Onespaworld Holdings Ltd (OSW) 2021 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the OneSpaWorld First Quarter 2021 Earnings Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Allison Malkin of ICR for opening remarks. Please go ahead.

Thank you. Good morning, and welcome to OneSpaWorld's First Quarter 2021 Earnings Call and Webcast.

Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. The COVID-19 pandemic continues to have a significant impact on our operations, cash flow and financial position. The uncertain and dynamic nature of current conditions and its ongoing impacts could materially alter our outlook. These forward-looking statements reflect our judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting our business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter 2021 earnings release, which was furnished to the SEC today on Form 8-K.

We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, the company may refer to certain adjusted non-GAAP metrics on this call. An explanation of these metrics can be found in the earnings release filed this morning.

Joining me today are Leonard Fluxman, Executive Chairman and CEO; and Stephen Lazarus, CFO and COO. Leonard will begin with a review of our first quarter 2021 performance and provide an update on our operations and our key priorities. Then Stephen will provide more details on the financials and liquidity.

I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's First Quarter 2021 Results Conference Call.

As the travel and tourism industry has begun to reopen, we are ready, we are eager, and we are excited to welcome guests to our health and wellness centers and deliver our extraordinary OneSpaWorld guest experiences. We have invested aggressively for 14 months in protecting our people, sustaining our operations, enhancing our competitive position and comprehensive protocols to ensure a safe and successful return to service, while taking actions to maintain strong liquidity.

The dedication of our team throughout this unprecedented pandemic positions us to flawlessly execute our resumption of operations aboard the first 33 expected ships scheduled to resume sailing by the end of July. Our onboard operating protocols are complete, and our onboard staff is fully trained. We are operating health and wellness centers aboard 3 of our 160 cruise line vessels that have commenced voyages. We have opened our spas in 47 of our 53 destination resorts, realizing revenue and stock utilization in line with our expectations and with operating metrics increasing sequentially month-over-month.

These initial returns confirm that we are positioned toughly to capitalize on the strength of our team, operating platform and business model to drive long-term profitable growth as cruise ship and destination resort operations fully resume.

During the quarter, we prioritized activities to ensure a successful return to service and maintain strong liquidity with the first quarter, making strong progress on both fronts, including continuing to focus on elevating our practices, including previously mentioned digital training, the implementation of guidelines for protection and sanitization, culture and standards, as well as expansion of our service offering and technology. We are implementing these initiatives with the focus on flawless delivery to the additional 31 ships expected to return by the end of July. Accordingly, our initiatives have shifted from creating and stress-testing in anticipation of return to service, to going live, providing feedback and making enhancements to our processes. Each of our initiatives optimizes our effectiveness, focuses on cost efficiencies and ensures a flawless return to service.

Following the completion of return-to-service checklist and utilizing manning strategies to align staffing to expected return dates and load factors, we estimate approximately 640 staff members are required for the initial return of vessels. To that end, we have created digital content for new service requirements through virtual training, including twice-daily Zoom training conducted by our renowned London Wellness Academy. To date, 130 staff members were trained for our new contactless services, while retraining with the emphasis on COVID safety protocols was managed on our e-learning platform.

Along these lines, our staff is eager to return to work. We conducted a survey of 2,800 staff members, and 93% said they plan to return to work and 97% said they will get vaccinated for COVID-19, which we view as very encouraging.

As of today, 3 vessels of our cruise line partners are sailing and 47 of our destination resort spas are operating.

While there remains uncertainty as to the timing for return to normal operations, we are confident in the advantages of our business model. Notably, we remain encouraged by the early strong demand and spend we are seeing where we are operating, with destination results for revenue and staff utilization increasing sequentially month after month. Overall, we believe we remain powerfully positioned to capitalize on the strength of our operating platform and advantages -- advantageous business model as operations resume and, importantly, achieve our goal to drive long-term profitable growth for the benefit of OneSpa shareholder.

With that, I'll turn the call over to Stephen, who will comment on our first quarter 2021 results and liquidity position. Stephen?

Thank you, Leonard, and good morning, ladies and gentlemen.

While the first quarter, as you know, continued to be impacted by the global pandemic's impact on the travel and tourism industry, we remain intently focused on preserving our liquidity as well as investing in innovation and training our staff as we prepare our operations for a return to service.

