Carnival Corp Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . Cautionary Note Concerning Factors That May Affect Future Results Some of the statements, estimates or projections contained in this document are “forward-looking statements” that involve risks, uncertainties and assumptions with respect to us, including statements concerning future results, operations, strategy, outlooks, plans, goals, reputation, cash flows, liquidity and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are statements that could be deemed forward-looking. These statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these statements by using words like “will,” “may,” “could,” “should,” “would,” “believe,” “depends,” “expect,” “goal,” “aspiration,” “anticipate,” “forecast,” “project,” “future,” “intend,” “plan,” “estimate,” “target,” “indicate,” “outlook,” and similar expressions of future intent or the negative of such terms. Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by our forward-looking statements. This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward-looking statements and adversely affect our business, results of operations and financial position. These factors include, but are not limited to, the following: • Events and conditions around the world, including geopolitical uncertainty, war and other military actions, pandemics, inflation, higher fuel prices, higher interest rates and other general concerns impacting the ability or desire of people to travel could lead to a decline in demand for cruises as well as have significant negative impacts on our financial condition and operations. • Incidents concerning our ships, guests or the cruise industry may negatively impact the satisfaction of our guests and crew and lead to reputational damage. • Changes in and non-compliance with laws and regulations under which we operate, such as those relating to health, environment, safety and security, data privacy and protection, anti-money laundering, anti-corruption, economic sanctions, trade protection, labor and employment, and tax may be costly and lead to litigation, enforcement actions, fines, penalties and reputational damage. • Factors associated with climate change, including evolving and increasing regulations, increasing concerns about climate change and the shift in climate conscious consumerism and stakeholder scrutiny, and increasing frequency and/or severity of adverse weather conditions could have a material impact on our business. • Inability to meet or achieve our targets, goals, aspirations, initiatives, and our public statements and disclosures regarding them, including those related to sustainability matters, may expose us to risks that may adversely impact our business. • Cybersecurity incidents and data privacy breaches, as well as disruptions and other damages to our principal offices, information technology operations and system networks and failure to keep pace with developments in technology have adversely impacted and may in the future materially adversely impact our business operations, the satisfaction of our guests and crew and may lead to fines, penalties and reputational damage. • The loss of key team members, our inability to recruit or retain qualified shoreside and shipboard team members and increased labor costs could have an adverse effect on our business and results of operations. • Increases in fuel prices, changes in the types of fuel consumed and availability of fuel supply may adversely impact our scheduled itineraries and costs. • We rely on suppliers who are integral to the operations of our businesses. These suppliers and service providers may be unable to deliver on their commitments, which could negatively impact our business. • Fluctuations in foreign currency exchange rates may adversely impact our financial results. • Overcapacity and competition in the cruise and land-based vacation industry may negatively impact our cruise sales, pricing and destination options. • Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments may adversely impact our business operations and the satisfaction of our guests. • We require a significant amount of cash to service our debt and sustain our operations. Our ability to generate cash depends on many factors, including those beyond our control, and we may not be able to generate cash required to service our debt and sustain our operations. • Our debt could adversely affect our financial health and operating flexibility. The ordering of the risk factors set forth above is not intended to reflect our indication of priority or likelihood. There may be additional risks that we consider immaterial or which are unknown. 23 Table of Content Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant stock exchange rules, we expressly disclaim any obligation to disseminate, after the date of this document, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. Forward-looking and other statements in this document may also address our sustainability progress, plans, and goals (including climate change- and environmental-related matters). In addition, historical, current, and forward-looking sustainability- and climate-related statements may be based on standards and tools for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions and predictions that are subject to change in the future and may not be generally shared. New Accounting Pronouncements Refer to Note 1 - “ General, Accounting Pronouncements ” of the consolidated financial statements for additional discussion regarding Accounting Pronouncements . Critical Accounting Estimates For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the Form 10-K. Seasonality Our passenger ticket revenues are seasonal. Demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is typically earned during this period. Our results are also impacted by ships being taken out-of-service for planned maintenance, which we schedule during non-peak seasons. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and operating income is generated from May through September in conjunction with Alaska’s cruise season. Known Trends and Uncertainties • We believe the volatility in the cost of fuel is reasonably likely to impact our profitability in both the short and long-term. • We believe the increasing focus on the reduction of greenhouse gas emissions and new and evolving related regulatory requirements, are reasonably likely to have a material negative impact on our future financial results. We became subject to the EU Emissions Trading System (“ETS”) on January 1, 2024, which includes a three-year phase-in period. The impact of this regulation in 2024 was $46 million, which represented costs associated with 40% of emissions under the ETS operational scope. In 2025, 70% of emissions under the ETS scope will be impacted, and in 2026, all in scope emissions will be impacted. 24 Table of Content Statistical Information Three Months Ended August 31, Nine Months Ended August 31, 2025 2024 2025 2024 Passenger Cruise Days (“PCDs”) (in millions) (a) 27.5 28.1 77.1 76.0 Available Lower Berth Days (“ALBDs”) (in millions) (b) (c) 24.6 25.2 72.3 71.7 Occupancy percentage (d) 112 % 112 % 107 % 106 % Passengers carried (in millions) 3.8 3.9 10.3 10.3 Fuel consumption in metric tons (in millions) 0.7 0.7 2.1 2.2 Fuel consumption in metric tons per thousand ALBDs 28.0 29.5 29.4 31.0 Fuel cost per metric ton consumed (excluding European Union Allowance (“EU Allowances”)) $ 607 $ 670 $ 621 $ 680 Currencies (USD to 1) AUD $ 0.65 $ 0.67 $ 0.64 $ 0.66 CAD $ 0.73 $ 0.73 $ 0.71 $ 0.74 EUR $ 1.16 $ 1.09 $ 1.10 $ 1.08 GBP $ 1.35 $ 1.28 $ 1.30 $ 1.27 Notes to Statistical Information (a) PCD represents the number of cruise passengers on a voyage multiplied by the number of revenue-producing ship operating days for that voyage. (b) ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period. (c) For the three months ended August 31, 2025 compared to the three months ended August 31, 2024, we had a 2.5% capacity decrease in ALBDs comprised of a 3.1% capacity decrease in our North America segment and a 1.5% capacity decrease in our Europe segment. Our North America segment’s capacity decrease was driven by the following: • Seabourn 460-passenger capacity ship that left the fleet in September 2024 • P&O Cruises (Australia) 2,000-passenger capacity ship that left the fleet in February 2025 Our Europe segment’s capacity decrease was driven by fewer ship operating days in 2025 compared to 2024. For the nine months ended August 31, 2025 compared to the nine months ended August 31, 2024, we had a 0.9% capacity increase in ALBDs comprised of a 0.8% capacity increase in our North America segment and a 1.2% capacity increase in our Europe segment. Our North America segment’s capacity increase was caused by the following: • Carnival Cruise Line 5,360-passenger capacity ship that entered into service in December 2023 • Princess Cruises 4,310-passenger capacity ship that entered into service in February 2024 • Carnival Cruise Line 4,130-passenger capacity ship that was transferred from Costa Cruises and entered into service in April 2024 Our North America segment’s capacity increase was partially offset by: • Seabourn 460-passenger capacity ship that left the fleet in September 2024 • P&O Cruises (Australia) 2,000-passenger capacity ship that left the fleet in February 2025 25 Table of Content Our Europe segment’s capacity increase was caused by: • Cunard 2,960-passenger capacity ship that entered into service in May 2024 • Nonrecurrence of the Red Sea rerouting without guests The increase in our Europe segment’s capacity was partially offset by a Costa Cruises 4,240-passenger capacity ship that transferred to Carnival Cruise Line in February 2024. (d) Occupancy, in accordance with cruise industry practice, is calculated using a numerator of PCDs and a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins. Three Months Ended August 31, 2025 (“2025”) Compared to Three Months Ended August 31, 2024 (“2024”) Revenues Consolidated Passenger ticket revenues made up 67% of our 2025 total revenues. Passenger ticket revenues increased by $191 million, or 3.6%, to $5.4 billion in 2025 from $5.2 billion in 2024. This increase was caused by: • $215 million - higher ticket prices driven by continued strength in demand • $115 million - net favorable foreign currency translation impact These increases were partially offset by: • $132 million - 2.5% capacity decrease in ALBDs • $31 million - decrease in air transportation revenue The remaining 33% of 2025 total revenues were comprised of onboard and other revenues, which increased by $66 million, or 2.5%, and were $2.7 billion in 2025 and 2024. This increase was caused by: • $90 million - higher onboard spending by our guests • $33 million - net favorable foreign currency translation impact These increases were partially offset by a 2.5% capacity decrease in ALBDs, representing $65 million. North America Segment Passenger ticket revenues made up 65% of our North America segment’s 2025 total revenues. Passenger ticket revenues increased by $15 million, or 0.4%, to $3.5 billion in 2025 from $3.4 billion in 2024. This increase was caused by $156 million of higher ticket prices driven by continued strength in demand. This increase was partially offset by: • $105 million - 3.1% capacity decrease in ALBDs • $31 million - decrease in air transportation revenue The remaining 35% of our North America segment’s 2025 total revenues were comprised of onboard and other revenues, which increased by $12 million, or 0.6%, and were $1.9 billion in 2025 and 2024. This increase was caused by $74 million of higher onboard spending by our guests, partially offset by a 3.1% capacity decrease in ALBDs, representing $57 million. Europe Segment Passenger ticket revenues made up 78% of our Europe segment’s 2025 total revenues. Passenger ticket revenues increased by $166 million, or 9.1%, to $2.0 billion in 2025 from $1.8 billion in 2024. 26 Table of Content This increase was caused by: • $115 million - net favorable foreign currency translation • $59 million - higher ticket prices driven by continued strength in demand • $21 million - 1.3 percentage point increase in occupancy These increases were partially offset by a 1.5% capacity decrease in ALBDs, representing $27 million. The remaining 22% of our Europe segment’s 2025 total revenues were comprised of onboard and other revenues, which increased by $54 million, or 11%, to $569 million in 2025 from $515 million in 2024. This increase was driven by: • $33 million - net favorable foreign currency translation impact • $16 million - higher onboard spending by our guests Operating Expenses Consolidated Operating expenses increased by $82 million, or 1.9%, to $4.4 billion in 2025 from $4.3 billion in 2024. This increase was caused by: • $67 million - net unfavorable foreign currency translation • $31 million - higher onboard and other cost of sales driven by higher onboard spending by our guests • $29 million - higher cruise payroll and related expenses • $29 million - higher port expenses • $24 million - higher commissions, transportation costs, and other expenses driven by increased ticket pricing • $23 million - nonrecurrence of a change in pension valuation in 2024 These increases were partially offset by: • $109 million - 2.5% capacity decrease in ALBDs • $26 million - lower fuel prices including the impact of the cost of EU allowances • $26 million - lower fuel consumption per ALBD Selling and administrative expenses increased by $16 million, or 2.1%, to $779 million in 2025 from $763 million in 2024. Depreciation and amortization expenses increased by $66 million, or 10%, to $717 million in 2025 from $651 million in 2024. This increase was driven by fleet enhancements. North America Segment Operating expenses decreased by $65 million, or 2.2%, to $2.9 billion in 2025 from $3.0 billion in 2024. This decrease was caused by: • $92 million - 3.1% capacity decrease in ALBDs • $28 million - lower fuel prices including the impact of the cost of EU allowances These decreases were partially offset by $23 million of higher cruise payroll and related expenses. Selling and administrative expenses decreased by $19 million, or 4.2%, to $436 million in 2025 from $455 million in 2024. Depreciation and amortization expenses increased by $37 million, or 8.8%, to $461 million in 2025 from $424 million in 2024. 27 Table of Content Europe Segment Operating expenses increased by $135 million, or 12%, to $1.3 billion in 2025 from $1.2 billion in 2024. This increase was driven by: • $67 million - net unfavorable foreign currency translation • $23 million - nonrecurrence of a change in pension valuation in 2024 • $21 million - higher commissions, transportation costs, and other expenses driven by increased ticket pricing Selling and administrative expenses increased by $22 million, or 9.8%, to $244 million in 2025 from $223 million in 2024. Depreciation and amortization expenses increased by $24 million, or 14%, to $196 million in 2025 from $173 million in 2024. This increase was driven by fleet enhancements. Operating Income Our consolidated operating income increased by $94 million to $2.3 billion in 2025 from $2.2 billion in 2024. Our North America segment’s operating income increased by $73 million to $1.5 billion in 2025 from $1.4 billion in 2024, and our Europe segment’s operating income increased by $40 million to $810 million in 2025 from $770 million in 2024. These changes were primarily due to the reasons discussed above. Nonoperating Income (Expense) Interest expense, net of capitalized interest decreased by $114 million, or 27%, to $317 million in 2025 from $431 million in 2024. The decrease was substantially all due to a decrease in total debt, lower average interest rates and increased capitalized interest. Debt extinguishment and modification costs increased by $98 million to $111 million in 2025 from $13 million in 2024 as a result of debt transactions occurring during the respective periods. Nine Months Ended August 31, 2025 (“2025”) Compared to Nine Months Ended August 31, 2024 (“2024”) Revenues Consolidated Passenger ticket revenues made up 66% of our 2025 total revenues. Passenger ticket revenues increased by $757 million, or 6.0%, to $13.4 billion in 2025 from $12.6 billion in 2024. This increase was caused by: • $494 million - higher ticket prices driven by continued strength in demand • $118 million - 0.9% capacity increase in ALBDs • $116 million - net favorable foreign currency translation impact • $65 million - 0.5 percentage point increase in occupancy These increases were partially offset by a decrease of $59 million in air transportation revenue. The remaining 34% of 2025 total revenues were comprised of onboard and other revenues, which increased by $452 million, or 7.0%, to $6.9 billion in 2025 from $6.5 billion in 2024. This increase was driven by: • $334 million - higher onboard spending by our guests • $53 million - 0.9% capacity increase in ALBDs 28 Table of Content North America Segment Passenger ticket revenues made up 63% of our North America segment’s 2025 total revenues. Passenger ticket revenues increased by $283 million, or 3.5%, to $8.5 billion in 2025 from $8.2 billion in 2024. This increase was caused by: • $273 million - higher ticket prices driven by continued strength in demand • $65 million - 0.8% capacity increase in ALBDs These increases were partially offset by a decrease of $65 million in air transportation revenue. The remaining 37% of our North America segment’s 2025 total revenues were comprised of onboard and other revenues, which increased by $306 million, or 6.5%, to $5.0 billion in 2025 from $4.7 billion in 2024. This increase was driven by: • $267 million - higher onboard spending by our guests • $38 million - 0.8% capacity increase in ALBDs Europe Segment Passenger ticket revenues made up 77% of our Europe segment’s 2025 total revenues. Passenger ticket revenues increased by $452 million, or 10%, to $4.9 billion in 2025 from $4.5 billion in 2024. This increase was driven by: • $221 million - higher ticket prices driven by continued strength in demand • $121 million - net favorable foreign currency translation • $55 million - 1.3 percentage point increase in occupancy • $53 million - 1.2% capacity increase in ALBDs The remaining 23% of our Europe segment’s 2025 total revenues were comprised of onboard and other revenues, which increased by $143 million, or 11%, to $1.5 billion in 2025 from $1.3 billion in 2024. This increase was driven by: • $67 million - higher onboard spending by our guests • $35 million - net favorable foreign currency translation impact Operating Expenses Consolidated Operating expenses increased by $232 million, or 2.0%, to $12.0 billion in 2025 from $11.8 billion in 2024. This increase was caused by: • $105 million - 0.9% capacity increase in ALBDs • $85 million - higher onboard and other cost of sales driven by higher onboard spending by our guests • $63 million - higher commissions, transportation costs, and other expenses driven by increased ticket pricing and an increase in the number of guests • $60 million - higher repair and maintenance expenses (including dry-dock expenses) • $57 million - net unfavorable foreign currency translation • $33 million - higher cruise payroll and related expenses • $27 million - higher port expenses These increases were partially offset by: • $103 million - gains on the sales of one North America segment ship and one Europe segment ship • $94 million - lower fuel prices including the impact of the cost of EU allowances • $82 million - lower fuel consumption per ALBD Selling and administrative expenses increased by $76 million, or 3.2%, and were $2.4 billion in 2025 and 2024. 29 Table of Content Depreciation and amortization expenses increased by $166 million, or 8.7%, to $2.1 billion in 2025 from $1.9 billion in 2024. North America Segment Operating expenses decreased by $11 million, or 0.1%, and were $8.0 billion in 2025 and 2024. This decrease was caused by: • $84 million - lower fuel prices including the impact of the cost of EU allowances • $58 million - lower fuel consumption per ALBD • $46 million - gain on sale of one ship These decreases were partially offset by: • $64 million - 0.8% capacity increase in ALBDs • $48 million - higher onboard and other cost of sales driven by higher onboard spending by our guests Selling and administrative expenses increased by $8 million, or 0.6%, and were $1.4 billion in 2025 and 2024. Depreciation and amortization expenses increased by $108 million, or 8.8%, to $1.3 billion in 2025 from $1.2 billion in 2024. Europe Segment Operating expenses increased by $227 million, or 6.4%, to $3.8 billion in 2025 from $3.6 billion in 2024. This increase was caused by: • $61 million - net unfavorable foreign currency translation • $49 million - higher commissions, transportation costs, and other expenses driven by increased ticket pricing and an increase in the number of guests • $42 million - 1.2% capacity increase in ALBDs • $38 million - higher repair and maintenance expenses (including dry-dock expenses) • $38 million - higher onboard and other cost of sales driven by higher onboard spending by our guests These increases were partially offset by a $57 million gain on sale of one ship. Selling and administrative expenses increased by $56 million, or 8.2%, to $743 million in 2025 from $687 million in 2024. Depreciation and amortization expenses increased by $51 million, or 10%, to $552 million in 2025 from $501 million in 2024. This increase was driven by fleet enhancements and increases in capacity. Operating Income Our consolidated operating income increased by $735 million to $3.7 billion in 2025 from $3.0 billion in 2024. Our North America segment’s operating income increased by $484 million to $2.7 billion in 2025 from $2.2 billion in 2024, and our Europe segment’s operating income increased by $260 million to $1.3 billion in 2025 from $1.1 billion in 2024. These changes were primarily due to the reasons discussed above. Nonoperating Income (Expense) Interest expense, net of capitalized interest decreased by $317 million, or 23%, to $1.0 billion in 2025 from $1.4 billion in 2024. The decrease was substantially all due to a decrease in total debt, lower average interest rates and increased capitalized interest. Debt extinguishment and modification costs increased by $288 million to $366 million in 2025 from $78 million in 2024 as a result of debt transactions occurring during the respective periods. 30 Table of Content Liquidity, Financial Condition and Capital Resources As of August 31, 2025, we had $6.3 billion of liquidity including $1.8 billion of cash and cash equivalents and $4.5 billion available for borrowing under the Revolving Facility. In additio n, we had $8.7 billion of undrawn export credit facilities to fund ship deliveries planned through 2033 . Refer to Note 3 - “Debt” of the consolidated financial statements and Funding Sources below for additional details. We had a working capital deficit of $7.6 billion as of August 31, 2025 compared to a working capital deficit of $8.2 billion as of November 30, 2024. The decrease in working capital deficit was caused by an increase in cash and cash equivalents and decreases in accrued liabilities and other and current portion of long-term debt, partially offset by an increase in customer deposits. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts generally remain a current liability on our balance sheet until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash. Included within our working capital are $6.7 billion and $6.4 billion of current customer deposits as of August 31, 2025 and November 30, 2024. We have agreements with a number of credit card processors that transact customer deposits related to our cruise vacations. Certain of these agreements allow the credit card processors to request, under certain circumstances, that we provide a capped reserve fund in cash. In addition, we have a relatively low level of accounts receivable and limited investment in inventories. We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements. Sources and Uses of Cash Operating Activities Our business provided $4.7 billion of net cash flows from operating activities during the nine months ended August 31, 2025, a decrease of $0.3 billion, compared to $5.0 billion provided for the same period in 2024. This was driven by the nonrecurrence of cash provided by the release of $0.8 billion in credit card reserves in 2024 (included in the change in prepaid expenses and other assets), partially offset by an increase in net income compared to the same period in 2024. Investing Activities During the nine months ended August 31, 2025, net cash used in investing activities of $1.8 billion was caused by: • Capital expenditures of $2.1 billion primarily attributable to ship improvements and development of our portfolio of exclusive destinations • Proceeds of $312 million substantially all from the sales of one North America segment ship and one Europe segment ship • Advances of $90 million made to Floating Docks S. de RL During the nine months ended August 31, 2024, net cash used in investing activities was $4.0 billion. This was caused by capital expenditures of $4.0 billion primarily attributable to the delivery of two North America segment ships and one Europe segment ship. Financing Activities During the nine months ended August 31, 2025, net cash used in financing activities of $2.4 billion was caused by: • Repayments of $10.7 billion of long-term debt • Debt issuance costs of $68 million • Debt extinguishment costs of $242 million • Issuances of $8.6 billion of long-term debt 31 Table of Content During the nine months ended August 31, 2024, net cash used in financing activities of $2.0 billion was driven by: • Repayments of $4.8 billion of long-term debt • Debt issuance costs of $122 million • Debt extinguishment costs of $41 million • Issuances of $3.0 billion of long-term debt Funding Sources We plan to use existing liquidity and future cash flows from operations to fund our cash requirements including capital expenditures not funded by our export credit facilities. We seek to manage our credit risk exposures, including counterparty nonperformance associated with our cash and cash equivalents, and future financing facilities by conducting business with well-established financial institutions, and export credit agencies and diversifying our counterparties. (in billions) 2025 2026 2027 2028 2029 Thereafter Future export credit facilities at August 31, 2025 $ 0.8 $ — $ 1.4 $ 1.3 $ 1.7 $ 3.5 Our export credit facilities contain various financial covenants as described in Note 3 - “ Debt ”. At August 31, 2025 , we were in compliance with the applicable covenants under our debt agreements. In September 2025, Sun Princess II borrowed $0.8 billion under an export credit facility due in semi-annual installments through 2037.