Viking Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2024

There are 18 speakers on the call.

Operator

Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's Second 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.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mengolini.

Speaker 1

Good morning, everyone, and welcome to Viking's Q2 2024 Earnings Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer and Lia Talaktak, Chief Financial Officer. Also available during the Q and A session is Lynn Bahn, 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.

Speaker 1

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 these statements. 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 Q2 results and an update of the current booking environment.

Speaker 1

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 Thor.

Speaker 2

Thank you, Carola. Good morning, everyone, and thank you for joining us. I'll start today's call highlighting a few key performance indicator and we'll then take you opportunity to touch on demand, sharing with you some of the characteristics and qualities of our target customer. As you can see on Slide 3, this morning we reported successful second quarter results with our consolidated net yield up 6.6% from the prior year. Additionally, we continue to experience robust demand for our core products with 95% 55% of our 2024 2025 capacity already sold as of August 11.

Speaker 2

Our momentum was strong throughout the Q2, culminating with 2 sales milestones at the end of July. First, the week ending July 31 was the company's highest grossing ever, and it included the highest grossing day of sales. These results speak to the strength of our 1 Viking brand and give us confidence that our core consumer demographic continues to show financial resiliency, prioritizing travel and actively seeking enriching memorable experiences. And these results also speak to the effectiveness of our sales and marketing teams and strategy. Now if you look at the next slide, I mentioned in the past that our approach to sales and marketing is different.

Speaker 2

We have a marketing platform that directly engages with consumers supported by a database that includes more than 56,000,000 North American households. This has enabled us to develop deep relationships with our guests through a strategy that leverages robust digital capabilities and data driven decision making. As you see, we can generate demand and to this end, we will continue to invest in sales and marketing during the second half of the year to support our growth plans and to keep momentum going. Now if you follow me on Slide 5. Last quarter, I discussed our identity and unique differentiators, one of which is our dedicated focus on a specific target demographic.

Speaker 2

Today, we'll delve deeper into this. You can see that we cater to curious affluent English speaking travelers, 855 and over. Since our inception, we have focused on mature travelers who not only seek to explore the history and culture of the destinations, but also possess the time and financial flexibility to travel. On Slide 6, we are sharing a few graphs that visualize the strength of our target demographic, more precisely the U. S.

Speaker 2

Demographic, which currently represents most of our guests. As you can see on the left side of the slide, the population aged 55 and over is the fastest growing segment expected to increase by 13% to $110,000,000 by 2,030. Moreover, the segment is not only growing fast, but their spending power is also increasing. Adults over 55 have the largest spending power of any demographic, holding 73% of U. S.

Speaker 2

Wealth and that metric has been on the rise with the net worth of this group currently up 41% since 2019. To give you some perspective on metrics related to our current customers, this quarter we carried about 200,000 guests who spent an average of almost $8,000 each on their holiday. Now moving to Slide 7. It is one thing to have a clear profile of the consumer we're targeting and it's another to align our product and deliver a great experience. And we believe we are winning on both fronts.

Speaker 2

Our guests share a passion for travel and a keen interest in the destination. At Viking, we have a mantra about tailoring experiences to this group. We do not try to be all things to all people. We understand that our guests are thinking people who are traveling to learn and engage with the destination. To this end, when guests book with us, we provide destination specific content from reading lists to language classes.

Speaker 2

Once on board, our comprehensive programs cover the past, present and future of the destinations through lectures, performances and local demonstrations. We offer these experiences on itineraries across all 7 continents. Interestingly, our 2025 itineraries include over 500 unique destinations, significantly more than the 350 visited in 2018. Now we're talking about how we believe our offering resonates with our target customers. It's always encouraging to see this being publicly recognized.

Speaker 2

On Slide number 8, we are highlighting that this summer we received top honors from Travel and Leisure and TravelAge West for our river, ocean and expedition voyages. Travel and Leisure readers once again recognized us as the world best for all these three categories. Additionally, we also earned 5 category wins in the 2024 Travel Age West Wave Awards and these awards are voted by travel advisors and showcase the success we have had with these important stakeholders over the years. Last October, we were also ranked number 1 by Conde Nast Traveler across rivers, oceans and expeditions. No other travel company has simultaneously been honored for rivers, oceans and expeditions by both Travel and Leisure and Conde Niles Traveler, something Viking has achieved for 2 years in a row.

Speaker 2

This is very special for us. In summary, we will continue to obsess our guests by providing an excellent travel experience at good value, catering our offering to what we know they desire and enjoy. We believe that our clear focus on our core consumer demographic and our product is the essence of our brand promise and the cornerstone of our success. I will now turn to Leah to discuss the financials.

