Carnival Corporation & plc — Form 10-Q Summary
Business context and reporting period
This joint filing covers Carnival Corporation and Carnival plc for the quarter and six months ended May 31, 2021. Cruise operations remained substantially paused because of COVID-19; five ships were operating with guests as of May 31, 2021. Eight of nine brands had resumed or announced plans to resume operations by November 30, 2021.
Financial performance and liquidity
| Metric | Three months ended May 31, 2021 | Six months ended May 31, 2021 |
|---|---|---|
| Revenue | $50 million | $75 million |
| Operating loss | $(1.616) billion | $(3.139) billion |
| Net loss | $(2.072) billion | $(4.045) billion |
| Diluted loss per share | $(1.83) | $(3.63) |
| Adjusted EBITDA | $(1.023) billion | $(2.037) billion |
| Operating cash flow | Not separately provided | $(2.862) billion |
Revenue fell 93% for the quarter and 99% for the six-month period versus the prior comparable periods. Operating margins were deeply negative and not economically meaningful because operations were largely suspended. Interest expense increased to $437 million in the quarter and $835 million year to date, reflecting additional borrowings and higher interest rates.
At May 31, 2021, Carnival had $7.067 billion of cash and cash equivalents and $2.204 billion of short-term investments, or approximately $9.3 billion combined. Total debt principal was $31.475 billion, comprising $3.099 billion of short-term borrowings, $1.708 billion of current long-term debt and $25.968 billion of long-term debt. Shareholders’ equity was $17.876 billion.
For the six months, investing activities used $4.155 billion, including $2.157 billion of property and equipment purchases and $2.204 billion net investment in short-term securities. Financing activities provided $4.523 billion, including $4.980 billion of long-term debt issuance and $996 million of net equity issuance. Management reported a first-half average monthly cash burn rate of approximately $500 million, excluding scheduled debt maturities and certain future collateral requirements.
Material changes versus the prior comparable period
- Six-month revenue declined from $5.529 billion to $75 million as the operating pause continued.
- Six-month net loss improved from $(5.155) billion to $(4.045) billion, primarily because 2020 included $2.096 billion of goodwill impairment charges; no goodwill impairment was recorded in 2021.
- Six-month ship and other impairment charges declined to $49 million from $919 million.
- Interest expense increased by $598 million year over year to $835 million for the six months.
- Cash and short-term investments decreased from $9.513 billion of cash at November 30, 2020, supplemented by newly acquired short-term investments, to approximately $9.3 billion combined at May 31, 2021.
- In February 2021, Carnival issued $3.5 billion of 5.8% senior unsecured notes due 2027 and raised $996 million through a common-stock offering.
- Customer deposits increased to approximately $2.5 billion from $2.2 billion at November 30, 2020; the amount ultimately refundable, recognized as revenue or converted to future cruise credits remains uncertain.
Guidance, outlook, risks and unusual items
- Management expects a net loss on both a U.S. GAAP and adjusted basis for the third quarter and full fiscal year ending November 30, 2021.
- Management expects 42 ships, representing more than 50% of capacity, to have resumed or be announced to resume by the end of fiscal 2021, with the full fleet expected to return in spring 2022.
- Restart costs are expected to increase as ships leave pause status, crew return and enhanced health and safety protocols are implemented.
- Management concluded that available liquidity and planned actions should satisfy obligations for at least the next twelve months, but this conclusion depends on assumptions about the pace of resumption, occupancy, bookings, ship deliveries, disposals and refinancing.
- Debt maturities total $31.475 billion, including $259 million in the remainder of 2021, $2.782 billion in 2022 and $6.373 billion in 2023. The $3.1 billion revolving credit facility was extended through September 2021 and may be re-borrowed through August 2024 subject to conditions.
- Carnival was in compliance with applicable debt covenants at May 31, 2021, but waivers and amended covenant testing requirements extend only through specified future dates. Failure to obtain further amendments could require refinancing, asset sales, additional equity or accelerated repayment.
- Material risks include renewed COVID-19 disruptions, lower occupancy and pricing, travel restrictions, health and safety costs, customer refunds, non-investment-grade credit ratings, rising interest and fuel costs, foreign-exchange exposure, litigation and regulatory investigations.
- The company reported ransomware incidents in August and December 2020. Investigations, remediation and regulatory matters remained ongoing for the December incident.
- Approximately 72 individual COVID-19 lawsuits and ten purported class actions were pending as of June 21, 2021, in addition to governmental inquiries. Potential outcomes and financial effects are uncertain.
- Remaining newbuild capital commitments totaled $11.231 billion, including $1.263 billion for the remainder of 2021 and $4.709 billion in 2022. Unhedged foreign-currency exposure for newbuild commitments through 2025 was approximately $6.8 billion.
Facts investors should verify
- Actual ship restart dates, occupancy, booking trends, pricing and cash burn as operations scale.
- Availability and terms of covenant waivers, refinancing, export-credit financing and the approximately $1.0 billion of proposed principal-payment deferrals.
- Customer-deposit refunds, future cruise credit utilization and the portion of deposits ultimately recognized as revenue.
- Debt maturities, interest costs, collateral requirements and compliance with covenant tests beginning in late 2022 and 2023.
- Potential impairment charges, ship-sale proceeds and the cost and timing of the remaining newbuild program.
- Exposure from COVID-19 litigation, governmental investigations, cybersecurity incidents and related insurance recoveries.