OneSpaWorld Holdings Limited — Q3 2021 Form 10-Q
Business context and period: The company operates health, wellness, fitness and beauty centers aboard cruise ships and at destination resorts, and sells related products online. This unaudited report covers the three and nine months ended September 30, 2021; comparative 2020 figures are restated. As of quarter-end, 78 ships and 45 destination resort spas were operating amid a phased recovery from COVID-19 shutdowns.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $43.6 million | $1.8 million | $58.4 million | $117.1 million |
| Operating loss | $12.2 million | $19.4 million | $48.0 million | $239.9 million |
| Net loss | $12.3 million | $47.5 million | $57.6 million | $216.6 million |
| Loss per share, basic and diluted | $0.14 | $0.56 | $0.64 | $3.06 |
- Q3 2021 revenue comprised $34.8 million of services and $8.8 million of products. Nine-month revenue comprised $47.1 million of services and $11.3 million of products.
- Q3 operating loss was about 28% of revenue. The nine-month operating loss was about 82% of revenue; reported operating margins reflect low utilization and ongoing costs during the recovery.
- Cash and cash equivalents were $32.7 million at September 30, 2021, plus $1.9 million restricted cash. Nine-month operating cash use was $31.5 million; investing cash use was $1.3 million. Financing provided $24.0 million, primarily from the ATM share offering. Cash and restricted cash declined $8.9 million over the period.
- Gross debt was $234.5 million, including $7.0 million drawn on the $20.0 million revolving facility; $13.0 million remained available. Debt is primarily floating-rate and matures from 2024 to 2027. The company reported compliance with debt covenants.
- Current assets were $81.3 million and current liabilities $47.4 million (approximately $33.9 million of working capital). Warrant liabilities were $104.2 million. These liabilities are not debt principal.
Changes versus prior comparable periods
- Q3 revenue rebounded from the near-shutdown comparison in 2020 as ship and resort operations resumed. The filing cautions that the Q3 comparison is not meaningful because most centers had been closed in the prior-year quarter.
- Nine-month revenue fell 50% year over year, as the 2020 period included pre-pandemic activity while 2021 operations remained limited. Q3 net loss improved by $35.2 million, reflecting a smaller operating loss and a $28.2 million favorable year-over-year change in warrant fair value.
- Nine-month net loss narrowed by $159.0 million, largely because 2020 included a $190.8 million goodwill and tradename impairment. However, the 2020 period also recorded a larger warrant fair-value gain; warrant valuation changes are non-operating and market-sensitive.
- Accounts receivable rose to $14.5 million from $3.0 million at year-end 2020. Voting shares increased to 74.2 million from 69.3 million, partly through ATM sales and issuance of 1.6 million deferred shares. The company received no proceeds from a June secondary offering by existing shareholders.
Outlook, risks and unusual items
- Management expected a net loss for Q4 2021 and for full-year 2021. It stated that current resources, planned operational recovery and cost measures should provide sufficient liquidity for obligations over the next 12 months and covenant compliance; this outlook depends on assumptions that may change.
- COVID-19 remains the central risk: renewed outbreaks or variants, travel restrictions, reduced ship occupancy, partner operating decisions, staffing constraints and added health protocols could delay recovery, reduce revenue or increase costs. The CDC’s conditional sailing framework had been extended through January 15, 2022.
- Other material risks include fixed minimum payments to cruise and resort partners, variable-rate debt and LIBOR transition uncertainty, dependence on qualified employees and key executives, and potential limits on access to financing. The company had suspended dividends and eliminated non-essential spending.
- During the first nine months, the ATM program generated $24.0 million net proceeds; approximately $14 million remained available at September 30, and approximately $10 million at November 5 after subsequent sales. Further issuance could dilute shareholders.
- The 2020 financial statements were restated for warrant accounting. The filing says the related material weakness in internal control was remediated as of March 31, 2021; management judged disclosure controls effective at September 30. A foreign tax authority’s $1.9 million VAT assessment is disputed; $1.2 million was accrued. Management did not expect a material outcome.
- A $2.0 million inventory reserve was recorded in Q3 for products affected by slow movement, expiration or damage during suspended operations. No goodwill or intangible impairment was recorded in 2021; 2020 included the $190.8 million impairment.
Investor verification points
- Track ships and resort centers returning to service, occupancy, guest spending and whether operations generate positive cash flow.
- Verify liquidity runway, the pace of operating cash use, revolver availability and compliance with debt covenants under continued recovery delays.
- Assess debt service exposure to interest rates and LIBOR replacement, alongside the maturity schedule and interest-rate hedge.
- Review future ATM issuance and share-count growth, and distinguish company fundraising from secondary sales by existing shareholders.
- Monitor warrant-liability valuation volatility, inventory reserves, the VAT dispute and the effectiveness of remediated financial-reporting controls.