Carnival Corporation & plc — Q1 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended February 28, 2021, compared with the three months ended February 29, 2020. Carnival had paused substantially all guest cruise operations since mid-March 2020; as of February 28, 2021, no ships were operating with guests onboard. The results therefore primarily reflect the financial impact of COVID-19, suspended operations and preparation for a phased restart.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $26 million | $4.789 billion | Down 99% |
| Operating loss | $1.524 billion | $713 million | Loss increased $810 million |
| Net loss | $1.973 billion | $781 million | Loss increased $1.192 billion |
| Diluted loss per share | $1.80 | $1.14 | Loss per share increased |
| Adjusted net loss | $1.954 billion | $150 million adjusted profit | Material deterioration |
| Adjusted EBITDA | $(1.014) billion | $782 million | Declined $1.796 billion |
| Operating cash flow | $(1.503) billion | $916 million | Declined $2.419 billion |
Operating margin and net margin were not meaningful because revenue was only $26 million. Interest expense increased to $398 million from $55 million, primarily because of additional borrowings at higher interest rates.
At February 28, 2021, cash and cash equivalents were $9.674 billion and short-term investments were $1.840 billion, for total cash and short-term investments of approximately $11.5 billion. Total debt principal was $32.065 billion, compared with $27.581 billion at November 30, 2020. Working capital was $3.8 billion, including $1.8 billion of current customer deposits.
Capital expenditures were approximately $1.855 billion, including $1.7 billion for new shipbuilding and $81 million for improvements, replacements, information technology and buildings. Financing activities provided $5.216 billion, including $4.980 billion of long-term debt issuance and approximately $997 million of net equity proceeds. The company reported an average monthly cash burn rate of $500 million in the quarter and expected approximately $550 million for the first half of 2021, excluding scheduled debt maturities and certain additional collateral.
Material changes versus the prior comparable period
- Revenue fell from $4.789 billion to $26 million as cruise operations remained paused.
- Operating costs declined 85%, but fixed and restart-related costs remained substantial; depreciation and amortization was $552 million.
- Q1 2020 included $731 million of goodwill impairments and $330 million of ship and other impairments. No goodwill or ship impairment charges were recorded in Q1 2021, although a $17 million impairment was recorded for the White Pass investment.
- Interest expense increased by $343 million because of debt raised during the operational pause.
- Operating cash flow changed from $916 million provided to $1.503 billion used.
- The company issued $3.5 billion of 2027 senior unsecured notes and completed a public offering of 40.5 million Carnival Corporation shares for approximately $996 million of net proceeds.
- Total shareholders’ equity decreased to $19.813 billion from $20.555 billion, primarily reflecting the quarterly net loss, partly offset by the equity issuance and foreign-currency gains.
Guidance, outlook, risks and unusual items
Management expected a net loss on both a U.S. GAAP and adjusted basis for Q2 2021 and the full fiscal year ending November 30, 2021. A phased restart was planned, including AIDA operations in the Canary Islands, Costa operations from Italian ports, and summer sailings by P&O Cruises UK, Cunard, Princess and Seabourn. Restarted cruises were expected to operate at adjusted capacity with enhanced health and safety protocols.
Management concluded that approximately $11.5 billion of cash and short-term investments, financing actions and cost reductions provided sufficient liquidity for at least the next twelve months, subject to highly uncertain assumptions regarding the timing of the restart, occupancy, booking trends, refunds, restart spending and the duration of COVID-19 effects.
Debt covenants were amended or waived. Carnival was in compliance with applicable covenants at February 28, 2021, but future testing requirements resume in late 2022 or 2023 for certain facilities. Failure to obtain further amendments or refinancing could result in defaults, acceleration of debt and material adverse liquidity consequences. Scheduled debt principal payments totaled $32.065 billion, including $6.393 billion in 2023 and $4.548 billion in 2024.
Other significant commitments and exposures included approximately $11.459 billion of new ship growth capital commitments, $7.0 billion of unhedged euro-denominated newbuild commitments through 2025, $629 million of credit-card processor reserve funds, and $172 million of cash collateral in escrow. The company also disclosed approximately 70 individual COVID-19 lawsuits, ten purported COVID-19 class actions, securities litigation, governmental investigations and ransomware incidents involving unauthorized access to information systems.
The filing contains an inconsistency regarding the coupon of the 2027 senior unsecured notes: the debt note states 5.8%, while the exhibit index describes 5.75%. The precise coupon should be verified against the executed indenture.
Most important facts for investors to verify
- Whether the phased cruise restart occurred on schedule and whether occupancy, pricing and bookings recovered as assumed.
- Actual monthly cash burn, including restart costs, capital expenditures, refunds, collateral requirements and scheduled debt maturities.
- Availability and terms of planned refinancing, including whether refinancing reduces interest expense and extends maturities.
- Compliance with debt covenants when testing resumes and the consequences of any further waivers or amendments.
- Customer-deposit refund obligations and the proportion of deposits represented by future cruise credits.
- Potential liability from COVID-19 litigation, governmental investigations, securities litigation and cybersecurity incidents.
- The amount and timing of the $11.459 billion shipbuilding commitments relative to liquidity and operating cash generation.
- The correct interest rate and terms of the 2027 senior unsecured notes, given the filing’s inconsistent descriptions.