What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 187 added, 294 removed, 197 unchanged (71% of the section changed)

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• a review of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business;

• a discussion of our results of operations for the quarter and nine months ended September 30, 2022, compared to the same period in 2021;

• a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources.

• a discussion of our results of operations for the quarter ended March 31, 2023, compared to the same period in 2022;

• a discussion of our liquidity and capital resources, including our future capital and material cash requirements and potential funding sources.

Critical Accounting Policies and Estimates

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In order to mitigate the impact of the winter weather in the Northern Hemisphere and to capitalize on the summer season in the Southern Hemisphere, our brands have historically focused on deployment to the Caribbean, Asia and Australia during that period.

This seasonal trend was disrupted with the voluntary suspension of our global cruise operations effective March 2020 in response to the COVID-19 outbreak.

We resumed our global cruise operations commencing in the second half of 2021, with our full fleet in service by June 2022.

Since our full fleet is in service, we expect to return to seasonal trends.

Financial Presentation

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• Passenger ticket revenues , which consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to and from our ships;

• Onboard and other revenues , which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, cancellation fees, sales of vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities.

• Onboard and other revenues , which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, casino operations, cancellation fees, sales of vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities.

Onboard and other revenues also include revenues we receive from independent third-party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected goods and/or services onboard our ships, as well as revenues received for procurement and management related services we perform on behalf of our unconsolidated affiliates.

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Our cruise operating expenses are comprised of the following:

• Commissions, transportation and other expenses , which consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;

• Commissions, transportation and other expenses , which consist of those costs directly associated with passenger ticket revenues, including travel advisor commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;

• Onboard and other expenses , which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees, as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires, and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;

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Adjusted EBITDA is a non-GAAP measure that represents EBITDA (as defined below) excluding certain items that we believe adjusting for is meaningful whe n assessing our profitability on a comparative basis.

For the 2022 and 2021 p eriods presented, these items included (i) other income;

(ii) impa irment and credit losses (recoveries);

(iii) restructuring charges and other initiative expenses;

(iv) equity investment asset impairments;

(v) net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas ;

(vi) Pullmantur reorganization settlement;

and (vii) the net gain recognized in 2021 in relation to the sale of the Azamara brand.

A reconciliation of Net Income (Loss) to Adjusted EBITDA is provided below under Results of Operations.

Adjusted Earnings (Loss) per Share ("Adjusted EPS") is a non-GAAP measure that represents Adjusted Net Income (Loss) (as defined below) divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

For the 2023 and 2022 p eriods, these items included (i) other income (expense);

(ii) gain on sale of controlling interest;

(iii) impa irment and credit losses (recoveries);

and (iv) restructuring charges and other initiative expenses.

A reconciliation of Net Loss to Adjusted EBITDA is provided below under Results of Operations.

Adjusted Loss per Share ("Adjusted EPS") is a non-GAAP measure that represents Adjusted Net Loss (as defined below) divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.

A reconciliation of Earnings (Loss) per Share to Adjusted Earnings (Loss) per share is provided below under Results of Operations.

Adjusted Net Income (Loss) is a non-GAAP measure that represents net income (loss) excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis.

For the 2022 and 2021 periods presented, these items included (i) impairment and credit losses (recoveries);

(ii) restructuring charges and other initiative expenses;

(iii) the amortization of the Silversea Cruises intangible assets resulting from the Silversea Cruises acquisition in 2018;

(iv) gain or loss on the extinguishment of debt;

(v) the amortization of non-cash debt discount on our convertible notes;

(vi) the estimated cash refunds expected to be paid to Pullmantur guests as part of the Pullmantur S.A.

reorganization in 2020;

(vii) equity investment asset impairments;

(viii) net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas ;

and (ix) the net gain recognized in 2021 in relation to the sale of the Azamara brand.

A reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) is provided below under Results of Operations.

A reconciliation of Loss per Share to Adjusted Loss per share is provided below under Results of Operations.

Adjusted Net Loss is a non-GAAP measure that represents Net Loss excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis.

For the periods presented, these items included (i) loss on the extinguishment of debt;

(ii) gain on sale of controlling interest;

(iii) tax on the sale of PortMiami noncontrolling interest;

(iv) Silver Whisper deferred tax liability release;

(v) impairment and credit losses (recoveries); (vi) the amortization of the Silversea Cruises intangible assets resulting from the Silversea Cruises acquisition in 2018;

and (vii) restructuring charges and other initiative expenses.

A reconciliation of Net Loss to Adjusted Net Loss is provided below under Results of Operations.

Available Passenger Cruise Days ( “APCD” ) is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period, which excludes canceled cruise days and cabins not available for sale.

We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

EBITDA is a non-GAAP measure that represents net income (loss) excluding (i) interest income;

EBITDA is a non-GAAP measure that represents Net Loss excluding (i) interest income;

(ii) interest expense, net of interest capitalized;

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We believe that this non-GAAP measure is meaningful when assessing our operating performance on a comparative basis.

A reconciliation of Net Income (Loss) to EBITDA is provided below under Results of Operations.

A reconciliation of Net Loss to EBITDA is provided below under Results of Operations.

Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses.

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A reconciliation of Gross Cruise Costs to Net Cruise Costs and Net Cruise Costs Excluding Fuel is provided below under Results of Operations.

For the 2022 period presented, Net Cruise Costs and Net Cruise Costs Excluding Fuel excludes restructuring and other initiative expenses.

For the periods presented, Net Cruise Costs and Net Cruise Costs Excluding Fuel excludes (i) the gain on sale of controlling interest;

(ii) impairment and credit losses (recoveries);

and (iii) restructuring and other initiative expenses.

Gross Margin Yield represent Gross Margin per APCD.

Adjusted Gross Margin represent Gross Margin, adjusted for payroll and related, fuel, food, other operating expenses, and depreciation and amortization.

Gross Margin is calculated pursuant to GAAP as total revenues less total cruise operating expenses, and depreciation and amortization.

Net Yields represent Adjusted Gross Margin per APCD.

We utilize Adjusted Gross Margin and Net Yields to manage our business on a day-to-day basis as we believe that they are the most relevant measures of our pricing performance because they reflect the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses, and onboard and other expenses.

Occupancy ("Load Factor") , in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days (as defined below) by APCD.

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Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Although discussed in prior periods, we did not disclose or reconcile in this report our Gross Yields and Net Yields, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019.

Historically, we have utilized these financial metrics to measure relevant rate comparisons to other periods.

However, our 2022 and 2021 reduction in capacity and revenues, due to the impact of the COVID-19 pandemic on our operations, do not allow for a meaningful analysis and comparison of these metrics and as such these metrics have been excluded from this report.

