Micky Arison - Chairman Arnold Donald - CEO David Bernstein - CFO Beth Roberts - IR VP

Robin Farley - UBS Felicia Hendrix - Barclays Capital Harry Curtis - Nomura Steve Wieczynski - Stifel Jaime Katz - Morningstar Tim Conder - Wells Fargo Securities Steven Kent - Goldman Sachs Kevin Milota - JPMorgan Sharon Zackfia - William Blair Stuart Gordon - Berenberg Jamie Rollo - Morgan Stanley James Hardiman - Wedbush Securities Edward Friedman - McLean & Partners

Abrupt Start …CEO of Carnival Corporation & Plc. Thank you all for joining us for our Second Quarter 2015 Earnings Conference Call. Today, I’m joined by our Chairman, Micky Arison; by David Bernstein, our Chief Financial Officer and by Beth Roberts, our Vice President of Investor Relations. Before I begin, please note that some of the remarks on this call will be forward-looking, I must refer you to the cautionary statement in today's press release. Our team has continued to make strong progress so far this year as we march toward our goal of double-digit return on invested capital in the next three to four years. In the first half of 2015, albeit from a low base, our earnings are up five-fold year-over-year and we are well on our way to our second consecutive year of 25% annual earnings improvement. This was another strong quarter for our company more than doubling the earnings from the prior year and significantly exceeding guidance by $0.12 per share, of which only $0.02 resulted from further improvement and a combination of fuel and currency. All of our North American brands had a strong performance led by the Carnival Brand, which achieved a double-digit improvement in ticket revenue yield, a testament to the strength of the Carnival cruise line product and the brand team's incredible execution in delivering a vacation experience that truly resonates with our guests. The Fun Ship 2.0 features including Guy's Burger Joint, The Punchliner Comedy Show and Seuss at Sea, to name just a few examples are continuing to elevate the guest experience. The series of investments in product innovation, travel, agent engagement, and marketing have delivered, and the brand continues to outperform. The power of our diversified portfolio overcame the Continental European brand challenges for macroeconomic and geopolitical uncertainties. During the quarter, we made progress on multiple initiatives designed to further out journey to our consistent yield improvement by creating demand in excess of supply. Our award-winning public relations effort is providing ongoing opportunity to address new cruisers by creating more conversations around cruising. A good example of our ongoing public relations effort was demonstrated by Cunard creating nearly one billion media impressions around its 175th anniversary celebrations as the three Queens took center stage and what may have been the largest attendance at a single day maritime event anywhere in the world. To witness and to feel the deep sense of pride and awe emanating from its estimated 1.3 million people packed on both banks of the Murphy stretching the 22 miles from Liverpool to the mouth of the River as the three Queens; Elizabeth, Victoria and the iconic Queen Mary II did their own version of a river dance had a phenomenal display of engineering and maritime technical excellence and execution. It was an incredibly uplifting and moving experience. For several hours, the million plus onlookers were totally captivated by our ship and Cunard, and I’m always moved by the deep connection of our brands, our history, and what we do collectively without just our guests with the broader communities they represent around the world. It was a job exceedingly well done by our Cunard and Carnival UK Shipboard and short-side team members, whose execution was a marvel on to itself. The event drove a tremendous amount of public interest as I had mentioned and followed on the heels of the incredible launch of Britannia christened by Her Majesty, Queen Elizabeth the IInd, an event itself, which drew significant international attention and showcased cruising on a global scale. While training demand through events such as these, we continue to manage capacity growth in our core source markets in North America and Europe by redeploying capacity towards emerging markets attracting increasing numbers of new to cruise. With additional capacity, redeployed to China in 2016, we will offer an industry-leading approximately four million passenger cruise days dedicated to the burgeoning China cruise market, that’s substantially more than our closest competitor. Moreover, in 2017, our Princess Brand wants the first ship to be purpose built for Chinese consumers, that's an industry first. While today China represents just 5% of our global guests, its growth will continue to have significant ancillary benefits by constraining capacity in our core markets in both North America and Europe. So growth prospects in China contribute to enhance relative scarcity elsewhere in which we market the remaining 95% of our capacity. Over time, we are confident that China will become among the largest source markets for cruise given the increasingly favorable demographic trend and high satisfaction scores we are commanding. Chinese outbound travel is expected to double by 2020, and we are certainly well positioned to capitalize on the explosive pent-up demand for international travel following the recent easing of travel restrictions coupled with the booming upper middle class. Beyond the growth opportunity in China, we're accessing a new segment of the global market with the launch of our test brand in the Carnival Corporation of family [indiscernible] . The purpose is to do good, and in doing so we do expect the assets to perform financially as well. We believe U.S., UK, Australia, and Northern Europe over index with travelers in this segment. Fathom will offer travelers authentic, meaningful experiences to target destinations to work alongside locals for transformational community impact. At the same time, Fathom creates a holistic sustained impact through a market-driven business model. Now this is a new travel category for us. Importantly, from a pure business perspective, Fathom generates a totally different conversation around cruising, stimulating greater demand for cruising in general. To date, Fathom has already garnered over 3.5 billion media impressions and growing. Beginning in April 2016, Fathom will embark on seven day voyages from the Port of Miami to its first impact destination, Puerto Plata in the Dominican Republic. This is also where our new $85 million Amber Cove port development is set to open this October and ready to receive several of our other world’s leading cruise-line brands. Fathom is headed by our new global impact leader, Tara Russell, a proven social entrepreneur with a track record of developing self sustaining impact entities. Now you can view the launch and find out more about and about Tara and about Fathom at Fathom.org. Including Tara, talent development continues to be an important focus and we have effected change by complementing a solid core with additional new talent further strengthening our management team. In addition to seven new brand presidents, we’ve added talent in the areas of maritime, strategy, revenue management, communications, procurement, and innovation. Our team is totally engaged in communicating, collaborating, and cooperating to capture the full benefit of the latent opportunity inherent in our industry-leading scale, both in driving revenues and in containing costs. We continue to make progress on our roadmap to advance revenue science and systems including investing in dynamic pricing expert brand teams to improve our decision making capability, establishing price boundaries for relative price position across our portfolio, and piloting regional price coordination in Alaska and Australia, for example through increased booking visibility across the brands and through joint decision making. Now we’ve also made progress in our initiative to drive onboard revenue as evidenced by the 6% onboard revenue growth, and that's in constant dollars, achieved this quarter, the fourth consecutive quarter of mid-single digit growth in onboard revenue. The outsized growth in casino, bar and communication realized this quarter was again partly driven by best practice sharing. This is set to rollout of our casino engagement program, beverage packages and additional bandwidth are just a handful of examples of initiatives that drove our onboard revenue strength in the past few quarters and will continue to pay dividends over time. Now all of these initiatives are building block for capturing multiyear yield growth needed to deliver double-digit return on invested capital in the next three to four years. We remain focused on our initiatives to contain costs by leveraging our scale and we remain on track for savings of $70 million to $80 million in 2015 and continuing over multiyear period and we continue to look for opportunities to invest and generate return including our stepped up marketing investment of second half of this year to build a strong base of business heading into 2016. Progress continued on our fleet enhancement program, as we finalized the contract with Meyer to build four, state-of-the-art ships designed to provide an exceptional vacation experience tailored to our guest's preferences. This was part of our largest strategic partnership announced in March with Meyer in both Germany and Finland and with Fincantieri area in Italy to build nine ships over four year period from 2019 to 2022 and keeping with our measured capacity growth strategy. These next generation ships will be the most efficient ever build with a total guest capacity of 6,600 through an innovative design pairing incredible cabins with even more innovative use of the ship public spaces. Adding price per berth, in line with our existing order book, these ships will significantly enhance the return profile of our fleet. Moreover these next generation ships will pioneer a new era in the use of sustainable fuels through our green cruising designs, representing the first cruise ships to be powered FC by LNG. This was yet another strong quarter, once again exceeding guidance. Now while we remain confidence in delivering 25% earnings growth again this year, we caution you given ongoing macroeconomic and geopolitical risk not again ahead of expectations for the year simply based on our consistency and exceeding our quarterly guidance. We do however remain on a clear path to achieving double-digit return on investment capital. We're focused on measured capacity growth by delivering innovative and significantly more efficient ships, while at the same time removing from service less efficient capacity.\ We're committed to driving relative scarcity by creating even more demand for our brands that outpace this capacity. We remain focused on driving yield growth in the low to mid single digit range through higher ticket and onboard revenues while containing cost increases through our initiatives to leverage our scale and we look forward to enhancing total shareholder returns including further opportunity to return capital to shareholders as we drive for our double digit return on invested capital and our ready strong cash flow continues to build. I’d now like to turn it over to David. David?