I will now share just a few of the first quarter 2021 highlights rather than provide a full overview of our quarterly results, given the continued significant impact that the global COVID-19 pandemic has had on our operations.

For the first quarter, total revenues were $5.6 million compared to $114.3 million in the first quarter last year. Revenues generated in this year's first quarter were primarily related to the 47 destination resort spas that were opened during the quarter and e-commerce product sales through our timetospa.com website.

Cost of services were $7.5 million compared to $80.6 million in the 2020 first quarter. And cost of products were $1.3 million compared to $22.1 million in the 2020 first quarter. And adjusted EBITDA was a loss of $9.4 million as compared to a positive $5.1 million in the first quarter of 2020.

We ended the quarter with total liquidity of $65.7 million, $9.3 million higher than where we ended the year, resulting from $18.5 million in net cash proceeds from the sale of 1.7 million shares as part of our aftermarket equity offering program and a lower-than-forecast cash burn rate of $9.3 million for the quarter.

The cash burn rate for the quarter of $9.3 million was approximately $5.7 million below our original expectation, driven by lower expenses due to later-than-expected return to service dates and timing of payments. The company expects cash burn to approximate $15 million in the second quarter as we increase activity in anticipation of sailings being resumed.

We expect resumption of our cruise ship and destination resort operations to accelerate, commencing in the third quarter, and generate increasing cash flow from operations. However, we will continue to manage our liquidity so as to sustain our operations in the event that unforeseen disruptions occur and significant cruise ship and destination resort operations do not resume and scale as currently expected. We are confident that we have the resources, balance sheet strength and current liquidity to fund our business with limited operations if necessary through June 2022.

As a result of the unforeseen guidance issued on April 12 by the SEC staff applicable to accounting for warrants, we made the determination to restate the financial statements covered by the affected periods, which we have done with the amending of our 2020 annual report on Form 10-K originally filed on March 12, 2021, with our amended 2020 annual report on Form 10-K/A filed on May 10, 2021. The change to classify outstanding warrants to purchase common shares as liabilities versus equity does not impact historically reported cash and cash equivalents or adjusted EBITDA for the affected periods. The company had previously classified the warrants as equity, consistent with common market practice, which existed prior to the staff statement.

As it relates to our outlook for the remainder of 2021, due to the ongoing business disruption and uncertainty surrounding the continued impact to our business from the COVID-19 pandemic, we will continue to not provide guidance. Notwithstanding the foregoing, for the second quarter and 2021 fiscal year, we expect to incur a net loss on a GAAP and adjusted basis.

And with that, we will open up the call for questions. Thank you. Operator?

(Operator Instructions) The first question comes from Steven Wieczynski with Stifel.

Yes. So I understand the cash burn is going to look something like $15 million for the second quarter. And for the most part, you still won't have any type of material maritime operations in the second quarter as well. But as you look out to the third quarter, and let's say you get those 30-ish ships back in somewhat operation, just trying to understand what your cash burn would look like under that type of scenario. Meaning would you guys actually be cash flow positive with that number of ships in service? Or would you still need a higher level of ships?

Steve, we do not anticipate, currently, with that number of ships that we would be cash flow positive in the third quarter. We do expect, though, based upon what we're seeing and with regards to anticipated incremental sailings in the fourth quarter that, by the end of the year, we would start to be cash positive, but we're not anticipating it this time. Although we certainly don't expect to be at a cash burn rate of $15 million, we do not expect to be cash flow positive in Q3.

Okay. Got you. And then second question would be around just maybe what you guys are seeing at this point in terms of spend levels, both at your land-based spas and then the 2 ships that actually are in service today. Just trying to understand how those spend levels look, and if they're as strong as what we're seeing across other consumer verticals that we track.

Yes. I mean the demand has actually -- I mean what we have is limited data, Steve. So it's 2 ships, but certainly, the ship is very [quantum of the seas]. We're seeing strong demand and higher spend despite the lower occupancies, and that's happening in the resorts as well. So we're actually starting to increase our staffing levels at some of the resorts right now because of the demand, which we can't keep up with.