Speaker 3

Thank you, Thor, and good morning, everyone. We are very pleased to have reported a strong 2nd quarter. On a consolidated basis, total revenue in the quarter grew 9.1% year over year to almost $1,600,000,000 mainly due to higher revenue per PCD and an increase in the year over year size of the company's fleet. During the Q2 of 2024, capacity PCDs increased by 3.1% and occupancy was 94.3%. Adjusted gross margin in the quarter increased 9.5 percent year over year to $1,000,000,000 Our net yield was 562, 6.6 percent higher than the Q2 of 2023, which is remarkable since as I mentioned last quarter, 2023 was already a very good year for us.

Speaker 3

Vessel expenses excluding fuel per capacity PCDs were down 1.9% year over year. This positive cost performance compared to last year was mostly driven by favorable timing of expenses. It is important to note that we do not manage our expenses quarterly. For example, our repair and maintenance expenses are tied to specific projects and purchase orders, which can shift between quarters. Net income for the Q2 of 2024 was $156,000,000 compared to $190,000,000 for the same period in 2023.

Speaker 3

The net income for the Q2 of 2024 includes a loss of $123,000,000 from the revaluation of warrants issued by the company due to stock price appreciation. It also includes a loss of $66,000,000 related to the net impact of the private placement derivative loss and interest expense related to the company's Series C preference shares. In comparison, the Q2 of 2023 includes a gain of $3,000,000 from the impact of the Series C preference shares. The company's Series C preference shares converted into ordinary shares immediately prior to the consummation of the company's IPO. The Q2 of 2024 is the final quarterly period for which the financial results will include private placement derivative gains or losses and interest expense related to the Series C preference shares.

Speaker 3

Excluding the impact of these items, the majority of which are non cash, net income for the period was $345,000,000 Adjusted EBITDA for the 2nd quarter totaled $493,000,000 improving more than $50,000,000 when compared to the same time last year. This significant year over year improvement was driven by our top line, which was bolstered by a higher net yield compared to last year and increased capacity. The adjusted EBITDA margin was 47.5% for the 2nd quarter and 36.7% for the last trailing 12 months. I will briefly address our net interest expense in the quarter, which decreased by $77,000,000 compared to the same time last year. This decrease mainly reflects a one time charge incurred in the Q2 of 2023 related to the early financing of a senior secured note originally maturing in 2025.

Speaker 3

Now before moving to our reportable segments, I would like to highlight that rather than managing the company on a quarterly basis, we focus on the long term and manage the business profitability on an annual basis. To this end, adjusted gross margin for the first half of the year increased by 12.5 percent year over year to $1,500,000,000 and our net yield was 543, 5.2 percent higher than the first half of twenty twenty three. Now moving to our 2 reportable segments, River and Ocean. For the River segment, adjusted gross margin grew 12.6% to $664,000,000 for the first half of twenty twenty four and net yield grew to $568,000,000 compared to $506,000,000 in the same period last year, up more than 12% year over year, driven by strong demand for our European itineraries. Occupancy was 94.7%.

Speaker 3

As a reminder, the bulk of our river business begins in the 2nd quarter. For Ocean, capacity PCDs increased by nearly 10% year over year, mainly due to the addition of the Viking Saturn, which was delivered by the end of April of 2023, and the occupancy was 94.9%. Adjusted gross margin grew 11.4 percent to $711,000,000 Net yield for the Ocean segment grew by 1% compared to the previous year, primarily due to the regional mix and specifically because a larger portion of the capacity was related to the world cruise itinerary. In 2024, we had 2 world cruises versus 1 in 2023. Excluding these cruises, our net yield for the first half of twenty twenty four increased by mid single digits compared to 2023.

Speaker 3

It's worth noting that the world cruises, which went on sale in 2021, were met with exceptional demand. Although the world cruise itinerary typically has lower than average net yields, it garnered overwhelming support from our past guests and required less sales and marketing spend. While I've given some details on our reportable segments, I'd like to emphasize that we view our business as one entity. Whether our guests choose to travel by ocean or river, our focus is on providing a best in class travel experience prioritizing the destination. Now let's move to the balance sheet.

Speaker 3

As of June 30, 2024, we had total cash and cash equivalents of $1,800,000,000 and net debt of $3,600,000,000 To this end, our net leverage improved to 3 times at the end of Q2, compared to 3.4 times on March 31, 2024. As of June 30, deferred revenue was $3,800,000,000

Speaker 1

Also on Slide 12, you can

Speaker 3

see our current bond maturity outlook, which has not changed since we last reported, with 1 bond maturity due in May 2025 and all other maturities in 2027 beyond. With this, I'd like to confirm our debt amortization for 2024 2025. As of June 30, 2024, the scheduled principal payments for the remainder of 2024 are 101,000,000 dollars $459,000,000 for the full year 2025. From a committed capital expenditure perspective and for full year 2024, the total expected committed ship CapEx is about 830,000,000 dollars net of financing $450,000,000 And for the full year 2025, the total expected committed ship CapEx is about $710,000,000 net of financing $90,000,000 dollars The primary driver of the quarterly change in committed ship CapEx for both 2024 2025 is the signing of the options for Ocean Ship 17 and 18, which are scheduled for delivery in 20 2820 29 respectively and remain subject to certain financing conditions. With that, I'll turn it back to Thor to review our business outlook including our booking curves.

