Onespaworld Holdings Ltd (OSW) 2020 Q4 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the OneSpaWorld Fourth Quarter and Fiscal 2020 Earnings Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Allison Malkin with ICR. Please go ahead.

Thank you. Good morning, and welcome to OneSpaWorld's Fourth Quarter and Fiscal 2020 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 impact 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 the 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 fourth quarter and fiscal 2020 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; Glenn Fusfield, Chief Executive Officer and President; and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our fourth quarter and fiscal 2020 performance and provide an update on our operations, our key priorities and liquidity. Then Glenn will discuss initiatives taken to ensure a safe and welcome environment to guests as our health and wellness centers reopen and review our service offering innovation. 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 Fourth Quarter and Fiscal 2020 Results Conference Call.

Before turning to our results, I would like to personally thank my entire leadership team and team members around the globe for their resiliency and agility this year. To say that 2020 wasn't challenging would be an incredible understatement. It was, without doubt, the most difficult and challenging in our company's 50-plus year history. After delivering strong performance in 2019, after reclaiming and being awarded the legacy ships of Celebrity that we lost in 2013 as well as winning the luxury brands of Oceania and Regent Seven Seas, the foundation was well set for 2020 to be even a more successful year than 2019 so that pandemic hit us in March of 2020. So 2020 was unprecedented, and I'm proud of the efforts of our team as their passion, commitment and the ability to quickly adapt to the challenging environment enabled us to navigate this extraordinary period.

As expected, our fourth quarter results reflected the significant impact to operations driven by the COVID-19 pandemic as we ended the year with the global pandemic shuttered our operations. In response to the pandemic, we remain focused on 3 key priorities throughout fiscal 2020, which served us well. These priorities were: one, ensuring the safety of our staff; two, preserving liquidity; and thirdly, preparing for a successful resumption of our cruise and destination resorts for operations as restrictions are lifted through innovation and collaboration with our partners.

As it relates to our first priority to keep our staff safe, I want to extend my deep gratitude to our cruise line and resort partners and each of our corporate employees as they ensure the safety of our shipboard and resort personnel during the height of the pandemic. As of today, 1 vessel of our cruise line partners is sailing and 44 of our destination resorts spas are now open.

Regarding our second priority, preserving liquidity, we ended the year with $56.4 million in liquidity, giving us the ability to sustain operations through March 2022 with no significant voyages. The strong liquidity position is reflective of our disciplined approach to managing the business throughout the year, increased cash from equity financing and pulling back on expenses and working capital.

Turning to our third priority, which is preparing for a successful resumption of our cruise and destination resorts spa operations as restrictions are lifted. We innovated our compelling range of services and guest experiences even further to provide a safe and welcoming environment across our health and wellness centers as they resume operations during the year. We are hopeful that a higher percentage of the global population is vaccinated, more cruise ships will return to service in the second half of 2021. Looking ahead, our priorities in fiscal 2021 remain focused on maintaining strong liquidity while further evolving our innovative service offering and operating platform to allow OneSpaWorld to be even more powerfully positioned as operations resume.

Overall, we remain very confident in our ability to continue to capitalize on the strength of our operating platform and advantageous business model to drive long-term profitable growth for the benefit of all OneSpaWorld stakeholders.

In addition to the 159 vessels that we expect to come back into service over the next 24 months, we are very excited by the prospects of having 24 new vessels being introduced into service by our cruise line partners between now and year ended 2022.

And now I'll turn the call over to Glenn. Glenn?

Thank you, Leonard, and good morning, everyone. I, too, would like to thank our staff for their hard work and dedication this year. We are very pleased with our staff's resiliency and ability to quickly adapt to the changing operating conditions, and they stand ready to return as soon as operations ramp back up. During an unprecedented year of disruption, we were keenly focused on the well-being of our staff while investing in innovation and updating our operating procedures to position us to be ready to scale our global operations as soon as the No Sail Orders are lifted.

Return to service remains our top priority, and we are confident that our elevated practices that include digital training; the implementation of our GPS, guidelines for protection and sanitization; the new culture and standards; as well as expansion of our service offering and technology enhancements position us for a successful return to service.

To that end, we are focused on new innovation to meet and exceed all pre- and post-COVID-19 guest needs as we resume operations, including manning strategies to align staffing to expected return dates and load factors, stress testing key actions for shipboard readiness and creating digital content for new service requirements where necessary. As we await return to service, we are also identifying ongoing revenue opportunities and cost savings within our onboard offerings and have successfully engaged our key partners for deeper and greater collaboration.

