Carnival Corporation & plc — 2021 Q3 Form 10-Q Summary
Business context and reporting period
Joint filing for Carnival Corporation and Carnival plc covering the quarter and nine months ended August 31, 2021. Cruise operations were paused in mid-March 2020 because of COVID-19. By August 31, 2021, eight of nine brands had resumed operations, but only 35% of capacity was operating with guests onboard.
Financial performance and liquidity
| Metric | Three months ended August 31, 2021 | Nine months ended August 31, 2021 |
|---|---|---|
| Revenue | $546 million | $621 million |
| Operating loss | $(2.057) billion | $(5.196) billion |
| Net loss | $(2.836) billion | $(6.881) billion |
| Diluted loss per share | $(2.50) | $(6.14) |
| Adjusted EBITDA | $(1.033) billion | $(3.069) billion |
| Cash used in operating activities | Not provided for the quarter | $(3.741) billion |
Approximate operating margins were negative 377% for the quarter and negative 837% for the nine-month period; approximate net margins were negative 520% and negative 1,108%, respectively. These percentages are distorted by the very low revenue base and substantial fixed costs during the gradual restart.
- August 31 cash and cash equivalents were $7.151 billion, with $647 million of short-term investments and total liquidity of approximately $7.8 billion.
- Total debt was approximately $31.964 billion, including $3.099 billion of short-term borrowings, $1.303 billion of current long-term debt and $26.831 billion of long-term debt on the balance sheet.
- Working capital was negative $0.6 billion, compared with positive $1.9 billion at November 30, 2020. Current customer deposits were $2.7 billion, versus $1.9 billion at year-end 2020.
- Capital expenditures were $3.120 billion in the first nine months, including $2.8 billion for new ships. Remaining ship growth commitments totaled $10.146 billion through 2025.
- Shareholders’ equity declined to $14.863 billion from $20.555 billion at November 30, 2020, primarily reflecting cumulative losses.
Material changes versus the prior comparable period
- Third-quarter revenue increased to $546 million from $31 million as operations restarted. Nine-month revenue declined 89% to $621 million from $5.561 billion because the 2020 comparison included pre-pause operations.
- Third-quarter net loss was broadly similar to the prior-year loss of $2.858 billion, while the nine-month loss improved from $8.014 billion to $6.881 billion.
- Operating loss improved from $2.333 billion to $2.057 billion in the quarter and from $7.223 billion to $5.196 billion for nine months.
- Ship impairment charges were $475 million in the quarter and $524 million for nine months, compared with $910 million and $1.829 billion, respectively, in 2020. No goodwill impairment was recorded in 2021, versus $2.096 billion for the first nine months of 2020.
- Interest expense increased to $418 million for the quarter and $1.253 billion for nine months, driven by additional borrowings and higher interest costs. Debt extinguishment losses were $376 million and $372 million, respectively, primarily related to repurchasing $2.0 billion of 2023 senior secured notes.
- Occupancy was approximately 54% in the third quarter. Comparable 2020 occupancy data was not meaningful because operations were largely paused.
Financing, outlook, risks and unusual items
- Management expects a net loss on both a U.S. GAAP and adjusted basis for the fourth quarter and full year ending November 30, 2021.
- Management planned to operate 50 ships, or 61% of capacity, by November 30, 2021 and 71 ships, or 75% of capacity, by June 2022, with a full-fleet return targeted for spring 2022.
- The company issued $3.5 billion of 5.8% senior unsecured notes due 2027, $2.4 billion of 4% senior secured notes due 2028, and borrowed $544 million under an export credit facility during 2021. It also completed a $996 million common-stock offering.
- Debt amendments deferred approximately $1.0 billion of principal payments otherwise due from April 2021 through March 2022; cumulative deferred principal was approximately $1.7 billion through September 14, 2021.
- Management stated that available liquidity and expected gradual resumption of operations should be sufficient to satisfy obligations for at least the next twelve months. The company remained in compliance with applicable debt covenants at August 31, 2021.
- Fourth-quarter monthly average cash burn was expected to increase because of restart spending, including crew mobilization and enhanced health and safety protocols.
- Key risks include renewed COVID-19 disruptions, travel restrictions, weak occupancy and pricing, cash refunds or future cruise credits, financing and covenant requirements, fuel and foreign-exchange volatility, ship-delivery delays, litigation and governmental investigations, and cybersecurity incidents.
- Approximately 72 individual COVID-19 lawsuits and ten purported class actions were pending or had been filed as of September 22, 2021; governmental investigations continued. The filing states that potential outcomes remain uncertain.
- The company reported ransomware incidents in August and December 2020 and ongoing regulatory matters, including proceedings involving the New York Department of Financial Services.
Important facts for investors to verify
- Whether the planned return-to-service schedule and occupancy recovery were achieved after the filing date.
- Actual monthly cash burn, operating cash flow and liquidity after further restart expenditures, refunds and customer-deposit movements.
- Debt maturities, refinancing activity, interest costs and compliance with financial covenants, particularly beginning with future interest-coverage testing dates.
- The amount and timing of remaining new-ship commitments and related export-credit financing.
- Potential additional ship or goodwill impairments if demand, pricing, operating schedules or ship-disposal values deteriorate.
- The financial and operational consequences of COVID-19 litigation, regulatory actions, environmental obligations and cybersecurity incidents.