OneSpaWorld Holdings Limited — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company operates spa, wellness, fitness and beauty facilities on cruise ships and at destination resorts, and sells related products, including online. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and operations
- COVID-19 continued to suppress operations. At June 30, 2021, 14 ships and 42 destination resort spas were operating; most shipboard operations resumed late in Q2.
- Management said comparisons with 2020 are not meaningful because most facilities were closed during the comparable 2020 period.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020, restated | Six months 2021 | Six months 2020, restated |
|---|---|---|---|---|
| Revenue | $9.2 | $1.0 | $14.7 | $115.3 |
| Operating loss | $(17.0) | $(27.4) | $(35.9) | $(220.6) |
| Net income (loss) | $0.3 | $(20.7) | $(45.3) | $(169.1) |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(19.7) | $(8.7) |
- Q2 revenue increased year over year as facilities reopened: service revenue was $7.6 million and product revenue $1.5 million. Six-month revenue fell 87%, reflecting prolonged closures and suspended sailings.
- Q2 net income included a $20.7 million non-cash gain from changes in the fair value of warrant liabilities. The company reported diluted loss per share of $0.04 after an EPS adjustment for the warrant gain; basic EPS was $0.00. Six-month loss per share was $0.51.
- Q2 operating expenses were $26.1 million against $9.2 million of revenue, resulting in an operating loss. The filing does not provide a clear adjusted operating margin measure.
- Cash and cash equivalents were $39.9 million, plus $1.9 million restricted cash, at June 30, versus $41.6 million and $1.9 million, respectively, at year-end 2020. Six-month cash use was $1.7 million after $18.6 million of financing inflows, primarily ATM share sales.
- Debt was $234.5 million gross ($229.9 million net of issuance costs), including $7.0 million drawn on the revolver. The company had $13 million of revolver capacity available; stated facility rates were 3.9% on first-lien debt and 7.7% on second-lien debt. It reported compliance with debt covenants.
- Current assets were $81.0 million and current liabilities $43.7 million. Management concluded liquidity would be sufficient for obligations and covenant compliance over the next 12 months, based on its assumptions and expected vessel returns.
Changes, outlook and material items
- Six-month net loss improved from $169.1 million to $45.3 million, principally because the prior-year period included $190.8 million of goodwill and tradename impairment. The warrant fair-value effect also differed substantially between periods.
- In March 2021, the company raised $18.5 million net through its at-the-market offering, selling 1.7 million shares; approximately $20 million of offering capacity remained. Total voting shares increased from 69.3 million at year-end to 73.3 million at June 30. A separate June secondary offering was by selling shareholders and generated no proceeds for the company.
- Management expected a net loss in Q3 2021 and for full-year 2021, and said COVID-related disruption could materially affect results and liquidity beyond 2021. It anticipated additional costs as operations resumed, including redeployment and enhanced hygiene measures. No revenue or earnings guidance was provided.
- The company had suspended dividends and deferred payment of a $2.4 million dividend declared in 2020 pending Board approval. Cost-control actions included reduced staffing and compensation, and cuts to non-essential operating and capital spending.
- Comparative 2020 financial statements were restated for warrant accounting. The restatement decreased reported net loss by $10.7 million for Q2 2020 and $61.0 million for the first half of 2020. Management said a related material weakness was remediated as of March 31, 2021; Q2 disclosure controls were assessed as effective.
- A foreign tax authority assessed $1.9 million related to VAT treatment of the 2019 ownership change. The company is disputing the assessment and accrued $1.2 million. Management did not believe the ultimate outcome would materially affect the financial statements.
- On August 3, 2021, the CEO and CFO voluntarily forfeited options covering 3.4 million shares. The filing reports no legal proceedings under the legal proceedings item.
Key risks and investor verification points
- Verify the pace and durability of cruise sailings and resort reopenings, passenger demand, staffing availability, and the effects of COVID-19 variants, travel restrictions and public-health requirements.
- Assess whether cash resources, remaining ATM capacity and revolver availability can cover continued operating cash outflows, restart costs and debt service if recovery is slower than management assumes.
- Review debt covenant headroom, variable-rate exposure and the transition from LIBOR, which affects the company’s $234.5 million of debt.
- Distinguish operating performance from non-cash warrant fair-value gains and losses; warrant liabilities were $107.3 million at June 30.
- Consider potential dilution from equity issuance and outstanding warrants, and monitor the unresolved VAT assessment and any further developments in financial reporting controls.