We have not provided a quantitative reconciliation of projected non-GAAP financial measures to the most comparable GAAP financial measures because preparation of meaningful U.S.GAAP projections would require unreasonable effort.

A significant portion of our revenue and expenses are denominated in currencies other than the United States dollar.

Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates.

Although such changes in local currency prices are just one of many elements impacting our revenues and expenses, they can be an important element.

For this reason, we also monitor Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel as if the current period's currency exchange rates had remained constant with the comparable prior period's rates, or on a "Constant Currency" basis.

It should be emphasized that Constant Currency is primarily used for comparing short-term changes and/or projections.

Changes in guest sourcing and shifting the amount of purchases between currencies can change the impact of the purely currency-based fluctuations.

The use of certain significant non-GAAP measures, such as Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel, allows us to perform capacity and rate analysis to separate the impact of known capacity changes from other less predictable changes which affect our business.

We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance in addition to the standard GAAP based financial measures.

There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, they may not be comparable to other companies within the industry.

We ha ve not provided a quantitative reconciliation of projected non-GAAP financial measures to the most comparable GAAP financial measures because preparation of meaningful U.S.GAAP projections would require unreasonable effort.

Due to significant uncertainty, we are unable to predict, without unreasonable effort, the future movement of foreign exchange rates, fuel prices and interest rates inclusive of our related hedging programs.

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Due to this uncertainty, we do not believe that reconciling information for such projected figures would be meaningful.

Recent Developments

Continued Fleet Ramp-up

During 2021, we restarted our global cruise operations in a phased manner, following our voluntary suspension of global cruise operations that commenced in March of 2020 in response to the COVID-19 pandemic.

Since then, we have steadily increased the number of ships that have returned to service, with our full fleet in service as of June 30, 2022.

Wonder of the Seas and Celebrity Beyond were delivered and commenced operations in the first quarter and second quarter of 2022, respectively.

We are currently offering cruise itineraries in all of our key destinations with the exception of China.

China remains closed to cruising, resulting in the redeployment of ships planned for China to other markets.

Operating Costs

Operating costs for the third quarter of 2022 included costs related to our health and safety protocols and lagging costs related to our fleet ramp-up.

As we approach full occupancy and crew staffing levels, as well as modify our health and safety protocols, we expect these costs to normalize.

The improvement in operating costs is expected to be partially offset by inflationary and supply chain challenges, mainly related to fuel and food costs.

We expect these challenges to continue to have an adverse impact on our 2022 operating costs.

Update on Bookings

Booking volumes in the third quarter of 2022 were significantly higher than the corresponding 2019 period.

Guests continue to book their cruises closer to sailing compared to prior years, resulting in approximately 50% more bookings in the third quarter of 2022 for current year sailings when compared to bookings in the third quarter of 2019 for 2019 sailings.

Additionally, booking volumes for 2023 sailings doubled during the third quarter of 2022, when compared to the second quarter of 2022, and were considerably higher than the booking volumes for 2020 sailings during the comparable period in 2019.

As of September 30, 2022 we had $3.8 billion in customer deposits, reflecting typical seasonality as peak summer sailing deposits have been recognized in the revenue.

In the third quarter, approximately 95% of total bookings were new versus FCC redemptions .

Update on Recent Liquidity Actions and Ongoing Uses of Cash

Refer to Funding Needs and Sources for discussion regarding our recent liquidity actions and ongoing uses of cash.

Capital Expenditures

Refer to Future Capital Commitments for discussion on capital expenditures.

Debt Maturities, New Financings and Other Liquidity Actions

During the nine months ended September 30, 2022, we continued to take actions to further improve our liquidity position and manage cash flow.

We refinanced $6.9 billion of 2022 and 2023 maturities during the nine months ended September 30, 2022.

Refer to Note 7 .

Debt to our consolidated financial statements under Part I.

Item 1, Financial Statements for further information regarding these transactions.

Expected debt maturities for the remainder of 2022 are $0.6 billion and $4.0 billion for 2023.

In October 2022 we addressed $2.0 billion of the 2023 debt maturities as described in Note 7.

We continue to identify and evaluate further actions to enhance our liquidity and support our recovery.

These include and are not limited to further reductions in capital expenditures, operating expenses and administrative costs, refinancing opportunities and additional financings.

Results of Operations

Net Income and Adjusted Net Income for the third quarter of 2022 were $33.0 million and $65.8 million, or $0.13 and $0.26 per share on a diluted basis, respectively, reflecting our return to full operations, compared to Net (Loss) and Adjusted Net (Loss) of $(1.4) billion and $(1.2) billion, or $(5.59) and $(4.91) per share on a diluted basis, respectively, for the third quarter of 2021.

Net (Loss) and Adjusted Net (Loss) for the nine months ended September 30, 2022 were $(1.7) billion and $(1.6) billion, or $(6.49) and $(6.39) per share on a diluted basis, respectively, compared to Net (Loss) and Adjusted Net (Loss) of $(3.9) billion and $(3.6) billion, or $(15.56) and $(14.41) per share on a diluted basis, respectively, for the nine months ended September 30, 2021.

Significant items for the quarter and nine months ended September 30, 2022 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, increased $2.6 billion and $5.8 billion, respectively, for the quarter and nine months ended September 30, 2022 as compared to the same period in 2021.

The increase reflects our full return to operations by June 2022 compared to 2021 when the suspension of our global cruise operations was in effect for a substantial portion of our fleet.

APCDs for the third quarter and nine months ended September 30, 2022 were 11,564,662 and 29,553,564, respectively, compared to 4,112,256 and 4,967,078, respectively, in the same period in 2021.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions denominated in currencies other than the United States dollar, resulted in a decrease in total revenues of $74.4 million and $107.2 million, respectively for the quarter and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased $1.2 billion and $3.4 billion, respectively, for the quarter and nine months ended September 30, 2022 as compared to the same period in 2021.

The increase reflects our return to operations in 2022 compared to 2021 when the suspension of our global cruise operations was in effect for the substantial portion of our fleet.

• The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar resulted, in a decrease in total operating expenses of $34.9 million and $59.2 million for the quarter and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

• In January 2022 and April 2022, we took delivery of Wonder of the Seas and Celebrity Beyond , respectively.

• During the first quarter of 2022, we issued the January 2022 Unsecured Notes.

• In February 2022, we entered into certain agreements with MS where MS has agreed to provide backstop committed financing.

• In July 2022, we purchased a ship for our Silversea Cruises brand.

To finance the purchase, we assumed $277 million of debt, which is 95% guaranteed by Hermes.

