitments 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'll 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. 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 and 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 Allura -- 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 is 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% as the Regent Luna and Seven Seas Prestige join the fleet, we expect to see continued strength across all 3 brands.

At Norwegian, we anticipate even more families sailing 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. Harry, 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, Brandt. 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 Oceania and Regent don't play much in the Caribbean, the growth on the Oceania and Regent have nothing to do with the Caribbean, 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 one 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, what is the kind of strategy to kind of absorb that capacity in Caribbean? I know you've got the GSC 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 Caribbean 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. But 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 GSC is absolutely going to help. I'll mention that about 1/3 of our guests next year on the NCL brand will visit GSC. 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 GSC 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 vehicle and then the thousands, the 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 through efficiencies 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 expansion 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 re-routed. But maybe on the government shut down a little bit. But the macro environment continues to be strong, economy continues to grow, unemployment rates continue to be low. The things that we measure, cruise intent, future cruise sales onboard to ship are all at or near record levels.

So we're pleased. And of course, the proof is in the pudding, I've gone out not just for Q3, but for the actual month of October, the month that 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 NCL 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 GSC 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 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 for NCL, 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 kind of lingers into the first half of 2026. But it seems like the mix headwind becomes a tailwind when Great Stirrup Cay 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 Great Stirrup Cay as all 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 GSC 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 GSC was going to be at least around a 25-point tailwind to yield next year, in part and at a full point on 2027. 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 3-parter. Maybe remind us to refresh us. You mentioned '26 costs are 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 process -- development process 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, sailing 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 1 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 pier 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 GSC 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 diem. 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 Oceania this year Allura, a new ship for Regent coming on the very end of next year won't really impact 26 months -- 26 months, excuse me, those also function as a modest tailwind.

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 60, 90 days. How would you characterize it?

So yes, these Caribbean cruises both in general and certainly the 3- and 4-day cruises, do book 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 close-in 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 book 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 unbundlings.

Yes. Thank you, Patrick, and listen, on the Brand President, we are conducting an extensive search. We have been very pleased with the caliber of 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 that 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, new Head of Technology and other excellent internal and external candidates that we've brought into the brand to help evolve and make things -- 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, which is 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 we've been seeing on Oceania. I mean it's become almost like clockwork, that in 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. I think it still is 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 GSC has already come forward as witnessed [Audio Gap] by our Q4 in '26 occupancy. So it's already beginning to take hold. My guess is on NCL by the middle of next year, I think we would have reached the...

Andrew, 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 improves 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.