Royal Caribbean Cruises Ltd. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; filed August 5, 2021. The company operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises, and owns 50% of TUI Cruises. Operations remained in a phased restart after the March 2020 COVID-19 suspension.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $50.9 million | $175.6 million | $92.9 million | $2.21 billion |
| Operating loss | $1.02 billion | $1.28 billion | $1.83 billion | $2.59 billion |
| Net loss attributable to RCL | $1.35 billion | $1.64 billion | $2.48 billion | $3.08 billion |
| Diluted loss per share | $5.29 | $7.83 | $9.96 | $14.74 |
Q2 occupancy was 27.5%, versus 84.5% in the comparable quarter; six-month occupancy was 32.1%, versus 102.6%. The company attributed the severe revenue decline primarily to reduced capacity and the majority of its fleet remaining idle. Q2 operating expenses fell less sharply than revenue, and the company continued to incur substantial fixed and restart costs. Interest expense rose to $304.8 million in Q2 and $577.3 million for the first half, reflecting additional borrowing and higher average debt.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $4.25 billion. Reported liquidity was approximately $5.0 billion, including a $700 million 364-day loan commitment available to draw through August 12, 2022.
- Gross debt, including finance leases, was $21.42 billion; debt net of unamortized issuance costs was $21.05 billion, up from $19.64 billion gross at year-end 2020. Long-term debt on the balance sheet was $20.08 billion.
- For the first six months, operating cash outflow was $1.27 billion and investing cash outflow was $1.18 billion; financing provided $3.02 billion. Cash increased by $565.9 million. Operating cash flow benefited from a $629.3 million increase in customer deposits.
- Q2 average monthly cash burn was approximately $330 million, slightly higher than Q1 as more ships returned to service. Customer deposits totaled $2.4 billion at quarter-end, including about 40% related to future cruise credits.
Material changes and notable items
- Revenue fell 71% in Q2 year over year and 95.8% for the first half. First-half capacity was down 89.9% year over year. Comparisons are affected by the timing of the suspension and Silversea’s three-month reporting lag.
- First-half financing included $1.5 billion net proceeds from a common-stock issuance and new senior notes of $1.5 billion due 2028 and $650 million due 2026. The latter issuance funded repayment of Silversea’s $619.8 million 7.25% secured notes, plus related costs.
- A $40.6 million impairment charge in Q2 related to construction-in-progress projects reduced in scope or abandoned. By contrast, 2020 included substantial COVID-related impairments and credit losses, including $1.26 billion in the first half.
- The company sold Azamara in March 2021 for $201 million before adjustments and recorded an immaterial gain. The sale was not reported as discontinued operations.
Outlook, risks and contingencies
- Management expected a net loss on both GAAP and adjusted bases for Q3 and full-year 2021; it said the scale depended on the timing and extent of the return to service. It anticipated about 80% of the fleet in service by year-end 2021 and approximately $2.1 billion of 2021 capital expenditures for existing ship orders, excluding Partner Brands.
- Bookings improved: Q2 new bookings were about 50% above Q1, and weekly bookings in June were about 90% above the Q1 weekly level. Management said pricing for 2021 sailings was above 2019 levels and 2022 bookings remained strong, while noting a modest impact from the Delta variant on closer-in bookings.
- The company said it believed available liquidity could fund obligations for at least 12 months, but emphasized uncertainty around restart assumptions, occupancy, regulation, health protocols, cancellations, customer refunds and future liquidity needs. COVID-19 and its variants could continue to materially harm results and liquidity.
- Financial covenant waivers were extended through at least Q3 2022; a $350 million minimum-liquidity covenant applied, and the company reported compliance. Dividend and share-repurchase restrictions extend through Q3 2022. Failure to secure further waivers or financing could trigger defaults or collateral requirements.
- Debt maturities include approximately $2.2 billion in 2022 and $5.3 billion in 2023. Variable-rate debt, currency and fuel-price exposure, shipbuilding delays and significant future ship commitments are additional risks.
- Pending Helms-Burton litigation includes the Havana Docks action, with trial scheduled for October 25, 2021; the Port of Santiago dismissal was appealed. The company said it believed adverse outcomes were unlikely to be material, while acknowledging litigation uncertainty.
Investor verification priorities
- Check the pace and economics of fleet restart, actual occupancy, cancellations and the effect of health requirements or COVID-19 variants.
- Monitor cash burn, customer deposits and refunds, available borrowing capacity, covenant compliance, and refinancing needs against debt maturities.
- Assess whether booking momentum and pricing persist, especially for 2022, and whether restart costs and capital spending remain within expectations.
- Review ship-delivery timing and funding commitments, variable-rate exposure, and developments in the Helms-Burton cases.