Speaker 2

Well, thank you, Leah. Before we get started on the curves, I'd like to remind everyone that advanced bookings includes bookings for cruises, land and air for our core products. I also want to note that advanced booking per PCD has historically decreased as we go off close to the forward year. This is not indicative of a price reduction, but rather a reflection of complex interplay of several factors, which include variations in deployment mixes, the timing and types of itineraries open for sale. For example, our most popular and newer itineraries will usually sell first.

Speaker 2

Also the cabin categories as typically better cabin categories book first and the timing of price increases. And finally, our internal revenue planning decisions as we manage pricing and pacing based on market conditions. Let us now dive into the curves, which are evolving according to our expectations. On Slide 14, we see our consolidated metrics. As you can see, our 2024 capacity is almost completely sold with 95% of our capacity PCBs booked for our core product and $4,600,000,000 of advanced bookings sold as of August 11.

Speaker 2

This is 14% higher than the 2023 season at the same point in time. And 2025 looks encouraging too. We are 55% booked with $3,400,000,000 of advanced bookings. This is 20% higher than the 2024 season at the same point in time in 2023. Please keep in mind that our operating capacity for 2025 is 12% higher.

Speaker 2

So all this looks good, but I will highlight that depending on the market conditions, we might not want to be booked too far out as we also look to optimize pricing. We might want to slow down the pacing if we think that it will benefit the overall year. It is important to analyze the curves with these things in mind. On the next slide, you will see our curves for ocean cruises. This is Slide 15.

Speaker 2

I will start with a green line, which shows the bookings for 2024. If you look at the box on the upper left side of the slide, you will read that for 2024, we have sold $1,900,000,000 in advance bookings, which is 15% higher than last year at the same point in time. I will also note that our operating capacity is up 6% year over year. Moreover, 94% of the 2024 capacity is already sold as of August 11 of this year. So we have very little to sell for 2024 and our sales and marketing teams are now really focused on 2025 and beyond.

Speaker 2

I will note that we are pleased with the 2024 rates, which are up to $6.65 compared to $6.21 last year. If you now look at the blue line, you will see how the bookings for the 2025 seasons are doing. For the 2025 season, we have sold $1,700,000,000 in advance bookings, which is 24% higher than last year at this time for the comparable period. Our operating capacity is up 18% year over year and 60% of the 2025 capacity is already sold as of August 11 this year. Regarding the rates, they are up to $7.55 compared to $6.72 for the 2024 season at the same point in time.

Speaker 2

Now if we move to Slide 16, you will see the curves of the river cruises. I will start with the advance bookings for 2024, which is a green line. As you can say, we have sold more than $2,300,000,000 in advanced bookings, which is 14% higher than last year. And I remind you that our operating capacity is up 4% year over year. So 96% of the 2024 capacity is already sold as of August 11 this year.

Speaker 2

Like Ocean, we have very little to sell for 2024 and our teams are now focused on 2025 and beyond. The 2024 rates for Rivers are up to $7.61 compared to $6.90 last year. Now looking at the blue line, these are the advanced bookings for the 2025 seasons. And for the 2025 season, we have sold about $1,500,000,000 in advanced bookings, which is 13% higher than the 2024 season at the same point in time. Our operating capacity is up 8% year over year and 49% of the 2025 capacity is already sold as of August 11 this year.

Speaker 2

So these trends are very good for 2025 with rates up to $8.87 compared to $8.29 for the 2024 season. As I mentioned before, we are pleased with all these metrics, which are progressing at corn dry plants. Now Lia will add some color to our order book and capacity.

Speaker 3

Thank you, Thor. Moving to our order book and capacity updates. During the month of August, we took delivery of the Viking Hathor, a state of the art vessel specifically built to cruise the Nile, which will start sailing with guests by the end of the month. And lastly, as it relates to the 2 options exercised in June 2024, for Ocean Ship 17/18, these are now scheduled for delivery in 2028 2029. In summary, we are pleased with our results for the quarter and we are encouraged by the strong demand trends we are seeing for 2025 and beyond.

Speaker 3

Moreover, we feel that we are well positioned to continue to grow in this environment due to our clear focus on our target demographic, which is financially resilient and growing and our great product and value proposition. This concludes our prepared remarks, and I'll now turn it back to the operator to take questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. And the first question today is coming from Steve Wieczynski from Stifel. Steve, your line is live.

