Royal Caribbean Group Provides Business Update and Reports on Second Quarter 2020

Royal Caribbean Group (NYSE: RCL) today reported financial results for the second quarter of 2020 and commented on the business in light of the global COVID-19 pandemic.

Second Quarter 2020

Starting on March 13, 2020 and due to the COVID-19 pandemic, the Company suspended its global cruise operation. This resulted in the cancellation of all of the Company’s second quarter sailings.

The Company reported US GAAP Net Loss for the second quarter of 2020 of $(1.6) billion or $(7.83) per share compared to US GAAP Net Income of $472.8 million or $2.25 per share in the prior year.  The 2020 results include a non-cash asset impairment loss of $156.5 million.  The Company reported Adjusted Net Loss of $(1.3) billion or $(6.13) per share for the second quarter of 2020 compared to Adjusted Net Income of $532.7 million or $2.54 per share in the prior year.  The Net Loss for the quarter is a result of the impact of the COVID-19 pandemic on the business.

Business Update

“The COVID-19 pandemic is posing an unprecedented challenge to our industry and society. Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit,” said Richard D. Fain, Chairman and CEO. “In the meantime, we are using this time to refine our operations to be as efficient as we can while providing the great experiences that so many people are eagerly awaiting.”

Regarding the new health and safety protocols, the Company is being advised by a “Healthy Sail Panel” of experts in areas of science and public health with backgrounds in medical practice, research, infectious disease, biosecurity, hospitality and maritime operations.

Update on Liquidity Actions and Ongoing Uses of Cash

Given the current environment, the Company continues to prioritize and bolster its liquidity, working to ensure it is well positioned for recovery. Since the last earnings call, the Company has taken further actions to enhance its liquidity, preserve cash and secure additional financing. Among these latest efforts the Company highlighted the following:

  • The issuance of $1.0 billion of priority guaranteed notes and $1.15 billion of convertible notes;
  • The issuance of GBP 300 million of commercial paper in the UK providing over $370 million of additional liquidity;
  • Completed a $0.9 billion 12-month debt amortization holiday from all export-credit backed facilities;
  • Amended over $11 billion of commercial bank and export credit facilities to provide covenant waivers through the fourth quarter of 2021; and
  • Further reduced operating expenses due to the fleet layup measures and actions to decrease sales, marketing and administrative expenses.

In addition, the Company has $11.3 billion of committed credit facilities that are available to fund ship deliveries originally planned through 2025.

“We continue to take substantial actions to bolster our financial position,” said Jason T. Liberty, executive vice president and CFO. “We have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend. We are prepared to navigate a volatile period while making decisions that position the Company well for the recovery.”

The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, including the increases driven by the latest capital raises. It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. The Company is considering ways to further reduce its average monthly cash burn under a further prolonged out-of-service scenario and during re-start of operations.

Liquidity and Financing Arrangements
As of June 30, 2020, the Company had liquidity of approximately $4.1 billion all in the form of cash and cash equivalents. The Company noted that as of June 30, 2020, the scheduled debt maturities for the remainder of 2020 and 2021, are $0.3 billion and $1.3 billion, respectively.

Capital Expenditures and Capacity Updates
The expected capital expenditures for the remainder of 2020 and 2021 are $0.6 billion and $1.8 billion, respectively. These expenditures are mostly related to newbuild projects.

COVID-19 has impacted shipyard operations and will result in delivery delays for newbuilds. Currently, the Company expects that three of the five ships originally scheduled for delivery between July of 2020 and December of 2021 will be delivered within the remaining time frame. Two of these ships are Silver Moon and Silver Dawn, with capacity lower than 600 berths.

Update on Bookings

The extended suspension of cruising has significantly impacted bookings for the remainder of 2020 which are meaningfully lower than same time last year and at lower prices.

Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges. The Company has implemented various programs to best serve its booked guests providing the choice of future cruise credits (“FCCs”) or the opportunity to “Lift & Shift” their booking to the same sailing the following year in lieu of providing cash refunds. For the booking period since our last business update, approximately 60% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the “Lift & Shift” program. Pricing for 2021 bookings is relatively flat year-over-year when including the negative yield impact of bookings made with future cruise credits; it is slightly up year-over-year when excluding them.

As of June 30, 2020, the Company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings. Approximately 48% of the guests booked on cancelled sailings have requested cash refunds.

2020 Outlook

The magnitude, duration and speed of COVID-19 remains uncertain.  As a consequence, the Company cannot estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty. Notwithstanding the foregoing, the Company expects to incur a net loss on both a US GAAP and adjusted basis for its third quarter and the 2020 fiscal year, the extent of which will depend on the timing and extent of the return to service.

Interest expense for the remainder of the year (July 1, 2020 through December 31, 2020) will be in the range of $505 million to $515 million.

