Viking Q1 2024 Earnings Report

Viking EPS Results

• Actual EPS: -$0.03
• Consensus EPS: -$0.46
• Beat/Miss: Beat by +$0.43
• One Year Ago EPS: N/A

Viking Revenue Results

• Actual Revenue: $718.16 million
• Expected Revenue: $705.70 million
• Beat/Miss: Beat by +$12.46 million
• YoY Revenue Growth: N/A

Viking Announcement Details

• Quarter: Q1 2024
• Date: 5/29/2024
• Time: N/A
• Conference Call Date: Wednesday, May 29, 2024
• Conference Call Time: 8:00AM ET

Viking (NYSE:VIK) Holdings Ltd engages in the passenger shipping and other forms of passenger transport in North America, the United Kingdom, and internationally. It operates through River and Ocean segments. The company also operates as a tour entrepreneur for passengers and related activities in tourism. As of December 31, 2023, it operated a fleet of 92 ships, including 81 river vessels comprising 58 Longships, 10 smaller classes based on the Longship design, 11 other river vessels, and 1 river vessel charter and the Viking Mississippi; 9 ocean ships; and 2 expedition ships. The company was founded in 1997 and is based in Pembroke, Bermuda.

Viking Q1 2024 Earnings Call Transcript

Key Takeaways

• Strong Q1 Financial Performance: Total revenue rose 14.2% to $718 M with occupancy up 120 bps to 94%, adjusted EBITDA loss narrowed to $4 M versus $51 M a year ago, and 12-month adjusted EBITDA reached $1.14 B (36.1% margin).
• Successful IPO: On May 3, Viking completed an $1.8 B IPO at $24 per share, raising $246 M net proceeds and listing on the NYSE while maintaining family-led governance.
• Focused Growth Strategy: Viking targets affluent English-speaking travelers over 55 under one brand, operating small, high-margin ships with a destination-first philosophy and contrarian ship ordering.
• Fleet Expansion & Sustainability: The company has grown from 4 to 92 ships since 1997, has 18 river vessels on order, and is advancing a zero-emission propulsion project.
• Solid Balance Sheet & Credit Upgrade: As of March 31, Viking held $1.7 B cash, net debt of $3.9 B (3.4× leverage), and received an S&P upgrade to BB-, underscoring financial discipline.

Presentation

[Operator]

Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's first quarter 2024 earnings conference call. As a reminder, this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, press star two. Thank you. I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mengolini.

[Carola Mengolini, Head of Investor Relations at Viking]

Good morning, everyone, and welcome to Viking's first quarter 2024 earnings conference call. I am joined by Torstein Hagen, Chairman and Chief Executive Officer, and Leah Talactac, Chief Financial Officer. Also available during the Q&A session is Linh Banh, Executive Vice President of Finance. Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release, as well as in our filings with the SEC. The forward-looking statements are as of today, and we assume no obligation to update or supplement this statement.

[Carola Mengolini, Head of Investor Relations at Viking]

We may also refer to certain non-IFRS financial metrics, which are reconciled and described in our press release posted on our investor relations website at ir.viking.com. Tor and Leah will provide a strategic overview of the company, a recap of our first quarter results, and an update of the current booking environment and order book. We will then open the call for your questions. To supplement today's call, we have also prepared an earnings presentation that will also be available on our investor relations website following this call. With that, I'm pleased to turn the call over to Tor. Tor?

[Torstein Hagen, Chairman and CEO at Viking]

Thank you, Carola. Good morning, everyone, and thank you for joining us today for our first earnings call as a public company. To start today's call, I'd like to provide an overview of our business and reiterate the key points of differentiation that we highlighted during our recent IPO roadshow. Viking started in 1997 with four river vessels and a vision that travel should be more about the destination and also more about the local culture. We saw an opportunity to create a high-end travel experience for guests who seek more than just a vacation, and that we should also appeal to mature individuals who want to learn more about history, art, and the culture and of the places they visit.

