挪威郵輪 (NCLH) 2013 Q2 法說會逐字稿

Good morning and welcome to the Norwegian Cruise Line second-quarter 2013 earnings conference call. (Operator Instructions). This conference call is being recorded. I would now like to turn the conference over to your host, Ms. Andrea DeMarco, Director of Investor Relations. Ms. DeMarco, please proceed.

Thank you, Alyson. Good morning and thank you all for joining us for our second-quarter earnings call. I'm joined today by Kevin Sheehan, our President and Chief Executive Officer, and Wendy Beck, our Executive Vice President and Chief Financial Officer.

Kevin will begin the call with opening commentary, and Wendy will follow with more detail regarding the quarter. Kevin will give some closing comments, after which we will open up the call for your questions.

As a reminder, this conference call is being simultaneously webcast on our Investor Relations website at www.investor.ncl.com and will be available for replay for 30 days following today's call.

Before we discuss our results, I would like to cover a few items. First, our press release for our second-quarter 2013 results was issued this morning and is available on our Investor Relations website.

Second, I would like to review information about forward-looking statements and the use of non-GAAP information as a part of this call.

Some of our comments today may include statements about our expectations for the future. Those expectations are subject to known and unknown risks, uncertainties, and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested by these expectations. We cannot guarantee the accuracy of any forecast or estimates, and we undertake no obligation to update any forward-looking statements during the quarter.

If you would like more information on the risks involved in forward-looking statements, please see our SEC filings.

In addition, some of our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website.

With that, I'd like to turn the call over to Kevin Sheehan. Kevin?

Thanks, Andrea, and good morning, everyone. I hope everyone is having a great summer so far, and thank you for taking the time to join us here this morning.

It seems not long ago that we were hosting our first-quarter call from New York where we were welcoming Norwegian Breakaway to her new home. It was an unforgettable experience sailing past the Statue of Liberty and up the Hudson to the Manhattan Cruise Terminal. I couldn't help but reflect on the years of hard work put in by thousands of Norwegian team members that resulted in a ship that is an industry game changer.

While guests can experience the freedom and flexibility of our Freestyle Cruising offering on board any of our vessels, Norwegian Breakaway takes the offering to the next level. Whether dining at one of Breakaway's signature restaurants, including Ocean Blue by Geoff Zakarian, taking in one of three Broadway show productions, or exploring the revolutionary waterfront and stopping to enjoy a gelato or a Carlo's bakeshop cannoli, Breakaway offers new experiences not found on board any other cruise ship. The feedback from guests and travel partners on her design and features, quality of the entertainment experience, and the variety of activities has been incredible. Norwegian Breakaway was built to provide the ultimate in freedom and flexibility. She has 4000 berths, 27 dining options, 22 bars and lounges, five waterslides, three Broadway shows and much, much more.

I will let you do the math as to how many combinations of activities you can do on any given day while on Breakaway. With so much to do and experience, suffice it to say that no two days on Breakaway will ever be the same. And what's better yet, we have three more ships built on the same proven platform on their way.

Breakaway's sister ship, Norwegian Getaway, is getting ready for her debut in Miami early next year. With many of the same exciting features and a host of unique ones, Getaway will be to Miami what Breakaway is to New York. Not only are they the larger ships to home port year round in their respective cities, they are microcosms of the cities themselves. As Norwegian Breakaway has brought the best of New York to sea, Norwegian Getaway promises to represent the magic city in much the same way. She has incredible original hull artwork designed by local Miami artist, LEBO, which will accompany many other Miami-centric features which we will be announcing in the months leading up to her debut.

Following Norwegian Getaway are the Breakaway Plus ships, which have been modeled on the successful Breakaway design but with additional features. The first Breakaway Plus ship will come online in the fourth quarter of 2015, and her sister ship will follow in the spring of 2017.

I would like to add both Breakaway Plus vessels will be delivered with the latest technology to reduce fuel emissions. Each vessel will house five scrubbers which are compliant with the upcoming sulfur limit for Emission Control Areas, or ECAs, making it economically feasible for these ships to sail itineraries in environmentally-sensitive areas. This same technology will be operational on our year-round Hawaii ship, the Pride of America, later this year. With an itinerary that lies entirely in the ECA zone, surrounding the Hawaiian Islands, Pride of America was the easy choice to be the first ship to receive this technology. The resulting payback for the scrubbers was extremely compelling, and the reduced emissions will benefit the unique and sensitive areas where our ships sail.

