OneSpaWorld Holdings Limited — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Amounts below are in U.S. dollars, millions, except per-share data and operating metrics.
Business context
OneSpaWorld operates health, wellness, fitness and beauty centers on cruise ships and at destination resorts, and sells related products. Cruise-ship operations are the predominant revenue source. Management said operations had substantially returned to normalized levels and attributed growth to more ships in operation and initiatives to increase guest engagement and spending.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $216.3 | $162.3 | $599.2 | $377.3 |
| Operating income | $17.0 | $9.8 | $41.6 | $4.4 |
| Operating margin | 7.8% | 6.1% | 6.9% | 1.2% |
| Net income | $23.4 | $5.9 | $4.3 | $55.5 |
| Basic / diluted EPS | $0.23 / $0.16 | $0.06 / $0.06 | $0.04 / $0.04 | $0.60 / $0.49 |
- Q3 service revenue rose 32% to $175.8 million; product revenue rose 37% to $40.4 million. Nine-month service and product revenue increased 59% and 58%, respectively.
- Q3 average ship count rose to 185 from 167; average weekly revenue per ship increased to $84,749 from $69,660. Nine-month average ship count increased to 178 from 138. Resort count also increased, though Q3 average weekly resort revenue declined to $13,550 from $14,273.
- Nine-month operating cash flow was $46.3 million, versus $16.9 million; capital expenditures were $2.9 million. Financing cash outflow was $48.8 million, chiefly from debt repayments. Cash, cash equivalents and restricted cash ended at $28.0 million, down $5.3 million from year-end.
- At September 30, cash and cash equivalents were $26.8 million; current assets were $132.2 million and current liabilities $81.1 million. Long-term debt, net, was $163.0 million; gross debt was $164.6 million. The $15 million second-lien loan was fully repaid, and $36 million of first-lien principal was repaid during 2023. The $20 million revolving facility was undrawn. First-lien debt matures in 2026 and carried a stated 9.2% rate at quarter-end.
- Management reported compliance with debt covenants and concluded liquidity should be sufficient for obligations over the next 12 months. The filing does not provide a formal earnings or revenue forecast.
Changes, unusual items and outlook
- Q3 net income improved by $17.5 million year over year, reflecting higher operating income, a $7.4 million gain from warrant fair-value changes, and a $3.4 million discrete tax benefit tied to an Italian tax-amnesty settlement.
- Nine-month net income fell to $4.3 million from $55.5 million despite substantially higher operating income. The principal driver was the warrant fair-value line: a $26.7 million loss in 2023 versus a $62.2 million gain in 2022. These noncash valuation changes make reported net income less directly comparable.
- During 2023, warrant exchanges and exercises materially changed the capital structure. Approximately 95% of public warrants and 50% of sponsor warrants were exchanged for common shares; a large block of non-voting shares converted to voting shares. Period-end shares outstanding were 99.9 million, versus 93.0 million combined voting and non-voting shares at December 31, 2022. A May secondary offering was conducted by a selling shareholder; it was not described as a company capital raise.
- Product margin temporarily benefited by about 60 basis points in Q3 because onboard price increases preceded higher product costs. Management said the benefit was temporary.
- Risks include seasonal cruise demand, hurricanes (particularly August–October), consumer and economic weakness, inflation and interest rates, foreign-exchange movements, and reliance on cruise and hospitality partners. Management said inflation had not materially harmed results to date. No material risk-factor changes were reported; no off-balance-sheet arrangements were identified.
- The company accrued $1.2 million for a disputed foreign VAT assessment related to the 2019 business combination; management said the matter was not expected to have a material adverse impact. Other legal claims are discussed as ordinary-course matters, with no material aggregate loss expected based on current knowledge.
Most important facts for investors to verify
- Underlying earnings and cash generation excluding volatile warrant remeasurement gains and losses, and the effect of the Italian tax benefit.
- Whether higher ship count, ship-level revenue and operating margins can be sustained, including after the temporary product-margin benefit reverses.
- Debt repayment capacity, floating-rate exposure, interest-rate swap terms and compliance with the leverage covenant; $164.6 million of gross debt remained due in 2026.
- Working-capital movements: receivables increased to $47.7 million from $33.6 million at year-end, while inventory rose to $43.8 million from $39.8 million.
- Share-count and dilution effects from warrant exchanges, exercises, equity awards and conversions, as well as the status of the disputed VAT assessment.