Speaker 4

Hey, guys. Good morning. So I want to start I want to ask about the remaining inventory that's out there for 2025. And look, I guess the question is how you guys are thinking about pricing for that remaining 45% of inventory, given look, you probably have now sold your most desirable inventory cabins and whatnot. So to move that remaining 45% of inventory, do you think it's possible to take price action here?

Speaker 4

Or do you think there might have to be some discounting or promotional work in order to get that inventory sold moving forward? So just kind of looking for high level thoughts there.

Speaker 5

No, I think it's Thor here. I think we're in a good spot for 2025. And if you look at, for example, the booking cards for the rippers, you see that maybe sometimes we even feel we have gotten a little bit ahead of ourselves. So I think there is opportunity for there is no need for any negative price action.

Speaker 6

Yes. To add to that, the remaining inventory 2025 would be the later seasons of 2025. So we do have some time. So at this stage, the demand looks pretty good. As Phil mentioned during the call, we are able to generate demand for sales and marketing.

Speaker 6

So, I think we have a variety of levers to use such that pricing would not be our first lever in terms of moving that demand.

Speaker 4

Okay. That's great color. Thanks for that. And the second question is around the cadence of your customer deposits. And we actually got a couple of questions about this morning in terms of you had a decrease in customer deposits from the Q1 to the Q2.

Speaker 4

And obviously given the fact that you're a new public company, just maybe wondering if you can give us a refresher course of how that cadence of your deposit line kind of looks through the year? Thanks.

Speaker 7

Hey, Steve. This is Lynn. Hope you're well. The decrease from Q1 to Q2 is really just because operations really pick up in the Q2. It's not necessarily a reflection of a decrease in deposits.

Speaker 7

You'll see that throughout the year. Q2, Q3 is our highest season. And as such, you'll see the deposits kind of steady. But then Q4, Q1, which we know our river season starts to dry dock, you'll see customer deposits build. So it's really just the cadence of how our business runs.

Speaker 4

Okay, perfect. Thanks guys. Really appreciate it.

Operator

Thank you. The next question will be from Matthew Boss from JPMorgan. Matthew, your line is live.

Speaker 8

Great, thanks. So Tor, you cited encouraging demand trends that support bookings for next year. Could you elaborate on what you're seeing in terms of health of the consumer? Maybe any key differences that you're seeing across regions or product segments? And then Leah, on the 25 booking curve at 55 percent book, 10% pricing, I guess how best to think about opportunity for next year relative to that multiyear baseline 3% yield growth versus the mid single digit performance historically that you've seen?

Speaker 5

Yes. Maybe on the first part of the question, I read papers and I see what other people's report. I must say, we haven't seen anything that gives us any pause for concern for 2025. As a matter of fact, July was extremely strong booking month for us. I think one of the weeks was the strongest booking week we've ever seen.

Speaker 5

I mean, that's one week, don't get me wrong, but it's been underlying a very strong trend and into August is also very strong. So I don't think we're seeing any sign of weakness. It may come, but we haven't seen any.

Speaker 6

Yes. And as far as the bookings are concerned, we've said before that typically what sells first are the high season and also the better cabin categories. At the end of the day, we're really a value we want to make sure that our guests feel that they're getting a good value. As you can see from our growth plans, we have a large order book coming online, and we want our guests to repeat. And so it's a balance between, the experience, getting strong yields, but also making sure that our guests feel like they're getting something meaningful from us.

Speaker 6

And also we have historically said mid to high single digits. I think that's a pretty good clip for us in terms of our pricing. And at the end of the day, I would just keep in mind that early inventory that's sold is higher prices, they're better itineraries, they're high season. And then as we finish out the year, it's going to be a little bit more of shoulder seasons in lower cabin categories.

Speaker 8

Great color. Best of luck.

Operator

Thank you. The next question is coming from Andrew Didora from Bank of America. Andrew, your line is live.

Speaker 9

Hi, good morning, everyone. Maybe shifting a little bit to costs here. Just in the second quarter, costs were better than we thought. I guess, Lea, was there any shift in spend that we should think about in 2Q relative to the back half of the year? And I guess bigger picture here, is there any color you can provide just on how to think about vessel operating costs can trend here maybe on an ABCD basis, particularly as you grow the Ocean segment?

Speaker 7

Andrew, yes, we did notice the positive cost performance. I think Leah mentioned it earlier on the call. This was mainly driven by timing. And I think you guys know this by now, we're long term. We don't manage by quarter.

Speaker 7

We tend to look at things on an annual long term basis. So things can shift between quarters, including operating expenses. Our main goal, of course, is to prudently manage expenses without compromising quality. And so that's what our team does and that's something that is a focus area for us.

Speaker 9

No, I understand that. I guess any color that you can provide on how to think about that cost trend over the next few years, particularly as you have outsized growth on the ocean side?

