OneSpaWorld Holdings Limited — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared with Q1 2022. Unaudited financial statements. OneSpaWorld operates health, wellness, fitness and beauty centers primarily on cruise ships and at destination resorts, and sells related products.
Financial and operating performance
- Revenue: $182.5 million, up 108% from $87.7 million. Service revenue was $150.1 million (+111%); product revenue was $32.3 million (+96%). Management attributed the increase primarily to the recovery in ship operations: average ship count rose to 173 from 104. Average resort count was 48 versus 47.
- Profitability: Operating income was $11.2 million, compared with an operating loss of $6.4 million. Calculated operating margin was approximately 6.1%, versus (7.3%). Revenue less service and product costs was $27.9 million, approximately 15.3% of revenue, versus $10.3 million, or 11.8%.
- Net result: Net loss was $15.9 million, or $0.17 per share, versus a $6.3 million loss, or $0.07 per share. The 2023 loss included a $21.9 million noncash loss from revaluing warrant liabilities; Q1 2022 included a $3.4 million gain. Net margin was approximately (8.7%), versus (7.2%).
- Cash flow: Operating cash flow was $2.2 million, versus cash used of $0.6 million. Capital expenditures were $1.3 million, implying approximate operating cash flow less capex of $0.9 million. Cash and restricted cash declined $9.3 million to $24.0 million, largely reflecting $10.5 million of term-loan repayments and working-capital investment.
- Liquidity and debt: Cash and cash equivalents were $22.8 million, with $1.2 million restricted. Current assets were $127.4 million and current liabilities $76.3 million (current ratio approximately 1.67). Debt principal was $205.2 million ($202.6 million net of issuance costs); the first-lien rate was 8.8% and second-lien rate 12.3%. The $20 million revolving facility was undrawn. The company reported compliance with debt covenants.
- Balance sheet: Total assets were $721.6 million and shareholders’ equity $351.9 million at quarter-end. Warrant liabilities increased to $74.8 million from $52.9 million at year-end 2022.
Material changes and unusual items
- Business activity continued to recover toward normal operations. Average weekly revenue per ship increased to $77,076 from $58,775; average revenue per shipboard staff member per day rose to $542 from $449. Average weekly revenue per resort was $16,973 versus $13,992.
- Interest expense increased 35% to $4.6 million, primarily due to higher interest rates, partly offset by lower debt balances. Working capital used $12.5 million, including increases in receivables and inventory.
- After quarter-end, the company repaid the remaining $5 million second-lien principal on April 6, 2023, completing repayment of that facility. On April 25–26, it exchanged approximately 95% of outstanding public warrants and 50% of sponsor warrants for common shares. These events occurred after March 31 and are not reflected in quarter-end cash, debt or share balances.
Outlook, risks and contingencies
- No specific financial guidance was provided. Management said it expects available resources to be sufficient to meet obligations over the next 12 months and to comply with debt covenants.
- Management cited cruise and resort demand, ship count and itineraries, guest spending, inflation and interest rates, fuel prices, currency movements, health events and hurricanes as factors that could affect results. Revenue is seasonal, generally stronger in the third quarter and holiday periods; hurricane exposure is particularly relevant from August through October.
- The company had a $3.9 million income-tax contingency liability. It said uncertain foreign tax benefits could decrease by up to $3.4 million within the coming year, potentially in connection with a tax amnesty program. A disputed foreign VAT assessment was $1.9 million; $1.2 million was accrued. Management did not expect that matter to materially affect the financial statements.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to previously disclosed risk factors and no off-balance-sheet arrangements with a reasonably likely material effect.
Important facts for investors to verify
- How much of revenue growth and improved operating results reflects expanded ship availability versus changes in utilization, pricing and guest spending.
- The effect of higher interest rates on interest expense and cash generation, and the terms and status of the remaining first-lien debt and revolving facility.
- The completed warrant exchanges’ final share count, dilution and effect on warrant-related fair-value volatility.
- Working-capital requirements, particularly receivables and inventory, as operations continue to recover.
- Developments in foreign tax matters and the potential timing and amount of uncertain-tax-benefit changes.