OneSpaWorld Holdings Limited — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. OneSpaWorld operates health, wellness, fitness and beauty facilities on cruise ships and at destination resorts, and sells related products. The filing was signed May 10, 2021. Financial amounts below are in U.S. dollars; statements are unaudited.
Key financial results
| Metric | Q1 2021 | Q1 2020, restated |
|---|---|---|
| Revenue | $5.6 million | $114.3 million |
| Operating loss | $18.9 million | $193.1 million |
| Net loss | $45.6 million | $148.4 million |
| Basic and diluted loss per share | $0.52 | $2.43 basic; $3.23 diluted |
| Cash used in operating activities | $9.1 million | Cash provided: $4.3 million |
- Revenue fell 95% year over year: service revenue was $4.6 million (down 95%) and product revenue was $1.0 million (down 96%). Management attributed the collapse primarily to cancelled cruise voyages. Q1 2021 revenue came mainly from destination resort centers.
- Operating loss was 338% of revenue, reflecting the very low revenue base and continuing operating costs. No conventional positive operating margin was reported.
- Net loss improved by $102.8 million, but comparisons are distorted by unusual items: Q1 2020 included $190.8 million of goodwill and tradename impairment, while Q1 2021 recorded a $23.3 million loss from changes in warrant fair value versus a $50.3 million gain in Q1 2020. The warrant fair-value changes are non-cash.
- Cash and cash equivalents were $50.8 million at March 31, 2021; restricted cash was $1.9 million. Current assets totaled $90.3 million and current liabilities $39.4 million.
- Debt was $234.5 million gross ($229.7 million net of issuance costs), including $7.0 million drawn on the $20.0 million revolving facility; $13.0 million remained available. The term loans mature in 2026 and 2027, and the revolver in 2024. The company reported compliance with debt covenants.
- Cash increased by $9.3 million during the quarter, principally because of $18.6 million net proceeds from the ATM share offering, partly offset by operating and investing cash outflows. Capital expenditures were $0.4 million.
- Shareholders’ equity was $298.9 million, down from $320.8 million at year-end 2020. The company sold 1.7 million voting shares through the ATM for $18.5 million net and had approximately $20 million of ATM capacity remaining. It also issued 1.6 million voting shares upon achievement of a deferred-share price target.
Material changes and reporting matters
- At March 31, only two partner ships were operating with guests, at reduced capacity, while 47 destination resort spas were open, some with capacity restrictions. The company said comparison of operating indicators such as ship counts and revenue per ship was not meaningful under pandemic conditions.
- The 2020 comparative financial statements were restated following reevaluation of warrant accounting. The filing says the restatement reduced Q1 2020 net loss by $50.3 million and increased warrant liabilities and accumulated deficit by $5.6 million. The company had previously identified a material weakness related to warrant accounting and stated it had remediated the weakness as of March 31, 2021.
- Stock-based compensation expense increased to $3.6 million from $0.4 million. Salary and payroll taxes rose 46% to $7.7 million, primarily due to that non-cash compensation, partly offset by lower salaries and headcount.
Outlook, risks and contingencies
- Management expected COVID-19 to continue materially harming revenue, results and liquidity. It anticipated a net loss for at least Q2 2021 and likely for full-year 2021, while stating it could not quantify the pandemic’s full impact.
- Management concluded that available resources were sufficient to meet obligations for the next 12 months and comply with debt covenants. That assessment depends on uncertain assumptions about the pandemic, travel recovery, cruise resumptions and liquidity needs.
- Key risks include renewed or prolonged travel restrictions, cruise-line operating suspensions, consumer travel demand, virus variants and vaccine uptake, staffing and international travel constraints, minimum payments to cruise and resort partners, variable-rate debt and the uncertain transition away from LIBOR.
- The company had suspended dividends and deferred payment of a previously declared $2.4 million dividend. It had also reduced staffing and compensation and curtailed discretionary spending.
- A foreign tax authority assessed $1.9 million in a VAT matter; the company disputed it and had accrued $1.2 million. It reported no other legal proceedings in Part II and did not believe reasonably possible losses from its matters would be material, based on current information.
Important facts for investors to verify
- Progress and timing of cruise-ship restarts, resort reopenings, capacity limits and resulting revenue recovery.
- Cash burn, available ATM proceeds, revolving-credit availability and covenant headroom if operations recover more slowly than assumed.
- Debt service exposure to floating rates and LIBOR replacement terms.
- Warrant-liability valuation and potential share dilution; the filing lists 8.0 million sponsor warrants, 16.2 million public warrants and 5.0 million 2020 PIPE warrants outstanding.
- The status and possible resolution of the VAT assessment, and whether the warrant-accounting control remediation remains effective.
- Reconcile the reported net loss to the MD&A narrative: the financial statements show a $45.6 million Q1 2021 net loss, while one MD&A passage describes it as $44.6 million; the statement value is used above.