OneSpaWorld Holdings Limited — 2019 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2019, not a standalone fourth-quarter filing. OneSpaWorld operates health, wellness, fitness and beauty centers aboard cruise ships and at destination resorts. It reported service at 170 ships and 69 resorts at year-end. The March 19, 2019 business combination created separate “Predecessor” and “Successor” reporting periods; the resulting accounting and capital structure make year-over-year comparisons less straightforward.
Financial performance and position
| Metric | 2019 | Comparable / context |
|---|---|---|
| Revenue | $562.2 million combined | $540.8 million in 2018; approximately 4.0% growth |
| Net income (loss) | $(37.0) million combined | $13.7 million profit in 2018 |
| Adjusted EBITDA | $58.7 million combined | $58.6 million in 2018 |
| Unlevered after-tax free cash flow | $54.6 million combined | $52.9 million in 2018; 2019 conversion was approximately 93% |
| Operating cash flow | Approximately $0.6 million combined | Successor period used $3.2 million; Predecessor period provided $3.7 million |
| Cash and cash equivalents | $13.9 million at year-end | $15.3 million at December 31, 2018 |
| Debt | $227.5 million gross; $221.4 million net of issuance costs | 2019 facilities mature 2026–2027; $20 million revolver was undrawn at year-end |
| Working capital | $25.4 million, excluding cash | $22.4 million at December 31, 2018 |
Reported 2019 Successor and Predecessor net losses were $12.2 million and $24.8 million, respectively. The annual combined loss includes transaction-related and other unusual items; the filing’s combined revenue and non-GAAP measures aggregate periods before and after the business combination. Operating margin was 0.3% in the Successor period and negative 12.6% in the Predecessor period, versus 9.0% in 2018; these period figures are not directly comparable.
Material changes versus prior periods
- 2019 combined revenue rose about 4.0% from 2018, supported by seven net new shipboard centers, larger shipboard centers, higher guest spending on premium services and products, and partner marketing initiatives.
- Average weekly revenue per ship increased 1.9% to $61,561; revenue per shipboard staff member per day was broadly flat at $475. Resort-center average weekly revenue fell 12.9% to $12,128, partly due to closure of two large North American centers.
- Net loss replaced 2018 net income. The 2019 periods included $20.4 million of stock-based compensation in the Successor period and $26.6 million of change-in-control payments in the Predecessor period. Acquisition accounting also increased amortization expense.
- Gross debt declined from $356.1 million at year-end 2018 to $227.5 million at year-end 2019 following the refinancing associated with the business combination. The new facilities carry variable rates; the company entered into a swap covering a $173.9 million notional amount at year-end.
- The company initiated a quarterly dividend of $0.04 per share in November 2019, then deferred the declared May 2020 payment and suspended the dividend program in response to COVID-19.
Outlook, risks and unusual items
- COVID-19: The filing states that cruise-center operations temporarily ceased and cruise itineraries and resort operations were disrupted by cancellations, travel restrictions, labor shortages and closures. Management said the impact on 2020 revenue, results and liquidity could be significant but could not be reasonably estimated as of the report date.
- Growth plans: Before the outbreak, management cited 44 new ships and more than 135,000 new berths expected from existing cruise partners during 2020–2024, and new or extended agreements with Celebrity, Norwegian, Virgin Voyages and P&O. These expectations are subject to substantial pandemic-related uncertainty; the filing provides no quantified 2020 financial guidance.
- Liquidity and commitments: Year-end cash was $13.9 million and the $20 million revolver was undrawn. The company disclosed approximately $122.2 million of minimum cruise-line commitments for 2020, excluding certain passenger-based amounts and without accounting for cancelled voyages, plus $26.5 million of operating lease commitments.
- Debt and covenants: Debt is secured and largely variable-rate, with financial and other covenants. The company reported compliance at December 31, 2019; it warned that pandemic-related deterioration could affect covenant compliance. A 10% interest-rate change was estimated to change results by approximately $0.8 million.
- Concentration and other risks: Carnival, Royal Caribbean and Norwegian-related passengers accounted for approximately 84.5% of 2019 revenue. Other material risks include cruise-industry dependence, contract renewals and termination rights, minimum payments, travel demand, severe weather, staffing, regulation, taxation, cybersecurity and foreign currency exposure.
- Transaction and reporting items: Purchase accounting recognized $629.8 million of identifiable intangible assets and $190.1 million of goodwill. The company corrected immaterial errors in purchase accounting and equity presentation; it reported no effect on previously presented statements of operations. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
Most important facts for investors to verify
- How COVID-19 affected operating status, revenue, cash burn, liquidity and covenant headroom after the March 2020 filing date.
- The status and terms of cruise-line and resort contracts, minimum-payment obligations, and whether cancellations reduce those commitments.
- Debt balances, interest-rate exposure, revolver availability, covenant calculations and subsequent financing actions.
- The basis and reconciliation of combined 2019 GAAP results and non-GAAP measures, including transaction, stock-compensation and change-in-control adjustments.
- Whether the suspended dividend remains suspended and how management prioritizes cash preservation, debt service and investment.
- Customer concentration, renewal and termination exposure, and the timing or realization of announced ship additions and new contracts.