OneSpaWorld Holdings Limited — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. OneSpaWorld operates health, wellness, fitness and beauty centers aboard cruise ships and at destination resorts, earning most cruise revenue through revenue-sharing agreements.
Business context and operating recovery
The year reflected a substantial recovery from pandemic-related shutdowns as cruise and resort operations resumed. The filing generally reports 179 ships and 50 resorts operating at year-end, while its MD&A says 177 ships and 48 resorts; the text does not reconcile these counts. As of February 25, 2023, the company reported operations on 177 ships and at 49 destination resort spas.
- Revenue comes primarily from services; products represented about 18% of FY2022 revenue.
- Carnival, Royal Caribbean and Norwegian Cruise Line accounted for 41.0%, 28.0% and 15.6% of revenue, respectively—84.6% combined.
Financial performance and liquidity
Amounts below are in U.S. dollars. FY2022 compared with FY2021:
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $546.3 million | $144.0 million |
| Service revenue | $446.5 million | $115.9 million |
| Product revenue | $99.7 million | $28.1 million |
| Operating income (loss) | $15.1 million; 2.8% margin | $(52.1) million; (36.1)% margin |
| Net income (loss) | $53.2 million; 9.7% margin | $(68.5) million |
| Adjusted EBITDA (non-GAAP) | $50.4 million | $(18.9) million |
| Operating cash flow | $24.8 million | $(35.1) million |
| Unlevered After-Tax Free Cash Flow (non-GAAP) | $45.1 million | $(22.0) million |
- Revenue increased about 279% year over year, primarily as operations resumed and more ships returned to service.
- Net income included a $54.4 million non-cash gain from the change in fair value of warrant liabilities, versus a $2.6 million loss in 2021. The gain materially boosted reported earnings; operating income was $15.1 million.
- Capital expenditures were $4.8 million. Cash and cash equivalents were $32.1 million, with another $1.2 million restricted. Working capital, as defined in the filing excluding cash and restricted cash, was $15.1 million.
- Gross debt was $215.7 million at year-end ($212.8 million net of unamortized issuance costs), down from $234.5 million gross in 2021. The company repaid $18.8 million during 2022 and had $20 million available and undrawn on its revolving facility at year-end.
- Term loans carry variable rates; stated year-end rates were 8.3% on the first-lien term loan and 11.8% on the second-lien loan. Interest expense was $15.8 million. Management said liquidity was sufficient for obligations over the next 12 months and that the company complied with debt covenants.
Adjusted EBITDA and Unlevered After-Tax Free Cash Flow are non-GAAP measures and are not substitutes for GAAP results. The filing’s reported operating cash flow was $24.8 million, lower than its $45.1 million non-GAAP free-cash-flow measure.
Outlook, risks and unusual items
- No formal financial guidance is provided. Management identified a pipeline of 21 new ships expected from existing cruise partners by the end of 2025 and expected medi-spa services on 134 ships by the end of 2023.
- Key risks include another pandemic or travel disruption; cruise-industry, partner or resort weakness; contract nonrenewal or termination; customer concentration; staffing and recruitment constraints; inflation, fuel and wage costs; severe weather; cybersecurity and data privacy; and regulatory and tax uncertainty.
- The company disclosed $104.3 million of cruise-line minimum payment guarantees for 2023 under agreements in effect at year-end; the amount excludes canceled voyages. Four destination resort agreements also required minimum payments.
- An unresolved foreign VAT assessment was $1.9 million; the company had accrued $1.2 million for the matter and stated it did not expect a material adverse impact. The balance sheet also included a $3.9 million income-tax contingency for uncertain tax positions.
- The dividend program remains suspended. Approximately $2.4 million of previously declared dividends remained payable at year-end. Warrant liabilities declined to $52.9 million from $107.3 million, contributing to the non-cash fair-value gain.
- The 2020 financial statements were previously restated to account for warrants as liabilities rather than equity. The auditor gave an unqualified opinion on the 2022 financial statements; management reported effective disclosure controls and internal control over financial reporting, but the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Reconcile the conflicting year-end operating counts of 179 ships/50 resorts and 177 ships/48 resorts in different filing sections.
- Assess underlying earnings and cash generation excluding the $54.4 million warrant fair-value gain, and review the company’s non-GAAP reconciliations.
- Confirm the timing and terms of debt refinancing or transition from LIBOR, and monitor variable-rate interest expense and covenant headroom.
- Evaluate cruise-partner concentration, the 2023 minimum payment guarantees, and renewal or termination terms of major contracts.
- Track the VAT assessment, tax contingency, dividend suspension and potential dilution from outstanding warrants and equity awards.