[Torstein Hagen, Chairman and CEO at Viking]

Over the past 27 years, Viking has grown into one of the world's leading travel companies, expanding our fleet from those 4 river vessels to 92 state-of-the-art ships, which we view as floating hotels. We built our travel platform from river cruises to ocean voyages to expeditions to the end of the world, and also in the US on the Mississippi River. During this time, we have successfully grown the business, in large part because we are so different than others in the travel industry. I will now take some time to highlight a few of these differences. First, we maintain a clear focus on our core demographic, which are curious, affluent, English-speaking travelers over 55. They have the time, money, and desire to explore the world.

[Torstein Hagen, Chairman and CEO at Viking]

In the US, this demographic has the largest spending power of any demographic, holding over 70% of the wealth, and they're also the fastest-growing segment of the population, expected to increase from 98 million people in 2020 to 110 million people in 2030. To put things in perspective, we carried about 650,000 guests in 2023. As you see, the opportunity is great. Second, we operate under one brand, Viking, which stands for excellence among our guests and across the industry. Rather than creating a conglomerate of different brands, all our products are a consistent extension of the one Viking brand. Being one brand also gives us flexibility and the ability to leverage scale. Third, we're destination-focused. We feel strongly that the destination remains the destination, not the ship.

[Torstein Hagen, Chairman and CEO at Viking]

And to that end, we have strategically built small ships, which we have proven to operate efficiently and profitably. Moreover, our research and direct customer feedback continues to indicate that our core demographic prefers smaller ship size. Our ships offer quiet, understated elegance. They are uncluttered and comfortable. We call it modern luxury for the thinking person. You will find this same aesthetic across all our ships, creating a familiar comfort wherever you travel with Viking. And lastly, I will add that we are contrarians.... We have used periods of economic downturn to secure favorable terms for our future ships, allowing us to achieve competitive prices and attractive financing. And all this brings us to where we are today, a newly listed public company trading on the New York Stock Exchange.

[Torstein Hagen, Chairman and CEO at Viking]

I'm proud of our entire Viking family for achieving this major corporate and financial milestone, and grateful for the continued hard work and dedication of our guests. On May third, we completed our $1.8 billion IPO. It was priced at $24 per share. We raised approximately $246 million of net proceeds for Viking. In the slide here, you can see our post-IPO ownership structure and the economic and voting powers of TPG, CPP Investments, the Hagen family, and all of our other investors. Some say, having gone public, you become a different company. I'd venture to say we are different in this regard as well. My promise to our guests, employees, and to our shareholders is that we will continue to do four things. First, we will continue to obsess over our guests by offering an excellent travel experience at good value.

[Torstein Hagen, Chairman and CEO at Viking]

Second, we will continue to treat all Viking employees as part of our family and keep the family ethos that has been fundamental to our company culture since the beginning. Third, we will continue to be contrarian, emphasizing the importance of a long-term view and shareholder value creation. And lastly, we will continue to do what is right when it comes to the environment with our already fuel-efficient river and ocean ships, and with our project to create a true zero-emission solution. I will now turn the call to Leah to discuss the financials.

[Leah Talactac, CFO at Viking]

Thank you, Tor. Good morning, everyone. I'll begin with an overview of Viking's results for the first quarter. Unless otherwise noted, my commentary on 2024 comparisons are to the same period in 2023. We are very pleased to have delivered a strong first quarter. On a consolidated basis, total revenue grew 14.2% year-over-year to $718 million, mainly due to an increase in the size of Viking's fleet and higher occupancy. During the first quarter of 2024, capacity PCD increased by 14.5%, and occupancy was 94%, an improvement of 120 basis points compared to the same period in 2023. As a reminder, we allow up to two guests per cabin, and at times our guests may even want a single cabin. Therefore, we will never exceed 100% occupancy.

[Leah Talactac, CFO at Viking]

Adjusted gross margin in the quarter increased 19.1% year-over-year to $495 million. Net yield in the first quarter was $508, which is the highest net yield we've seen in a first quarter period. Net yield grew by 2.8% compared to the first quarter of 2023. Keep in mind that in 2023, we experienced strong growth in net yield compared to 2019. Our net yield for the full year of 2023 grew by 16.7% compared to the full year of 2019. Net loss was $494 million for the quarter, which includes a loss of $330.5 million related to the net impact of the private placement derivative loss and interest expense related to the Series C preference shares.