So we started out with lower staffing in some of the resorts. But last week, taking a look at demand, we will be increasing it gradually just because we need -- we just need more of this. There's so much demand out there. We're actually seeing very decent retail spend in resorts, higher than we've seen historically. So there's a good attachment rate as well.

And last question, just to follow-up on that. And for the land-based operations that you have today, are you guys capacity constrained? Meaning that whatever jurisdiction you're operating in, you can't operate at full capacity?

We are not presently under those conditions anywhere right now. And that's why we're starting to look at hiring back more and more of our staff in those locations.

The next question comes from Sharon Zackfia with William Blair.

I want to apologize my cell phone dropped. So if I asked something that was in the prepared commentary, it's AT&T's fault, not mine. I guess a question on bookings. Are you seeing, for the maritime operations, any change in kind of pre-booking levels? Are customers kind of more eager than they were pre-pandemic to kind of get these things on the books for when they do eventually sail?

On the prebooking side, Sharon, we still don't have visibility from the cruise lines yet. I mean the only thing we're seeing is obviously high demand, pent-up demand, obviously, from a cruise ticket perspective. But the pre-open booking are on the back end right now. As they start to confirm passenger accounts for each of the sailings, the bookings will start to flow in. We expect that to happen imminently.

Okay. And then I think there was some conversation in the prepared commentary about metrics kind of improving sequentially each month. I mean how would you -- how does revenue per staff for land-based kind of compare now versus pre-pandemic?

So we really look at it on a revenue per staff basis like we look at sea. We really look at this sort of revenue per occupied group. And that's certainly, in some cases, better than it was pre-pandemic. But that's also a function of occupancies at the resorts themselves. So as the resorts start to fill up, the revenue per occupied room will probably come back down a little bit. But right now, that metric in itself is outpacing pre-pandemic levels.

Okay. And then I know you talked about the staff, that you're going to be kind of getting ready to go on board soon. What is staffing levels going to look like on ships relative to pre-pandemic? I mean are you going to be fully staffed? I know you mentioned that, land-based, you started off a bit lower and now you're staffing up. I'm just curious what the staffing is going to look like on the ships.

So I think if we take a look at what's -- certainly in Singapore, we've started off -- obviously, their occupancies have been sub-50%. And so when I look at the size of the ship, it's about 1/3 of -- maybe even less than 1/3 of the full team size. But that, too, as we start to see occupancies go up, we will start increasing the team size to probably at least half on that ship.

With respect to the sailings here, where before, we thought there were going to be occupancies under 50%, it seems that they certainly will have occupancies greater than 50%. So we'll probably staff up, but not fully staff up. So we'll start at probably a minimum of 50% to 60% of our staff to start out with, depending on the occupancy that we have visibility from the cruise lines.

That's helpful. And then, Stephen, I know you said that you're hopeful to be cash flow positive towards the end of the year. I mean what is your line of sight right now on how many ships do you think will be sailing by the fourth quarter?

We do have, from the ongoing meetings, constant meetings, honestly, that we have with the cruise lines, some line of sight with regards to when they expect to launch their vessels. I think we'll probably be remiss of me to state that number at this point in time because it's not definitive. Suffice it to say that we certainly expect that the number of vessels sailing by year-end to be significantly more than the number of vessels that we think will be sailing at by the end of July.

The next question comes from Stephanie Wissink with Jefferies.

Team, it's Seb Barbero for Steph Wissink. A couple of questions from me, please. The first one is, any learnings from the resort spas that's influencing how you reshape your service menu on board as you prepare to reopen?

Could you just repeat that? I didn't hear the first part of it.

Yes. Are you -- any learnings from the resort spas, those have been, the 47 that are now operating, that's influencing how you reshape your service menu on board as you prepare to reopen?

They're very different models, first of all, in terms of the offerings that we have available. Just -- I think we mentioned this before that it's interesting to see that even though we have contactless services, the demand for the normal sort of basic facials and other services, massage inclusive, body services. There's a much higher demand for just the legacy type services, both on land and certainly from what we're seeing from cruise ships. So even though we have the same menus in terms of contactless type of services available, demand is still there for traditional services.

And any anticipated changes in ship count from here into year-end? And any visibility into what the portfolio will look like in 2022?