As we begin 2021, as Leonard mentioned, as of today, 1 vessel of our cruise line partners is sailing and 44 of our destination resorts spas are operating. While there remains uncertainty as to the timing for a return to normal operations, we are confident in the advantages of our business model and ability to deliver on our long-term performance objectives.

With that, I will turn the call over to Stephen, who will comment on our fourth quarter and fiscal 2020 results and liquidity position. Stephen?

Thank you, Glenn. Good morning, ladies and gentlemen. 2020 was indeed a challenging year given the difficult COVID impact in operating environment. We closed out the year with no material revenues in the fourth quarter, given limited operations across our cruise line and resort spa entities. Importantly though, our intense focus on preserving our liquidity as well as investing in innovation and training our staff positions us well to return to our normal global operations as the cruise lines resume operations.

I will now share just a few of the fourth quarter and fiscal 2020 highlights rather than provide a full overview of our quarterly and annual results, given the continued significant negative impact that the global COVID-19 pandemic has had on our operations.

For the fourth quarter, total revenues were $3.8 million, compared to $139.4 million in the fourth quarter last year. Revenues generated in this year's fourth quarter were primarily related to the 45 destination resort spas that were reopened during the quarter and e-commerce sales on our timetospa.com website.

Cost of services were $6.9 million, compared to $95.6 million in the 2019 fourth quarter. Cost of products were $6.8 million and included a $4.9 million or $0.06 charge for the write-down of inventory that is expected to expire as a result of the extended pause in operations caused by the COVID-19 pandemic.

Adjusted EBITDA was a loss of $15.4 million, as compared to positive $13 million in Q4 of 2019. And cash burn was consistent with our expectations for the quarter.

For fiscal 2020, total revenues were $120.9 million compared to $562.2 million in fiscal 2019. The year-over-year decline reflects the decrease in operating capacity, driven by the forced closure of our health and wellness centers at both cruise ships and the destination resort spas. Revenues for the year primarily reflect first quarter voyages ahead of the March 13, 2020, CDC No Sail Order; destination resort spas that were opened or reopened during a portion of the year; and e-commerce sales on the company's timetospa.com website.

Adjusted EBITDA was a loss of $42.7 million, as compared to a positive profit of $58.7 million in fiscal 2019.

We ended the year with cash and borrowing capacity under our line of credit of $56.4 million as compared to $33.9 million at the end of the prior year. The year-end fiscal 2020 cash balance includes $11.6 million in gross proceeds from the sale of 1.3 million shares in Q4 as part of our $50 million at-the-market equity offering. At year-end, $38.4 million remained under that ATM program.

Availability under our line of credit was $13 million at the end of fiscal 2020, and we expect this liquidity to be sufficient to sustain operations with no significant voyages through March of 2022.

As it relates to our outlook for 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. However, I would like to share some brief insights into our business to take into consideration while thinking about fiscal 2021.

As of June 30, 2021, we do expect that 53 of our destination resort spas will be open and operating, and we will continue throughout the period to tightly manage expenses and focus on liquidity. The cash burn rate for Q1 2021 is expected to be $12 million to $15 million. We continue to expect vessels to return to service on a gradual basis in 2021 and remind that, even with passenger capacity limited to 50%, on a 4-wall basis, we would expect to break even. And if normalization of operations occurs, we expect to deliver revenue and EBITDA consistent with historical levels.

Notwithstanding or foregoing, however, for the first quarter and 2021 fiscal year, we do expect to incur a net loss on a GAAP and adjusted basis.

With that, we will open up the call for questions. Operator, if you could go ahead, please.

(Operator Instructions) Our first question is from Steven Wieczynski with Stifel.

So first question I want to ask about staffing levels, moving forward. As ships come out of cold lay-up and start to enter the test phase -- and I guess what I'm getting here is, as you start or the cruise operators start these test cruises at some point, whenever that is, what will staffing levels look like on a test cruise relative to what we would call a normal cruise?

And then the second part of that question is, what potentially would staffing levels look like under a capacity-constrained model? Meaning the ships running at 50% capacity limits, what does your staffing needs look like? If that makes sense, hopefully.