[Leah Talactac, CFO at Viking]

The Series C preference shares converted into ordinary shares immediately prior to the consummation of the company's initial public offering, which was after the first quarter of 2024. Also, and as a reminder, we typically incur a net loss in the first quarter due to the seasonality of our business. Having said this, adjusted EBITDA for the first quarter improved more than $46 million compared to last year, mainly due to higher capacity passenger cruise days and higher net yields. Adjusted EBITDA was a loss of $4 million, compared to a loss of $51 million for the same period in the prior year. Adjusted EBITDA for the twelve months ended March 31, 2024, was $1.14 billion, which exceeds full year 2023 adjusted EBITDA of $1.09 billion. Adjusted EBITDA margin for the last twelve months was 36.1%.

[Leah Talactac, CFO at Viking]

Moving to our two reportable segments, river and ocean. For Viking River, occupancy declined slightly from 93.5% in the first quarter of last year to 92.1% this quarter, primarily due to lower occupancy for our Egypt itineraries compared to the first quarter in 2023. That said, adjusted gross margin grew 33.6% to $108 million this quarter, and as a result, net yields grew to $609, compared to $593 in the same period last year. Our first quarter river net yields are usually the highest, as we have more Egypt and Vietnam sailing compared to Europe sailing. Most of the European river sailing started in late March.

[Leah Talactac, CFO at Viking]

For Viking Ocean, occupancy improved 60 basis points to 94.5%....Adjusted gross margin grew 18.3% to $316 million this quarter, and net yield grew to $439, compared to $425 in the first quarter of 2023. Now moving to the balance sheet. As of March 31, 2024, we had total cash and cash equivalents of $1.7 billion and net debt of $3.9 billion. To this end, our net leverage improved to 3.4 times at the end of Q1 2024, compared to 3.8 times on December 31, 2023. And we are very pleased to have received a ratings upgrade by S&P in May, where Viking Cruises Ltd's corporate rating was upgraded to BB- from B+.

[Leah Talactac, CFO at Viking]

This achievement underscores our dedication to financial prudence. As of March 31, deferred revenue was $4.1 billion. Also on this page, you can see our current bond maturity outlook. We have one bond maturity due in May 2025, and all other maturities are in 2027 and beyond. The scheduled principal payments for the remainder of 2024 as of March 31, 2024, is $196 million, and-

...When you look at the booking curves, I think there will always be some uncertainty up and down, and I don't think we should necessarily speak to that uncertainty. I think, I think that's something that I think, analysts and investors can, can also assess based on the information they're given. So I think that, you know, we, we like to talk about what we have done rather than what we hope to do, and I think we'll try to stick to that.

[Leah Talactac, CFO at Viking]

Yeah, and I just want to add to that, that, you know, part of the reason is we are long-term, in terms of how we view the business and also in the shareholder, shareholder value creation.

[Linh Banh, EVP of Finance at Viking]

...And one of the things that makes us successful is that we are flexible, and we're nimble. And we feel that once you start giving guidance, then you start to lose some of that DNA, that it makes us Viking. And then also, I wanted to add that booking curves are back. So that's not speculative. That's what we've achieved. And so facts we can stand by rather than forward projections and guidance.

Okay, understood. Thanks, guys. Appreciate it.

[Operator]

Thank you. I'll take our next question from Robin Farley with UBS. Your line is open.

[Robin Farley, Managing Director and Leisure Analyst at UBS]

Great, thank you. I do want to echo the sentiment. I think that given how much further Viking books in advance, that I do think investors probably were thinking that would enable Viking to give guidance with higher conviction than and higher visibility than maybe some other companies that don't have as much visibility. So it is a little bit surprising not to have - not to sort of share your visibility in that way. So maybe you could - if you could help us in thinking about the data point that you are sharing, the advanced booking per passenger cruise day.

[Robin Farley, Managing Director and Leisure Analyst at UBS]

When you talk about 2025, how that being up 12%, maybe if you could help investors just to understand whether, does that booking curve, because you're familiar with how your booking curve changes over the course of a year approaching sailing. Investors are not as familiar with that since other companies don't share that. Is that 12% increase representative of where you expect, yield to come in? And if not, if you could talk to us about how we should view that 12%, what our expectations should be, given that data point that you're sharing. Thanks.