Thank you, Arnold. Before I begin, please note all of my references to revenue and cost metrics will be in constant dollars unless otherwise stated. I’ll start today with a summary of our guidance topping second quarter results. Then I’ll provide some insight into our current book position and finish up with some color on our 2015 June guidance. Our a non-GAAP EPS for the second quarter was $0.25. I’m excited to report that this was $0.12 above the midpoint of our March guidance. The improvement was driven by three things. First $0.06 from net revenue yields, mainly due to better than guided onboard and other yields. Second $0.03 essentially from lower operating cost due to the timing of expenses between the quarters and third, $0.02 from the impact of fuel price and currencies. Now let’s turn to our second quarter operating results first in the prior year. Our capacity increased 2%. The North American brands were essentially flat while the European, Australia and Asia brands also known as our EAA Brands were up over 6%. Our total net revenue yields in the second quarter were up over 4%. Breaking apart the two components of net revenue yields; net ticket yields were up 3.5%. Both sides of the Atlantic were up but the improvement was driven by larger increases at our North American brands, particularly Carnival Cruise Lines as Arnold indicated. If you remove the unfavorable transactional currency impact, the net ticket yields were up almost 5% of what we referred to as constant currency. The increase in net ticket yield was across the Board with improvements in Caribbean, Med and North European itineraries. As Arnold indicated onboard and other yields increased almost 6% again both sides of the Atlantic were up, but the improvement was also driven by the larger increases at our North American brands. Net cruise cost per ALBD excluding fuel was up about 6%. This was driven by the previously discussed increase in dry-dock days for the year, which disproportionally impacted the second quarter. During the second quarter we did benefit from the net impact of fuel and currency by $0.10. In summary, second quarter non-GAAP EPS was $0.16 higher than the prior year, driven by improved net revenue yields worth $0.20 and the favorable net impact of fuel and currency worth $0.10. both of which were partially offset by higher net cruise cost excluding fuel costing $0.15. During the second quarter, we had a $7 million restructuring expense in our U.S. gap results but excluded from our non-GAAP result as you’ll see in the reconciliation table in our earnings release. For the full year 2015, we anticipate a total of $27 million of restructuring expenses as we further leverage our scale, which will benefit us in 2016 and beyond. Let’s turn to booking trends. Bookings for the next three quarters taken during the last 13 weeks have been strong. Volumes are well ahead by the slightly lower prices driven by unfavorable transactional currency impacts. At this point in time cumulative fleet wise bookings for the next three quarters are well ahead at slightly lower prices, but again driven by the unfavorable transactional currency impact. Our increased pace of booking puts us in a strong position as we finish our 2015 and begin 2016. Drilling down into the cumulative booking position; first for our North American brand. Caribbean itineraries are significantly ahead on occupancy at slightly lower prices, which bodes well for pricing on future bookings and pricing in the last six weeks has been higher. Alaskan itineraries are nicely ahead on both price and occupancy. While other North American brand deployments combined, which includes the seasonal European programs are nicely ahead on occupancy, but at lower prices, which are being unfavorably impacted by transactional currencies. For our EAA brands, all itineraries combined are nicely ahead on price with occupancies that are in line with the prior year. The solid booking trends are consistent with our guidance. Now looking at our full year 2015 guidance, we expect net revenue yields to be up 2% to 3% versus the prior year, which is slightly better than our March guidance. Net revenue yields on a constant currency basis after moving the transactional currency impacts are expected to be up 3% to 4% versus the prior year. This is consistent with our March guidance. The additional strength we've seen in Caribbean and Alaskan ticket yield as well as onboard yields has been offset by geopolitical risk in the Med and macroeconomic uncertainties in Continental Europe. Now turning to cost. For the full year 2015, net cruise costs without fuel for ALBD are now expected to be up 2.5% to 3.5%. This is a slight increase from our March guidance driven by decision to increase spending on advertising and certain strategic projects in the back half of 2015 both of which should benefit us in 2016 and beyond. For 2015, we're forecasting to benefit from the net impact of fuel and currency by $0.16. Taking all these factors into consideration, our non-GAAP EPS guidance for the full year 2015 is now $2.35 to $2.50 versus a $1.93 for 2014. On a final note, I wanted to share with you, our current rules of the thumb about the impact that currency and fuel prices can have on our results. To start with a 10% change in all of the relevant currencies relative to the U.S. dollar would impact our P&L by approximately $0.25 to the full year and $0.18 for the remainder of 2015. This includes both translational and transactional currency impact. The fuel price changes, a 10% change in the current price represents a $0.10 impact for the remainder of 2015. The third rule of thumb relates to a fuel derivative portfolio. A 10% change in brand would result in a $0.04 change in the realized losses on fuel derivatives for the remainder of 2015. And now operator we're ready to open up the call for questions.