Speaker 7

I mean, I think from our perspective, from expense profile, we're subject to everything else everyone else is. The last couple of years, we've managed through. And as we look forward, hopefully, inflation kind of settles and cost increases settle a bit more. And that's really we don't provide guidance, as you're aware. But we will say, we do look at expenses.

Speaker 7

That's something that's very important to the company and something that we will continue to manage.

Speaker 9

Okay. Got it. And just lastly, just for modeling purposes, I know the share count in the release was influenced by averaging. Do you have the current dilute basic and diluted share count available? Thank you.

Speaker 1

One second.

Speaker 6

Yes, I did want to add here that this quarter the EPS calculation is a little bit strange because we went public in the second third or the last third of the quarter. And so the calculation of EPS is more there's like a weighting, so you can't just do a straight division of the diluted into in net income. But when excluding these non cash impacts on net income, you really have to use $345,000,000 which adds back to Series C and the warrants. And as to your question, can you remind me what your question was again? What number were you asking for?

Speaker 9

Just the act because of the timing of the IPO, just what's the dilute basic and diluted share count at the end of the quarter?

Speaker 6

Yes. So our diluted is so what we're using from the calculation, are you diluted for the $0.37

Speaker 9

No, just what your current diluted share count is? Thank you.

Speaker 6

Okay. So it's 445,750,720. But again, because of the weighting, that's not what we use on the EPS count.

Speaker 9

Understood. Thank you.

Operator

Thank you. The next question is coming from Robin Farley from UBS. Robin, your line is live.

Speaker 10

Great. Thank you. I wanted to ask about the booking curve that you mentioned. When you say it's in line with your expectations, just to help us understand what that would be. Looking at the revenue per booked cruise day, the increase is sort of down a percentage point for the current year and down 2 points for next year.

Speaker 10

Is that kind of what we should think of as a typical quarterly pace as you approach 2025? Is that sort of 2 points per quarter? What would be expected? Thanks.

Speaker 7

Raman, hope you're well. I think we discussed this. And just as a reminder, for oceans, we operate year round. And for rivers, we have seasonality, right? So the river season is mainly, let's say, March, April through October.

Speaker 7

We do have, ships that sail into the winter, but that's, like, the bulk of the season. And so when we're selling oceans, you will see pricing kind of be pretty consistent as we sell. For rivers, you will see that Q2, Q3, high season, high cabin categories that will sell first. How pricing trends will always be dependent on what sells, the deployment of course and our yield management. So we can't really say there is a set percentage of what changes as we continue to sell.

Speaker 7

But I think we can say right now sitting here with 55% sold for 2025, we are in a good position.

Speaker 10

Okay, great. Thank you. And maybe just one clarification on that. When we think about that seasonality, would the change over the course of Q3 and Q4 as you're approaching the year ahead tend to move more than Q2 did? It seems potentially that's what we should expect just as you're saying that the things that sell closer in.

Speaker 10

So will that is that likely to change more in sort of a Q3, Q4 than it did and maybe in Q1, Q2 when we think about approaching 2025? Thanks.

Speaker 7

I mean, I think as we look to just selling out the rest of 2025, we do anticipate that the price we get will come down mainly because of the mix of what's selling, which is the shoulder season, the things that generally are lower pricing. But at the end of the day, I think we have to step back. We're sitting here in August for 2025. We're well sold at good pricing. We have a lot of time to sell the rest of the inventory.

Speaker 7

So we are really quite pleased with where we are on the curve.

Speaker 10

Okay, great. Thank you.

Operator

Thank you. The next question will be from Dan Politzer from Wells Fargo. Dan, your line is live.

Speaker 11

Hey, good morning, everyone. Thanks for taking my question. First, in terms of the yields in the quarter, I believe Ocean was around flat and I know, Leah, you mentioned that there was some impact from world cruises. Is there any way for the Q2 to give kind of an ex world cruise type yield? And then similarly, I think for the full year of 'twenty four, based on the booking curves, Ocean pricing is indicated up 7%, which would, I believe, assume a pretty big acceleration in the back half of the year.

Speaker 11

So I just want to make sure we're thinking about that the right way as it relates to kind of the disclosures and the curves and kind of the one offs there. Thanks.

Speaker 6

Yes. So I mean you can see from the Ocean bookings update that Thor spoke about that for the 2024 season, we expect yields as of today, there's 7% up. So if you consider that we're 1% up as of second the first half and we expect to be 7% around 7% for the full year. I think that kind of will guide you as to the second half expectations.

Speaker 11

Okay. And then just for my follow-up, in terms of costs, I know you mentioned a bit, but were there any specific ways to quantify any benefits from timing or cost shifts in the quarter that will shift into the back end of the year?