As of June 30, 2020, the Company had hedged approximately 64%, 40%, 23% and 5% of its total projected metric tons of fuel consumption for the remainder of 2020, 2021, 2022 and 2023, respectively. The current suspension of our cruise operations due to the COVID-19 pandemic resulted in reductions to our forecasted fuel consumption. As of June 30, 2020, we had outstanding fuel swaps of 172,050 and 15,200 metric tons maturing in 2020 and 2021, respectively, that no longer hedged our forecasted fuel consumption. For the same four-year period, the annual average cost per metric ton of the fuel swap portfolio is approximately $423, $435, $514 and $580, respectively.

About Royal Caribbean Group
Royal Caribbean Group (NYSE: RCL) is the operating business name for Royal Caribbean Cruises Ltd.  Royal Caribbean Group is the owner of four global cruise vacation brands: Royal Caribbean International, Celebrity Cruises, Silversea and Azamara. Royal Caribbean Group is also a 50% owner of a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. Together, our brands operate 62 ships with an additional 16 on order as of July 31, 2020.

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited, in thousands, except per share data)

Quarter Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Passenger ticket revenues

$

107,022

$

2,017,836

$

1,483,873

$

3,727,820

Onboard and other revenues

68,583

788,795

724,482

1,518,578

Total revenues

175,605

2,806,631

2,208,355

5,246,398

Cruise operating expenses:

Commissions, transportation and other

28,824

426,934

345,953

790,089

Onboard and other

21,579

174,429

145,297

309,599

Payroll and related

243,877

265,569

574,267

535,101

Food

27,483

146,847

148,799

286,381

Fuel

79,192

181,924

273,460

342,095

Other operating

279,465

348,801

703,463

694,943

Total cruise operating expenses

680,420

1,544,504

2,191,239

2,958,208

Marketing, selling and administrative expenses

301,418

376,874

697,308

791,821

Depreciation and amortization expenses

319,757

311,600

644,087

603,885

Impairment and credit losses

156,497

1,264,615

Operating (Loss) Income

(1,282,487)

573,653

(2,588,894)

892,484

Other expense:

Interest income

5,206

6,342

10,740

16,126

Interest expense, net of interest capitalized

(218,889)

(111,304)

(311,800)

(211,719)

Equity investment (loss) income

(51,853)

33,045

(62,245)

66,739

Other expense

(83,825)

(21,781)

(116,684)

(26,869)

(349,361)

(93,698)

(479,989)

(155,723)

Net (Loss) Income

(1,631,848)

479,955

(3,068,883)

736,761

Less: Net Income attributable to noncontrolling interest

7,444

7,125

14,888

14,250

Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

$

(1,639,292)

$

472,830

$

(3,083,771)

$

722,511

(Loss) Earnings per Share:

Basic

$

(7.83)

$

2.26

$

(14.74)

$

3.45

Diluted

$

(7.83)

$

2.25

$

(14.74)

$

3.44

Weighted-Average Shares Outstanding:

Basic

209,385

209,531

209,241

209,427

Diluted

209,385

210,052

209,241

209,962

Comprehensive (Loss) Income

Net (Loss) Income

$

(1,631,848)

$

479,955

$

(3,068,883)

$

736,761

Other comprehensive income (loss):

Foreign currency translation adjustments

26,337

7,263

36,627

7,827

Change in defined benefit plans

(6,278)

(9,722)

(13,867)

(10,375)

Gain (loss) on cash flow derivative hedges

124,331

(71,734)

(176,274)

(22,891)

Total other comprehensive (loss) income

144,390

(74,193)

(153,514)

(25,439)

Comprehensive (Loss) Income

(1,487,458)

405,762

(3,222,397)

711,322

Less: Comprehensive Income attributable to noncontrolling interest

7,444

7,125

14,888

14,250

Comprehensive (Loss) Income attributable to Royal Caribbean
Cruises Ltd.

$

(1,494,902)

$

398,637

$

(3,237,285)

$

697,072

STATISTICS (1)

Quarter Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Passengers Carried

20,027

1,663,900

1,259,846

3,197,126

Passenger Cruise Days

181,268

11,321,528

8,648,375

21,883,345

APCD

214,449

10,437,420

8,431,579

20,298,020

Occupancy

84.5

%

108.5

%

102.6

%

107.8

%

(1)

Due to the three-month reporting lag, we include Silversea Cruises’ result of operations from January 1 through March 31 for the quarters ended June 30, 2020 and 2019 and from October 1 through March 31 for the six months ended June 30, 2020 and 2019.