[Operator Instructions] And our first question comes from the line of Robin Farley with UBS. Please go ahead. Robin Farley, your line is open. You may proceed with your question.

Great, thanks. Two questions. One is, I wondered if you could give a little bit of color around the cost of brand. You mentioned Continental Europe and the economic issues there. So I -- maybe cost won’t be seeing positive yields this year, I wondered if you could put color on that? And then the other question I had is you've talked about increasing advertising expense and I guess I was curious if your volumes sound like it's up nicely, and so if the issue is on the currency side, it seems like advertising is something that would -- you would use to drive volume, but if your volumes are up already, why would advertising be the solution to the kind of the FX related pricing? Thanks.

Good morning Robin and good to hear your voice. First of all, I will talk about the advertising. We’re always looking for opportunities to invest to create additional demand, because ultimately the key for us of course is relative scarcity creating demand in all the markets around the world, excess of supply and excess of capacity. And so when we recognize some opportunities to drive additional demand, the brand teams or all brands come up with innovative concepts that we think can generate more conversation around cruising and attract new to cruise, then we're willing to invest in it. And so, that's the basis [indiscernible] an ongoing investment to continuously generate additional demand. With regards to Costa, I'll let David make a few comments and then I'll weigh in.

Sure. As we had said before in the notes, there is a lot of macroeconomic difficulties in Europe. The economy seems to be bouncing along at the bottom. Our Costa brand is doing very well, but as a result of the geopolitical risk and other things, they have had some challenges on the yield side this year. And so as a result, overall our EAA brands as I said in my notes are up. They're all doing very well but the Costa does face its challenge.

Okay, great. Congratulations on a great quarter.

Okay, thank you, Robin.

Our next question comes from the line of Felicia Hendrix with Barclays. Please go ahead.

Hi good morning. I've two questions. The first one is we've been hearing from travel agents that all the cruise lines in the Caribbean are exercising discipline regarding near-term discounting as one of your peers made a very clear splash about that. Just wondering what your stance is on that? And then also I just wanted to confirm that the increase in advertising that you talked about is not inclusive of any promotional spending?

Okay. So concerning the situation and pricing, obviously we all independently make our pricing decisions. We said over two years ago almost that we were looking at changing the psychology of pricing concerning our brands in the Caribbean in terms of waiting to the end -- I guess waiting to the end and seeking discounts. And so, we trialed a number of things and rest of little occupancy at times for that and generated some success with that, and we continue to try to put pricing integrity in and discipline in for our brands independently of what anyone else does. So for us, we have seen some positive trends there, and we will continue on that course. When you asked the question about advertising and promotion, I think obviously we're looking at promotional activity as well. When you say promotion, I don’t know if you're referring specifically to travel agent promotion effort or if you so could you clarify your question for me.

Yes I think the concern that we've heard from some investors this morning is it gets to the more of a discounting part of it. So just your advertising is what you maybe talked about in the last question and just …

No, it's absolutely not discounting ticket pricing or anything of that -- not that kind of investment. This is to create demand and awareness and conversation around cruise. Thank you.

