RCL’s results ahead of expectations despite heavy loss

2022-08-12T17:01:07+00:00 August 12th, 2022|Finance|

Royal Caribbean Group (RCL) has reported a second quarter 2022 net loss of $0.5 bill and loss per share of $2.05.

However, RCL said that the results were meaningfully ahead of the company’s expectations driven by accelerating and strong close-in demand, further improvement in on board revenue and better cost performance.

Operating cash flow and EBITDA were positive for the quarter.

“We reached two important milestones in our recovery this quarter – returning our entire global fleet back to operations and delivering positive operating cash flow and EBITDA,” said Jason Liberty, President and CEO of Royal Caribbean Group.

“Consumers’ propensity to travel and cruise remains strong. We continue to see a robust and accelerating demand environment for cruising and on board spend. Cruising remains a very attractive value proposition for vacationers, and today we have an opportunity to further close the value gap to other land-based vacation offerings.

“Our liquidity position remains strong, and we are generating positive operating cash flow and EBITDA. With the fleet back in service, we have the full strength of our platform as we continue to execute on our recovery and build on our capabilities for long-term success,” he said.

Business Highlights:

  • In June, the Group completed the return of its global fleet to operations across key destinations.
  • Load factors in the second quarter were 82% overall, with June sailings reaching almost 90%.
  • Based on the continued strength in consumer demand, the company expects load factors will average around 95% in the third quarter and increase to triple digits by year-end.
  • Booking volumes received in 2Q22 for the back half of the year’s sailings remained significantly higher than booking volumes received in 2Q19 for the back half of that year.
  • The 2H22 is booked below historical ranges but at higher prices than 2019, with and without future cruise credits (FCCs).
  • For 2023, all quarters are currently booked within historical ranges at record pricing.
  • For 3Q22 and based on current currency exchange rates, fuel rates and interest rates, the company expects to generate about$2.9 bill – $3 bill in total revenues, adjusted EBITDA of $700 mill – $750 mill and adjusted earnings per share of $0.05 – $0.25.

The Group continues to benefit from the delivery of new, more efficient ships and past sales of less efficient ships, as well as actions taken to improve operating costs and margins that continue to materialise as operations ramp up, it said.

RCL is now offering cruises in all of its key destinations apart from China, which remains closed to cruising, due to the ongoing pandemic related lockdowns.

While the Group remains optimistic to capture long-term growth opportunities in that market, ships planned for China have been temporarily redeployed to meet the demand in other markets, RCL said.

“Since our return to service last year, we have seen more than 3 mill guests enjoy cruise vacations responsibly, under an evolving operating environment,” said Liberty.

“The CDC ended its COVID-19 Programme for Cruise Ships. Based on this change, we are continuing to adapt our protocols to align more closely with how the rest of society and other travel and leisure businesses are operating. This means that we’re transitioning to the point where everyone will be able to vacation with us while always working with our destination partners to meet their regulations.

Starting 8th August, testing will be required for unvaccinated guests on all voyages and for vaccinated guests only on voyages that are six nights or longer,” he said.

While demand for the critical Europe season has been strong over the past three months, the combination of COVID-19 and the Russia/Ukraine war, has set back load factor recovery, particularly for 3Q22, where European itineraries account for about a third of overall capacity.

Because European itineraries generate higher than average pricing, the lower load factors are expected to negatively impact the comparison of fleetwide revenue per passenger cruise day in the third quarter, compared to 3Q19.

As of 30th June, 2022, the Group’s customer deposit balance was $4.2 bill, a record high for the company. This represents an increase of about $600 mill over the previous quarter despite the significant quarter-over-quarter increase in revenue recognition.

As at the end of June, RCL’s liquidity position was $3.3 bill, which includes cash and cash equivalents, undrawn revolving credit facility capacity, and a $700 mill commitment for a 364-day term loan facility.

During 2Q22, the Group generated operating cash flow of around $0.5 bill. The scheduled debt maturities for the remainder of 2022 are $1.6 bill.

“Our liquidity position remains strong as we execute on our return to service, and our operations generate positive cash flow again,” said Naftali Holtz, CFO, Royal Caribbean Group. “We have taken and will continue to take proactive actions to improve our cash flow, balance sheet and methodically address near-term maturities.”

In July, RCL acquired an ultra-luxury expedition cruise ship that was originally delivered in 2021. The ship was renamed ‘Silver Endeavour’ and joined the Silverseas fleet on 21st July.

The purchase price for the vessel was $275 mill, significantly below its estimated original cost. The transaction was fully financed through a 15-year unsecured term loan, guaranteed by the German export credit agency, Euler Hermes, and has no amortisation payments in the first two years.

The purchase is expected to be immediately accretive to earnings, cash flow and return on invested capital. ‘Silver Endeavour’ is scheduled to begin service in winter 2022, spending its inaugural season in Antarctica starting in November.

RCL still expects a net loss in 2H22, due to increases in fuel rates, interest rates and foreign exchange rates. Based on current currency exchange rates, fuel rates and interest rates, the Group expects adjusted earnings per share for 3Q22 of $0.05 – $0.25.

Later, RCL announced that it has priced the offering of $1 bill aggregate principal amount of 6% Convertible Senior Notes due 2025.

In connection with the offering, the company granted certain of the initial purchasers of the notes a 13-day option to purchase up to an additional $150 mill aggregate principal amount.

The offering was due to close on 5th August, 2022, subject to the customary closing conditions.

RCL said that it intends to use the proceeds from the sale of the notes to repurchase $350 mill aggregate principal amount of its 2.875% convertible senior notes, due 15th November, 2023 and $800 mill aggregate principal amount of its 4.25% convertible senior notes, due 15th June, 2023 in privately negotiated transactions.

“We successfully priced and upsized our previously announced convertible notes issuance,” Holtz said. “Proceeds from the convertible notes issuance will be used to refinance existing convertible notes maturing in 2023.

“The transaction is intended to be net neutral to our outstanding shares and share equivalents after taking into account our ability to settle any remaining outstanding notes with cash,” he said.

The notes will mature on 15th August, 2025 unless earlier converted, redeemed pursuant to a tax redemption or repurchased. The initial conversion rate per $1,000 principal amount of convertible notes is 19.9577 shares of common stock of the company, which is equivalent to an initial conversion price of about $50.11 per share, subject to adjustment in certain circumstances.

The initial conversion price represents a conversion premium of about 40% over the reported sale price of the company’s common stock on 1st August, 2022, RCL said.