ROYAL CARIBBEAN CRUISES LTD quarterly report, Q1 FY2024

Business context and reporting period

Royal Caribbean Cruises Ltd. is a global cruise company operating Royal Caribbean International, Celebrity Cruises and Silversea Cruises, with a 50% equity-method investment in TUI Cruises. Its global and partner brands had 65 ships as of March 31, 2024. This unaudited Form 10-Q reports the quarter ended March 31, 2024, compared with the first quarter of 2023.

Financial performance and position

Passenger ticket revenue was $2.542 billion and onboard and other revenue was $1.186 billion. Operating expenses included $2.056 billion of cruise operating costs, $535 million of marketing, selling and administrative costs, and $387 million of depreciation and amortization. Net income attributable to RCL was 9.7% of revenue, versus a 1.7% loss margin in Q1 2023.

At March 31, 2024, total debt was $21.042 billion before $523 million of unamortized issuance costs; reported debt net of those costs was $20.519 billion, including $1.643 billion current and $18.876 billion long-term. The weighted average debt rate was 5.75%. The company reported $3.7 billion of liquidity: $437 million cash and $3.3 billion of undrawn revolving credit capacity. Current liabilities were $9.905 billion, including $6.040 billion of customer deposits. Shareholders’ equity totaled $5.325 billion.

Changes versus the prior comparable period

• Revenue rose $842 million, or about 29%, reflecting higher capacity, ticket prices and onboard spending. Capacity increased 9.4%; occupancy rose to 107.0% from 102.1%.
• Operating income increased to $750 million from $272 million. Management attributed the improvement primarily to higher ticket prices and occupancy, alongside additional capacity.
• Cruise operating expenses rose $263 million to $2.056 billion, driven in part by higher drydock and maintenance costs and commissions linked to increased ticket prices. Marketing, selling and administrative expenses increased $74 million to $535 million.
• Operating cash flow was broadly similar year over year. Customer deposits increased $729 million in Q1 2024, compared with $1.103 billion in Q1 2023.
• Debt declined from $21.995 billion at December 31, 2023, to $21.042 billion. In March, the company issued $1.25 billion of 6.25% notes due 2032 and redeemed $1.25 billion of 11.625% notes due 2027. The refinancing generated a $116 million loss on extinguishment of debt.

Outlook, risks and unusual items

• Management expects approximately $3.4 billion of 2024 capital expenditures for existing ship orders, excluding partner-brand ships. Company Global Brand ship orders had an aggregate expected cost of about $8.1 billion, with $748 million deposited at quarter-end.
• Material cash requirements disclosed totaled $12.436 billion across the remainder of 2024 and subsequent periods shown, including ship purchase obligations, debt interest and other commitments. The company reported $5.9 billion of committed financing for ships on order.
• Management stated that it believes available financial resources are sufficient to fund obligations for at least the next 12 months, and that it was in compliance with debt covenants and expected to remain so for that period. These expectations depend on assumptions and estimates.
• The company faces exposure to interest rates, foreign exchange and fuel prices. About 86.3% of debt was effectively fixed-rate after swaps. Fuel hedges covered 62% of projected 2024 fuel purchases, 45% for 2025 and 15% for 2026.
• A Havana Docks lawsuit resulted in a December 2022 judgment of approximately $112 million, including damages and attorneys’ fees. The company has appealed and says it intends to pursue the appeal; it recorded an approximately $130 million related charge in Q4 2022.
• The company’s new-build commitments, shipyard delivery timing, operating seasonality, debt service and customer-deposit trends are material considerations. A new Oasis-class ship agreement for 2028 is contingent on conditions including financing.
• No formal earnings guidance is provided in the supplied filing text. The filing states there were no material changes to previously disclosed risk factors.

Important facts for investors to verify

• Whether strong pricing, occupancy and onboard spending persist, and how new ship capacity and drydock activity affect costs.
• Liquidity and refinancing needs against scheduled debt maturities, ship payments and the company’s $3.3 billion undrawn revolver.
• Whether customer deposits and operating cash flow remain supportive as bookings convert to sailings.
• Ship delivery schedules, the expected $3.4 billion of 2024 capital expenditures and committed financing for new ships.
• Developments in the Havana Docks appeal and any resulting cash, legal or financial-statement effects.
• Potential effects of fuel, interest-rate and foreign-exchange movements, as well as covenant and derivative collateral requirements.