OneSpaWorld Holdings Limited — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; amounts below are in U.S. dollars unless noted. OneSpaWorld operates health, wellness, fitness and beauty centers on cruise ships and at destination resorts, and sells related products.
Business context and performance
Operations continued recovering from COVID-19 disruptions. At June 30, 2022, centers were operating on 167 cruise ships and at 48 destination resorts, compared with 14 ships and 42 resorts a year earlier. The company says prior-year comparisons are not meaningful because operations were substantially curtailed in 2021.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $127.4 million | $9.2 million | $215.0 million | $14.7 million |
| Operating income (loss) | $1.0 million | $(17.0) million | $(5.4) million | $(35.9) million |
| Operating margin | 0.8% | (185.3)% | (2.5)% | (243.2)% |
| Net income (loss) | $55.9 million | $0.3 million | $49.6 million | $(45.3) million |
| Diluted earnings (loss) per share | $0.46 | $(0.04) | $0.39 | $(0.51) |
| Operating cash flow | Not separately provided | Not separately provided | $4.4 million | $(19.7) million |
Q2 service revenue was $103.6 million and product revenue $23.8 million. For the first half, service revenue was $174.8 million and product revenue $40.3 million. Reported net income was substantially boosted by noncash gains from changes in warrant fair value: $58.5 million in Q2 and $61.9 million in the first half. The company reported an operating loss for the first half despite the net profit.
Six-month investing cash flow was $(2.0) million, principally capital expenditures; financing cash flow was $(0.7) million, including $0.7 million of term-loan repayments. Cash, cash equivalents and restricted cash totaled $33.9 million at June 30, versus $32.8 million at year-end 2021.
Total debt was $233.7 million before $3.5 million of unamortized issuance costs; the balance sheet showed $230.2 million net debt, including $2.1 million current. Debt included a $201.7 million first-lien term loan at 5.2%, a $25.0 million second-lien loan at 8.7%, and $7.0 million drawn on a $20.0 million revolving facility. Available revolver capacity was $13.0 million. The company reported compliance with debt covenants. Current assets were $108.2 million and current liabilities $66.6 million.
Changes, outlook and risks
- Revenue growth chiefly reflected the resumption of cruise operations and higher activity at destination resorts. Operating cash flow turned positive for the first time since the pandemic began, according to management.
- Management states it expects sufficient liquidity to meet obligations and comply with covenants over the next 12 months. It also anticipates COVID-19 will continue to adversely affect 2022 performance; no specific financial guidance is provided.
- Risks include renewed COVID-19 disruption, travel and hospitality demand, economic softness and inflation, currency movements, and hurricanes. Cruise operations are seasonal, with third-quarter and holiday periods generally producing higher revenue yields.
- The company accrued $1.2 million for a disputed foreign VAT assessment; restricted cash of $1.9 million is held in escrow in connection with a tax assessment. Management says it does not expect known legal matters to materially affect results, financial condition or cash flows. No legal proceedings were reported in Part II.
- The company expects adoption of lease accounting guidance to materially affect balance-sheet presentation, principally through recognition of operating lease assets and liabilities. On August 1, 2022, it terminated its ATM offering agreement; approximately $10 million of capacity remained unused at June 30.
Investor verification points
- Assess underlying operating profitability separately from the large, noncash warrant remeasurement gains.
- Verify the pace and economics of cruise ship and resort reopening, including whether revenue recovery translates into sustainable operating cash flow.
- Review liquidity, debt rates and covenant headroom, including sensitivity to floating interest rates and the remaining $13 million revolver capacity.
- Monitor COVID-19, travel demand, hurricane exposure, the VAT dispute and the balance-sheet impact of lease-standard adoption.