Royal Caribbean Cruises Ltd. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022. Figures are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. Royal Caribbean operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises, and holds a 50% equity-method interest in TUI Cruises.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,059.2 | $42.0 |
| Operating loss | $(859.2) | $(809.2) |
| Net loss | $(1,167.1) | $(1,131.7) |
| Diluted loss per share | $(4.58) | $(4.66) |
| Cash used in operating activities | $(528.8) | $(809.2) |
| Cash and cash equivalents at quarter-end | $1,968.5 | $2,701.8 at Dec. 31, 2021 |
Revenue comprised $651.9 million of passenger ticket revenue and $407.4 million of onboard and other revenue. Operating loss was 81.1% of revenue and net loss was 110.2% of revenue. The company reported a $216.3 million gain in other comprehensive income, primarily reflecting gains on cash-flow hedges; this did not reduce the reported net loss.
Total debt, net of unamortized issuance costs, was $22.5 billion, including $2.6 billion classified as current. Total liabilities were $29.0 billion and shareholders’ equity was $4.0 billion at March 31. The company reported liquidity of $3.8 billion: $2.0 billion cash, $1.1 billion of undrawn revolving capacity and a $0.7 billion 364-day term-loan commitment available to draw before August 12, 2022. Customer deposits were $3.6 billion.
Operating and investing activities used $528.8 million and $1.4 billion of cash, respectively; capital spending on property and equipment was $1.36 billion. Financing activities provided $1.24 billion, including $2.35 billion of debt proceeds and $1.01 billion of debt repayments.
Material changes versus Q1 2021
- Revenue rose by approximately $1.0 billion as cruising resumed, compared with the broad suspension of operations in the prior-year quarter. Occupancy increased to 57.4% from 37.7%; 54 Global and Partner Brand ships were operating, close to 90% of worldwide capacity.
- Cruise operating expenses increased to $1.18 billion from $283.5 million, reflecting the return of ships and crews to service as well as higher fuel and food costs. Fuel cost per metric ton, net of fuel swaps, was up 55% year over year.
- Marketing, selling and administrative expense increased 52.7% to $394.0 million as sales and marketing activity ramped up. Interest expense increased 1.9% to $277.7 million, largely due to debt issued since Q1 2021.
- Net loss widened by $35.4 million, while loss per share improved from $4.66 to $4.58. Adjusted net loss was $1.16 billion versus $1.08 billion; this is a company-defined non-GAAP measure.
- Cash declined by $733.3 million during the quarter. Debt increased from $21.1 billion to $22.5 billion net of issuance costs.
Outlook, risks and unusual items
- Management expected a net loss on both GAAP and adjusted bases in Q2 2022, with a return to profitability in the second half of 2022. It cautioned that COVID-19’s impact on 2022 revenue, results, cash flows and financial condition would remain material.
- Management said bookings improved through Q1 and exceeded comparable 2019 levels in the two months before quarter-end. Second-half 2022 load factors were slightly below historical levels, with bookings occurring closer to sailing. The company expected the Ukraine conflict to weigh on European summer load factors, particularly Baltic itineraries, and expected inflation and supply-chain pressures—especially fuel and food—to adversely affect 2022 costs.
- The company expected approximately $3.0 billion of 2022 capital expenditures for its own ship orders. Its ships on order represented approximately $10.7 billion of aggregate cost, excluding Partner Brand ships; approximately 61.8% was exposed to euro exchange-rate fluctuations. Delivery timing remained subject to possible shipyard delays.
- Approximately $3.2 billion of long-term debt was due in June 2023. A Morgan Stanley agreement provided optional backstop financing of up to $3.15 billion in five-year unsecured notes during April–June 2023, subject to conditions. Management believed available resources were sufficient for at least 12 months, but noted uncertainty in liquidity estimates and assumptions.
- COVID-19-related cancellations, changing health protocols and possible government restrictions remained risks. The war in Ukraine, fuel and food inflation, variable interest rates, foreign exchange, shipyard delays, refinancing needs and covenant compliance were also material concerns. The company was in covenant compliance at quarter-end and estimated continued compliance for at least 12 months.
- In the Havana Docks Helms-Burton lawsuit, the court granted summary judgment for the plaintiff on liability; a damages trial was scheduled for September 2022. The company sought permission to appeal and said it could not reasonably estimate a potential loss or range. A separate Port of Santiago case had been dismissed, with appeal pending.
- Effective January 1, 2022, adoption of ASU 2020-06 increased debt by $161.4 million and, through the cumulative accounting adjustment, reduced shareholders’ equity by $161.4 million. No dividends were declared; lender restrictions on dividends and repurchases extended through Q3 2022.
Important facts for investors to verify
- Progress in fleet deployment, occupancy, booking trends and the timing and cost of any renewed COVID-19 disruptions.
- Cash burn, customer-deposit trends, access to revolving and committed facilities, covenant terms, and the ability to refinance 2023 maturities.
- Fuel, food and other operating-cost inflation, plus the effects of interest-rate and euro movements and hedging.
- Ship-delivery schedules, capital-spending requirements and financing for the orderbook.
- Developments and potential damages in the Havana Docks litigation; the filing states that potential loss cannot be estimated.