ONESPAWORLD HOLDINGS LIMITED — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are unaudited. OneSpaWorld operates health, wellness, fitness and beauty centers on cruise ships and at destination resorts. COVID-19 shutdowns caused operations to nearly cease during 2020.
Financial performance and liquidity
| Metric | FY2020 | Prior-period context |
|---|---|---|
| Revenue | $120.9 million | $562.2 million for combined FY2019; periods are not fully comparable because of the 2019 business combination |
| Net loss | $280.5 million | $37.0 million combined net loss for 2019; FY2020 includes major impairment charges |
| Operating loss | $265.0 million | Operating income of $48.5 million in 2018 |
| Adjusted EBITDA | $(42.7) million | $59.0 million cited for 2019; non-GAAP measure |
| Operating cash flow | $(36.6) million | $32.4 million provided in 2018 |
| Cash and restricted cash | $43.4 million | Includes $41.6 million cash and $1.9 million restricted cash |
| Debt | $234.5 million gross; $229.4 million net of issuance costs | Includes variable-rate secured term loans and $7.0 million drawn under the revolving facility |
| Revolver availability | $13.0 million undrawn | $20.0 million facility |
FY2020 revenue was down sharply as most cruise voyages were suspended and many resort spas closed. Service revenue was $93.7 million and product revenue was $27.2 million. Operating margin was approximately negative 219%, reflecting the severe revenue decline and impairment charge. Capital expenditures were $2.1 million. The company reported working capital of $1.7 million under its stated measure, which excludes cash, cash equivalents and restricted cash.
In the fourth quarter, revenue was $3.8 million versus $139.4 million in the prior-year quarter; net loss was $28.0 million versus net income of $2.1 million. One cruise ship spa and 45 destination resort spas were operating at year-end, some with capacity restrictions.
Material changes and unusual items
- Recorded $190.8 million of goodwill and trade-name impairment in 2020, including full impairment of goodwill, following reduced expected cash flows and pandemic-related market conditions.
- Wrote down $6.0 million of inventory, principally excess, slow-moving, expired or damaged maritime inventory.
- Operating cash outflow was $36.6 million, while financing activities provided $68.5 million. Financing included approximately $68.6 million net proceeds from the $75 million private placement and $11.1 million net proceeds from ATM share sales.
- Issued approximately 17.2 million non-voting shares in the private placement; the ATM program allows up to $50 million of share sales, with approximately $38 million remaining available at year-end.
- Suspended the dividend program and deferred payment of a previously declared $2.4 million dividend. The company nevertheless reported $2.4 million of dividends paid during 2020; a further $2.4 million declared dividend remained payable at year-end.
- Completed the purchase of the remaining 40% interest in Medispa Limited for $12.3 million, comprising $10.8 million cash and shares.
Outlook, risks and management commentary
Management expected pandemic effects to continue materially affecting results and liquidity in 2021. The filing states that a net loss was expected for at least the first quarter of 2021 and likely for full-year 2021; it provides no clear numerical revenue or earnings guidance. Management concluded it had sufficient liquidity for obligations over the next 12 months and expected to comply with debt covenants, while noting that pandemic duration and effects remained highly uncertain.
- Recovery depends on cruise and resort reopening, travel demand, consumer confidence, health requirements, port availability, vaccination progress and the effectiveness of safeguards.
- Key risks include prolonged or renewed shutdowns, partner financial distress or contract nonrenewals, staffing and repatriation challenges, minimum venue rents, and higher restart and hygiene costs.
- Three cruise-company groups accounted for 80.6% of FY2020 revenue: Carnival 43.4%, Royal Caribbean 20.9% and Norwegian Cruise Line 16.3%.
- Debt is secured and variable-rate; the company cited covenant and refinancing risks. A hypothetical 10% interest-rate change was estimated to affect results by about $1.0 million.
- CEO Glenn Fusfield was scheduled to retire effective March 31, 2021. Susan Bonner joined as Chief Commercial Officer in October 2020.
Important facts for investors to verify
- Current cruise operations, resort-spa reopening levels, utilization and cash burn since year-end.
- Available liquidity, covenant compliance, debt terms and any further equity issuance or dilution.
- Reconciliation of the deferred dividend disclosure with the $2.4 million dividend reported as paid in 2020.
- Customer concentration, contract status for ships sold or permanently withdrawn, and any changes in minimum rent commitments.
- Assumptions supporting impairment valuations and the recoverability of the $599.1 million remaining intangible-asset balance.