10-QPeriod: Q1 FY2020

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 21, 2020For Securities:RCL

Summary

This 10-Q filing for Royal Caribbean Cruises Ltd. (RCL) for the period ending March 31, 2020, reveals significant impacts from the COVID-19 pandemic. The company reported a substantial net loss of $1.44 billion for the quarter, a stark contrast to the net income of $249.7 million in the prior year. This downturn is primarily attributed to the global suspension of cruise operations effective March 13, 2020, leading to a sharp decline in revenues and a significant increase in operating expenses related to cancellations and crew repatriation. The company has taken aggressive measures to bolster liquidity, including drawing down on revolving credit facilities, securing new term loans, and issuing senior secured notes. Management acknowledges the uncertainty surrounding the duration of the operational suspension and its impact on future liquidity, but believes current measures will be sufficient for at least the next twelve months, contingent on the timely return to service. The filing also details substantial impairment charges totaling $1.1 billion, primarily related to goodwill, intangible assets, and long-lived assets, reflecting the economic realities imposed by the pandemic.

Financial Highlights

50 data points
Beta

Revenue

$2.03B

25.7% Gross Margin

Net Income

-$1.44B

-71.1% Net Margin

EPS (Diluted)

$-6.91

Total Assets

$33.45B

Cash & Equivalents

$3.89B

Free Cash Flow

-$1.05B

Financial Statements
Beta
Revenue$2.03B
Cost of Revenue$1.51B
Gross Profit$521.93M
SG&A Expenses$395.89M
Operating Income-$1.31B
Interest Expense$92.91M
Net Income-$1.44B
EPS (Basic)$-6.91
EPS (Diluted)$-6.91
Shares Outstanding (Basic)209.10M
Shares Outstanding (Diluted)209.10M

Key Highlights

  • 1Reported a significant net loss of $1.44 billion for the quarter ended March 31, 2020, compared to a net income of $249.7 million in the prior year.
  • 2Total revenues decreased by 16.7% to $2.0 billion due to the suspension of global cruise operations caused by COVID-19.
  • 3Incurred impairment and credit losses of $1.1 billion in the quarter, primarily due to the impact of COVID-19 on goodwill, intangible assets, vessels, and right-of-use assets.
  • 4Strengthened liquidity by drawing down $3.475 billion on revolving credit facilities and securing new debt financing, including a $2.2 billion senior secured term loan and $3.32 billion in senior secured notes.
  • 5Customer deposits significantly decreased to $2.4 billion as of March 31, 2020, down from $3.4 billion at the end of 2019, reflecting increased cancellations and refunds.
  • 6Global cruise operations were suspended effective March 13, 2020, and extended through at least July 31, 2020, with China sailings extended until at least June 30, 2020.
  • 7Management expects ongoing average monthly operating expenses and administrative expenses to be between $150 million and $170 million during a prolonged suspension of operations.

Frequently Asked Questions

The primary driver was the unprecedented impact of the COVID-19 pandemic, which led to the global suspension of cruise operations starting in mid-March 2020. This resulted in a substantial decrease in revenues, significant increases in cancellation-related expenses, and necessitated the recognition of substantial impairment charges.

Royal Caribbean has taken several proactive steps to bolster its liquidity. These include fully drawing down on its revolving credit facilities, securing new term loan financing, issuing senior secured notes, and obtaining debt amortization and financial covenant holidays. Management believes these measures, along with ongoing cost reductions, will provide sufficient liquidity for at least the next twelve months, provided operations can resume in a timely manner.

The company has suspended sailings through at least July 31, 2020. While booking volumes for the remainder of 2020 are lower with reduced pricing, bookings for 2021 are within historical ranges with increased pricing. However, the timing and extent of the return to service remain highly uncertain and depend on various factors, including government regulations and public health conditions.

The company recorded impairment and credit losses totaling $1.1 billion. These charges were primarily related to goodwill ($576.2 million for Silversea Cruises), indefinite-life intangible assets (Silversea Cruises trade name, $30.8 million), long-lived assets like vessels ($463.0 million), and certain right-of-use assets. These impairments were a direct result of the adverse impact of the COVID-19 pandemic on expected future cash flows and asset values.