Great. David, can you help bridge something, you beat the quarter by $0.12 on a current dollar basis, which flows through your earnings. Your net yields were improved by 1.5 at the mid-point. Your net cruise cost ex-fuel improved by 1.5 [ph] at the mid-point. Your fuel price per metric ton improved since your last guidance. You said your fuel hedges benefit by your FX and fuel benefit by $0.16 for the full year. When I add that all up, that comes out to a lot more than at the mid-point $0.02 increase to your full year earnings, So how much is that advertising -- increased advertising spend and can you just help bridge your earnings guidance versus what looks like to be pass-through of a lot more than that?

Sure. No problem. When you look at fuel and currency for the full year, it's actually pretty flat versus our March guidance. So what’s coming through is we do have a little bit increase in the revenue yield as well as the cost side. And trying to understand what’s going on versus the second quarter, yes we did beat by $0.12, but remember $0.03 of that was simply timing of expenses between the quarters. So on a full year basis, it's really $0.09 and we also had about a $0.05 increase in overall costs flowing through which was the mainly advertising but as I indicated, some strategic projects that we decided to invest in, and so net there was a $0.04, $0.05 of improvement, which gave us the confidence to increase the bottom end of the range by a nickel.

Okay, Not really because net revenues I can take this offline, but if you go line by line, you get more than so you said net $0.04 to $0.05 improvement, but you’re increasing at the midpoint your full year by $0.02.

Okay. I think one of the things that you’re coding the constant dollar numbers and Beth can take it offline with you, but when you…

No, I’m actually coating the current dollar numbers.

No, the current dollar, but that’s all impacted by currency. So if you go to…

No, I know but that would be in your earnings number right?

Correct, but if you go at a constant currency, okay basically our guidance per revenue yields in constant currency did not change. We also just increased the cost a little bit and still overall, what you’re seeing happening as I said to the full year currency and fuel basically netted out. So we did see a bit of an improvement in the bottom end of our guidance range. So hopefully does that clarify it for you?

Yeah, it does. Thank you.

Our next question comes from the line of Harry Curtis with Nomura. Please go ahead.

Hi, good morning…

Harry, you're breaking up.

Harry, now you’re still. Hang on one second while I'll try to fix the line all right.

Thank you.

We can take another question while Harry is trying to…No, Harry its little bit -- we'll try to hear your question; give it a shot if we can hear, we'll try to answer it. Go ahead.

Okay. So my question is related to 2016 when you think that 2016 bookings were looking and explain to increased less the annual marketing expenses in 2015?

The question is related to 2106 bookings picture is that how is that looking? Is that driving the advertising investment, is that correct Harry?

That's correct.

Let me answer the second part first. Again we’re focused overall on delivering double-digit return on invested capital in the next three to four years. And to do that, we have to have sustained revenue growth in terms of ticket and onboard revenues. And to do that, we know we have to continue to create relative scarcity with demand and excess of supply. So our decisions are not strictly for any reaction or anything to a period. They are ongoing considered investment to create over time, what we need to create. And so overall, we’re looking at 3.7% capacity increase for 2016 and for the first quarter we're ahead on occupancy, which bodes well for pricing on the remainder of the year. And we're only in June. So we have very little visibility into next year outside of the first quarter, but we’re cautiously optimistic about 2015.

Thank you. And I'll try to sneak one other question if you can hear me and it relates to churn. With the incremental in the industry, I was curious about giving for the…

Okay. I didn't get it all but with complex you're asking about with the capacity going into China, what give us confidence that we can continue to show positive results there. If that’s the question, the reality in China is we already have the relative scarcity I’ve been talking about in terms of trying to create additional relative scarcity in the more developed markets and already has there. The biggest outbound tourist industry in the world and is growing at a rapid rate, in fact is expected to double by 2020 in terms of outbound tourism. And so given that, we actually have relatively scarcity and we’ve seen continued strong yield performance with the capacity additions we’ve put in to-date and we expect to see it going forward.

Okay. I get back. Thanks.

Thank you.

Thank you. Our next question comes from the line of Steve Wieczynski from Stifel. Please go ahead.

Hey, good morning guys. David I don't know if you've said this now but I know you said $0.06 in terms of the bead in the second quarter was based off better revenue yields, did you break that down in terms of how much was ticket versus onboard?

I didn’t but I did say it was, essentially driven by onboard and other yields.

Okay. And then could you guys Arnold, could you may be have us and give us an idea of where you guys are at this point in terms of your book-to-load position for the third quarter and the fourth quarter versus historically and maybe versus last year as well.

The reality is we're ahead on booking and so we've less inventory to fill for the balance of the year and that gives us added confidence that we will deliver on the guidance and so bookings are strong at this point and in terms of yields and while we’re in tracking with the guidance of 3% to 4%.

But is it, can I follow-up on that, is it significantly better than where you’ve historically been?

Well, I would say over the last couple of years, it is well ahead and we're feeling very good about our book position.

Okay. And then one more quick question, the new ships that you guys put on order that will be powered by the LNG, can you give us an idea of how much more fuel efficient those ships will be versus the ship that was build two, three, four years ago.

First of all those ships obviously will be -- to be both LNG powered as well as conventional fuel powered, but we anticipate over time that LNG is going to be a fuel of choice and based on that we're preparing for the future. But having said that overall those ships versus the existing are going to be dramatically more efficient and in fact overall, not just fuel based but overall, we’re talking as much as north of 40% more efficient.

Okay. Great. Thanks guys.

Thank you.

Our next question comes from the line of Jaime Katz with Morningstar. Please go ahead.

