Viking Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 29, 2024

There are 8 speakers on the call.

Operator

Good morning. My name is Britney 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.

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 Mejellini.

Speaker 1

Good morning, everyone, and welcome to Viking's Q1 2024 Earnings Conference Call. I am joined by Tore Hagen, Chairman and Chief Executive Officer and Lia Tzelaktak, 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 sublimate 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. Thor 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.

Speaker 1

We will then open the call for your questions. 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. Thor?

Speaker 2

Thank you, Carolla. Good morning, everyone, and thank you for joining us today for our first earnings calls 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. Weiten started in 1997 with 4 year 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 justification.

Speaker 2

And that should also appeal to mature individuals who want to learn more about history, art and the culture of the places they visit. 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. And we have 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.

Speaker 2

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. In the U. S, 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 98,000,000 people in 2020 to 110,000,000 people in 2030.

Speaker 2

To put things in perspective, we carried about 650,000 guests in 2023. As you see, the opportunity is great. 2nd, we operate under 1 brand, Viking, which stands for excellence among our guests and across the industry. Rather than creating a conglomerate of different brands, all of our products are a consistent extension of the 1 Weiten brand. Being 1 brand also gives us flexibility and the ability to leverage scale.

Speaker 2

3rd, we are destination focused. We feel strongly that the destination remains the destination, not the ship. 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 chip size. Our ships offer quite understated elegance.

Speaker 2

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 turns for our future ships, allowing us to achieve competitive prices and attractive financing.

Speaker 2

And all this brings us to where we are today, a newly listed public company trading on the New York Stock Exchange. I'm proud of our entire Brighton family for achieving this major corporate and financial milestone and grateful for the continued hard work and dedication of our guests. On May 3, we completed our $1,800,000,000 IPO. It was priced at $24 per share. We raised approximately $246,000,000 of net proceeds for Viking.

Speaker 2

In the slide here, you can see our post IPO ownership structure and the economic and voting powers of TPG, CPP Investments, the Haggen family and all of our other investors. Some say having a good public, we've become a different company. I 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 4 things. First, we will continue to obsess all our guests by offering an excellent travel experience at good value.

Speaker 2

2nd, 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. 3rd, 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.

Speaker 3

Thank you, Thor. Good morning, everyone. I'll begin with an overview of Viking's results for the Q1. Unless otherwise noted, my commentary on 2024 comparisons are to the same period in 2023. We are very pleased to have delivered a strong Q1.

Speaker 3

On a consolidated basis, total revenue grew 14.2% year over year to $718,000,000 mainly due to an increase in the size of Viking's fleet and higher occupancy. During the Q1 of 2024, capacity PCBs 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 2 guests per cabin and at times our guests may even want a single cabin. Therefore, we will never exceed 100 percent occupancy. Adjusted gross margin in the quarter increased 19.1% year over year to $495,000,000 Net yield in the Q1 was $508,000,000 which is the highest net yield we've seen in the first quarter period.

Speaker 3

Net yield grew by 2.8% compared to the Q1 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 $494,000,000 for the quarter, which includes a loss of $330,500,000 related to the net impact of the private placement derivative loss and interest expense related to the Series C preference shares. The Series C preference shares 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 Q1 of 2024.

Speaker 3

Also, and as a reminder, we typically incur a net loss in the Q1 due to the seasonality of our business. Having said this, adjusted EBITDA for the Q1 improved more than $46,000,000 compared to last year, mainly due to higher capacity passenger cruise days and higher net yield. Adjusted EBITDA was a loss of $4,000,000 compared to a loss $51,000,000 for the same period in the prior year. Adjusted EBITDA for the 12 months ended March 31, 2024 was $1,140,000,000 which exceeds full year 2023 adjusted EBITDA of 1,090,000,000 dollars Adjusted EBITDA margin for the last 12 months was 36.1%. Moving to our 2 reportable segments, river and ocean.

Speaker 3

For Viking River, occupancy declined slightly from 93.5% in the Q1 of last year to 92.1% this quarter, primarily due to lower occupancy for our Egypt itineraries compared to the Q1 in 2023. That said, adjusted gross margin grew 33.6 percent to $108,000,000 this quarter. And as a result, net yields grew to 609 compared to 593 in the same period last year. Our Q1 river net yields are usually the highest as we have more Egypt and Vietnam sailings compared to Europe sailings. Most of the European river sailings started in late March.

Speaker 3

For Viking Ocean, occupancy improved 60 basis points to 94.5%. Adjusted gross margin grew 18.3 percent to $316,000,000 this quarter and net yields grew to $439,000,000 compared to $425,000,000 in the Q1 of 2023. Now moving to the balance sheet. As of March 31, 2024, we had total cash and cash equivalents of $1,700,000,000 and net debt of $3,900,000,000 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 the ratings upgrade by S and P in May, where Viking Cruises Limited's corporate rating was upgraded to a BB- from a B plus This achievement underscores our dedication to financial prudence.

Speaker 3

As of March 31, deferred revenue was 4,100,000,000 dollars 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 beyond.

Speaker 1

The scheduled principal payments for

Speaker 3

the remainder of 2024 as of March 31, 2024 is 196,000,000

Speaker 2

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 that's something that I think analysts and investors also assess based on the information they're given. So I think that we'd 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.

Speaker 3

Yes. And I just want to add to that, that part of the reason is we are long term in terms of how we view the business and also in the shareholder value creation. 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 spiking. And then also I wanted to add that booking curves are back.

Speaker 3

So that's not speculative, that's what we've achieved. And so facts we can stand by rather than forward projections and guidance.

Speaker 2

Okay, understood. Thanks guys. Appreciate it.

Operator

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

Speaker 4

Great. Thank you. I do want to echo the sentiment I think that given how much further Viking books in advance today, 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 advance booking per passenger cruise day.

Speaker 4

When you talk about 2025, 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 the 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.

Speaker 3

Hi, Robin. This is Lynn. So I think from our perspective as we saw as we indicated, we do try to price demand. For Ocean, Ocean does operate year round. And so the selling there generally starts earlier, which we can see for 2025 for Ocean for 47% sold.

Speaker 3

The pricing there is about 13% higher year over year. And then for rivers, rivers mainly starts the season, especially in Europe, where the bulk of our capacity is in March April. And for Rivers, you can see here operating capacity, we sold 30% of 2025. And so the general cadence is our high season and our higher cabin generally sells 1st. And so we do see as we open up the season that pricing is generally higher.

Speaker 3

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 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 Q4. But you can see that trend as we continue to sell. But

Speaker 4

in theory, just thinking about prior curves, if every year you sell the higher season and higher price cabins first and every year then later on you're selling the sort of the more average price cabins, wouldn't that be a consistent percent change year over year? And if not, I just 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 not going to be, I think that would be helpful to be clear on that. But just thinking about that year over year, it seems like that would be the that would be the case with the base, but also it moved down last year so that maybe the percent change would be represented. And if it's not, it would just be helpful to understand that that's not the expectation that investors should have. Thank you.

Speaker 3

Generally speaking, 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 sell first as well. So I understand the But we are quite pleased with where we are positioned for 2025 today. Prices are up for 2025, prices are up for 24. And I think we've seen as well historically we've been able to increase prices in the mid to high single

Speaker 4

digits. Thank you.

Operator

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

Speaker 5

Hi, good morning, everyone. Thanks for the questions. To our 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?

Speaker 2

Yeah, maybe I should take that one. We have had a few road shows 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.

Speaker 2

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 would 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. For the time being at least, we don't have any plans of paying dividend. I believe that my family is a large elder in this and I think we can't see much better investment opportunity than we have in this company.

Speaker 2

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 side. And I think we have a benefit of a great order book, which we have got very good prices. So I think and then we combine that with the balance sheet, which is probably among the best in the industry.

Speaker 2

And I think we're in a good position.

Speaker 5

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, over time you've obviously branched out of Europe into the Nile to Vietnam, kind toward where do you see incremental opportunities to deploy the 18 river vessels that you currently have on order?

Speaker 5

Thank you.

Speaker 2

Well, the long ships 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 to in European on European rivers to the Chinese source market. And they have good ratings.

Speaker 2

We're not full yet. This is an area where we see potential. But we should be very careful that we don't overstate it. But I think there is more potential for building Lipichik's.

Speaker 5

Great. Thank you.

Operator

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

Speaker 6

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 sub segments track along the booking curve? Because I believe that for Ocean, you guys are tracking up kind of in that mid teens for 2025, whereas Rivers, you're tracking up kind of mid single digits. So as we think about kind of filling in those curves over the next several quarters, how should we think about maybe the difference in pricing power that you have there?

Speaker 3

Sure. Hi, this is Lynn. 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 offsprings capacity. We sold 47 percent of 25 for oceans already.

Speaker 3

And for rivers, which the bulk of our capacity is in Europe. The European river season mainly starts in March, April. And so there is a seasonality difference, 1st and foremost. The 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.

Speaker 3

We do not expect our yields to stay at almost $1,000 per day. And so understanding if you just do math, you know, dollars 4.25 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.

Speaker 6

Got it. That's helpful. And then just in terms of the balance sheet, right? I think that you guys obviously you're generating a lot of cash and you already addressed that to some extent. But I mean high level, next year, you're going to be, I think, net of ship financing, your CapEx is only $30,000,000 You are building cash.

Speaker 6

Is there an impetus or goal to get to investment grade? And as far as the capital allocation, dividends and share repo don't seem a priority. So and it seems like the growth CapEx is accounted for. So what is it that you how do you think about deploying that cash?

Speaker 2

Yes. I don't want to make any forecast, but it is that we never had any ambition to be investment grade. I think we are primarily in the business of creating value for our shareholders. I think our bondholders have had a good ride with us, don't get me wrong. But we have said that a BB rating is not BB rating is not a bad rating to have.

Speaker 2

I think it's we have to optimize the capital structure. So I don't see any none of us at least we don't currently have any stated ambition of becoming investment grade on the bond side. I think we have opportunities, investment opportunities that will make use of. And that will be it. I think the financing we're getting at BB, double B minus now is good enough.

Speaker 6

Got it. Thanks so much for all the detail.

Operator

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

Speaker 7

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.

Speaker 3

Hi, Marietta. I think 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 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, what you have for others, which is optional excursions.

Speaker 3

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

Speaker 5

Either new location and or duration?

Speaker 2

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, you can see some issues related to what happened in the Red Sea, and we are dealing with that properly, I think. But I think apart from that, I don't think we'll see much change in the

Speaker 3

Yes. I would like to add, so when you think about our ocean capacity coming online, we will continue to deploy in the region that we are 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 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, where they're in the quiet season, which our guests also appreciate. So given just the type of demographic and the people that are drawn to our products, they know that in times where you wouldn't necessarily think people would travel to certain agents that's when they know it's best to go.

Speaker 3

So based on just that difference, we feel that there's ample opportunity for our unclean fleet.

Speaker 5

And 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, do you generally expect more or less flexibility in the cost structure versus ocean?

Speaker 2

I think go ahead.

Speaker 3

Well, from a river perspective, I think 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.

Speaker 3

And then also our forward booking curves. So our forward booking curve gives 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 stocking locations.

Speaker 5

Great. Thanks so much. Yes.

Operator

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

Speaker 2

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.

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Viking Q1 2024
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