[Linh Banh, EVP of Finance at Viking]

Hi, Robin, this is Linh. So I think from our perspective, as we sell, as we indicated, we do try to price demand. For oceans, oceans does operate year-round, and so the selling there generally starts earlier, which we can see for 2025 for oceans, we're 47% sold. The pricing there is about 13% higher year over year. As we can-- and then for rivers, rivers mainly starts the season, especially in Europe, where the bulk of our capacity is in March and April. And, for rivers, you can see here operating capacity, we've sold 30% of 2025. And so the general cadence is our high season and our higher cabin generally sells first. And so we do see as we open up the season, that pricing is generally higher.

[Linh Banh, EVP of Finance at Viking]

And then as we sell into the season, whether that be low season or the lower categories, pricing will trend downwards. I think for 2024, you can see that here, where for 2024, we're 91% sold, and the pricing there may come down a little bit as we sell the rest of 2024, which is really in the fourth quarter. But you can see that trend as, you know, we continue to sell.

[Robin Farley, Managing Director and Leisure Analyst at UBS]

But in theory, just thinking about prior curves, if every year you sell the higher season and higher priced cabins first, and every year, then later on, you're selling the sort of the more average-priced cabins, wouldn't that be a consistent percent change year-over-year? And if not, I just, you know, want to make sure that there's not an expectation that your price is going to be up 12%. If you would suggest that it's, you know, not going to be, I think that'd be helpful to be clear on that. But just thinking about the year-over-year, it seems like that would be the case if the base would also have moved down last year, so that maybe the percent change would be representative.

[Robin Farley, Managing Director and Leisure Analyst at UBS]

If it's not, it would just be helpful to, you know, understand that that's not the expectation that investors should have. Thank you.

[Linh Banh, EVP of Finance at Viking]

Generally speaking, you know, we sell based on demand, and we will also have mix and deployment differences year over year as we add new vessels and depending on which itinerary sells first as well. So I understand the question. I think it's hard for us to say that the selling patterns will be consistent year over year, at the end of the day. But, you know, we are quite pleased with where we are positioned for 2025 today. Prices are up for 2025, prices are up for 2024. And, you know, I think, you know, we've seen as well, historically, we've been able to increase prices in the mid- to high-single digits.

[Robin Farley, Managing Director and Leisure Analyst at UBS]

Thank you.

[Operator]

Thank you. We'll take our next question from Andrew Didora, Didora with Bank of America. Your line is open.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Hi, good morning, everyone. Thanks for the questions. Tor, Leah, are there any guideposts you can give us in terms of how you're thinking about net leverage or liquidity targets as you build cash here over the next few years?

[Torstein Hagen, Chairman and CEO at Viking]

Yeah, maybe I should take that one. We have had a few roadshows lately, and the question has come up there, too. And there we reported what the net leverage was at the end of last year, 3.7, if I'm not mistaken, now we're down to 3.4. And that is certainly a leverage level where we are comfortable, quite frankly. So that's that. Of course, you can see we are generating a fair amount of cash, so it could go further down if nothing more happens, and that'd be fine, too. I think we don't have any sort of, you see what our capital investment program is, so you can model that out. We for the time being, at least, we don't have any plans of paying dividend.

[Torstein Hagen, Chairman and CEO at Viking]

I believe that, you know, my family is a large shareholder in this, and I think we can't see much better investment opportunity than we have in this company. So, so I think, there are no dividend or buybacks planned of any type. So I think we will have a good base for expanding the business that we have, but it should be profitable expansion, not expansion for expansion's sake. And I think we have a benefit of a great order book, which we have got at good prices. So I think, I think—and then we combine that with a balance sheet, which is probably among the best in the industry, and I think we're in a good position.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Great. Thank you for that. And if I could maybe ask one more just on the growth opportunities. I kind of understand the opportunities on the ocean side. I guess, just in terms of river growth, you know, over time, you've obviously branched out of Europe into the Nile, to Vietnam. Kind of, where do you see incremental opportunities to deploy the 18 river vessels that you currently have on order? And thank you.