• In August 2022, we issued $1.15 billion aggregate principal amount of 6.00% senior convertible notes due 2025, the proceeds of which we used to repurchase $800 million of our 4.25% senior convertible notes due June 2023 and $350 million of our 2.875% senior convertible notes due November 2023.

• In August 2022, we issued $1.25 billion of aggregate principal amount of 11.625% senior unsecured notes due 2027, the proceeds of which were or will be used to repay debt scheduled to mature in 2022, including the $650 million 5.25% unsecured senior notes due November 2022.

• In September 2022, we amended our $0.6 billion unsecured term loan due October 2023, to among other things, extend the maturity date of advances held by consenting lenders by 12 months, and we prepaid consenting lenders 10% of their respective outstanding advances.

Net loss and Adjusted Net loss for the first quarter of 2023 was $47.9 million and $58.9 million, or $(0.19) and $(0.23) per share on a diluted basis, respectively, reflecting our return to full operations, compared to Net Loss and Adjusted Net Loss of $(1.17) billion and $(1.16) billion, or $(4.58) and (4.57) per share on a diluted basis, respectively, for the first quarter of 2022.

Significant items for the quarter ended March 31, 2023 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, increased $1.9 billion, respectively, for the quarter ended March 31, 2023 as compared to the same period in 2022.

The increase reflects our return to full operations in 2023, compared to a partial return to operations during the same period in 2022.

APCD for the first quarter ended March 31, 2023 was 11,233,489, compared to 7,692,906 in the same period in 2022.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased $0.6 billion , for the quarter ended March 31, 2023 as compared to the same period in 2022.

The increase reflects our return to full operations in 2023, compared to a partial return to operations during the same period in 2022.

• In January 2023, we amended and extended the majority of our two unsecured revolving credit facilities.

The amendment has extended the maturities of $2.3 billion of the $3.0 billion aggregate revolving capacity by one year to April 2025, with the remainder maturing in April 2024.

Additionally, during the quarter ended March 31, 2023, we repaid $2.4 billion under our revolving credit facilities, resulting in an aggregate borrowing capacity of $2.6 billion under the facilities as of March 31, 2023.

• In February 2023, we issued $700 million aggregate principal amount of 7.25% Priority Guaranteed Notes.

Upon closing, we terminated our commitment for the $700 million 364-day term loan facility.

In addition, the remaining $350 million backstop committed financing was also terminated upon closing.

• Effective March 31, 2023, we closed on the previously announced partnership with iCON.

As part of the transaction, we sold 80% of PortMiami for $208.9 million and retained a 20% minority interest.

The partnership will own, develop,

and manage cruise terminal facilities and infrastructure in key ports of call, initially including several development projects in Italy, Spain, and the U.S.

Virgin Islands.

Refer to Note 5 .

Investments and Other Assets in our consolidated financial statements for further information on the transaction.

For further information regarding the debt transactions discussed above, refer to Note 6 .

Debt to our consolidated financial statements under Part I.

Financial Statements.

Operating results for the quarters and nine months ended September 30, 2022 compared to the same period in 2021 are shown in the following table (in thousands, except per share data):

Quarter Ended September 30,

Debt to our consolidated financial statements.

Operating results for the quarter ended March 31, 2023 compared to the same period in 2022 are shown in the following table (in thousands, except per share data):

Quarter Ended March 31,

Revenues % of Total

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Depreciation and amortization expenses 359,773 12.5 % 339,467 32.0 %

Impairment and credit losses (recoveries) 10,186 0.3 % (238) (0.1) %

Operating Income (Loss) 271,613 9.4 % (859,208) (81.1) %

Other income (expense):

Other (expense) income:

Interest income 14,808 0.5 % 3,322 0.3 %

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Equity investment income (loss) 20,471 0.7 % (31,059) (2.9) %

Other income 780 — % 37,230 8.1 %

(265,457) (8.9) % (418,730) (91.6) %

Net Income (Loss) $ 32,968 1.1 % $ (1,424,554) (311.7) %

Diluted Earnings (Loss) per Share $ 0.13 $ (5.59)

Nine Months Ended September 30,

Revenues % of Total

Passenger ticket revenues $ 4,091,035 65.6 % $ 323,782 58.9 %

Onboard and other revenues 2,145,513 34.4 % 226,104 41.1 %

Total revenues 6,236,548 100.0 % 549,886 100.0 %

Cruise operating expenses:

Commissions, transportation and other 964,256 15.5 % 72,917 13.3 %

Onboard and other 450,225 7.2 % 55,782 10.1 %

Payroll and related 981,128 15.7 % 530,250 96.4 %

Food 450,376 7.2 % 74,618 13.6 %

Fuel 779,873 12.5 % 219,058 39.8 %

Other operating 1,206,036 19.3 % 569,383 103.5 %

Total cruise operating expenses 4,831,894 77.5 % 1,522,008 276.8 %

Marketing, selling and administrative expenses 1,138,571 18.3 % 867,021 157.7 %

Depreciation and amortization expenses 1,046,094 16.8 % 959,512 174.5 %

Impairment and credit losses (recoveries) (584) — % 39,934 7.3 %

Operating Loss (779,427) (12.5) % (2,838,589) (516.2) %

Other income (expense) 4,585 0.2 % (2,538) (0.2) %

Interest income 21,765 0.3 % 13,317 2.4 %

Interest expense, net of interest capitalized (932,552) (15.0) % (1,007,986) (183.3) %

Equity investment income (loss) 29,759 0.5 % (137,044) (24.9) %

Other income 4,699 0.1 % 66,771 12.1 %

(319,523) (11.1) % (307,934) (29.1) %

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Diluted Loss per Share $ (0.19) $ (4.58)

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

Quarter Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net Income (Loss) $ 32,968 $ (1,424,554) $ (1,655,756) $ (3,903,531)

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

Quarter Ended March 31,

Net Loss $ (47,910) $ (1,167,142)

Loss on extinguishment of debt 13,289 —

Gain on sale of controlling interest (1) (3,130) —

PortMiami tax on sale of noncontrolling interest (2) 10,020 —

Silver Whisper deferred tax liability release (3) (25,784) —

Impairment and credit losses (recoveries) (4) (6,990) 173

Restructuring charges and other initiatives expense 4,573 74 6,448 1,721

Amortization of Silversea Cruises intangible assets related to Silversea Cruises acquisition (5) 1,623 1,623

Loss on extinguishment of debt (2) 16,449 141,915 16,449 138,759

Convertible debt amortization of debt discount (3) — 26,073 — 78,219

Pullmantur reorganization settlement (4) — 5,242 — 10,242

Equity investment impairment (5) — — — 26,042

Oasis of the Seas incident (6) — — — (6,584)