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

As of

June 30,

December 31,

2020

2019

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

4,146,691

$

243,738

Trade and other receivables, net of allowances of $21,362 and $5,635
at June 30, 2020 and December 31, 2019, respectively

205,921

305,821

Inventories

152,596

162,107

Prepaid expenses and other assets

178,364

429,211

Derivative financial instruments

868

21,751

Total current assets

4,684,440

1,162,628

Property and equipment, net

25,647,715

25,466,808

Operating lease right-of-use assets

609,422

687,555

Goodwill

809,384

1,385,644

Other assets, net of allowances of $61,990 and $0 at June 30, 2020
and December 31, 2019, respectively

1,555,582

1,617,649

Total assets

$

33,306,543

$

30,320,284

Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity

Current liabilities

Current portion of debt

$

706,283

$

1,186,586

Commercial paper

368,952

1,434,180

Current portion of operating lease liabilities

102,814

96,976

Accounts payable

661,427

563,706

Accrued interest

122,204

70,090

Accrued expenses and other liabilities

810,536

1,078,345

Derivative financial instruments

158,818

94,875

Customer deposits

1,805,874

3,428,138

Total current liabilities

4,736,908

7,952,896

Long-term debt

17,753,424

8,414,110

Long-term operating lease liabilities

569,392

601,641

Other long-term liabilities

698,045

617,810

Total liabilities

23,757,769

17,586,457

Redeemable noncontrolling interest

584,869

569,981

Shareholders’ equity

Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)

Common stock ($0.01 par value; 500,000,000 shares authorized; 237,168,148 and
236,547,842 shares issued, June 30, 2020 and December 31, 2019, respectively)

2,372

2,365

Paid-in capital

3,700,288

3,493,959

Retained earnings

8,276,463

11,523,326

Accumulated other comprehensive loss

(951,227)

(797,713)

Treasury stock (27,799,775 and 27,746,848 common shares at cost, at June 30, 2020
and December 31, 2019, respectively)

(2,063,991)

(2,058,091)

Total shareholders’ equity

8,963,905

12,163,846

Total liabilities, redeemable noncontrolling interest and shareholders’ equity

$

33,306,543

$

30,320,284

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Six Months Ended June 30,

2020

2019

Operating Activities

Net (loss) income

$

(3,068,883)

$

736,761

Adjustments:

Depreciation and amortization

644,087

603,885

Impairment and credit losses

1,264,615

Net deferred income tax (benefit) expense

(2,666)

3,794

Loss (gain) on derivative instruments not designated as hedges

84,280

(713)

Share-based compensation expense

8,764

41,974

Equity investment loss (income)

62,245

(66,739)

Amortization of debt issuance costs

28,807

20,467

Amortization of commercial paper notes discount

6,668

16,350

Loss on extinguishment of secured senior term loan

40,335

6,326

Change in fair value of contingent consideration

(44,605)

10,700

Currency translation adjustment losses

69,044

Changes in operating assets and liabilities:

Decrease (increase) in trade and other receivables, net

94,873

(14,262)

Decrease (increase) in inventories

9,511

(14,436)

Decrease (increase) in prepaid expenses and other assets

249,481

(51,443)

Increase in accounts payable

118,398

43,594

Increase in accrued interest

52,114

763

(Decrease) increase in accrued expenses and other liabilities

(17,110)

34,056

(Decrease) increase in customer deposits

(1,622,721)

760,435

Dividends received from unconsolidated affiliates

1,991

80,572

Other, net

(28,051)

(16,557)

Net cash (used in) provided by operating activities

(2,048,823)

2,195,527

Investing Activities

Purchases of property and equipment

(1,391,891)

(1,866,141)

Cash received on settlement of derivative financial instruments

1,558

6,204

Cash paid on settlement of derivative financial instruments

(117,518)

(55,758)

Investments in and loans to unconsolidated affiliates

(87,943)

(3,046)

Cash received on loans to unconsolidated affiliates

10,241

19,509

Other, net

(5,924)

(173)

Net cash used in investing activities

(1,591,477)

(1,899,405)

Financing Activities

Debt proceeds

12,672,189

2,749,564

Debt issuance costs

(276,995)

(35,454)

Repayments of debt

(3,424,387)

(3,008,893)

Proceeds from issuance of commercial paper notes

6,765,739

13,335,536

Repayments of commercial paper notes

(7,837,635)

(13,080,788)

Dividends paid

(326,421)

(293,197)

Proceeds from exercise of common stock options

386

265

Other, net

(28,670)

(15,930)

Net cash provided by (used in) financing activities

7,544,206

(348,897)

Effect of exchange rate changes on cash

(953)

(76)

Net increase (decrease) in cash and cash equivalents

3,902,953

(52,851)

Cash and cash equivalents at beginning of period

243,738

287,852

Cash and cash equivalents at end of period

$

4,146,691

$

235,001

Supplemental Disclosure

Cash paid during the period for:

Interest, net of amount capitalized

$

153,078

$

141,961

Non-cash Investing Activities

Notes receivable issued upon sale of property and equipment

$

53,419

$

Purchase of property and equipment included in accounts payable and
accrued expenses and other liabilities

$

64,326

$

ROYAL CARIBBEAN CRUISES LTD.

