Business context and reporting period
Royal Caribbean Cruises Ltd. filed this Form 10-K for the fiscal year ended December 31, 2022. Although the request identifies 2022 Q4, the filing reports full-year results, not standalone fourth-quarter results. The company operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises, and owns 50% of the TUI Cruises joint venture. Its full fleet returned to service by June 2022 after the pandemic-related suspension of cruising.
Financial and operating performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $8.84 billion | $1.53 billion |
| Operating loss | $764 million | $3.87 billion |
| Net loss attributable to RCL | $2.16 billion; $(8.45) per diluted share | $5.26 billion; $(20.89) per diluted share |
| Adjusted net loss | $1.91 billion; $(7.50) per diluted share | $4.83 billion; $(19.19) per diluted share |
| Adjusted EBITDA | $712 million | $(2.60) billion |
| Cash from operating activities | $482 million | $(1.88) billion |
Revenue increased 477% year over year, principally because substantially more ships operated in 2022; the comparison is therefore affected by the different levels of resumed operations. Against the last normalized year, 2019, revenue was $8.84 billion versus $11.0 billion, and adjusted EBITDA was $712 million versus $3.62 billion. The reported operating and net loss margins were 8.6% and 24.4%, respectively.
Passenger ticket revenue was $5.79 billion (65.5% of revenue) and onboard and other revenue was $3.05 billion (34.5%). Occupancy averaged 85.1% for the year and 96% in the second half; December sailings were nearly 100% occupied, with holiday sailings near 110%. Management said total revenue per passenger cruise day exceeded the 2019 record, driven by onboard revenue, but the filing does not provide a clear value for that increase.
Cruise operating expenses were $6.61 billion, including $1.07 billion of fuel expense. Fuel cost per metric ton rose 43% from 2021. Versus 2019, gross cruise costs per available passenger cruise day (APCD) increased 8.8% in constant currency, while net cruise costs excluding fuel per APCD increased 13.5%. Management cited inflation, fleet-ramp-up and health-protocol costs, as well as Galveston terminal and CocoCay costs.
Debt, liquidity and cash requirements
- At year-end, cash and cash equivalents were $1.94 billion; total debt, net of unamortized issuance costs, was $23.39 billion. Shareholders’ equity was $2.87 billion.
- Reported liquidity was $2.9 billion at December 31, comprising $1.9 billion cash, $0.3 billion undrawn revolving capacity and a $0.7 billion 364-day loan commitment. The loan commitment was terminated in February 2023 after issuance of $700 million of 7.25% guaranteed notes.
- Operating cash flow turned positive, but investing activities used $2.99 billion, primarily for property and equipment; financing activities provided $1.74 billion. Customer deposits were $4.17 billion, including approximately $0.5 billion of unredeemed future cruise credits.
- Debt maturities were approximately $2.09 billion in 2023 and $4.66 billion in 2024. In January 2023, the company extended $2.3 billion of revolving credit capacity to April 2025. Weighted-average interest on total debt was 6.23% at year-end.
- Planned 2023 capital expenditures were approximately $4.1 billion. The company had $9.8 billion of aggregate ship-order costs for its Global Brands, with $832 million deposited; committed financing covered about 80% of the cost of the seven Global Brand ships on order.
Management stated it expected sufficient resources to fund obligations for at least 12 months after issuance of the statements and said the company was in compliance with financial covenants at year-end. The auditor highlighted the pandemic’s material negative effect on operating cash flows and liquidity and identified management’s liquidity estimate as a critical audit matter.
Material changes, outlook and notable items
- The company returned its entire fleet to operation during 2022, took delivery of Wonder of the Seas and Celebrity Beyond, and acquired Silver Endeavour. Annual passengers carried rose to 5.54 million from 1.03 million in 2021.
- Management expected 2023 capacity to be 14% above 2019, with occupancy expected to reach historical levels in late spring 2023. Celebrity Ascent and Silver Nova were expected to enter service in 2023; Icon of the Seas was expected to be delivered late in 2023 and begin revenue sailings in 2024. Delivery dates remain subject to shipyard delays.
- The filing refers to financial and climate-related performance goals for 2025 but does not provide clear numerical financial guidance in the supplied text. Climate objectives include double-digit carbon-intensity reductions by 2025 versus 2019, a net-zero-capable ship by 2035 and net-zero emissions by 2050; management said achieving them will require fuels and technologies not yet available.
- The Havana Docks lawsuit resulted in a December 2022 judgment of approximately $112 million, plus attorneys’ fees. The company recorded a $130 million charge including post-judgment interest, legal costs and bonding fees, and appealed; the plaintiff also cross-appealed. A separate Port of Santiago action was dismissed, with the dismissal affirmed on appeal.
- No common-stock dividend has been declared since the first quarter of 2020, and the company does not expect to pay dividends in the foreseeable future. Debt covenants and deferred export-credit-facility principal payments constrain dividends and share repurchases.
Key risks and contingencies
Principal risks include weaker discretionary travel demand, inflation and fuel, food and labor costs, substantial debt service and refinancing needs, interest-rate and foreign-exchange movements, disease outbreaks, adverse weather, shipyard and supply-chain delays, and tighter environmental rules that could raise costs or affect itineraries. The company does not carry business-interruption insurance for its ships. A 1% increase in interest rates was estimated to increase forecast 2023 interest expense by $34.8 million; a 10% rise in fuel prices was estimated to add $61 million to 2023 fuel costs after hedging. The company also disclosed ongoing litigation and regulatory, cyber-security and insurance risks.
Important facts for investors to verify
- Whether occupancy, ticket pricing and onboard spending sustain the recovery, and how quickly revenue and cash generation approach 2019 levels.
- Whether liquidity, covenant compliance and refinancing plans remain adequate against upcoming debt maturities, interest costs and shipbuilding commitments.
- Progress against 2023 capacity and occupancy expectations, ship delivery schedules, and the stated 2023 capital expenditure plan.
- The outcome and potential further cost of the Havana Docks appeal and cross-appeal.
- Actual fuel, food and labor cost trends and the effect of interest-rate, currency and environmental-regulation changes.