Net gain related to the sale of the Azamara brand — 163 — (4,773)

Adjusted Net Income (Loss) $ 65,799 $ (1,249,701) $ (1,628,573) $ (3,615,102)

Earnings (Loss) per Share $ 0.13 $ (5.59) $ (6.49) $ (15.56)

Adjusted Earnings (Loss) per Share $ 0.26 $ (4.91) $ (6.39) $ (14.41)

Earnings (Loss) per Share $ 0.13 $ (5.59) $ (6.49) $ (15.56)

Adjusted Earnings (Loss) per Share $ 0.26 $ (4.91) $ (6.39) $ (14.41)

Restructuring charges and other initiative expenses — 973

Adjusted Net Loss $ (58,882) $ (1,164,373)

Loss per Share $ (0.19) $ (4.58)

Adjusted Loss per Share $ (0.23) $ (4.57)

Loss per Share $ (0.19) $ (4.58)

Adjusted Loss per Share $ (0.23) $ (4.57)

Weighted-Average Shares Outstanding:

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Diluted 255,465 254,821

(1) Primarily represents asset impairments and a credit loss recovery for a note receivable in which credit losses were previously recorded in 2022.

(2) Represents net losses related to the early repayment of debt.

For further information regarding the repayment transactions, refer to Note 7.

Debt to our consolidated financial statements.

(3) Represents the amortization of non-cash debt discount on our convertible notes.

For further information regarding the adoption of ASU 2020-06 as of January 1, 2022, which impacts the accounting of the non-cash debt discount on convertible notes, refer to Note 2 .

Summary of Significant Accounting Policies to our consolidated financial statements.

(4) Represents estimated cash refunds expected to be paid to Pullmantur guests as part of the Pullmantur S.A.

reorganization.

(5) Represents equity investment asset impairments for TUI Cruises GmbH in 2021 as a result of the impact of COVID-19.

(6) Represents net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

(1) Represents gain on sale of controlling interest in cruise terminal facilities in Italy.

Included in Other operating within our consolidated statements of comprehensive loss.

(2) Represents tax on the PortMiami sale of noncontrolling interest.

These amounts are included in Other income (expense) in our consolidated statements of comprehensive loss.

Refer to Note 5 .

Investments and Other Assets to our consolidated financial statements for further information on the transaction.

(3) Represents the release of the deferred tax liability subsequent to the execution of the bargain purchase option for the Silver Whisper.

These amounts are included in Other income (expense) within our consolidated statements of comprehensive loss .

(4) Represents asset impairments and credit loss recoveries for notes receivables for which credit losses were previously recorded.

These amounts are included in Other operating within our consolidated statements of comprehensive loss.

(5) Represents the amortization of the Silversea Cruises intangible assets resulting from the 2018 Silversea Cruises acquisition.

Selected statistical information is shown in the following table:

Quarter Ended September 30, Nine Months Ended September 30,

2022 (1) 2021 (2) 2022 (1) 2021 (2)

Quarter Ended March 31,

Passengers Carried 1,806,270 734,809

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Occupancy 102.1 % 57.4 %

(1) Due to the elimination of the Silversea Cruises three-month reporting lag in October 2021, we included Silversea Cruises' metrics from July 1, 2022 through September 30, 2022 in the quarter ended September 30, 2022 and from January 1, 2022 through September 30, 2022 in the nine months ended September 30, 2022.

(2) Due to the three-month reporting lag, we included Silversea Cruises' metrics from April 1, 2021 through June 30, 2021 in the quarter ended September 30, 2021 and from October 1, 2020 through June 30, 2021 in the nine months ended September 30, 2021.

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

Quarter Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net Income (Loss) $ 32,968 $ (1,424,554) $ (1,655,756) $ (3,903,531)

Quarter Ended March 31,

Net Loss $ (47,910) $ (1,167,142)

Interest income (14,808) (3,322)

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EBITDA 648,099 (546,760)

Other income (2) (742) (10,978) (9,214) (30,514)

Other expense (income) (2) 3,758 (4,040)

Gain on sale of controlling interest (3) (3,130) —

Impairment and credit losses (recoveries) (4) (6,990) 173

Restructuring charges and other initiatives expense 4,573 74 6,448 1,721

Equity investment impairment (4) — — — 26,042

Oasis of the Seas incident (5) — — — (6,584)

Pullmantur reorganization settlement — 5,242 — 5,242

Net gain related to the sale of the Azamara brand — 163 — (4,773)

Restructuring charges and other initiative expenses — 973

Adjusted EBITDA $ 641,737 $ (549,654)

(1) Included within Other income in our consolidated statements of comprehensive loss.

(1) Included in Other income (expense) within our consolidated statements of comprehensive loss.

(2) Represents net non-operating income or expense.

For the periods reported, primarily relates to gains or losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies and changes in the fair value of fuel swaps for which cash flow hedge accounting was discontinued.

For the periods reported, primarily relates to gains or losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies.

The amount excludes income tax (benefit) expense, included in the EBITDA calculation above.

(3) Primarily represents asset impairments and a credit loss recovery for a note receivable in which credit losses were previously recorded in 2022.

(4) Represents equity investment asset impairments for TUI Cruises GmbH in 2021 as a result of the impact of COVID-19.

(5) Represents net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

(3) Represents gain on sale of controlling interest in cruise terminal facilities in Italy.

Included in Other operating within our consolidated statements of comprehensive loss.

(4) Represents asset impairments and credit loss recoveries for notes receivables for which credit losses were previously recorded.

These amounts are included in Other operating within our consolidated statements of comprehensive loss.

Gross Margin Yields and Net Yields were calculated by dividing Gross Margin and Adjusted Gross Margin by APCD as follows (in thousands, except APCD and Yields):

Quarter Ended March 31,

Total revenue $ 2,885,146 $ 1,059,231

Cruise operating expenses 1,792,905 1,184,942

Depreciation and amortization expenses 359,773 339,467

Gross Margin 732,468 (465,178)

Payroll and related 309,998 349,618

Food 199,391 100,184

Fuel 301,513 188,480

Other operating 420,438 321,878

Depreciation and amortization expenses 359,773 339,467

Adjusted Gross Margin $ 2,323,581 $ 834,449

APCD 11,233,489 7,692,906

Gross Margin Yields $ 65.20 $ (60.47)

Net Yields $ 206.84 $ 108.47

Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel were calculated as follows (in thousands, except APCD and costs per APCD):

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

Total cruise operating expenses $ 1,792,905 $ 1,184,942

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Net Cruise Costs Including Other Costs 1,692,195 1,354,190

Restructuring charges and other initiatives expense (1) 4,573 6,448

Gain on sale of controlling interest (1) (3,130) —

Impairment and credit recoveries (2) (6,990) 173

Restructuring charges and other initiative expenses (3) — 973

Net Cruise Costs 1,702,315 1,353,044

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Net Cruise Costs Excluding Fuel per APCD $ 124.70 $ 151.38

(1) Included within Marketing, selling and administrative expenses in our consolidated statements of comprehensive loss.