 

NON-GAAP RECONCILING INFORMATION

(unaudited)

Adjusted Net (Loss) Income and Adjusted (Loss) Earnings per Share were calculated as follows (in thousands, except per share data):

Quarter Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

$

(1,639,292)

$

472,830

$

(3,083,771)

$

722,511

Adjusted Net (loss) Income attributable to Royal Caribbean Cruises Ltd.

(1,282,573)

532,735

(1,592,985)

808,582

Net Adjustments to Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

$

356,719

$

59,905

$

1,490,786

$

86,071

Adjustments to Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.:

Impairment and credit losses (1)

$

156,497

$

$

1,264,615

$

Equity investment impairment (2)

39,735

Currency translation adjustment losses (3)

69,044

69,044

Pullmantur reorganization settlement (4)

21,637

21,637

Restructuring charges and other initiatives expense (5)

32,982

45,025

Convertible debt amortization of debt discount (6)

4,184

4,184

Loss on extinguishment of debt (7)

40,335

6,326

40,335

6,326

Amortization of Silversea Cruises intangible assets resulting from the 2018 Silversea
Cruises acquisition (8)

3,069

3,069

6,138

6,138

Noncontrolling interest adjustment (9)

22,557

12,663

46,616

34,574

Change in fair value of the Silversea contingent consideration (8)

6,414

10,700

(44,605)

10,700

Net insurance recoveries of Oasis of the Seas incident (10)

27,147

(1,938)

27,147

Transaction costs related to the 2018 Silversea Cruises acquisition (8)

1,186

Net Adjustments to Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

$

356,719

$

59,905

$

1,490,786

$

86,071

(Loss) Earnings per Share – Diluted

$

(7.83)

$

2.25

$

(14.74)

$

3.44

Adjusted (Loss) Earnings per Share – Diluted

(6.13)

2.54

(7.61)

3.85

Net Adjustments to (Loss) Earnings per Share

$

1.70

$

0.29

$

7.13

$

0.41

Adjustments to (Loss) Earnings per Share:

Impairment and credit losses (1)

$

0.75

$

$

6.05

$

Equity investment impairment (2)

0.19

Currency translation adjustment losses (3)

0.33

0.33

Pullmantur reorganization settlement (4)

0.10

0.10

Restructuring charges and other initiatives expense (5)

0.16

0.22

Convertible debt amortization of debt discount (6)

0.02

0.02

Loss on extinguishment of debt (7)

0.19

0.03

0.19

0.03

Amortization of Silversea Cruises intangible assets resulting from the 2018 Silversea
Cruises acquisition (8)

0.01

0.01

0.03

0.03

Noncontrolling interest adjustment (9)

0.11

0.06

0.22

0.16

Amoriization hange in fair value of the Silversea contingent consideration (8)

0.03

0.05

(0.21)

0.05

Net insurance recoveries of Oasis of the Seas incident (10)

0.13

(0.01)

0.13

Transaction costs related to the 2018 Silversea Cruises acquisition (8)

Net Adjustments to (Loss) Earnings per Share

$

1.70

$

0.29

$

7.13

$

0.41

Weighted-Average Shares Outstanding – Diluted

209,385

210,052

209,241

209,962

  

(1)

Represents asset impairment and credit losses recorded in the first and second quarters of 2020 as a result of the impact of COVID-19.

(2)

Represents equity investment asset impairment, primarily for our investment in Grand Bahama Shipyard, recorded in the first quarter of 2020 as a result of the impact of COVID-19.

(3)

Represents currency translation losses recognized in connection with the ships classified as assets held-for-sale that were previously chartered to Pullmantur.  

(4)

Represents settlement costs with Pullmantur in connection with its reorganization filing.

(5)

Represents restructuring charges incurred in relation to the reduction in our U.S. workforce in the second quarter of 2020, the reorganization of our international sales and marketing structure and other initiatives expenses.

(6)

Represents the amortization of non-cash debt discount on the $1.15 billion convertible notes.

(7)

For the quarter and six months ended June 30, 2020, loss on the extinguishment of the $2.2 billion Senior Secured Term Loan. For the quarter and six months ended June 30, 2019, loss on the extinguishment of the $700 million 364-day loan related to the acquisition of Silversea Cruises and the remaining balance of the unsecured term loan originally incurred in 2010 to purchase Allure of the Seas.

(8)

Related to the 2018 Silversea Cruises acquisition.

(9)

Adjustment made to exclude the impact of the contractual accretion requirements associated with the put option held by the Silversea Cruises noncontrolling interest prior to the July 2020 noncontrolling interest purchase.

(10)

Amount includes net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

SOURCE Royal Caribbean Group