[Torstein Hagen, Chairman and CEO at Viking]

Well, the Longships are planned, deployed on the rivers in Europe. That's the nature of their design, and I think there's definitely demand there for that from our existing markets. Of course, we also, as you know, we have an embryonic effort in China, where we have currently deployed 4 river ships on European rivers to the Chinese source market. And they have good ratings. We're not full yet. This is an area where we see potential, but, you know, we should be very careful that we don't overstate it. But I think there is more potential for building river ships, too.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Great. Thank you.

[Operator]

Thank you. We'll take our next question from Daniel Politzer with Wells Fargo. Your line is open.

[Daniel Politzer, Director Equity Research Analyst at Wells Fargo]

Hey, good morning, everyone, and congrats on the recent IPO. I wanted to ask the question about bookings in a little bit more granular manner. Maybe if you could talk about the difference between river and ocean and how those, you know, those subsegments track along the booking curve. Because I believe that, you know, for ocean, you guys are tracking up kind of in that mid-teens for 2025, whereas rivers, you're tracking up, you know, kind of mid-single digits. So as we think about kind of, you know, filling in those curves over the next several quarters, how should we think about maybe the difference in pricing power that you have there?

[Linh Banh, EVP of Finance at Viking]

Sure. Hi, this is Linh. So I think the biggest difference between oceans and rivers is ocean operates year-round. And so as we open this season, it generally will open a little earlier than rivers, which is where you see operating capacity. We sold 47% of 2025 for oceans already. And for rivers, which, you know, the bulk of our capacity is in Europe. The European river season mainly starts in March, April, and so there is a seasonality difference, first and foremost. Second thing is, as you can see, for rivers, we're 30% sold for 2025, at pricing of almost $1,000 per day. So for rivers, we generally do see very high season, higher cabin categories, and also itineraries that yield a higher yield. They generally will sell first.

[Linh Banh, EVP of Finance at Viking]

We do not expect our yields to stay at almost $1,000 per day. And so, you know, understanding if you just do math, you know, for 25% for rivers, we're 6% ahead. But if you kind of step back, looking at the pricing itself, it's rather high. And I think as we continue to sell the river season and the rest of the season, we will see that come down.

[Daniel Politzer, Director Equity Research Analyst at Wells Fargo]

Got it. That's helpful. And then just, just in terms of the balance sheet, right? I, I think that you guys, obviously you're generating a lot of cash, and, and, you know, you already addressed that to some extent. But, I mean, high level, you know, next year you're, you're gonna be, I think, net of, net of ship financing, you know, your CapEx is only $30 million. You are building cash. Is there an impetus or goal to get to investment grade? And, you know, as far as the capital allocation, dividends and share repo don't seem a priority. So, you know, and, and it seems like the growth CapEx is accounted for. So what, what is it that you... You know, how do you, how do you think about deploying that cash?

[Torstein Hagen, Chairman and CEO at Viking]

Yeah, I, I don't want to make any forecast, but, but it is that we, we never had any ambition to, to be investment grade. I think we are, we, we are primarily in the business of creating value for our shareholders. I think our bondholders have had a good ride with us, too, don't get me wrong. But, we have said that a double B rating is not- double B rating is not a bad rating, rating to have. I think it's- we have to optimize the capital structure, so I, I don't see any... None of us, at least, we, we don't currently have any stated ambition of becoming investment grade on the, on the bond side. I think we have opportunities, investment opportunities that we'll make use of, and, and, that'll be it.

[Torstein Hagen, Chairman and CEO at Viking]

I think the financing we get being a double B, double B minus now, is good enough.

[Daniel Politzer, Director Equity Research Analyst at Wells Fargo]

Got it. Thanks so much for all the detail.

[Torstein Hagen, Chairman and CEO at Viking]

Good.

[Operator]

Thank you. We'll take our next question from Meredith Jensen with HSBC. Your line is open.

[Meredith Jensen, U.S. Consumer Equity Research Analyst at HSBC]

... Hi, good morning. I was wondering if you could speak a little bit about the excursion business, and how many people are taking advantage of that, and sort of the economics that go into it as you build out some of those other trips that your loyal guests can take advantage of? That would be great. Thank you.