The newbuild program encompasses everything that is right about the new Norwegian. It is a program which was developed carefully and thoughtfully, a program that includes not only the addition of innovative designs and features to our newbuilds, but enables us to take these learnings and enhance the ship flow and guest behaviors to better standardized our fleet to offer a consistent guest experience and product offering.

When the Breakaway newbuild program is complete, we will have successfully replaced the old tonnage that was turned back after I arrived with new assets that are built for financial success. This also comes at a time of tempered capacity growth in the industry, allowing these innovative vessels to be absorbed into the market at a reasonable pace. There's a lot to look forward to in the business that I could talk about, but now I want to turn to our results for the quarter.

While the main event for the quarter was undoubtedly the debut of the Norwegian Breakaway, there were other significant accomplishments that accompanied our strong results. Q2 marks the 20th consecutive quarter of year-over-year growth in adjusted EBITDA and margin improvement. Back in 2008 when we first embarked on our journey to transform Norwegian from good to great, 20 consecutive quarters of anything seemed incomprehensible. But during that time, we have completed a litany of improvements and enhancements that have put the Company solidly on the right path for the future. We have reinvigorated our brand and our brand message. We have strengthened relationships with the travel partners through our Partners First program. We have increased our guest satisfaction scores to record levels and have also embarked on the newbuild program I just spoke about. These initiatives have helped us to get to this milestone. Our job now is to stay the course and execute on our strategies and our initiatives to reach the milestones that lay ahead.

Getting back to the quarter, we saw a healthy increase in the top line from both the addition of the Norwegian Breakaway and improved net yield. These results, while positive, were affected by recent incidents in the industry which have tempered the expectations we had at the beginning of the year. Their effects, while on the margins, have been taken into account in our guidance, which we will review later in the call.

Looking at expenses, our net cruise cost was in line with expectations and included the expenses for two completed dry docks and the normal activities in Europe and New York for the Norwegian Breakaway.

Lastly, we have completed two refinancing transactions in the period, which replaced higher-rate debt, including the remaining $228 million of our 9.5% senior secured notes and resulted in more favorable terms and rates and positions our balance sheet for the future.

So I will let Wendy go into more detail about these transactions, as well as our results for the quarter, and I will be back at then end for some closing comments. Wendy?

Thanks, Kevin, and good morning, everyone. As Kevin mentioned earlier, it has been a busy quarter. But before going into our results, I'd like to go over the transactions in the second quarter which helped to optimize our capital structure, enhance our maturity profile, and lower future interest expense.

With the first transaction, we refinanced certain credit facilities secured by Norwegians' Star, Spirit, Sun, Dawn, Pearl and Gem, which had maturities beginning in 2015. Given favorable market conditions, we upsized the facility in order to redeem the remaining outstanding balance of our $350 million 9.5% senior unsecured notes due 2018. The result was a $1.3 billion facility maturing in 2018 that is comprised of a $675 million term loan and a $625 million non-amortizing revolving credit facility. The $1.3 billion facility bears interest at LIBOR plus an applicable margin beginning at 2.25% with step downs to a floor of 1.50% based on our leverage ratio.

The second transaction refinanced certain facilities secured by Norwegian Jewel, Norwegian Jade and Pride of America. This transaction amended credit agreements, reduced applicable margins and enhanced certain terms and conditions of the facility. The transaction triggered one-time charges totaling $70.1 million, which included the write-off of deferred financing fees, premiums for the redemption of the senior notes and other items which are reflected in interest expense in the quarter.

These transactions, along with our initial public offering, notes offering and Norwegian Breakaway facility, have resulted in a reduction in our borrowing costs. This is an impressive accomplishment in such a short period and another example of our culture of looking for every opportunity to optimize every aspect of our business.

Now on to our results for the quarter. Unless otherwise noted, the following figures compare second-quarter 2013 to the same period in 2012 and are given on an as-reported basis. As Kevin mentioned earlier, this quarter marks our 20th consecutive quarter of year-over-year adjusted EBITDA growth and margin expansion. This quarter saw a 12.8% increase in adjusted EBITDA to $152.3 million from $135.1 million, primarily on strength in our top-line.

Net revenue in the quarter increased 12% from a combined increase in both capacity days and net yield. An 8.2% increase in capacity days in the quarter was a result of the addition of Norwegian Breakaway to the fleet in late April and was partially offset by the remaining days of a dry dock for Pride of America, which had begun in the first quarter and extended into the second quarter, and a full dry dock for Norwegian Pearl.