Quarter Ended September 30, 2022 Compared to Quarter Ended September 30, 2021

In this section, references to 2022 refer to the quarter ended September 30, 2022 and references to 2021 refer to the quarter ended September 30, 2021.

Total revenues for 2022 increased $2.5 billion to $3.0 billion from $457.0 million in 2021.

(1) Represents gain on sale of controlling interest in cruise terminal facilities in Italy.

Included in Other operating within our consolidated statements of comprehensive loss

(2) Represents asset impairments and credit losses recoveries for notes receivables for which credit losses were previously recorded.

Included in Other operating within our consolidated statements of comprehensive loss.

(3) Included in Marketing, selling and administrative expenses within our consolidated statements of comprehensive loss.

Quarter Ended March 31, 2023 Compared to Quarter Ended March 31, 2022

In this section, references to 2023 refer to the quarter ended March 31, 2023 and references to 2022 refer to the quarter ended March 31, 2022.

Total revenues for 2023 increased $1.8 billion to $2.9 billion from $1.1 billion in 2022.

Passenger ticket revenues comprised 65.7% of our 2023 total revenues.

Passenger ticket revenues for 2022 increased by $1.7 billion from $280.2 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $65.5 million

The remaining 32.5% of 2022 total revenues was comprised of Onboard and other revenues , which increased $0.8 billion to $1.0 billion in 2022 from $176.8 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $8.9 million.

The increase in revenues was due to the return of operations in 2022, in which our full fleet was in service, compared to 2021, when the suspension of our global cruise operations was in effect for a substantial portion of our fleet.

Passenger ticket revenues for 2023 increased by $1.2 billion, or 190.9% to $1.9 billion from $0.7 billion in 2022.

The remaining 34.3% of 2023 total revenues was comprised of Onboard and other revenues , which increased $0.6 billion, or 142.7% to $1.0 billion in 2023 from $407.4 million in 2022.

The increase in revenues reflects our return to full operations in 2023, compared to a partial return to operations during the same period in 2022.

Occupancy in 2023 was 102.1% compared to 57.4% in 2022.

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• a $113.0 million increase in Fuel expense ;

• a $177.5 million increase in Onboard and other expenses;

• a $163.3 million increase in Other operating expenses;

• a $99.2 million increase in Food expense;

• a $38.4 million increase in Payroll and related.

The increase in operating expenses noted above was driven by the return to operations in 2022, with our full fleet in service compared to 2021, when the suspension of our global cruise operations was in effect for a substantial portion of our fleet.

Additionally, as discussed above in Recent Developments , high inflation has impacted our operating costs, especially in fuel and food expense.

• a $98.6 million increase in Other operating expenses;

• a $84.2 million increase in Onboard and other expenses.

The increase in operating expenses noted above reflects our return to full operations in 2023, compared to a partial return to operations during the same period in 2022.

Additionally, high inflation has impacted our operating costs, especially in fuel and food expense.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2023 increased 25% per metric ton compared to 2022 mainly due to the increase in fuel price.

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Marketing, selling and administrative expenses for 2023 increased $66.8 million, or 17.0%, to $460.9 million from $394.0 million in 2022.

The increase was primarily due to an increase in payroll and benefits primarily due to an increase in headcount associated with our return to operations.

Additionally, having our full fleet in service in 2022 increased overall expenses compared to 2021.

The increase reflects our return to full operations in 2023, compared to a partial return to operations during the same period in 2022.

Additionally, the 2022 expenses reflect the ramp up of our global sales and marketing efforts to return to full operations in 2022.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2023 increased $20.3 million, or 6.0%, to $359.8 million from $339.5 million in 2022.

The increase was primarily due to the addition of Wonder of the Seas to our fleet in January 2022, Celebrity Beyond in April 2022 and Silver Dawn in November 2021.

Other Income (Expense)

Interest expense, net of interest capitalized for 2022 decreased $78.5 million, or 18.2%, to $352.2 million from $430.7 million in 2021.

The decrease was primarily due to a debt extinguishment loss of $141.9 million recognized in the third quarter of 2021 associated with the partial redemption of the 11.50% senior secured notes due 2025, compared to a debt extinguishment loss of $16.4 million in 2022, and the elimination of the non-cash debt discount amortization on our convertible notes under the adoption of ASU 2020-06.

The decrease was partially offset by a higher average cost of debt in 2022 compared to 2021.

Refer to Note 2 .

Summary of Significant Accounting Policies to our consolidated financial statements for further information on ASU 2020-06.

Equity investment income for 2022 was $74.0 million compared to Equity investment (loss) of $(29.1) million in 2021.

The increase in income was primarily due to income from TUI Cruises, one of our equity investments, in 2022 compared to losses in 2021.

Other income decreased $36.5 million, or 97.9%, to $0.8 million from $37.2 million in 2021.

The decrease was primarily due to the 2021 recognition of $8.2 million in net gains related to the change in fair value of our fuel swap derivative instruments with no hedge accounting, which did not recur in 2022, and a decrease in tax benefit of $26.2 million in 2022 compared to 2021.

Other Comprehensive (Loss)

Other comprehensive (loss) increased $229.4 million to $241.2 million from $11.9 million in 2021 due to an increase in the Loss on cash flow derivative hedges of $246.7 million in 2022, which was mostly due to a decrease in the fair value of our fuel swaps in 2022 compared to an increase in 2021, and a greater decrease in the fair value of our foreign currency forwards in 2022 compared to 2021 .

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

In this section, references to 2022 refer to the nine months ended September 30, 2022 and references to 2021 refer to the nine months ended September 30, 2021

Total revenues for 2022 increased $5.7 billion to $6.2 billion from $0.5 billion in 2021.

Passenger ticket revenues comprised 65.6% of our 2022 total revenues.

Passenger ticket revenues for 2022 increased by $3.8 billion to $4.1 billion from $323.8 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $93.8 million.

The remaini ng 34.4% of 2022 total revenues was comprised of Onboard and other revenues , which increased $1.9 billion to $2.1 billion in 2022 from $226.1 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $13.4 million.

