Royal Caribbean Cruises Ltd. (NYSE:RCL) Q1 2024 Earnings Call Transcript

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Brandt Montour: Okay. That’s really helpful. And then maybe one for Naf. The higher guidance for the year helps bring credit metrics, at least in our model, perhaps a little closer to IG, perhaps a little earlier than we had before. And so I guess, maybe it’s worth you refreshing us on what you think the board needs to see to reestablish capital returns. And if today’s report maybe helped that picture at all. And that’s it for me.

Naftali Holtz: Yes. So just on the balance sheet. So you’re right, obviously, with the acceleration of performance, we’re focused on basically three things, right? We’re focused on reducing leverage. And I said in my prepared remarks, we will — we expect to get to below the 3.5x leverage by the end of the year. So that’s very positive. Obviously, we continue to pay down debt. EBITDA, increases are helping with that leverage. So we’re feeling pretty good about that. And then reducing cost of capital, you saw us take an action this quarter reducing on one bond more than 500 basis points or almost $60 million of annual interest expense. And we’ll continue to find those opportunities to lower the cost of capital and use both cash and opportunistic refinancing.

I think there’s much more to do there. And lastly, it’s just an unsecured balance sheet. We want to get back that capacity on the balance sheet like we had pre-COVID. And we basically have three bonds left that if we pay them back or we refinance them, the whole structure collapses and we’re back to unsecured balance sheet. So that’s our focus. We’ll continue to execute on that. Our focus is on metrics, not ratings. We were very pleased with the upgrades that we got from the rating agencies, but our focus in our getting to the balance sheet.

Brandt Montour: Thanks everyone. Congrats on the quarter.

Jason Liberty: Oh, no, no. I was just going to say obviously you’re getting to base camp and getting to those metrics is an important line for us and as well as for our board in terms of consideration of capital returns. But I would just point to that pre-COVID. We certainly, that was very much part of our formula was having a competitive dividend and also buying back shares opportunistically.

Operator: Your next question will come from the line of Robin Farley with UBS. Please go ahead.

Robin Farley: Great, thanks. One clarification on your really excellent guidance. It sounded like you were suggesting that there were some fall Red Sea cruises that are still on your schedule, but did I understand your comment to mean that if they were to change, that’s already factored into your guidance? So if we see that, see any changes in those, it wouldn’t change your guidance. I just want to make sure I understood that part of your commentary, right?

Naftali Holtz: Yes, Robin. That’s correct.

Robin Farley: Okay, great. Thank you. And then just my other question is on capacity and capacity growth. And you mentioned that moderate capacity growth has been your goal. Others out there, some have been more aggressive lately with ordering ships out into the future. And I wonder if you could just give us your thoughts on whether you feel that that changes anything with availability of slotted shipyards or if that changes in any way what you have been thinking about capacity or would think about needing to do in the future. Thanks.

Jason Liberty: Sure. Hi, Robin. So first, I think it’s important that when we talk about our order book, these are ships that are actually on order. We’re not talking about options. We’re not talking about slot reservations. We’re talking about things on order. And of course, we don’t have any orders going out to I think 2035 or 2036, at this point in time. What we do subscribe to is that we believe that we are in segments that have a lot of growth potential to them. We believe we have the right brands in those segments. And we believe that we should be moderately growing our brands over time. And so that’s kind of what we’re committed to. And I think we feel very good not only about our current order book and about the potential of that order book to grow moderately, but also our access to build those ships over an extended period of time.

So I think we feel very good about it all around. And I think we’re showing that the investments we’re making in our brands, what the investments we’re making in the destinations are yielding very high returns for our shareholders and continuing to expand our margins.

Robin Farley: I guess maybe to clarify, do you feel that you would need to order ships more than five years in advance in the current environment? Or is that sort of five to six years out, I would say something five?

Jason Liberty: Yes. I think it depends on the circumstances. We’ve ordered, Icon was being designed and dreamt of obviously COVID delayed some of those orders, but somewhere typically in that kind of five-to-six-year range is where you make those orders. But keep in mind, and that’s what I think my comment is, that doesn’t mean you don’t have options and you don’t have slot reservations and so forth that you could also, which is why we typically order in that kind of five-to-six-year type of range. We don’t announce things unless they are fully contracted and we know the price and we have the financing in place.

Operator: Our final question will come from the line of Vince Ciepiel with Cleveland Research. Please go ahead.

Vince Ciepiel: Earlier in the call, there was some commentary on loyalty and I just wanted to get your sense for what you’re seeing within that across your brands and varying products, what you see in terms of overlap of customers and then maybe finally within that, have you ever thought about getting into river cruising, thoughts on that segment of the market and is there much overlap with your current customer base?

Jason Liberty: Yes. Well, first just to kind of build off of what I had said earlier is, we have been very thoughtful about having the right brands and the right segments. And we have done such an incredible job at delivering a vacation of a lifetime and we’re focused on making sure we’re set up to deliver a lifetime of vacations. And our guests, there is overlap between Royal and Celebrity and Royal and Silversea and vice versa because you could have a set of grandparents on Silversea that next month are going on a cruise with their kids and grandkids on the Royal Caribbean brand. That happens all the time. And one of our ultimate goals here is to make sure that we keep our customer in our ecosystem. And so we do that whether that’s through awareness of our brands, whether that’s through loyalty programs, whether that’s through cross-selling, et cetera.

And those are things that we have an opportunity to get better and better at, especially as our travel platform technology-wise is more flexible. The comment on river or other experiences, we’re always evaluating opportunities. River is an area where we do see some overlap, not a lot of overlap, but we do see some overlap occurring and that could be something that we would consider at some point in the future. But at this point in time, we’re very focused on excelling in our core, growing our core and also further building out our destination platform. All of that, as we’re clearly seeing, is working to deliver a very high ROIC profile and producing strong shareholder returns.

Operator: I will now turn the conference back over to Naftali Holtz, CFO, for closing remarks.

Naftali Holtz: We thank you all for your participation and interest. Michael will be available for any follow-up. We wish you all a great day.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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