Net yield for the period grew 3.5% or 3.7% on a constant currency basis with balanced growth in both passenger ticket and on board revenue yield.

Now looking at expenses, adjusted net cruise cost, excluding fuel per capacity day, increased 4.8% on both an as reported and constant currency basis. As mentioned in our prior call, this increase includes expenses related to the planned dry docks for Pride of America, which spanned the first and second quarters, and Norwegian Pearl, which was entirely in the quarter, as well as costs related to the inaugural activities for Norwegian Breakaway.

As always, I would like to reiterate that the effects of timing and other factors made net cruise cost metrics better analyzed on an annual versus a quarterly basis.

Looking at fuel expense, fuel prices in the quarter were on par with prior year at $686 per metric ton compared to $684 in 2012.

While interest expense net in the period shows an increase of $54.8 million, as mentioned earlier, this line item included $70.1 million for one-time charges related to the refinancing transactions completed in the quarter.

Summarizing results for the quarter, top-line revenue benefited from the addition of Norwegian Breakaway to the fleet, along with higher net yield from improved pricing and on board spend, while costs were on target with guidance and included planned incremental dry dock costs and Norwegian Breakaway inaugural expenses.

Lastly, excluding one-time transaction-related expenses, we see the benefits of our IPO notes offering and refinancing transactions are immediately accretive to our bottom line. The result was a 67% increase in adjusted net income to $60.2 million from $36 million and an improvement in adjusted earnings per share to $0.29 from $0.20.

Looking at deployment for the third quarter, our capacity in each itinerary is as follows. Our Europe program has 28% in the Mediterranean and 8% in the Baltics. We have approximately 20% each in Alaska and Bermuda, 13% in the Caribbean, 7% in Hawaii and the balance made up of other itineraries.

Lastly, we have provided guidance, along with associated sensitivities, for both the third quarter and full-year 2013 in our earnings release. The following guidance metrics are both on an as reported and constant currency basis.

For the third quarter, we anticipate net yield growth of 3.5% to 4.5%. Adjusted net cruise costs, excluding fuel per capacity days, is expected to increase 5% to 6%, partially due to the beginning of a planned dry dock for Norwegian Sky at the end of the quarter and the timing of certain operating expenses. Overall we expect adjusted EPS to be in the range of $0.80 to $0.85.

For the full year, we are guiding to an adjusted EPS between $1.30 and $ 1.40. Net yield is expected to increase between 4% and 5%, and adjusted net cruise costs, excluding fuel per capacity day, is expected to increase 5% to 6%.

Giving some context to our guidance are the effects of recent industry incidents that have garnered mass media attention. While we believe these effects are short term and on the margin, we have felt the impact when comparing results to 2012. That is not to say that we do not expect healthy growth this year; on the contrary, yield guidance demonstrates a healthy increase in the top line.

On the cost side, the increase in 2013 full-year adjusted net cruise costs, excluding fuel, is predominantly a result of incremental dry dock, which includes the previously-mentioned Pride of America and Norwegian Pearl, along with the planned dry dock for Norwegian Sky, which begins at the tail end of Q3. In addition, the year includes inaugural costs for Norwegian Breakaway, as well as startup costs for both Norwegian Breakaway and Norwegian Getaway, which joins the fleet in January 2014.

Lastly, interest savings from our recent refinancing transactions will help bolster the bottom line. The results of these expectations for revenue and costs resulted in a narrowed adjusted EPS range that is at the higher end of our earlier guidance.

Now with that, I'll hand the call over to Kevin for some closing comments. Kevin?

Thanks, Wendy. While the first two quarters have included historic events in Norwegian's history with the IPO and the delivery of Norwegian Breakaway, we look forward to keeping our razor focus to bring consistent, orderly growth quarter after quarter, year after year. We are focused on carrying out our current initiatives and are pinpointing new ones which will enhance the guest experience and add value to our shareholders.

Lastly, we are eagerly preparing for a strong 2014 that will kick off with the introduction of the Norwegian Getaway into the fleet. We can't wait to show her off to our hometown crowd here in Miami.

With that, we will open the call up to some questions.

(Operator Instructions). Steven Kent, Goldman Sachs.