Sure. Steven, it's Glenn. So clearly, our staffing levels are commensurate with load factors. So a 50% vessel, in our calculations, would require about a 60%, 65% load. It's all based on modalities. So you have to staff in some modalities where you have a lesser number of team members, your pain management staff, your medi-spa staff, as opposed to massage staff, where you have a much larger group, so we would reduce there. Your expectations and the like would be many less folks would be staffed accordingly, whereas you would be fully complemented in your medi-spa, pain management, fitness, where you have typically less personnel regardless.

So the calculations work out to be at 50% staff, about 50% load, and then it ramps up from there. On the test cruises, similarly, there will be much less staff because these vessels will not be full, even on the test cruises. So we're trying to do it just with simple representation for the moment and working and collaborating with the cruise lines based on their requirements.

Okay. Understood. Second question, I guess, is probably going to be for Glenn as well. But I mean the conversations you have with your staff today as they sit at home essentially, what are those conversations like? And again, I guess what I'm getting here is, are they anxious to get back to work? Are they willing to come back to work? And it does seem like every cruise operator is going to mandate some type of vaccination for the crew. And I guess the last part of that question is, are they comfortable getting that vaccination?

So as you know, we've repatriated 3,600 staff last year. Of the 3,600, we've confirmed about 2,800 are raring to go, ready to come back. They would come back today if we give them an opportunity to return. We also have just under 1,000 folks who are new team members ready to join the ranks. So we have a full complement, a great team ready to just get back to the sea and get to work, all being digitally trained and standards enhanced, et cetera.

As far as the vaccinations are concerned, yes, we feel there is a willingness. They're all willing. And as soon as those vaccinations are available to them, they will get vaccinated. We're working with our cruise partners. As Royal Caribbean, as an example, they would like to vaccinate their staff. They are vaccinating their staff. We will piggyback on their program with them to get our staff vaccinated along with their crew, as an example. As soon as we have opportunity to get our teams vaccinated, we will take advantage of that. So we have not seen any resilience or reticence to -- for staff members to be vaccinated.

You have to also remember where they are. We recruit from 87 countries. These folks all need to go to work. They want to go to work. They're ready to go to work. They love their jobs. They love their careers that we provided for them. And they take care of their families for generations with the income that they make working for us at sea. So they're raring to go. We just need to get the ships back on the water, but we do have thousands and thousands of staff ready to go back to work.

Okay. Got you. And if I could ask one more, I apologize for asking 3 questions. But Stephen, you talked about the cash burn in 1Q being in that $12 million to $15 million range. And I assume that's basically assuming you're not moving any type of your crew around the world. And I guess as we move into 2Q and obviously then 3Q, as you do start to put folks more into place, would the cash burn move outside of that range? Or would it move more on the high end of that range? Meaning, as you do start to move folks around, does it move above $15 million over a quarter?

Good morning, Steve. No, we do not believe so. We believe that $15 million would be the high end, perhaps in the beginning, as we start to move folks. And then obviously, as you start to see some of these vessels sail, with the income and cash flow hopefully being generated from those vessels, that would start to offset some of the subsequent movements. So we're comfortable, we think, in that range for the go-forward period.

Our next question is from Sharon Zackfia with William Blair.

I guess, a question, just given your liquidity and how aggressive you've been on making sure that you're viable. Can you talk about why the ATM out there and kind of what the optionality might be there, if you look at that relative to your debt structure as well?

Yes. Sharon, it's Stephen. I'll take that to start off with. So as I mentioned, we did have some activity on the ATM in the fourth quarter, where we had gross proceeds of $11.6 million selling 1.26 million shares at an average price of $9.20, which was pretty good for the time.

Having said that, though, we've really taken a view with regards to the ATM as trying to look at it opportunistically. And one of 2 scenarios likely will evolve, right? So the likely scenario, we hope, is that cruise lines gradually return to service throughout 2021 and we begin to start to generate positive cash flow in the latter half and likely Q4 of the year and, therefore, start to build cash again. And therefore, cash from the ATM would de facto regarded -- could be regarded as being sort of excess cash. And therefore, once we're at a point in time, likely in 2022, when there's more visibility, ships are back in the water, cash flows coming in again, that consideration would be given to using some of that cash to pay off a portion of the debt.

