Royal Caribbean Cruises Ltd. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Comparison periods are the corresponding 2022 periods. Amounts are in U.S. dollars; rounded figures may not sum due to rounding.
Business context and financial performance
Royal Caribbean operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises, and holds a 50% equity-method interest in TUI Cruises. Its Global and Partner Brands had 64 ships at September 30, 2023.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $4.16bn | $2.99bn | $10.57bn | $6.24bn |
| Operating income (loss) | $1.27bn | $298m | $2.31bn | ($779m) |
| Operating margin | 30.4% | 10.0% | 21.8% | (12.5)% |
| Net income (loss) attributable to RCL | $1.01bn | $33m | $1.42bn | ($1.66bn) |
| Diluted EPS | $3.65 | $0.13 | $5.24 | ($6.49) |
| Adjusted EBITDA (non-GAAP) | $1.73bn | $742m | $3.54bn | $302m |
| Adjusted diluted EPS (non-GAAP) | $3.85 | $0.26 | $5.52 | ($6.39) |
Q3 revenue rose approximately 39% year over year; management attributed the increase mainly to higher ticket prices, occupancy and capacity. Occupancy was 109.7%, versus 96.3% in Q3 2022. For the nine months, occupancy was 105.7%, versus 81.2%, reflecting full operations in 2023 compared with a partial return to operations in the first half of 2022. Nine-month passenger ticket revenue increased to $7.28bn from $4.09bn, while onboard and other revenue rose to $3.29bn from $2.15bn.
Cash flow, debt and liquidity
- Operating cash flow: $3.36bn provided in the first nine months of 2023, compared with $95m used in 2022. The filing attributes the improvement primarily to higher occupancy and bookings.
- Investing cash flow: $1.35bn used, including $1.33bn of property and equipment purchases, versus $2.87bn used in 2022.
- Financing cash flow: $3.35bn used, principally reflecting debt repayments of $5.31bn, partly offset by $1.81bn of debt proceeds and $209m from the sale of a PortMiami noncontrolling interest.
- Debt and cash: At September 30, total debt was $20.37bn before unamortized issuance costs and $19.97bn net of those costs; cash was $600m. Debt’s weighted-average interest rate was 6.40%. Approximately 15.3% of debt was variable-rate after swaps.
- Liquidity: $3.3bn, comprising $600m cash and $2.7bn of undrawn revolving capacity. The company said it expected sufficient resources for at least 12 months from issuance of the statements and was in compliance with debt covenants at quarter-end.
- Debt actions: The company repaid $900m of 11.50% secured notes during the first nine months. In October 2023, after quarter-end, it refinanced its revolving facilities and a $501.6m term loan; aggregate revolving commitments became $3.5bn. It also gave notice to redeem the remaining $500m of 11.50% notes in early November, funded from existing liquidity.
Material changes and management outlook
Operating recovery drove the return to substantial profitability, with revenue growth outpacing the increase in cruise operating expenses. Q3 cruise operating expenses increased $170m year over year; nine-month expenses increased $1.05bn, reflecting higher capacity and occupancy, partly offset by lower payroll costs related to 2022’s return-to-service costs. Nine-month interest expense rose $123m to $1.06bn, due in part to higher rates and $81m of debt-extinguishment losses. Equity investment income increased to $149m from $30m, primarily due to higher income from TUI Cruises.
Management estimated 2023 capital expenditures of approximately $4.1bn, excluding Partner Brand ship orders. As of September 30, ships on order for the Global Brands had an estimated aggregate cost of $10.9bn, with $1.1bn deposited; approximately 40.1% of that cost was exposed to euro exchange-rate movements. The filing provides no clear full-year revenue or earnings guidance.
Risks, contingencies and unusual items
- The company reported a December 2022 judgment in the Havana Docks litigation of approximately $112m, including damages and attorneys’ fees, and is appealing. It recorded a charge of approximately $130m in Q4 2022, including post-judgment interest and legal and bonding costs.
- Key exposures include substantial debt and debt service, refinancing and interest-rate risk, fuel prices, foreign exchange, consumer demand and discretionary spending, inflation and operating costs, shipbuilding delays, disease outbreaks, extreme weather, geopolitical events, cyber risks, and environmental regulation.
- Debt covenants restrict certain actions. The company has not declared a dividend since Q1 2020 and said dividends or share repurchases would require repayment of amounts deferred under export credit facilities.
- Ship orders entail significant capital commitments; delivery timing may change. The company also identifies possible disruptions from port access, supply chains, labor availability, insurance costs and regulatory requirements.
- Management’s statements about liquidity and future performance are forward-looking and subject to uncertainty. The filing says there were no material changes in market-risk exposure since the 2022 annual report.
Most important facts for investors to verify
- Whether elevated occupancy, ticket pricing and onboard spending persist, and how they translate into yields and margins.
- Cash generation and liquidity after debt maturities, interest payments, ship installments and the post-quarter refinancing and note redemption.
- Progress on reducing leverage and the effect of variable rates, refinancing costs and debt covenants.
- Actual 2023 capital expenditures and ship delivery timing versus the stated estimate and commitments.
- Developments in the Havana Docks appeal and the potential financial exposure.
- Performance of TUI Cruises and the assumptions behind reported adjusted, non-GAAP measures.