[Leah Talactac, CFO at Viking]

Hi, Meredith. I think, you know, when we think about our excursion business, it's twofold. So we have pre- and post-cruise extensions, which are packages that you can add to your cruise before or after your cruise. It's a couple of nights at a hotel with some tours that may be involved. And, you know, we have a variety of packages that you can purchase. Up to almost 40% of our guests do opt for that. And then also, of course, you know, what you have for others, which is optional excursions. I think it's very important for us to note that Viking is an all-inclusive product. That is our business model. We believe in providing our guests with a package that they- Either new locations and/or duration?

[Torstein Hagen, Chairman and CEO at Viking]

I think the way we are, we pretty much cover the world, I would say. So I think it will be more of the same. Of course, in the short term, we have the... You can see some issues related to what happened in the Red Sea, and we are dealing with that properly, I think. But, apart from that, I don't think we'll see much change. It will be more of the same. Of course, you can see for the Chinese market, it's a question of what product can come from them. And we have a joint venture ship where we have a 10% interest.

[Torstein Hagen, Chairman and CEO at Viking]

That could be the right size to the different, that could be an expansion opportunity to, to different markets, I would say.

[Leah Talactac, CFO at Viking]

Yeah, and I also wanted to add, you know, so when we think about our ocean capacity coming online, we will continue to deploy in the regions that we are, you know, small ship experts at, rather than being largely Caribbean-focused. But I also wanted to point out that, we do operate year-round in certain regions. So, for example, in search of northern lights, you wouldn't expect, you would not expect that we, you know, people would want to go there in the off-season, but they do. Then they look for the northern lights. And then also in the Med, we're there in the quiet season, which our guests also appreciate.

[Leah Talactac, CFO at Viking]

So, given just the type of demographic and the people that are drawn to our products, they know that, you know, in times where you wouldn't necessarily think people would travel to certain regions, that's when they know it's best to go. So based on just that difference, we feel that there's ample opportunity for our oncoming fleet.

[Meredith Jensen, U.S. Consumer Equity Research Analyst at HSBC]

Perhaps a follow-up on river, and for those less familiar, what are some of the competitive barriers to entry for this market? And how might the operating leverage of river differ versus cruise? In other words, would you generally expect more or less flexibility in the cost structure versus ocean?

[Torstein Hagen, Chairman and CEO at Viking]

I think... Go ahead.

[Leah Talactac, CFO at Viking]

Well, from a river perspective, I think, you know, what sets us apart here is just our scale. The fact that we have identical vessels and that there are many of them. So from a competitive advantage perspective, I think it would be difficult for people to enter into that space, and given that we are over 50% of the market share also. So we have great brand awareness from a river perspective. Also, the fact that we have the docking locations that we either have long-term leases or control. We have about 97 of them. And then also our forward-booking curves. So our forward-booking curves give us flexibility into what itineraries and locations are selling well, so we're able to plan for the future much earlier than others. And secure those docking locations.

[Meredith Jensen, U.S. Consumer Equity Research Analyst at HSBC]

Great. Thanks so much.

[Leah Talactac, CFO at Viking]

Yep.

[Operator]

Thank you. We have reached our allotted time for questions. I would now like to turn the call back over to Torstein Hagen, Viking's Chairman and CEO, for closing remarks.

[Torstein Hagen, Chairman and CEO at Viking]

Well, I want to thank everyone for joining in this, what we call our virgin earnings call for our new shareholders. I thank you for your support and interest in Viking. I wish you a great day.

Participants

Executives

• Carola Mengolini, Head of Investor Relations
• Leah Talactac, CFO
• Linh Banh, EVP of Finance
• Torstein Hagen, Chairman and CEO

Analysts

• Andrew Didora, Senior Equity Research Analyst at Bank of America
• Daniel Politzer, Director Equity Research Analyst at Wells Fargo
• Meredith Jensen, U.S. Consumer Equity Research Analyst at HSBC
• Robin Farley, Managing Director and Leisure Analyst at UBS