Good morning. Thanks for taking my questions. Can you guys comment, I know you’ve talked in the past on air and travel transportation initiatives and the savings that you’ve made in that space and it looks like you have had those expenses decline in the last couple quarters. So can you talk about maybe any strides you've made there and what we should expect in that going forward?

We continue through all the initiative to space the ability to offset inflation which we peg about $70 million to $80 million a year. We're definitely on track through the initiatives to achieve that this year. We have fair line of sight for achieving that in number of years to come. We’ve added some skill set in brining Julia Brown in who is our Chief Procurement Officer for the Corporation. She is working already very closely with the brands. Have lots of anecdotes that, I can share a little one with you. We had all the mattresses, we buy a lot of mattresses a year. And we put all the mattresses in one place for all the brands and then everybody sell everybody else's mattress look at quality and what not and we’re going to see probably a 20% to 25% improvement and cost improvement in that. While increasing overall the quality standard for that mattress and then we have the scores of those examples and there is plenty of opportunities for us to do that and so we’re on that path and see a clear line of sight on the $70 million to $80 million for several years to come.

Okay. And then I am curious -- go ahead.

No, no go ahead.

I am curious on a separate topic. I think one of your peers had commented on onboard spend for European consumers and it sounds like onboard has been really strong for you guys, but I’m curious if there has been a bifurcation across consumers geographically that you’ve seen and if you have any color on that?

I'll make a comment first and then, overall, again for us a lot of it is best practice sharing, taking innovation in each of the brands and sharing that across the rest of the brands. So we’ve seen very strong on Board revenue trends in our businesses as evidenced by the results and continue to expect to see that, David.

Yes as I said in my notes, the on board and other yields if the increase was driven much more so by the North American brands than our EAA brands. So there is some we are seeing some better improvements in North America and over in Europe and I’m assuming this macroeconomic overall.

Okay, thank you.

[Operator Instructions] Our next question comes from the line of Tim Conder with Wells Fargo Securities. Please go ahead.

Thank you. To circle back to China, again Arnold you described the penetration opportunity there and the demand opportunity. In the near term though, we’ve heard a little bit from some industry sources that there has been a little bit of pricing activity going on and if you could refresh for us the ships are largely sold on a contract basis and then the end resellers keeps it different, so that they’re able to sell it for. So any comment that you can talk about, any recourse you would have if that is ongoing in anyway in the near term and if it is, is it MERS related predominantly. So any color there and then David housekeeping item, the restructuring just if you could just refresh how much you talked about there for the full year and is that included or excluded from your annual EPS guidance, thank you.

Okay, sure. So first of all I guess MERS, we’re watching that situation very closely but frankly we have not seen a significant impact so far. People obviously always would pay attention to health issues but the reality is that MERS is very hard to contract and hopefully people will get educated on the very low probability of contracting MERS. We have -- rare it is from China that touch Korea and we have modified some itineraries at the request of our shift charters but one of the strategic advantages that we have as an industry versus land based destination is our ability to mitigate when appropriate and adjust itineraries to maintain guest confidence satisfaction as opposed to being locked in to surroundings no matter what the circumstances are. Technically we do have a measure of protection by having charters but we don’t expect the situation to become a material issue for us or our distribution parts. And overall we continue to see strength in China in the yields and our charters or all the feedback we are getting is they are pleased now financially at this point.

And the restructuring charges, Tim it was $27 million restructuring expenses that we expected for the full year and in this second quarter we have excluded the restructuring expenses from our non-GAAP results and remember we give guidance on a non-GAAP basis. So it’s not included in the overall 235 to 250 guidance we gave.

Okay. That’s what we thought, thank you.

Thank you.

Our next question comes from the line of Steven Kent with Goldman Sachs. Please go ahead.

Hi good morning. Just a couple of questions for you, Arnold you mentioned a couple of times, you want to achieve double-digit return on invested capital. I’m not sure that you gave a specific timeframe when you wanted to achieve that, also can you just discuss, you also mentioned the couple of times that you want to have demand greater than supply and I certainly understand that, what is the basis for laying out so many ships for such an extended period going out into the 2020 period or so. I’m just trying to figure out what the drivers are that gives you the confidence that that would happen and then just one final thing on China, I know people are talking a lot about it. Could you give us an update on the two memorandum of understanding you had with your Chinese partners, any progress coming to agreement on port development or ship building with the Chinese partners. Thank you.

Very good. I’ll start from the bottom up. On the memorandum of understanding, Steve, you know Alan Buckelew, our Chief Operations Officer for the Corporation resides now in Shanghai in China and we’ve made very meaningful progress with both CSFC and the China Merchant Group and hopefully we’ll have something more specific to say Chinese specific joint ventures in the coming months here we are very excited about the progress we are making in that particular arena and the continued support overall from the Chinese government to the cruise industry. So we’re very, very positive on that front and hopefully will have more to tell you. Concerning to ship order, as we are articulated at the time, the overall the large order nine ship order between Fincantieri and Meyer that was done for number of reasons. Number one is prototypes that we want to get plenty of lead time for those yards to engage the subcontractors that need to be engaged and for those subcontractors to know that both entities Meyer and Fincantieri would be building ships and it wasn’t a single order that they were competing for. And so hopefully that will lead to efficiency and ultimately lower cost of acquisition for us. From a practical matter, we have to plan way ahead to secure the slots and to give the yards plenty of time to work with us to perfect and effective designs. And so that is the reason for that, the reason to build the ships in the first place is that by the time the ships come in, we should have achieved our double-digit return on invested capital that is certainly our plan and our focus and what we have clarified right now, three to four years is what we’re saying we say at a year ago three to five years and so that is three to four years we should be delivering on double-digit return on invested capital. And then those ships individually each return well above the baseline double-digit return on invested capital 10% well above that and so they allow us to enhance and sustain the double-digit performance out into the future. Hope that answered your questions.