Just a couple of things. First off, you mentioned a little bit about some of the exogenous events impacting you. Could you just give us a little bit more on timing, how that works, whether it is a long-term or a short-term impact?

And then maybe specifically your on board revenue was very, very strong, and I know that's a lot of the organic initiatives that your home team has put together over the past couple of years, but Royal Caribbean also mentioned that the North American consumer seems to be spending a little bit more on board. So I was wondering if you are able to analyze that or give some sense to how much of it is -- what is so special about the Norwegian ships versus just a general maybe people's pocketbooks opening up a little bit more?

Sure. Good question, Steve. On the impact of this stuff, I guess it really does depend on how long this lasts in the news. And other than the Rockefeller hearings last week, I think it's really started to dissipate. So hopefully people are back to focusing on the unbelievable value of a cruise vacation and what is unmatched as a family experience. So we're confident that things will start to move back in the right direction from a booking level.

What I would say is that we've had a period of a number weeks that we were somewhat disappointed with the level of bookings. And I could tell right from -- with the -- when we introduced the Epic, just to give you a little bit of background in New York back three years ago, we had a huge increase in bookings -- right -- following that because of all the fantastic publicity and all the good news about that ship. And knowing that the Getaway was the Epic plus beyond that something more, we expected that same sort of halo effect.

And what happened is we didn't see it. Not that we had a -- we had a good booking pattern, but not the same level as I would have expected given the huge positive press and everything that we had on the Breakaway.

So that is when it started to feel a little bit different to me. And then I would say that we've had some promotional activities going on following that, and when I look at it right now, I would say that things in the last few weeks seem to have been a little bit better. And I think some of the noise as well is some of the players may be doing a little bit more from a promotional standpoint to fill up their ships.

So having said that, what I'm seeing now is that -- and that will play out over the remainder of this year. But, as you see, we have put out our guidance for the third quarter and for the full year, so I think we, with confidence, can say, hey, we're still getting there. We are working a lot harder, but we're getting there, and things are getting back, in my view, from what I've seen in the last couple of weeks toward hopefully where we need to be.

On board we had a great quarter on the on board. Some of it is the Breakaway; some of it is just the continuing efforts we have. I would tell you that the remainder of the year is built into our forecast, the guidance and yields, et cetera, et cetera. But it is a little lumpy, and when you look at our third quarter, last year we had some pretty fantastic results in the third quarter, and we -- funny example is a guy with a paper bag filled with I think almost EUR1 million that left the ship with the bag, without the euros. So we had some good success, so we're coming over a little bit more of a hard quarter in the third quarter from on board. But, nevertheless, it's all built into our yields, and I would say no one should look at one quarter. You should look at the direction of our Company. We continue to push everything, as you guys know, and I feel very confident that we are continuing on that same trail of what we need to do.

The other thing I think that plays out in the third quarter a little bit is that, again, a bit of a mixed change. So we have been able to bottom out in the Europe market with yields that we're starting to see the ticket yields improving. But there are a few more Europeans on the ships than what has been the trend. And as you know, Europeans, they go on the ship, they say, hey, I'm a European. I don't need to go on a shore excursion. They may have different spending patterns in the spa as an example. So there are little bits of differences. So we're riding through some of that in the rest of this year. But, again, it's all built into our yield forecast, so we're pretty excited about where we expect to land out.

And just generally the on board spend, Kevin or Wendy, can you see it?

Yes, that's what I was talking about with the -- it is a combination that you may not see it as clearly in the third and fourth quarter because we had some really good success in the casino side. And then on top of that, there is a little bit more of the European consumer on the ships, which is moderating some of the on board spend. But, again, we are so far best-in-class in on board that we see that continuing as we get into 2014, and we're just going through a little bit of lapping some strength in the third and fourth quarter over the prior year.

But, again, at the end of the day, the yield in total is where we said we were going to be.

And one more, just things like specialty restaurants, are you seeing a higher percentage of the customers going into them as you continue to upgrade them?

Yes, it's a good point. I'm sorry I didn't get into that. Yes, on the Breakaway, we have a significant number of people every single day, starting with Geoffrey Zakarian's restaurant that has been sold out before every single sailing. And, as you know, we raised our pricing to $50 or $49, whatever it is. But you see that pattern in all the venues, especially, as you would probably guess, with a New York ship. You've got a lot of people that work hard up there, and they are on vacation. They want to enjoy themselves, so they book the nice specialty restaurants, and some people do that every single day. So we are seeing a lot of flow through into the specialty restaurants. So it's more pronounced on the newer ships than the other ships, but the other ships are improving as well as we take those learnings. And as you know, we pushed out the Churrascaria to all of the other ships, as well. So we are getting there with everything, but it is a market that does command an interest in specialty restaurants.

