OneSpaWorld Holdings Limited — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. OneSpaWorld operates health, wellness, fitness and beauty centers, primarily aboard cruise ships and at destination resorts, and sells related products.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $211.2 million | $182.5 million |
| Operating income | $17.0 million | $11.2 million |
| Operating margin | 8.0% | 6.1% |
| Net income (loss) | $21.2 million | $(15.9) million |
| Diluted EPS | $0.21 | $(0.17) |
| Operating cash flow | $15.0 million | $2.2 million |
| Capital expenditures | $1.2 million | $1.3 million |
Revenue rose 16% year over year: service revenue increased 15% to $172.2 million and product revenue increased 21% to $39.0 million. Cost of services increased 14% and cost of products 19%. Operating margin improved from 6.1% to 8.0%. Net income included a $7.7 million gain from changes in warrant fair value; the comparable 2023 period included a $21.9 million loss, so the swing materially affected the bottom-line comparison. Interest expense declined to $3.0 million from $4.6 million.
Average ship count increased to 188 from 173, and period-end ship count was 193 versus 179. Average resort count was 51 versus 48. Average weekly revenue per ship increased to $81,708 from $77,076; average weekly revenue per resort was $16,791 versus $16,973.
Cash, debt and liquidity
Cash and cash equivalents were $65.4 million at March 31, 2024, with a further $1.2 million of restricted cash. Cash and restricted cash increased $37.7 million during the quarter. Operating cash flow was $15.0 million; financing cash flow was $24.0 million, including $51.7 million in warrant-exercise proceeds, $20.0 million of term-loan repayments and $7.7 million used to repurchase shares.
Long-term debt, net of issuance costs, was $138.6 million, down from $158.2 million at year-end. The first-lien term loan bears interest at 9.2% and matures in 2026; the filing reports no minimum principal repayments before then. The revolving facility expired March 19, 2024 and was not renewed; there were no borrowings outstanding on it. The company reported compliance with its debt covenants and stated it expects liquidity to be sufficient for planned and existing capital needs over the next 12 months and thereafter.
Material changes, outlook and risks
- Growth was attributed to more operating ships and management initiatives to improve guest engagement, offerings and center productivity.
- During Q1, holders exercised warrants, resulting in 4.5 million shares issued for cash and 0.5 million shares issued through cashless exercises. Sponsor and Public Warrants expired March 19, 2024; a small number of 2020 PIPE Warrants remained outstanding at quarter-end.
- The company repurchased 606,386 shares from Steiner Leisure Limited for $7.7 million; the seller ceased to be a shareholder.
- On April 24, 2024, the board authorized a new share repurchase program of up to $50 million, funded from available cash. Repurchases are discretionary, and the company is not obligated to buy a specific amount.
- No specific financial guidance was provided. Management noted the business is seasonal, with revenue yields generally highest in the third quarter and holiday periods. Hurricanes, economic weakness, inflation, interest rates, fuel prices, disease outbreaks and changes in cruise demand could adversely affect results.
- A foreign tax authority assessment of $1.9 million concerning VAT is being disputed; the company has accrued $1.2 million and says it does not expect a material adverse impact. The filing says other pending legal matters are not expected to be material, though some potential losses cannot currently be estimated. Restricted cash includes funds held in escrow in connection with a tax-assessment proceeding.
- Management reported effective disclosure controls as of March 31, 2024, with no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of future earnings growth reflects core operating performance versus the noncash, volatile warrant fair-value gain or loss.
- Whether operating cash flow remains positive after working-capital movements and the one-time warrant proceeds are excluded from financing cash flow.
- Plans for refinancing or repaying the $139.6 million term-loan principal due in 2026, and the effect of the 9.2% interest rate after the interest-rate swap expires in September 2024.
- Whether the new $50 million repurchase authorization is used, and its impact on cash available for operations, debt reduction and other capital needs.
- Developments in the VAT dispute and any changes to the accrued amount or restricted cash.