Yes, thank you.

Thank you.

Our next question comes from the line of Kevin Milota with JPMorgan. Please go ahead.

Hi good morning. Had the question on the advertising spend, I was hoping to get some color on what you’ve seen from a first time cruise based on what you spend in kind of the first half of the year kind of late last year and is that really the reason for taking up spend now. I guess secondly what are you seeing from a competitive perspective as it relates to marketing and advertising as well, is that an additional reason to spend now?

First of all for us our business is pretty straightforward and so we consider our competition to be land based vacation. We have very differentiated product offerings versus the other cruise companies. We do all competes on new to cruise because often the new to cruise there is no concept what cruise would best with them and that is what we come on travel professional partners especially as well as our own people to make certain we get the right people on the right ships but real competition cruise is land based and so we focus on that. So what we need to do as an industry as well as a company is create considerable interest improving just getting the conversation how people think about cruising and we’ve done at a number of ways whether it was the Super Bowl initiative we had. We did it most recently with the launch of Fathom, we did it with what I have references in terms of celebration of Cunard’s 175 Princess’s 50 anniversary and all of those things are interesting stories and create opportunities for us to really talk about cruising and get it in the conversation. And that is so how we look at it, we don’t look at it as advertising to how to advertise, we want the competition advertising promote. One of every two people cruise in the world, cruise with us and anything that generates interest in cruising automatically helps us and frankly it helps the other companies as well. So that is the focus of it and we think we’re seeing some success, there are some variables in any given year in any given market at any given time. But clearly our results have been strong and we don’t doubt for a second, that is in part because we have had some success through the individual brands and then collectively been generating more interest in cruising.

Let’s keep in mind that as a company, we spend we have said before over $600 million a year in advertising expense and all we are talking about is a few percent change here, as the year progresses we continue to tweak things and make adjustments to be as optimal as we can be throughout the year. So it’s just really change in a big number.

And frankly mark is more interested in the specific idea in the execution how it is going to generate additional interest than we are in the dollars. We don’t have rule of the thumb of how we need to spend different amount of dollars and anything like that, we will look at individual initiatives projects and things that would show me how we’re generate number of impressions generate conversations with the specific execution. Thanks.

Okay. Thank you.

You can ask follow-up.

I was just wondering from based on what you spend, I mean have you seen a meaningful increase in the percent of first time cruisers if you look at specific basis?

You know I would say overall first time cruisers are up dramatically, now there is a number of things that contribute to that beyond this year, I guess last year we were 3.4 million first time cruisers whereas the year prior we were like something like 2.7 or 2.8 or something. But there are number of things that drive that, number one we have got lot of first time cruisers elsewhere in China, so that is part of it, another part of it is in the Caribbean there was so much capacity last year in the Caribbean. The only way to fill those ships with other lots of new first time cruisers and so that drove first time cruise and added yield that we were happy with but it drove additional base load of first time cruisers and then of course all the initiatives we had to create demand and others and industry have, we think all of that collectively contribute to what you saw in terms of the increase in first time cruisers last year versus previous year.

Okay. Very good, thank you.

Thank you.

Our next question comes from the line of Sharon Zackfia with William Blair. Please go ahead.

Hi good morning. Just a question on the ship orders that you’ve announced recently, I guess the new ships are going to have the capacity as 6,600 guests. I know you alluded to in the press release about how you will have more efficient use of the ship spaces in order to accommodate the guests. I was hoping you could maybe elaborate on that and also within the design of the cabins, are you going to doing a single cabins or anything kind of outside of the box what you have done historically.

\First of all the current space per guest in terms of space per guest, it is similar to the ships we have on order now for those ships. So really was innovative design and Micky Arison and then Michael Thamm, who runs our Costa group were very ingenious in the original conceptualization for these ships and then the new build teams in house and at the yards, we are able to follow during execution of that. So we actually feel an incredible guest experience, great cabins absolutely great cabins and really phenomenal public space and are able on that platform to have as I mentioned space per guests comparable to the ships we currently have on order. So it really is the efficient interior design and then very creative design.

Just to be clear, the 6600 is total passenger capacity based on two passenger per cabin is just north of 5000 per ship or passengers. Okay, thanks.

And some of the things absolutely, the ships are being finished, some of the conceptualizations there are some single cabin concept.

Okay, great. Thank you.

Our next question comes from the line of [Edward Stanford with Ross] [ph]. Please go ahead.

Good morning everybody. Just intrigued by your new Fathom brand, could you take us through why you decided to do this, how big is the potential market do you see it is an interesting growth area, was it a requirement with the Dominican Republic as part of your investment in that country perhaps you could elaborate on that please.