As you know, we have a $25 million second lien at LIBOR plus 7.5%, which is perhaps a relatively high interest rate. And so at a minimum, paying that down would certainly be accretive to the company and from an EPS standpoint. And even if there was more than that on a first lien basis, paying off some of that as well would help. So I think it's really being opportunistic, taking advantage of the share price at an appropriate point in time with the hope that, ultimately, it ends up being a zero-sum game from a company standpoint, where we exchange debt for equity.

That's helpful. And one more question, I guess, kind of a very specific question. Administrative costs kind of ticked up a lot sequentially as well as year-over-year. I don't know if there was anything unusual there. And then the stock has moved quite a bit. I mean, I know warrant cleanup is probably the lesser of the things you're focused on, but is there any thought process and as we go throughout 2021 of cleaning up the warrants again?

Yes. So yes, there's always conversation, particularly at the Board level around capital structure, warrants, et cetera. As the stock price continues to move, that will become more of a consideration. So there could be something that happens with regards to that. Nothing definitive, obviously at the moment. We'll kind of wait and see what happens.

With regards to the admin expense, there were, as you know, some incremental costs in the quarter, not in admin, no, but the line you pointed out as well, with the $0.06 hit on inventory. In admin, it's just some of the costs related to the actual ATM itself, some expenses there, some legal and professional fees and onetime fees related to some of the legal expenses that we would not expect to reoccur.

(Operator Instructions) Our next question is from Stephanie Wissink with Jefferies.

This is Seb Barbero for Steph Wissink. A couple of questions for me, please. The first one is you guided for 24 more ships by the end of 2022 relative to where you ended 2020. I was wondering if you can help me bridge the gap between disposals, cancellations and pushouts relative to your initial outlook 2 years ago for almost, I think it was, 211 ships?

Yes, good morning. We have currently in the 159 plus 24 vessel count that we provided by the end of 2022 not included any of the 26 -- or I guess, it's 27 now with the additional Princess ship vessels that have been decommissioned by the cruise lines. As we've mentioned before, it's our understanding that, of those vessels, the vast majority will return to service in some form or fashion with other cruise lines and/or other operators. We remain in active negotiations and are very positive around potentially getting back some of those cruise lines into our fleet. But at the moment, our count does not include any of that because, obviously, we wouldn't include it until we have definitive contracts signed.

A second question is, as resort spas have been reopened, anything that you can share in terms of your learnings with regards to safety protocols, guest receptivity or any measures that you're taking that could eventually be implemented on board cruise lines?

Well, the few anecdotes we can share are people are risk tolerant. Our mix of services, if you're looking at a pre- and post-COVID environment, are all leading towards a pre-COVID world. So folks are buying or leaning towards selecting the same services that they used to choose pre-COVID back in, let's call it, 2019 days.

So we find it very interesting. It's not even an 80% ratio. It's virtually in the mid-90s or greater. I mean, they just really are not necessarily yearning or desiring contactless or touchless technologies, digital technologies. They want to go to the spa. They want to relax. They want to rejuvenate. They want to get touched. And the spa is a safe haven for this, and they want to focus on their personal care within our spas. So statistically, they are going to the traditional services.

At the same time, our retail numbers are good. People are buying personal care products. So those are the anecdotes I can give you from the resort division, also understanding that occupancies certainly are not at the historic levels.

Yes. Okay. And last one for me. With the business being largely paused for 2020, there's still an issuance of stock comp in Q4. Was that part of a multiyear program from prior year grants? Or is that new? And how should we think about that line for 2021?

I -- it's a combination of both of the things you mentioned, the majority of it is a continuation of prior programs. And there was a portion of the new program that was put in place. A normal annual -- I wouldn't say a new program rather, but just typical annual program where equity is granted to management and participants within the organization to ensure that people are compensated for earnings, most importantly, from a retention standpoint. I will come back to you, Seb, with regards to how to think about that for 2021. We haven't put anything out there yet with regards to 2021.

(Operator Instructions) There are no further questions registered at this time. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

Thanks again, everybody, for joining us. I think all I can say is today is a better day than yesterday. We're looking at the 2-month acceleration of vaccinating every adult in the United States based upon President Biden's announcement yesterday, the joint working together of Merck and Johnson & Johnson. I think all of the positive news and the acceleration in numbers of people being vaccinated daily will allow OneSpaWorld and the industry to get back to business with some real certainty now, and that gives us a lot of confidence. And we look forward to speaking with you all again on our first quarter call. Thank you very much.

Thank you, everyone.

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