Okay. Thank you.

Felicia Hendrix, Barclays.

Kevin, thanks for the color, as always. Just wondering, you took the high end of your -- you tightened your yield range, and you also mentioned some of that was because of the aftereffects of what was going on in the Caribbean. Just wondering, the high end -- the low end went up by 50 basis points; the high end went down. So just wondering like the high end, trying to quantify what the impact of the Caribbean was. So can we extrapolate that at 50 basis points, or is it less than that?

No, I wouldn't say that. To be honest, for the remainder of the year, so third quarter, I think I had mentioned on earlier calls the Alaska market, there are new assets in there. We actually put our third ship back in the market. We had taken it out three years ago when Alaska raised the taxes up there. And I had promised Governor Parnell that if he brought it back down, we would bring the ship back in. We did. It's a unique itinerary. And as we expected, the travel agents take time and understanding that we are back there and that it is -- doing the extra advertising and seeing the itinerary and all that, and then by the second year, it is working better.

So I would say that the Caribbean -- we look at the Caribbean with the Bahamas. So we're holding our own there, and I would say that the third quarter, a little bit on Alaska, and I think Europe is settling out. And the first quarter was difficult, and it started to settle out as we see it going forward. So from a lower level, but improving, nevertheless. And we're just keeping a careful eye out for the Caribbean, as you suggested. But we're not seeing anything that gets us nervous at this point.

Okay. And is it too early to give us any color for next year? I know you talked a little bit by saying that you think the issues in the Caribbean might be normalizing, but any other color you can give us for next year?

Well, I think we just continue to feel very comfortable with what we see out there from the -- I mean, I've got to be careful here because I don't want to get things too out in front of us, but we have an expectation of a very handsome growth in net income next year, and we are feeling okay with that. So, as we get into the third quarter further and the fourth quarter, we're feeling pretty good about where we are booked for the rest of this year. We're feeling pretty decent about what's going on for next year, although it is early. And, of course, with the Getaway coming out, that gives us a little bit of juice. And then the balance of the -- because, remember, the Breakaway only really was in service for half of the quarter for second-quarter 2013, so you will have a full quarter in second quarter of 2014.

So I think based on the stuff we've been seeing out there on an overall basis, it may be one or two that seem very high to us, but other than that, we are feeling pretty decent.

Great. And then just final question, with the quantum also being year-end New York, any FX on the Breakaway or how you might be marketing that once the other ship launches?

Whose ship is that?

It is the (multiple speakers) other company out there.

I am joking. It isn't in New York, by the way. It is in Jersey. I've got to tell you, it's interesting, as this industry is, and I am only a rookie in it. I'm in my sixth year, which makes me, I guess, in other industries a long-timer, but in this one, still a rookie. We thought it was an unbelievably positive to bring our newest, greatest asset into the New York market. It had never been done before. It was almost like a stepchild market. And based on that success, it's great to see that some of the other players have recognized our success and are coming along behind us.

We're fine. We feel that our ship is spectacular. And the market is so large, we believe that if the other player does their job, which I'm sure they will, it will be a very big positive for all of us. There's a lot of assets in the industry that are in New York, and I really believe that the New Yorker and the ability to get on a ship without having to take an airplane is a huge convenience. And, of course, being on the West Side and being able to flag by taxi and $4 versus going to Jersey and having a $50 or $60 fair with a gypsy, I think we are well-positioned.

Okay, Kevin. Thanks.

Robin Farley, UBS.

I'm just trying to get a little more color on your comments about the recent booking environment. Last week one of your competitors talked about getting more competitive in the last few weeks. The other one talked about pricing not having bottomed yet. I know you mentioned that you feel like things are getting better, but can you quantify does that mean not declining further, or what does your incremental booking look like if you exclude Breakaway, which would obviously bring the overall up? But when you are looking at your incremental week to week, is it up but just not as much as you would have thought, or are you still finding the bottoms?

It depends on, as you see, the load for us are we are better for third quarter, and we're right in line with the fourth quarter. We're feeling pretty good about the booking patterns for 2014. Our pricing, we gave the yield view for the third and fourth quarter, and that is based on the composition of everything that we are seeing in the market and what I've talked about earlier.