Look, I think if we take a look at what we're hearing from the cruise lines and what we've heard from some of the presentations made by management, I think there is going to be a much faster scaling into the fourth quarter of ships all over the world on a global basis. So we're anticipating that most of the 160 ships that we will be on will be in service by the first quarter of 2022.

Okay. And your -- just talking specifically about your portfolio. You ended Q1 at 159. How should we think that will look at the end of 2021? And then any visibility to how that will look in 2022?

So we do expect that by the end of 2022, there will be an additional 24 new vessels that are added to the various fleets. And with regards to how it's going to look at the end of 2021, I think it's a little premature for us to be -- have certainty around that number because, again, it's highly dependent on when the cruise lines will return to service, and particularly when they return to service with North American sailings, depending on how they progress with the CDC.

(Operator Instructions) The next question comes from Assia Georgieva with Infinity Research.

A couple of quick questions. First of all, different cruise brands in the corporate entities are tackling the vaccination requirement somewhat differently. Would you expect to ask your crew to be fully vaccinated? And you mentioned that 97% of your existing crew were totally willing to be vaccinated. Is that something that you envision will be a requirement for your crew?

So certainly, if you look at the CDC's requirements for 98% of the crew to be vaccinated and 95% of the passengers to be vaccinated, we have seen extensive amounts of work already being done by the cruise lines who have announced sailings, and they've started to vaccinate the crew already. So a lot of the banners are doing the vaccinations right now. And we certainly saw the WHO approve one of the Chinese vaccinations for the folks in the Philippines, so they'll be using that. So to the extent that they can show proof of vaccination, that is satisfactory to the cruise line, then they will certainly not have to be revaccinated. But we see just an enormous pent-up demand from our staff to return, and most of them want -- will get vaccinated, whether it's done by the cruise line or whether they'll accept vaccinations, because there are different vaccines out there, obviously, that are preferred banner-by-banner. But most of the cruise lines right now that we have been talking to are doing the vaccinations themselves for the crew so that they can all pass the CDC requirements and threshold.

And Leonard, would that include your crew?

Yes. Yes, absolutely.

So the cruise lines would actually be willing to provide vaccinations. I know in Port Canaveral, they've actually opened up, which I think is a great idea, within the port, the vaccination site for crew members. So that would cover your crew, you would not have the responsibility and the organizational issues relating to that?

Well, most of them, certainly, the big banners here, thus far, are doing the vaccinations. In the case of one of the banners, they even bring the ship back to Miami so they can get everybody vaccinated here because that particular jurisdiction didn't have access to the vaccines. And given the way the U.S. government has controlled vaccination distribution, not every single -- not all the ports that ships are going to sail from the Caribbean have access to vaccines. So where that is not available, those ships will come back here. At least we've seen 1 or 2 of them already, and they've undertaken the same extent of vaccinations that they're doing in Port Canaveral. So they are moving rapidly, some a little faster than others, but those are the ones that are going first.

Sometimes, I wish I was a good crew member because I've been fighting to get a vaccine. I did get the first shot. And a completely separate question. Maybe, Stephen, you can help me out on this one.

In terms of land-based resorts, so you have 47, pretty much the vast majority are open. They are below breakeven at this point because of occupancy? Or what is the model going forward, let's say, in 2022?

So by way of clarification, in the -- towards the end of the first quarter, that division was actually not losing money. It was EBITDA positive. So they're already at a point where we're starting to see positive cash flow generation from the resorts that are open.

This concludes the question-and-answer session. I would like to turn the conference back over to Leonard Fluxman, Executive Chairman, for any closing remarks.

Well, thank you all for joining us on this call. I just want to mention, which we didn't mention, was we actually had some very successful contract extensions during the first quarter, which we didn't put in the press release, one, because we just can't. But the Disney contract was renewed for an additional 8 years. And we were successfully awarded the new Cunard contract. Although we don't have an executed contract right now, we did get that awarded, and that's actually a market share addition, and we'll be awarded a 3-year contract. So we're very excited about market expansion in the first quarter, and we continue to look at some other opportunities as well. So the future looks brighter than it ever did before. And hopefully, we'll have more to share with you and talk with you on our second quarter call.

Thank you for joining us today.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.