Speaker 7

As you're aware, we don't provide guidance. And so what we can say is cost did trend favorably to the same quarter last year, which is great. It's something that we will look to. Some of this is timing at the end of the day. I think we can't we'll reiterate again, we do look at the business on a long term basis.

Speaker 7

And so from that perspective, we don't really manage by the quarter. But I think the trend in how operating costs are, it's for us, it's positive.

Speaker 11

Okay. And then just I guess one other kind of related one on the cost side. The new flooding, is that has that been a headwind or is that something that should be on investors' radar as we think about the costs in the rest of the year?

Speaker 6

I think that we handled that exceptionally well. As you know, our identical long ships allow us to do ship swaps, so that we minimize canceled cruises. And I personally went on the Danube this summer and everything is back to normal. It's great. It was very encouraging to see all of the long ships operating along the Danube.

Speaker 6

So I think our operators are very good at what they do and this is just part of the course for them. So as far as managing costs, ship swaps really go a long way. And to the extent that we do have to do a little bit more deviations, our operators are also very cost conscious and make best efforts to minimize them.

Speaker 11

Got it. Thanks so much.

Operator

Thank you. The next question is coming from Brandt Montour from Barclays. Brandt, your line is live.

Speaker 12

Good morning, everybody. Thanks for taking my question. So starting off on Egypt, I know you guys have a decent amount of your deliveries coming to the Egypt market over the next couple of years. And so the question is maybe for Tor or for anyone. Is there any sensitivity around that region for Americans traveling to the Middle East because of geopolitical events?

Speaker 12

And even if you're doing well, do you think perhaps you'd be doing better if not for those? And how do you think about that oncoming inventory through those through that lens? Thank you.

Speaker 5

So I think the Americans have been surprisingly willing to go to Egypt. Of course, it has been a little bit of a hurt on the occupancy, but the economics of those ships are so phenomenal that that has been okay. It's been picking up again. And as you know, we are contrarians. So I think this is probably the time to even think about more capacity as we have indicated that we are.

Speaker 5

So I think Egypt is very profitable for us. So I think we are not concerned at all. And Americans are welcome to come and have a naming ceremony in November, December, which I think will have a lot of attendance.

Speaker 12

Okay. Thanks for that. That's really helpful. And then a second question on capital allocation, a question I think you've probably gotten before, but you'll probably get again is, we have you building a fair amount of excess cash from operations over the next couple of years. And obviously, most of your growth is financed at attractive levels.

Speaker 12

Maybe you can remind us outside of growth, to the extent that you can't find places to put that cash to work in operations. What is your plan with the excess capital?

Speaker 5

I think there's probably a question that comes to me often, but I think we should focus first on making sure we have adequate financing, which we do. And then I

Speaker 2

think we have many opportunities.

Speaker 5

Of course, if we run out of ideas and opportunities, we may have to consider alternatives. But for the time being, I think we have you have seen our order book. And I think that's the sign of our belief in this business. And I think we it's comfortable to have cash on hand also in case some bad things happen with that. So for the time being, we concentrate on getting the cash in and then we'll worry about a little bit later about how to divvy it out.

Speaker 5

Thanks everyone.

Operator

Thank you. The next question will be from Meredith Jensen from HSBC. Meredith, your line is live.

Speaker 13

Hi, good morning. Just a quick follow-up on that last question. To think if you could speak a little bit about just sort of the longer term view of the order book, obviously, we do have a vision quite a bit out, but given competitors have sort of moved into the future quite a bit with their order book, I was wondering if you just might speak to, given your history, how you think about the positioning within the shipbuilding facilities and how you think about that for the future? Thank you.

Speaker 5

As I said before, I think we think we are contrarians. But that means that we have been able to place orders when other people did not. So you can say, our order book has been obtained at what we consider being as we consider it being quite favorable prices. And of course, we now have a board book on the ocean side of 10 ships. So we're going to double the capacity from 10 to 20 ships, if we include our options.

Speaker 5

And according to the rule of 72, that means over 7 years, that means 10% growth per year, which I think is a reasonable thing to have. We have we feel we have the relationships with the arts that's needed. We must be the among the largest customer in terms of number of ships that Pentair has ever had, is that what they said. And I think we also have a relationship with the dealership builders. There are not so many parts available and it's over.

Speaker 5

So I think we're in a very good spot that order book has value.

Speaker 13

Thanks. That makes a lot of sense. And just one quick additional. I realize you have a lot of direct business from your loyal customers such that marketing has been sort of a network effect. But I was wondering if you could speak to some of the interesting targeted marketing I've seen around, for example, the Olympics and, sort of tying in event based,

Speaker 7

ship

Speaker 13

capacity around the SANE and the Olympics and what kind of ROI you might have seen from that as one example, how we can think about your marketing and advertising strategy? And thanks.

