Royal Caribbean Cruises Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Royal Caribbean operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises and held a 50% interest in TUI Cruises. Most global sailings remained suspended because of COVID-19.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $42.0 million | $2.03 billion |
| Operating loss | $809.2 million | $1.31 billion |
| Net loss attributable to Royal Caribbean | $1.13 billion; $4.66 per diluted share | $1.44 billion; $6.91 per diluted share |
| Adjusted net loss | $1.08 billion; $4.44 per diluted share | $310.4 million; $1.48 per diluted share |
| Operating cash flow | $(809.2) million | $198.7 million |
- Revenue fell 97.9% year over year: passenger ticket revenue was $20.8 million and onboard and other revenue was $21.2 million. Capacity was 384,224 available passenger cruise days, versus 8.22 million; occupancy was 37.7%, versus 103.0%.
- Cruise operating expenses were $283.5 million, down 81.2%, while marketing, selling and administrative expense was $258.0 million. Operating margins are not meaningfully comparable given the near-cessation of operations and very low revenue.
- Interest expense, net, rose to $272.5 million from $92.9 million, primarily reflecting additional debt, higher rates on new borrowings and a higher average revolver balance. Equity investment loss increased to $59.9 million.
- Cash and equivalents were $5.09 billion at quarter-end, up from $3.68 billion at year-end 2020. Disclosed liquidity was approximately $5.8 billion, including a $700 million term-loan commitment. Operating and investing activities used $809.2 million and $967.6 million, respectively; financing provided $3.18 billion.
- Total debt was approximately $21.3 billion gross, including finance leases, or $20.9 billion net of unamortized issuance costs. Shareholders’ equity was $9.17 billion. Customer deposits were $1.83 billion, including approximately $503 million classified as contract liabilities.
Changes, financing and unusual items
- The lower GAAP net loss versus Q1 2020 chiefly reflects the prior-year $1.1 billion impairment and credit-loss charge. Adjusted net loss increased from $310.4 million to $1.08 billion.
- In March, the company issued $1.5 billion of senior unsecured notes due 2028 at 5.5% and raised approximately $1.5 billion net from issuing 16.9 million common shares. It also took delivery of Odyssey of the Seas, financed with a $994.1 million term loan.
- Debt amendments extended certain maturities and covenant waivers, and deferred $1.15 billion of export-credit-facility principal payments due April 2021–April 2022. Cash dividends and share repurchases are restricted through Q3 2022 under lender agreements.
- The company sold Azamara on March 19, 2021, for $201 million subject to closing adjustments; it reported an immaterial gain in the quarter and a $6.2 million net gain in its adjusted-loss reconciliation.
- Q1 average monthly cash burn was approximately $300 million, slightly above prior expectations, mainly due to fleet restart costs and timing. The filing does not provide a reliable projected burn rate during the phased return to service.
Outlook, risks and contingencies
- Management expected a GAAP and adjusted net loss in Q2 and full-year 2021. It said the pandemic’s effect on near- and longer-term results could not be reasonably estimated.
- Most global operations were suspended through at least June 30, 2021. The company planned a phased restart with reduced occupancy, modified itineraries and enhanced health, safety and vaccination measures, subject to CDC and other regulatory requirements. The timing, costs and ability to meet those requirements remained uncertain.
- Bookings for the second half of 2021 were described as aligned with the anticipated restart and priced above 2019 levels, including and excluding future cruise credits. First-half 2022 advance bookings were within historical ranges and at higher prices than 2019. These are management statements, not operating results.
- Management believed available liquidity would fund obligations for at least 12 months from issuance of the statements, but noted that liquidity estimates rely on uncertain assumptions. Revolving facilities were fully utilized through borrowings and letters of credit. The company reported compliance with applicable covenants and a $350 million minimum-liquidity covenant.
- Planned 2021 capital expenditures were approximately $2.1 billion, including ship orders; the filing projected $1.1 billion for the remainder of 2021. Shipyard delays could change delivery timing. The company listed $12.9 billion of aggregate cost for its on-order ships, excluding partner-brand ships.
- Principal risks include prolonged suspension or a delayed restart, weaker demand, refunds and future-credit redemptions, increased debt service, refinancing and covenant risk, health-related disruptions, and shipyard delays. A 1% increase in interest rates was estimated to raise forecast 2021 interest expense by about $40.9 million.
- Legal matters include pending Helms-Burton claims concerning Cuban port facilities; one related action was dismissed, with an appeal pending. The company said it believed the cases were unlikely to materially affect it, while acknowledging litigation uncertainty. A separate shareholder class action was dismissed without prejudice in February 2021.
Important facts for investors to verify
- Actual restart dates, regulatory approvals, occupancy, bookings, pricing and cash generation versus management’s assumptions.
- Liquidity use, customer refunds and future cruise credit redemptions, as well as access to additional financing and compliance with covenant terms.
- Debt maturities, interest costs, deferred principal repayment schedules and any incremental collateral or credit-card processor reserve requirements.
- Capital spending, ship delivery timing and the company’s ability to finance remaining ship commitments.
- Developments in the Cuban port litigation and any further asset impairment, affiliate funding needs or other material contingencies.