The increase in revenues was due to our return of operations, in which the majority of our fleet was in service in 2022, compared to 2021, when the suspension of our global cruise operations was in effect.

Occupancy in 2022 was 81.2% compared to 35.7% in 2021.

Onboard and other revenues included concession revenues of $233.4 million in 2022 and $25.3 million in 2021.

Cruise Operating Expenses

Total Cruise operating expenses for 2022 increased $3.3 billion to $4.8 billion from $1.5 billion in 2021.

The increase was primarily due to:

• a $891.3 million increase in Commissions, transportation and other expenses;

• a $636.7 million increase in Other operating expenses;

• a $560.8 million increase in Fuel expense ;

• a $450.9 million increase in Payroll and related ;

• a $394.4 million increase in Onboard and other expenses;

• a $375.8 million increase in Food expense.

The increase in operating expenses noted above was driven by the return to operations in 2022, with the majority of our fleet in service compared to 2021, when the suspension of our global cruise operations was in effect.

The 2022 operating expenses include the overhead costs associated with bringing our ships back to service and our crew back on board our ships.

Additionally, as discussed above in Recent Developments , high inflation has impacted our operating costs, especially in fuel and food expense.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2 022 increased 55% per metric ton compared to 2021 mainly due to the increase in fuel price.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2022 increased $271.6 million, or 31.3%, to $1.1 billion from $0.9 billion in 2021.

The increase was primarily due to the ramp up of our global sales and marketing efforts starting in the second half of 2021 as we commenced our resum ption of operations.

Additionally, having our full fleet in service as of June 30, 2022 increased overall expenses compared to 2021.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2022 increased $86.6 million, or 9.0%, compared to 2021.

The increase was primarily due to the addition of Wonder of the Seas and Celebrity Beyond to our fleet in January 2022 and April 2022, respectively, and depreciation for Odyssey of the Seas and Silver Dawn , which were delivered in March 2021 and November 2021, respectively.

Impairment and Credit Losses (Recoveries)

Credit loss recoveries for 2022 was $(0.6) million compared to Impairment and credit losses of $39.9 million in 2021.

The decrease in impairment loss was primarily due to 2021 impairment charges of ce rtain construction in progress projects that were reduced in scope or terminated as a result of COVID-19, which did not recur in 2022.

Other Income (Expense)

Interest expense, net of interest capitalized for 2022 decreased $75.4 million, or 7.5%, to $932.6 million from $1.0 billion in 2021.

The decrease was primarily due to a debt extinguishment loss of $138.8 million recognized in 2021 associated with the partial redemption of the 11.50% senior secured notes due 2025, compared to a debt extinguishment loss of $16.4 million in 2022, and the elimination of the non-cash debt discount amortization on our convertible notes under the adoption of ASU 2020-06.

The decrease was partially offset by a higher average cost of debt in 2022 compared to 2021.

Refer to Note 2 .

Summary of Significant Accounting Policies to our consolidated financial statements for further information on ASU 2020-06.

The increase was primarily due to depreciation expenses for Celebrity Beyond and Silver Endeavour ships , which were not part of our fleet during the same period in 2022.

Other (Expense) Income

Interest expense, net of interest capitalized for 2023 increased $81.7 million, or 29.4%, to $359.4 million from $277.7 million in 2022.

The increase was primarily due to refinancing transactions after the first quarter of 2022, as well as the impact of higher rates on floating-rate debt.

Equity investment income for 2023 was $20.5 million compared to Equity investment loss of $31.1 million in 2022.

The increase in income was primarily due to income from TUI Cruises, one of our equity investments, in 2022 compared to losses in 2022.

Other income decreased $62.1 million, or 93.0%, to $4.7 million from $66.8 million in 2021.

The decrease in income was primarily due to the 2021 recognition of $35.9 million in net gains related to the change in fair value of our fuel swap derivative instruments with no hedge accounting, which did not recur in 2022, and a decrease in tax benefit $40.7 million in 2022 compared to 2021.

Other Comprehensive (Loss) Income

Other comprehensive (loss) for 2022 was $(81.6) million compared to Other comprehensive income of $63.5 million in 2021.

The change was primarily due to a Loss on cash flow derivative hedges in 2022 of $(148.5) million compared to a Gain on cash flow derivative hedges in 2021 of $48.5 million, which was mostly due to the greater decrease in the fair value of our foreign currency forwards in 2022 compared to 2021.

Other comprehensive (loss) was $(34.7) million in 2023 compared to Other comprehensive income of $216.3 million in 2022 .

The decrease of $251.0 million, or 116.1% was primarily due to Losses on cash flow derivative hedges in 2023 of $31.7 million compared to a Gain on cash flow derivative hedges in 2022 of $195.9 million, mostly as a result of a significant decrease in fair value of our fuel swaps in 2023 compared to 2022.

Future Application of Accounting Standards

Refer to Note 2 .

Summary of Significant Accounting Policies to our consolidated financial statements for further information on Recent Accounting Pronouncements.

Summary of Significant Accounting Policies to our consolidated financial statements.

Liquidity and Capital Resources

Sources and Uses of Cash

Net cash used by operating activities decreased $1.6 billion to cash used of $94.7 million for the nine months ended September 30, 2022 compared to cash used of $1.7 billion for the same period in 2021.

Our full resumption of cruise operations in 2022 has generated an increase in guest ticket and onboard collections.

Net cash used in investing activities increased $1.3 billion to cash used of $2.9 billion for the nine months ended September 30, 2022, compared to cash used of $1.6 billion for the same period in 2021.

The increase was primarily attributable to an increase in capital expenditures of $0.9 billion during the nine months ended September 30, 2022, compared to the same period in 2021, an increase in cash paid on derivative financial instruments of $334.5 million and a decrease in proceeds from the sale of property and equipment and other assets of $175.4 million during the nine months ended September 30, 2022.

Net cash provided by financing activities was $1.8 billion for the nine months ended September 30, 2022, compared to cash provided of $2.8 billion for the same period in 2021.

The decrease of $1.0 billion was primarily attributable to $1.6 billion of proceeds from common stock issuances during the first nine months of 2021, which did not recur during the same period in 2022, and higher repayments of debt of $2.9 billion during the nine months ended September 30, 2022, compared to the same period in 2021.

These decreases were partially offset by higher debt proceeds of $3.1 billion during the nine months ended September 30, 2022, compared to the same period in 2021 and repayments of commercial paper notes of $414.6 million during the nine months ended September 30, 2021, which did not recur in 2022.

Net cash provided by (used in) operating activities increased $1.8 billion to cash provided by of $1.3 billion for the three months ended March 31, 2023 compared to cash used of $0.5 billion for the same period in 2022.