And as I said, we're finding it harder to get our share at the table, and everybody else is, I'm sure, as well. We just need to reawaken all of the consumers about this fantastic value proposition that we have in cruising and hopefully in a more moderate environment that we will remind them how ridiculously cheap it is and beyond our pursuit of getting some rightful pricing in this industry.

But we are feeling okay. And our pricing is okay as we see it for the rest of the year, as I said, which is in our yields.

Great. Thanks. And then just on the expense side, with your expense guidance moving up 50 basis points at the midpoint, just wanted to get a sense of whether those are more due to items like inaugural expenses that are more one-time in nature, or whether it is just sort of overall what you are seeing with operating expenses that we might think about being part of the base going forward?

Sure. So I will answer that one, Robin. As we have been very vocal with, we've got the three dry docks; we've got the direct inaugural expenses; we have incremental public company costs this year versus last; and additional advertising for the Breakaway. So that's all baked into the net cruise costs. There's nothing else in there that is lurking. We want to make sure that we are comfortably in the range.

And yes -- we continue to work on other initiatives. Kevin, do you want to add any?

Yes. At the end of the day, so you can't see it with all the dry docks being put back in this year that we didn't have, the timing when you have a young fleet enabled us to have a very quiet year from a new build -- from a dry dock situation last year, so now we're paying that price. But when you, as Wendy said, when you pull that out and you pull out the inaugural and some of the other things that we've done this year, you would really see that we continue to work very hard on our Kaizen and Six Sigma initiatives, and it is a relentless thing.

Wendy and I actually had a meeting on Thursday, Thursday of last week, just for an update with the guys, and we're getting it done. The stuff that we are working on, we are methodically going out ship by ship, department by department. So you go through it on a department on a ship, and then you blow it out to the rest of the fleet.

And the same thing holds true. We have a separate team that's working on initiatives here. We see a lot of the things that we can improve upon. And the thing that's great for us is, as we're growing this capacity, we held our headcount, I think I had mentioned to some of you in the past, through the economic downturn because I didn't think it was the right thing to do to lay people off in that environment. But now as we're growing, we are able to fix the rest of that margin that maybe wasn't optimized because of the economic thing. So instead of growing headcount, we are -- and people are really buying into it, because they are now saying, oh my goodness, I can see that we can make this better, and I feel confident because I have a jobs because I see we're growing.

So it's worked out to be very beneficial for us the way we have positioned this. But that is missing when you look at the numbers this year because of all of the other stuff that is in our costs.

Thank you.

Tim Conder, Wells Fargo Securities.

Congratulations, Kevin, Wendy, and everybody on the ongoing execution.

Thanks, Tim.

Just a couple of here, Kevin, to follow on what's already been asked. I think you said last quarter that at that point in time your third-quarter, fourth-quarter and early 2014 bookings and pricing in each bucket were ahead year over year. And I think you already commented that for third quarter you are ahead in the load factor, and then fourth quarter, it sounded like you were equal. If you could maybe just update those buckets just to clarify that.

And then I have another one after that.

Yes, sure. So I think we have to go back a little bit in history to make sure everybody understands. When I came in here, one of the things that I saw as an opportunity was getting ahead for the fourth quarter, and obviously every other Cruise Line has figured this out, and we were a little slow on it.

So the last couple of years, we have put a lot of effort into getting ourselves booked as solidly as possible early in the process so that we go into the fourth quarter at a pretty good position. Because it is a competitive, as you know, environment, and that's not a peak travel season, and sprinkling in a little bit of the six men and charter stuff in that quarter, as well.

So two years ago when we entered the fourth quarter, we were at a record level as a Company for our position booked for the fourth quarter. And then two years ago, if you remember, there was a hurricane that impacted that fourth quarter. So then we went back to the drawing board last year and I said, guys, we've got to do this again, and we've got to get better at it and blah, blah, blah. And we did, and we were booked even better than we had the prior year, which, as I said, was our record booking of going into the quarter.

And then, of course, last year we had the trifecta of hurricanes that went up and down the East Coast. So all of that good effort really was undone there. And I think anybody that has followed us remembers, we took about a 160 -- I'm making it up -- 170 basis points of reduction in our load in an effort to hold our pricing in the fourth quarter and got through the fourth quarter.