Speaker 5

As you may know, we are very proud of many of the talking places we have We fought for 7 years to have the docking place, we have in Paris by the Eiffel Tower, which we had to evacuate for a few days while the events took place. But I think that's one of our key strengths. I think it's clear that the we did place some ads on NBC during the Olympics. And I think we have seen spikes in bookings for Paris, obviously, as a result of that. These things don't last forever.

Speaker 5

So it's but I think it adds to the to who we are. And yes, I think that was good. And I think we're in fair use in our marketing to enhance our standing. As you know, we have also we have these special relationships with Downton Abbey and so forth, which helps enhance our position. We have a lot of privileged access, which really matters, and we focus a lot on that.

Speaker 13

Wonderful. Thanks a lot.

Operator

Thank you. The next question will be from Stephen Grambling from Morgan Stanley. Stephen, your line is live.

Speaker 14

Thank you. Perhaps asking about demand trends from a different angle. Just given the increased consternation on the back of airlines, hotel and parks commentary in the second half, I guess, what would you be focused on in your business as a leading indicator to assess whether trends are potentially deteriorating and would it be occupancy or any types of add ons before or after cruises or other factors? And then how should investors think about the levers that you have to pull should things decelerate that may differentiate you from other cruise peers?

Speaker 7

I think this is where our booking curves are a huge advantage for us. And we said it from the get go, we would be transparent and we would provide the curves to our investor base as well, which we have done. And so from that perspective, I think that is our number one biggest indicator as to what is happening for demand for our consumer group. And I think, Tore mentioned this earlier, we had a great July. Where we are for 2024 and 2025 is a good place to be.

Speaker 7

We will continue to focus on marketing and sales to keep this momentum going in the second half of the year and to continue to sell.

Speaker 5

Maybe I could add, maybe I shouldn't. But when we look at the booking curves for the Rivers for 2024 and 2025, you see they're quite further advanced than we were used to. And I wouldn't be surprised if we say it will be reasonable to slow that down a bit in the future. Sometimes we feel that we have election years. This is an election year in the U.

Speaker 5

S. Up until. So then we like we then typically like to be a little bit ahead. We probably got a little bit further ahead than we needed to be, possibly.

Speaker 14

That's helpful. Thanks so much.

Operator

Thank you. The next question will come from Alex Brignall from Redburn Atlantic. Alex, your line is live.

Speaker 15

Hi. Thank you for taking the question. I actually just have one that they've been asked already. But just on China, obviously, a little while ago, you reduced your planned capacity source from that market, sailing in Europe in terms of the ships you're going to have the boats you're going to have available. Could you just talk about any evolution that has been in that in terms of air capacity or demand or the way that things are opening up or appetite that you're seeing for outbound China into European river sailing?

Speaker 15

And then I guess if you could expand and talk about the kind of closer to home sailing, then that would be helpful as well. Thank you so much.

Speaker 6

Yes. So we are as we've said before, we're taking a measured approach with respect to China. We have 4 ships operating in Europe as far as long ships are concerned. And I mentioned earlier in this call that I went on a river cruise on the Danube and I actually went on a China outbound cruise. And I'm happy to report that the guests are they're very well rated.

Speaker 6

They have high net promoter scores. And so I think from that perspective, we do have we've got the product right for that consumer. But there are challenges in terms of visas or airlifts. I think those are going to eventually work themselves out. But again, this is a small part of our business.

Speaker 6

We do have a very strong core product business. And as far as China, we will continue to invest, but we will take it in a very measured approach manner.

Speaker 15

And I guess just as an extension of that, are there any new kind of customer source markets, clearly that kind of lend themselves in English speaking ships that you think are opportunities for you to expand the distribution and that can obviously give you yields comparable to those from Americans, which have historically been the highest when coming to Europe?

Speaker 5

We have been very strong proponents of having one brand and one customer, and of course, we have been for the English speaking market. So of course, if we could over time get a crack on the Chinese market, of course, that would be great. As they have said, we'll take a very measured approach to it. There are, as you can say, other large markets in Asia, and we know which way Asia is going. So it wouldn't be surprising if we're doing a bit more there.

Speaker 5

But this is again just getting a small foothold. It wouldn't be the things that really will have an impact on our significant impact on P and L one way or the other. So over time, of course, you could see that these markets should be developed. These are people who have money and increasingly they also have demographics that gives them time. So there could be something.

Speaker 5

But for the time being, we remain mainly focused on the English speaking markets.

Speaker 15

Brilliant. Thank you very much. Again,

Speaker 5

if I could add one, but then we make a very strong point that we have one brand. And the more we have looked and thought about others and how they do and so forth. I think the fact that we have this one brand and 4 product lines or 3 product lines is really a very huge advantage. So that, I guess, when they come to Viking, they get exactly they know exactly what they got. I think it's very strong point of ours.

Speaker 15

Thank you.