The increase was primarily attributable to our return to full operations in 2023, compared to a partial return to operations during the same period in 2022, and an increase in proceeds from customer deposits in 2023 compared to the same period in 2022.

Net cash used in investing activities decreased $1.2 billion to cash used of $234.1 million for the three months ended March 31, 2023, compared to cash used of $1.4 billion for the same period in 2022.

The decrease was primarily attributable to a decrease in capital expenditures of $1.1 billion during 2023, compared to the same period in 2022, due to the delivery of Wonder of the Seas in 2022 compared to no ship deliveries during the same period in 2023.

Net cash used in financing activities was $1.8 billion for the three months ended March 31, 2023, compared to cash provided by financing activities of $1.2 billion for the same period in 2022.

The change of $3.0 billion was primarily attributable to a decrease of $1.6 billion in debt proceeds in 2023 compared to the same period in 2022, and an increase in repayments of debt of $1.7 billion in 2023 compared to the same period in 2022.

The change is partially offset by proceeds received of $209.3 million for the sale of noncontrolling interest of PortMiami during the quarter ended March 31, 2023.

Future Capital Commitments

Capital Expenditures

COVID-19 has impacted shipyard operations which resulted in delays of our previously contracted ship deliveries.

As of September 30, 2022, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

Ship Shipyard Expected Delivery Date Approximate

Our future capital commitments consist primarily of new ship orders.

As of March 31, 2023, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

Ship Shipyard Expected delivery Approximate

Royal Caribbean International —

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Silver Nova Meyer Werft 2nd Quarter 2023 730

Unnamed Meyer Werft 2nd Quarter 2024 730

Silver Ray Meyer Werft 2nd Quarter 2024 730

TUI Cruises (50% joint venture) —

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Total Berths 38,310

In addition, as of September 30, 2022, we have an agreement in place with Chantiers de l’Atlantique to build an additional fifth Edge-class ship with capacity of approximately 3,250 berths, estimated for delivery in 2025, which is contingent upon completion of conditions precedent and financing.

In addition, as of March 31, 2023, we have an agreement in place with Chantiers de l’Atlantique to build an additional Edge-class ship with capacity of approximately 3,250 berths, estimated for delivery in 2025, which is contingent upon completion of conditions precedent and financing.

Our future capital commitments consist primarily of new ship orders.

As of September 30, 2022, the aggregate expected cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $9.1 billion, of which we had deposited $0.7 billion.

Approximately 54.4% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at September 30, 2022.

We have been, and may continue to be, negatively impacted on our cash flows, liquidity and financial position by the COVID-19 pandemic.

In order to preserve liquidity, we deferred a significant portion of our planned 2020, 2021 and 2022 capital expenditures.

As of September 30, 2022, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $3.2 billion for 2022.

As of March 31, 2023, the aggregate expected cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $10.2 billion, of which we had deposited $0.9 billion.

Approximately 49.2% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at March 31, 2023.

Refer to Note 8.

Commitments and Contingencies and Note 11 .

Fair Value Measurements and Derivative Instruments to our consolidated financial statement .

As of March 31, 2023, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $4.2 billion for 2023.

This amount does not include any ships on order by our Partner Brands.

Material Cash Requirements

As of September 30, 2022, our material cash requirements were as follows (in thousands):

As of March 31, 2023, our material cash requirements were as follows (in thousands):

2023 2024 2025 2026 2027 Thereafter Total

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Interest on debt(1) $ 849,009 $ 1,202,768 $ 1,089,901 $ 833,427 $ 700,903 $ 1,237,058 $ 5,913,066

Other(2) 121,999 129,961 123,002 121,241 118,424 859,471 1,474,098

Investing Activities:

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(1) Long-term debt obligations mature at various dates through fiscal year 2037 and bear interest at fixed and variable rates.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements using the applicable rate at September 30, 2022.

Debt denominated in other currencies is calculated based on the applicable exchange rate at September 30, 2022.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements, using the applicable rate at March 31, 2023.

Debt denominated in other currencies is calculated based on the applicable exchange rate at March 31, 2023.

(2) Amounts primarily represent future commitments with remaining terms in excess of one year to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts.

(3) Amounts are based on contractual installment and delivery dates for our ships on order.

Included in these figures are $5.8 billion in final contractual installments, which have committed financing covering 80% of the cost of the ships on order for our Global Brands, almost all of which include sovereign financing guarantees.

COVID-19 has impacted shipyard operations which have and may result in delays for our previously contracted ship deliveries.

Amounts do not include potential obligations which remain subject to cancellation at our sole discretion or any agreements entered for ships on order that remain contingent upon completion of conditions precedent.

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Refer to Note 5 .

Other Assets for ownership restrictions related to TUI Cruises.

Investments and Other Assets for ownership restrictions related to TUI Cruises.

Refer to Note 3 .

Debt for surety and credit card processor agreements.

Revenues for credit card processor agreements for export credit agency guarantees.

Refer to Note 8 .

Commitments and Contingencies for other agreements.

As of September 30, 2022, other than the items referenced above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

As of March 31, 2023, other than the items referenced above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Funding Needs and Sources

Historically, we have relied on a combination of cash flows provided by operations, draw-downs under our available credit facilities, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund our obligations.

COVID-19 resulted in our voluntary suspension of global cruise operations from March 2020 up to our full fleet returning to service during the second quarter of 2022.

The suspension of operations strained our sources of cash flow and liquidity, causing us to take actions resulting in reductions in our operating expenses, reductions in our capital expenses and new financings and other liquidity actions.

The Company continues to identify and evaluate further actions to improve its liquidity.

These include but are not limited to:

As a result of the global pandemic impact of COVID-19, we paused our guest cruise operations in March 2020 and began resuming guest cruise operations in 2021, with our full fleet in service by June 2022.

The Company continually identifies and evaluates actions to maintain adequate liquidity.

These include, and are not limited to:

further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

Additionally, we will continue to pursue various opportunities to raise additional capital to fund obligations associated with future debt maturities and/or to extend the maturity dates associated with our existing indebtedness or facilities.

Actions to raise capital may include issuances of debt, convertible debt or equity in private or public transactions or entering into new or extended credit facilities.

Additionally, we will continue to pursue various opportunities to raise capital to fund obligations associated with future debt maturities and/or to extend the maturity dates associated with our existing indebtedness or facilities.

If needed, actions to raise capital may include issuances of debt, convertible debt or equity in private or public transactions or entering into new or extended credit facilities.

We have significant contractual obligations of which our debt service obligations and the capital expenditures associated with our ship purchases represent our largest funding needs.