So here we are this period, and we are consistent with the fourth quarter right now. So that makes me feel pretty good because it's at the same heightened level of the last couple of years. So I feel we have a good shot, and God forbid, we go a fourth quarter without a hurricane. I think we're in a good position vis-a-vis the prior years to have a good quarter. Did that answer your question?

Yes. And then how is 2014 at this point, Kevin? Again, you've given some color before depending on the pricing panel, so.

2014, we are feeling, it's early, of course. First quarter we're feeling very good about both on a load and a price. And then as you get further out, it's so early in the game, but there's nothing in anything that we have from either a load standpoint or a pricing standpoint that gives us any pause.

Okay. And you feel you are up at this point in both for 2014, at this point?

Yes.

Okay. And then just to revisit the --

Let me just point out, and it may be different depending on the cruise line, right? Because we all have a different way of thinking about the revenue management. And you could get to the rush of getting the load with low pricing or you could be more disciplined with the load to get better pricing.

So we think we're doing a pretty decent job of trying to dance between both sides to make sure we're getting our best pricing, but being cognizant of the load to make sure we're thoughtful about the whole on board side of it as well. But we are in this to get the ticket price up to -- we think the industry is just so woefully underpriced. And as much as we can do to help that cause, I think the better it is for the overall industry.

Okay. And then either Kevin or Wendy, just to revisit a prior question also on the net cruise costs, the midpoint of 50 basis points, would you perm that maybe a little more conservativism given the little bit more uncertainty in the fourth quarter here with the Caribbean, and then are you maybe reserving a little there in terms of marketing or advertising given that little bit uncertainty or just anything else you want to offer on the 50 basis point midpoint increase?

Okay. So I will give you one little piece of this, which I think takes care of the issue, to be honest.

Last year at this time we weren't feeling that strong about where we thought we were going to end up, and when we got into the third quarter, we reversed a little bit of our bonuses for 2012. But we have a very disciplined approach to doing that, and you hit it or you don't hit it. And this year we're still fighting like mad to reach the goals that we have for the Company. And if we do, those bonuses will be achieved.

So there is a little bit of that in there, and there's a couple of things like that that are in our numbers that I'm pretty comfortable as you guys would expect. Unless something else happens, we're going to be at the point that you guys want us to be.

Okay. Great. Thank you for the color.

(Operator Instructions). Harry Curtis, Nomura.

A couple of quick questions. First of all, can you give any color with respect to the potential secondary that may be coming from Apollo? Are there any conversations between you guys? Do you have any sense of timing and size?

As you can imagine, under the securities laws, we're not allowed to comment on that. But, as you also would know, following the Company, we are very supportive of our shareholders, and we're here to do whatever is in the best interests for the whole long term of this Company. And I think over time, as you guys would expect, over the long term, there's going to be shares that are sold. But we can't comment on it.

Then moving on to the second question, after the Getaway is put in service, you'll be generating a very attractive amount of free cash flow. Any thoughts on priorities for that?

Sure. That's a great question and one that has me thinking a lot, and rather than getting too far ahead of myself, let's see how this all plays out. But I suspect as you are suggesting when we get into the second half of next year, we're going to be sitting here saying, guys, what do we do with our cash flow? It does not make sense to pay down 2%, 3% debt, and does it make sense to -- and of course, we are going to take our lead from our shareholders. Does it make better sense to be in very -- and I don't know if you guys have followed me back at Sandon or any of the other places I've been or Avis -- on a very disciplined stock repurchase program, or do we say, hey, what's best for our shareholders? Do they like a dividend better?

So I think we're going to be listening to our shareholders at what they think is the best thing. But I suspect as we get out into that second half of the year, that we will be hearing a little bit clearer of what to do, and we're going to do the right thing.

Based on your experience, do you have a preference one over the other?

Again, my preference would probably be given where we're are would probably be in the stock repurchase program. I think it's more accretive to our shareholders. But, again, I do want to do something that would knock some other fence for somebody that may be a good holder that would rather see us have a small dividend or whatever.

Okay. That's helpful. Thank you.

Kelly Knybel, Deutsche Bank.

Just relating to the yields and what you're seeing and maybe you could provide a little bit more color in terms of the underlying trends and what you're seeing just between maybe the Breakaway and the same-store fleet, just given the recent challenges in the industry and stuff.

Yes, I mean we're not going to get into too much detail here. We are one brand. And when we start to dissect ourselves, it becomes a forensic audit by our competitors that I'm sure are listening in.

So I would just say that when if you look at the composition -- and we've talked about the Breakaway being a higher-yielding ship. And we've also gone as far as to say that the Epic with that design lends itself to a higher ticket as well as on board.

So you've got to play all of that in. But other than what I said about Alaska and Europe being more from lower level starting to look like it's coming back the other direction, I don't think I can get too much more detail, other than to point you to our guidance for the third quarter and for the full year, which I think says, hey, these guys are still getting what they said they were going to get, and it narrows the guidance for the full year by into a tighter range.

And maybe I will say it a little bit differently, the recent challenges in the industry, are you seeing impact across your entire fleet and what you're getting from a pricing standpoint?

Okay. So I would say that a couple of ships have not been impacted to any great extent to a couple of itineraries. But we are on the margin seeing -- Alaska I would say, is it a combination of more capacity, or is there also some first -- because that is a first-timer itinerary in many respects, right? When you think of cruising, that is something that is spectacular like Hawaii is spectacular. We're the only ones that have the proposition. So certain of these things are just to lend themselves for first-time cruisers, and that is where more on the margin you would expect the impact.

The seasoned cruisers, they just get through this stuff and they keep going. Whether it is our Norwegian people or the other brands that want to try other product out, those people continue to come. It's really the first-time guys.

Okay.

So with that, hey, Alyson, we have time for one more question.

Assia Georgieva, Infiniti Research.

Kevin, I am keeping my fingers crossed that this guy with the paper bag comes back and the --

(multiple speakers) -- won't have any story, right?

Yes.

You can only imagine where that money came from.

So in any event, hopefully he comes back. I wondered whether you had done any analysis over past quarters to see whether on board spend has been any sort of a predictor to changes to ticket revenue?

Exactly, you are hitting it right on the head. So this is the frustration when this on the margin happens on the ticket, right, you start to bring in a -- I don't want to say less desirable, but you bring in people that otherwise might not have come on our ship. So you start to get people that this may be -- the ticket may be a bigger piece of their budget, and then when they get on -- and we welcome everybody, of course, but they may come on and not spend the same way as what happens when we have that perfect matchup with the pricing and getting the best demographics. So we've done a lot of statistical analysis and data mining to find out who are the categories of guests that bring us the best returns.

And what happens is when you can't prioritize those because there just aren't enough of them, then you get into the next categories down, and that's what happens. You are exactly right. So as the demographic comes down, the on board spending pattern matches that.

And among the major categories, which ones would you say have done the best when you are trying to compare a little bit of a same-store basis because the addition of the specialty restaurants clearly distorts the comparison a little bit?

You mean the change with that change? I think the one I gave earlier was the perfect one. We love to bring Americans over to our European ships. It's a major vacation for them. They want to see everything; they want to go on every shore excursion; they want to have the time of their lives, versus if you are filling your ship closer in with -- not to pick on Spaniards or certain countries over in Europe, they tend to have -- a lot of Europeans have like 20 weeks vacation -- I'm exaggerating a little bit. So they have less that they spend on each vacation opportunity. So you see that.

And as I said, they spend a little bit less on spa because that is a shock to them versus the Americans that say, hey, I'm going in for blah, blah, blah no matter what.

And this year it's safe to say that you are also seeing more North Americans for the European deployments. I think both of your competitors have already stated the same.

Well, yes, I think on the margin we're seeing a bit more of the Americans, but we're also seeing quite a few -- and you look at the European economic situation, you're getting a little bit of a later booking from some of these countries, and we're all fighting for the same number of consumers. So in some cases, you're getting people that are spending a little bit less on the European side.

Great and a quick question for Wendy. A great job on the refinancings. Do you expect to be doing anything else, or do you think that your capital structure is pretty optimal at this point?

Yes, we're really pleased with where the balance sheet fits in our capital structure, so I don't anticipate anything else at this time.

Okay. Great. Thank you so much for taking my questions.

And remember, as Wendy pointed out earlier in the call, that our one big piece of that debt steps down from LIBOR plus 2.25 to LIBOR plus 1.50 as we continue to improve our metrics, which was a very important feature that we were able to get done.

So thanks, Alyson. As always, Wendy and Andrea will be available to answer your questions, and we really thank all of you for your time and support and look forward to our next call. In the meantime, have a great rest of the summer.

This concludes today's conference call. You may now disconnect.