OneSpaWorld Holdings Limited — Form 8-K Summary
Reporting date: March 8, 2021. The filing reports unaudited fourth-quarter and fiscal-year results ended December 31, 2020, previously furnished on March 3, 2021, and incorporates the information into the Company’s Form S-3 registration statement. The results were materially affected by the COVID-19 pandemic and related cruise and resort closures.
Business Context and Operating Status
- The Company operated health and wellness centers on 163 cruise ships at year-end; all were closed beginning March 14, 2020, and all but one remained closed at year-end.
- The Company had 54 destination resort spas at year-end. Forty-five were operating at December 31, 2020.
- Most cruise employees were repatriated, eliminating ongoing costs associated with those employees; 18 cruise personnel re-embarked during the fourth quarter.
- Revenue during the year primarily came from first-quarter cruise voyages, operating destination resort spas, and e-commerce sales through timetospa.com.
Key Financial Metrics
| Metric | Q4 2020 | Q4 2019 | FY 2020 | FY 2019 |
|---|---|---|---|---|
| Total revenue | $3.8 million | $139.4 million | $120.9 million | $562.2 million |
| Cost of services | $6.9 million | $95.6 million | $107.3 million | $369.7 million |
| Cost of products | $6.8 million | $28.2 million | $32.0 million | $114.3 million |
| Net income attributable to OneSpaWorld | $(28.0) million | $1.1 million | $(280.5) million | $(41.0) million |
| Adjusted net income | $(20.7) million | $6.7 million | $(65.8) million | $32.6 million |
| Adjusted EBITDA | $(15.4) million | $13.0 million | $(42.7) million | $58.7 million |
| Unlevered after-tax free cash flow | $(15.9) million | $12.5 million | $(45.0) million | $55.0 million |
The filing does not provide a clear GAAP operating margin or net margin. The fourth-quarter cost of products included a $4.9 million inventory write-down, while the full-year cost of products included a $6.0 million inventory write-down related to expiration and damage during the prolonged operating pause.
Liquidity, Debt, and Financing
- Year-end cash was $43.4 million, including $11.6 million of gross proceeds from the sale of 1.3 million shares under the at-the-market equity offering program.
- Cash and borrowing capacity under the line of credit totaled $56.4 million at year-end, compared with $33.9 million at December 31, 2019.
- Line-of-credit availability was $13.0 million at year-end, compared with $20.0 million in the prior year.
- Total debt, net of deferred financing costs, was $229.4 million at year-end.
- Remaining availability under the $50 million ATM program was $38.4 million.
- The reported quarterly cash burn was approximately $17 million.
Material Changes Versus Prior Period
- Fiscal-year revenue decreased to $120.9 million from $562.2 million, reflecting the cancellation of cruise voyages and resort closures.
- Fiscal-year net loss attributable to OneSpaWorld increased to $280.5 million from $41.0 million.
- Adjusted EBITDA declined to a loss of $42.7 million from positive EBITDA of $58.7 million.
- Unlevered after-tax free cash flow declined to a use of $45.0 million from positive cash flow of $55.0 million.
- Fourth-quarter revenue fell to $3.8 million from $139.4 million, and adjusted EBITDA declined to a loss of $15.4 million from positive EBITDA of $13.0 million.
Outlook, Risks, and Unusual Items
- Management stated that the Company expected to have sufficient resources to fund operations with no significant voyages or destination resort spas operating through March 2022.
- The CDC’s Framework for Conditional Sailing Order provided for a phased return to cruise operations involving crew safeguards, simulated voyages, and ship certifications.
- Key risks include the duration and effects of COVID-19, the timing and extent of cruise and resort reopening, demand for services, consumer preferences, regulatory changes, competition, growth execution, loss of management personnel, and loss of a major customer.
- The filing contains forward-looking statements and warns that actual results may differ materially. The Company does not undertake to update those statements except as required by law.
- The filing presents non-GAAP measures, including adjusted net income, adjusted EBITDA, and unlevered after-tax free cash flow. Exhibit 99.1 includes reconciliations to the nearest GAAP measures.
Important Facts for Investors to Verify
- Actual timing and pace of the cruise industry’s phased return to service and the resulting reopening of shipboard centers.
- Whether resort spa operations and e-commerce sales can offset continued weakness in cruise revenue.
- Cash burn, debt service requirements, line-of-credit availability, and the Company’s ability to fund operations through March 2022.
- The effect of inventory write-downs and other pandemic-related charges on future results.
- Terms, dilution, and remaining capacity of the ATM equity offering program.
- Reconciliations and definitions for the non-GAAP measures in Exhibit 99.1.