As of September 30, 2022, we had $7.0 billion of committed financing for our ships on order.

As of September 30, 2022, our obligations due through September 30, 2023 primarily consisted of $3.9 billion related to debt maturities, $1.3 billion related to interest on debt and $0.7 billion related to progress payments on our ship orders and, based on the expected delivery date, the final installment payable due upon the delivery of Silver Nova .

We addressed $2.0 billion of these debt maturities in October 2022 with the closing of the 9.250% senior notes due 2029 and the 8.250% senior secured notes due 2029 and the concurrent redemption of the 2023 notes as further described in Note 7.

As of September 30, 2022, we had liquidity of $3.1 billion, including cash and cash equivalents of $1.6 billion, $0.8 billion of undrawn revolving credit facility capacity, and a $0.7 billion commitment for a 364-day term loan facility available to draw on at any time on or prior to August 12, 2023.

Our revolving credit facilities were partially utilized through a combination of amounts drawn and letters of credit issued under the facilities as of September 30, 2022.

We have agreed with certain of our lenders not to pay dividends or engage in stock repurchases.

As of March 31, 2023, we had $7.8 billion of committed financing for our ships on order.

As of March 31, 2023, our obligations due through March 31, 2024 primarily consisted of $2.1 billion related to debt maturities, $1.3 billion related to interest on debt and $2.7 billion related to progress payments on our ship orders and, based on the expected delivery date, the final installment payable due upon the delivery of Silver Nova, Icon of the Seas, and Celebrity Ascent .

As of March 31, 2023, we had liquidity of $3.9 billion, including cash and cash equivalents of $1.2 billion, and $2.6 billion of undrawn revolving credit facility capacity.

Our revolving credit facilities were partially utilized through a combination of amounts drawn and letters of credit issued under the facilities as of March 31, 2023.

We have agreed with certain of our lenders not to pay dividends or engage in stock repurchases unless we repay the remaining principal payments that were deferred under our export credit facilities in 2020 and 2021.

Refer to Note 6 .

Debt and Note 9 .

Shareholders' Equity to our consolidated financial statements for further information.

In February 2022 we entered into certain agreements with Morgan Stanley & Co., LLC (“MS”) where MS agreed to provide backstop committed financing to refinance, repurchase and/or repay in whole or in part our existing and outstanding debt.

In October 2022, we addressed $2.0 billion of debt maturities by completing the offer and sale of $2.0 billion aggregate principal amount of 9.250% senior guaranteed notes due 2029 and the 8.250% senior secured notes due 2029.

This reduced the amount a vailable under the MS backstop facility to $350 million, which will be available to refinance the remaining $350 million due under the 4.25% Convertible Notes due in June 2023.

Refer to Note 7.

Debt to our consolidated financial statements for further information.

If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms.

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Refer to Note 1 .

General, Management’s Plan and Liquidity, to our consolidated financial statements under Part I.

General, to our consolidated financial statements under Part I.

Financial Statements for further information.

Debt Covenants

Both our export credit facilities and our non-export credit facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio, and under certain facilities, to maintain a minimum level of shareholders' equity.

The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters.

Our minimum net worth and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders’ equity .

During the first quarter of 2021, we amended $4.9 billion of our non-export credit facilities and $6.3 billion of our export credit facilities, and certain credit card processing agreements, to extend the waiver of our financial covenants through and including at least the third quarter of 2022, and subsequently in the third quarter of 2021, we entered into a letter agreement to extend the waiver period for our export credit facilities to the end of the fourth quarter of 2022.

During the fourth quarter of 2021, we amended $7.3 billion of outstanding export-credit facilities plus committed export-credit facilities to modify financial covenant levels for 2023 and 2024, following the waiver period through and including the fourth quarter of 2022.

In addition, pursuant to the amendments for the non-export credit facilities, we have modified the manner in which such covenants are calculated, temporarily in certain cases and permanently in others, as well as the levels at which our net debt to capitalization covenant will be tested during the period commencing immediately following the end of the waiver period and continuing through the end of 2023.

In July 2022, we further amended the financial covenant levels for 2023 and 2024 for our non-export credit facilities and export credit facilities plus committed export credit facilities, and certain credit card processing agreements, following the respective aforementioned waiver periods.

The combined amendments, including the July 2022 amendments, impose a monthly-tested minimum liquidity covenant of $350 million, which in the case of the non-export credit facilities terminates at the end of the waiver period and in the case of the export credit facilities terminates either in July 2025, or when we pay off all deferred amounts, whichever is earlier.

In addition, the amendments to the non-export credit facilities place restrictions on paying cash dividends and effectuating share repurchases through the end of the third quarter of 2022, while the export credit facility amendments require us to prepay any deferred amounts if we elect to issue dividends or complete share repurchases.

As of September 30, 2022, we were in compliance with our financial covenants and we estimate that we will be in compliance for at least the next twelve months.

Any further covenant waivers may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as may be agreed with our lenders.

There can be no assurance that we would be able to obtain additional waivers in a timely manner, or on acceptable terms.

If we require additional waivers and are not able to obtain them or repay the debt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contracts.

During the second quarter of 2020, we agreed with certain of our lenders not to pay dividends or engage in common stock repurchases for so long as our debt covenant waivers are in effect.

In addition, in the event we declare a dividend or engage in share repurchases, we will need to repay the amounts deferred under our export credit facilities.

Accordingly, we did not declare a dividend during the ten consecutive quarters ended September 30, 2022.

Pursuant to amendments made to these agreements during the first quarter of 2021, the restrictions on paying cash dividends and effectuating share repurchases were extended through and including the third quarter of 2022.

In addition, in the event we thereafter declare a dividend, we will need to repay our amounts deferred under the export credit facilities.

Our export credit facilities and our non-export credit facilities, and certain of our credit card processing agreements contain covenants that require us, among other things, to maintain a fixed charge coverage ratio, limit our net debt-to-capital ratio, and maintain a minimum liquidity, and under certain facilities, to maintain a minimum level of shareholders' equity.

Our minimum stockholders' equity and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders’ equity .

In 2021 and 2022, the financial covenant levels were modified for 2023 and 2024.

As of March 31, 2023, we were in compliance with our financial covenants and we estimate that we will be in compliance for at least the next twelve months.

The declaration of dividends shall at all times be subject to the final determination of our board of directors that a dividend is prudent at that time in consideration of the needs of the business.

In the event we declare a dividend or engage in share repurchases, we will need to repay the amounts deferred under our export credit facilities.

Accordingly, we have not declared a dividend since the first quarter of 2020.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis