OneSpaWorld Holdings Limited (Nasdaq: OSW) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 29, 2024. Figures below are U.S. dollars; financial statement amounts are in millions unless noted.
Business context
OneSpaWorld operates health, fitness, beauty and wellness centers aboard cruise ships and at destination resorts, primarily through long-term revenue-sharing agreements. At year-end it served 193 ships and 51 resorts; management estimates it holds more than 90% of the outsourced maritime wellness market. Cruise operations dominate revenue, and three cruise parent groups—Carnival, Royal Caribbean and Norwegian Cruise Line—accounted for 85.4% of 2023 revenue combined.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $794.0 | $546.3 |
| Operating income | $54.2; 6.8% margin | $15.1; 2.8% margin |
| Net income (loss) | $(3.0); (0.4)% margin | $53.2; 9.7% margin |
| Adjusted EBITDA (non-GAAP) | $89.2; 11.2% of revenue | $50.4; 9.2% of revenue |
| Operating cash flow | $63.4 | $24.8 |
| Capital expenditures | $5.4 | $4.8 |
| Unlevered After-Tax Free Cash Flow (non-GAAP) | $79.1 | $45.1 |
Revenue rose 45%, with service revenue up 45% and product revenue up 46%. The average ship count increased 23% to 180, while average weekly revenue per ship increased to $80,013 from $66,494. Product sales were 18.4% of revenue. Adjusted EBITDA and free cash flow are non-GAAP measures; free cash flow is calculated from Adjusted EBITDA less capital expenditures and cash taxes.
Cash and cash equivalents were $27.7 million, plus $1.2 million restricted cash. Gross debt was $159.6 million, all under the first-lien term loan; the second-lien loan was fully repaid during 2023. The term loan matures in 2026 and carried a 9.2% rate at year-end. The $20 million revolving facility was undrawn. The company reported $16.96 million of working capital under its stated definition (current assets less current liabilities, excluding cash and restricted cash), and said it expects sufficient liquidity for the next 12 months and compliance with debt covenants.
Changes, outlook and notable items
- Revenue recovery and operating income improved as ship operations normalized after the pandemic; year-end ship count rose from 179 to 193. Management said 2024 would be the first full year of normalized operations since the pandemic began.
- Net income swung from profit to loss despite stronger operations. A $37.6 million loss from the change in fair value of warrant liabilities, versus a $54.4 million gain in 2022, was a major driver; this valuation change is not equivalent to operating performance. Interest expense also included a one-time $5.4 million deleveraging fee.
- The company recorded $2.1 million of long-lived-asset impairment, primarily related to an expected 2024 closure of a Las Vegas resort center following the expected hotel demolition. It recognized a $3.4 million tax benefit after settling an Italian tax exposure through an amnesty program.
- During 2023, the company repaid $56.0 million of term and revolving debt and repurchased 789,046 shares for $9.0 million. It also exchanged or exercised warrants, issuing common shares; remaining warrant liabilities were $20.4 million at year-end.
- Management expects existing cruise line partners to introduce 16 ships by the end of 2026 and expects medi-spa services on 148 ships by the end of 2024. The filing provides no quantified company revenue or earnings guidance.
- 2024 minimum guaranteed payments were approximately $143.5 million to cruise lines and $2.2 million to land-based venue owners, subject to applicable agreement terms and, for cruise payments, canceled voyages.
Risks and contingencies
Key risks include dependence on cruise travel and a small number of cruise groups; contract renewal or termination; minimum payment obligations; ship cancellations, itinerary changes and new-ship delays; discretionary consumer spending; staffing and operating costs; severe weather; variable-rate debt; and tax exposure. The company also flags potential changes to international tax rules, including a possible Bahamas or other jurisdictional Pillar Two tax, which could raise its effective tax rate. It reported no material cybersecurity incident known to management and stated that internal control over financial reporting was effective. The financial statements received an unqualified audit opinion. Item 3 reports no legal proceedings, although the notes describe a disputed foreign VAT assessment with a $1.2 million accrual.
Important facts for investors to verify
- How much of 2023 revenue and cash generation is sustainable at normalized ship operations, and whether ship productivity and guest spending continue to improve.
- The composition and calculation of Adjusted EBITDA and Unlevered After-Tax Free Cash Flow, including cash taxes, capital spending and other cash costs excluded from these measures.
- Debt repayment capacity and refinancing plans for the $159.6 million first-lien loan due in 2026, considering the variable interest rate and covenant requirements.
- Exposure to the three largest cruise groups, contract renewal and termination provisions, and coverage of the 2024 minimum guarantees by actual activity.
- The expected timing and financial effect of the Las Vegas center closure, remaining warrant exercises or expirations, and potential tax-law changes.