So first of all the reason behind Fathom, Fathom the purpose is to do good, the unique aspect of it is holistic market driven approach to doing this, so have to be a win, win, win. So we have to do financially well with it, that gives us freedom to do it and make it sustainable. So the shareholders win. It has to resonate with the guests, the people have to want to travel on it and if they don’t they won’t. So it makes it a win for them and then obviously the ultimate reason the starting point is to do good and so we have the real genuine impact with it otherwise was the point. So the concept of win, win, win while it does resonate in index with what we usually call Millennial, it appeals to a broad spectrum of people who basically want to grow themselves so it is not just a matter of going someplace to do some good help out is an enrichment and emerging experience for the travelers themselves and very unique and different approach and one that brings scale that previously just doesn’t exist and never existed. So it is new. So we picked up -- and Puerto Plata recently in the Dominican Republic, we checked out a number of different countries to start and we landed there primarily because there are entities on the ground there that have demonstrated long-term history of genuine impact in the areas of economic impact as well as environmental and educational impact. So there are Dominican organizations on the ground that are currently delivering impact, so the guest get to work alongside those proven Dominican impact providers and scale up the impact they can have. So we will end up with thousands of volunteer days a week spread across the region in a holistic fashion not doing any one thing but doing a combination of things that collectively can transform a community over time and ideal go with -- few years and no long we need it and we will move on somewhere else. How big it is ultimately, what the advertisers, we have done a lot of research, we paired our team with the McKenzie Group and ton of announcements over the last couple of years leading us to where we are. But obviously all have to be proven out, we have every confidence, we will be successful with the initial foray and then if it is successful, it is scalable and replicable and as long as they are on the ground entities that are already delivering real impact that we can help scale up what they are doing and accelerate that impact it has. That is the concept we feel big appetite for it. We it is financial model for us, it will have to financially perform that gives to continue with it and we are very optimistic but it has to be proved.

Thanks very much.

Thank you.

Our next question comes from the line of Stuart Gordon with Berenberg. Please go ahead.

Yes good afternoon gentlemen, couple of questions please. I think previous calls you have said on both spend assumptions within guidance around about 2% mark I was just wanting to check that that was still the case looking forward I am assuming so given the comments you have made already and the second one is just whether you have seen any impact in China from the thinking that happened a couple of weeks ago. I appreciate it obviously it is river cruising, it was local operator but clearly could impact first time cruisers in that market and what you will be doing to so to educate them on the differences between sort of the river cruisers and your ocean cruisers, thanks very much.

Thank you. I think we are in the early stage of growth in China that there are a lot of things that happened that it was a more mature market, you might see some kind of impact or response from. But again the relative scarcity exist there today and so that buffered a lot of things and so frankly no we have not seen any impact from the incident that occurred. And as more and more people cruise obviously we're continually educating our distribution partners there and then as well as the general public about cruising and the differences, but we have not seen any effect there. I'll let David answer the first part of your question.

So we did assume a 2% in the back half of this year. Keep in mind that as you begin to analyze that, that the back half of last year and onboard and other was up mid single digits and it was significantly better than the first half of 2014. So we do have more challenging comps in the back half so take that into account as you analyze the numbers.

Yeah absolutely. And just on the onboard, it sounds from the comments that you may just -- seeing pretty pick up from sort of your not just the consumer confidence coming back but also from your sort of your self help, things that you’re doing onboard, is that something that is now fleet wide or is it still rolling out?

There are still a number of things that we're rolling out. So we expect -- continue to see benefits in the future from some of the initiatives in communications, casino and beverage. A great example there was a press release Idida put out yesterday on their internet service and how they had headed on a couple of shifts and they were expanding it to the rest of that fleet. So we do expect to see additional onboard revenue from those initiatives.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Thank you. First question is just on the yield growth guidance in the third quarter. I’m just wondering given the momentum you're seeing and the sort of a positive outlook statement. I’m wondering why that yield growth is weakening year-over-year in Q3 than Q2? Are you just being conservative or is there more of that European geopolitical sort of issue in the mix in the quarter? And then other question just on costs, as we look into next year you talked before about quite a lot of this year’s dry dock reversing and it seems like marketing costs are somewhat elevated, would you expect cost growth to continue in the low single digits even with your savings or should we expect a sort of this year’s cost step up? Thank you.

I guess I’ll start with on a constant dollar basis the guidance for the third quarter is the same as the guidance we gave for the second quarter.

Yeah, in terms of what you actually delivered in the second quarter. So are you saying it's -- well somewhat you’re saying is sounds like you're just being quite conservative there?

Keep in mind I had already indicated that we included in that guidance was only a 2% increase in onboard and other and that compares to the 6% in the second quarter. And as far as the ticket side, as always we give you our best guess as to what we believe the net ticket yield will be and we included that in the guidance as well. So overall we got some pretty good increases in the third quarter on a constant currency basis. We're expecting it to be, like 3% to 4% included in the third quarter. So we’re very pleased with those yields and hopefully we can do better.

But then also the base comparison for the third quarter is a little more challenging than the second.

And on the cost side, I think we had indicated back in December, there was a big increase in dry dock this year. It was driving two of the three percentage point increase in cost. We did expect to see dry dock days decline in 2016 and so about half of that increase would go away. So that will be a benefit for 2016. It’s a little early to give guidance on cost for 2016 overall. We are hopefully, as Arnold indicated with all of the leveraging our scale to perhaps be able to offset inflation, but we still have got to go through the whole planning process and make some decisions on investments and we'll do that over the next couple of months.

As to double digit return on invested capital and in the next three to four years and the way we’re going to do that ultimately is through yield and so to the extent we need to invest to do that we will, but we don’t see that need to invest or those opportunities to invest to think is well out of range or anything on cost going forward.

Okay. Thank you.

Thank you.

Our next question comes from the line of James Hardiman with Wedbush Securities. Please go ahead.

Hi, good morning. Thanks for fitting me in here. Just wanted to make sure I understand what’s changed over the last three months or not changed I guess in terms of the guidance. I guess more specifically help me understand why the constant currency guidance is unchanged despite the meaningful beat in the second quarter? Is any of that timing related? I know the costs are timing related, but the yield is timing related it sounds like there is a healthy dose of conservatism. And I guess if the entirety of it is just weaker Europe in Med, can you maybe drill down and help us understand which itineraries in particular are trending what would almost need to be meaningfully beneath expectations for the back half of the year?