Operator

Thank you. The next question will be from Patrick Scholes from Truist Securities. Patrick, your line is

Speaker 12

Thank you. Good morning. Another way of asking the cash flow balance sheet question here. In a long term stable environment, what would you ideally want or target your net leverage to be? Let's say in 5 years the world continues to be stable, where would you want it?

Speaker 12

Thank you.

Speaker 5

We have as you know, we've been asked this question several times. And some of us have become experts at dodging it several times, because we don't really want to give a commitment to anything like that in the future. But there can come opportunities when we say, okay, maybe it's time to add back a little bit leverage. Our leverage has gone from 3.8 to 3.0 in a year or less than a year. So the trend is good.

Speaker 5

So it should give opportunities. But there may become opportunities that we'd like to deliver a little bit more. We have talked about our we don't have an ambition of being investment grade as a bond. We are in business of making money for our shareholders. And then I think it's better to be in the double deal range.

Speaker 5

But we are very comfortable where we are now, of course. And there are things we can do, but I don't think we have any commitments or forecasts.

Speaker 12

Okay. I appreciate it. This is probably won't be

Speaker 16

the last time you'll have to take that question. You'll get the

Speaker 5

same answer next time.

Speaker 12

I appreciate the answer. Thank you.

Operator

Thank you. And the next question will be from Connor Cunningham from Amelius Research. Connor, your line is live.

Speaker 17

Hi, everyone. Thank you. On the potential decision to hold back inventory closer in, what might drive that decision? And if you do hold back higher demanding inventory, does that potentially benefit some of the off peak inventory that you sell closer in? Thank you.

Speaker 7

I think from our perspective, Lee, I think mentioned this earlier, our priority is to deliver a great experience at a good value. So in terms of yield management, we want to ensure our guests have the opportunity to book what they want to book. And so as of this point, we have not necessarily held back inventory. The back half of the year or shoulder seasons, I think many of us are aware that's just something that looks closer in. Generally speaking, whether you hold back high season inventory or not, the shoulder seasons just look closer in.

Speaker 7

That being said, obviously for Viking, our curves you know, are generally more well advanced than others, including the shorter season. But at the end of the day, that's not something we've necessarily done yet. But, you know, when we look at our curve, we're sitting here in August like we mentioned earlier, we're 55% sold for 2025 at good pricing. So we're quite pleased with where we are.

Speaker 5

Maybe I could add, you sort of hold back, but I guess we all know, Viking is a direct marketing company. And that means that we generate demand ourselves. So you can say marketing is not an expense as such as a revenue generator. So if we should the action that we take is to market less. I mean, we would market less when things are good.

Speaker 5

Many people market, that's how the demand would be generated. So that's a mechanism.

Speaker 6

Yes. I think when you

Speaker 5

Go ahead.

Speaker 6

I guess the question might have arisen from our comment that we said that we would slow down the coking curve, But it's we're not holding back, but it's really our demand was so high that the curves were accelerating in a way that may not quite optimize how we would like our yields to look. And so that was just an indication that, the curve like we may not want to be 55% sold out by the same time next year to optimize pricing. That was what that statement was about.

Speaker 17

Got it. And then just on the marketing leaning into marketing, are you being more pointed outside of the U. S? Like I understand that the U. S.

Speaker 17

Is your biggest source market, but is it being more targeted towards the other English speaking source markets that you're focused on in general? Thank you.

Speaker 5

It's the same. Okay. Thank you.

Operator

Thank you. This does conclude today's Q and A session. I will now turn the conference back over to Thor Hagen, Viking's Chairman and CEO for closing remarks.

Speaker 5

Yes. I'd like to thank everyone for joining us on today's call. And I thank you for your support and for your interest in Viking. It's been good so far, and we wish you a great day.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Q2 2024 results: Consolidated net yield rose 6.6% YoY, revenue grew 9.1% to $1.6 billion, adjusted gross margin increased 9.5% to $1.0 billion and adjusted EBITDA reached $493 million with a 47.5% margin.
  • Robust demand: As of August 11, 95% of 2024 capacity and 55% of 2025 capacity were sold, with advanced bookings up 14% and 20% respectively versus the prior year.
  • Core demographic focus: Viking targets affluent travelers aged 55+, who represent the fastest-growing U.S. segment and hold 73% of national wealth, carrying ~200,000 guests in Q2 with an average spend of nearly $8,000.
  • Direct marketing & awards: A proprietary platform reaching 56 million North American households supports data-driven sales and has helped Viking earn top honors from Travel + Leisure and Conde Nast Traveler across river, ocean and expedition categories.
  • Solid balance sheet & outlook: Cash stood at $1.8 billion, net leverage improved to 3.0x, deferred revenue was $3.8 billion, and committed ship CapEx is $830 million for 2024 and $710 million for 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Viking Q2 2024
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