I’ll start with a general comment. The general comment is that while results are tempered by Europe for 2015 we are going to see growth in yield in Europe and both in the brands and in the regions.\ And also we continue to see strong booking patterns there where the booking curve is being pushed further out and that bodes well because you have less inventory to sell and then that’s also obviously good for yields. So despite a lot of the challenges and cost in particular have been facing challenges since 2008 with macroeconomic Malaise and other issues and just a trading environment. But despite that, not only Costa but the entire European team, Carnival U.K., Idida as well have been doing a great job in managing the brand over this period. So I'll let David comment on some of the specifics, but overall things are positive.

Yeah, we’re very positive on the year. Some of these numbers as I had talked, we said we would beat the second quarter by $0.06. So overall when you put together our guidance for the year, keep in mind that to move our yield guidance takes $0.17, one percentage point is $130 million or $0.17. So as we look at all the numbers, the $0.06 movement causes a few decimal point movement in the mid -- in the guidance, but it doesn’t necessarily change the whole overall range for the year. So we’re trying to just give you ranges and averages, but we're flowing through the benefit as I had indicated before of the second quarter and it was partially offset by cost and we still increased the midpoint and the bottom end of the range.

Okay. And then just maybe longer term and I understand it’s always a difficult challenge to properly allocate capacity on a global basis, but as we think about the outperformance of the Caribbean this year versus Europe and the Med, it was the reverse last year and it was also the reverse capacity situation. So I guess the question is how do we know that the, I don't know that the underperformance of Europe is a function of macro rather than just may be getting too much capacity versus what we saw last year? And I guess longer term, how do we think about the right amount of capacity growth in Europe versus the Caribbean?

So first of all I think capacity in Europe is going to be about 6%, but that's nowhere near with the capacity increase was in the Caribbean last year was up more than double digit was dramatic increase in capacity in the Caribbean last year. And so that’s two very different scenarios and when you talk about Europe, you’ve got the Mediterranean and Northern Europe whereas in Caribbean, you got the Caribbean as Eastern and Western, but it's still just Caribbean. So there are two very different situations. So the issues in Continental Europe we don’t believe our capacity driven, there are different issues, the reality is that the macroeconomic situation there and then the geopolitical issues that have popped up have certainly tempered the results there. still strong but it tempered the results. And coming into next year well, we're going to be down in capacity ourselves in the Caribbean a couple of points. Overall the industry will be up in the Caribbean actually but nowhere near where it was last year in terms of increase and obviously we have a much stronger base of guests now to fill those ships than we did a year ago, when that we had a huge capacity influx for the Caribbean and we will see what happens in Europe but probably a little bit of easing of capacity. I think the big issue there is just letting the time go by and continue to create demand in Europe and manage through some of these geopolitical tensions and get through and there are always going to be issues somewhere in the world, that's the beauty of our business. We can move our capacity and we do have a broad portfolio especially for us as a company to buffer a lot of these things. But I don’t want to understate the performance of Europe given the dynamics, but the dynamics are not comparable to what they were in the Caribbean last year.

If you think about the longer term I think we talked about this either on the last call or December, I can’t remember, our capacity growth on a compounded annual basis from 14 to 18 is only 2.9%. And if you take into account all the announcements we've made to date and there will be more announcements of ships going to China, the compounded annual growth rate for that four-year periods for North America would be 1% and Europe would be 2%. And so the growth rate as I think Arnold has indicated before are very measured particularly in the established markets and so China is growing and for all the reasons Arnold talked about before we believe it's going to be a fabulous market for us over time with measured capacity growth in the existing markets. And that bode well. Thank you.

Got it. Thanks guys.

And I think at this point, operator we will take one more question.

Perfect. Our final question comes from the line of Edward Friedman with McLean & Partners. Please go ahead.

Hello thank you taking my question. You guys talked about increasing capacity in the next couple of years, I was wondering you guys also talked about relative scarcity and I was wondering how does that jive together like if you increasing your ALBDs through the more shifts, how does that create the scarcity that you talked about?

Yes I think first of all overall the capacity growth for the industry is in the 4% to 5% range and our capacity growth along with vessels that we take out of service is going to be less than that. So we are totally focused on measured capacity growth. And we feel that with China in particular but even without China and the existing markets that that level of growth as long as we're creating demand because we're still relatively low penetrated as an industry as cruise industry in the overall vacation market that there is ample opportunity to create the relative scarcity to get yields off over time and to have them be up and still the greatest vacation value there is while providing the greatest vacation experience there. So we are quite confident for ourselves and for the industry that we can create a relative scarcity that will bode well for the future.

Have you seen that the industry is also doing the same thing?

I overall would say yes. It's being demonstrated today. As you can see the results we are achieving we're out 25%, '14 over '13 our guidance to be up 25% in this year and that's not from 25% added capacity obviously. And so we are in a process of demonstrating it. We certainly have plans in place and for making the investment to continue to do so. You'd have to talk to the other companies how they see it, but our perception we're one of every two people who cruise in the world. So we're relatively reasonable Bellwether for the overall industry and we see it as a strong industry for years to come.

Thank you.

Thank you very much for your questions everyone and for being online. We had a strong quarter. We are confident in our guidance going forward. And we look forward to delivering results and ultimately delivering the double-digit return on invested capital the next three to four years. Thank you.