Q3 2020 OneSpaWorld Holdings Ltd Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the one toward third quarter Twentytwenty earnings Conference call.
As a reminder, all participants I mean listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question queue you May Press Star then one on your telephone keypad.
Should the need assistance during the conference call you may see demand, an operator by pressing star and zero.
I would now like to turn the conference over to Allison Malkin, Oh I see our please go ahead.
Thank you good morning, and welcome to one spot World third quarter 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 content.
You do have a significant impact on our operations cash flow and financial position.
Uncertain and dynamic nature of current conditions and its ongoing impact could materially alter our outlook. These forward looking statements reflect their 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 form.
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 third quarter 2020 earnings release, which was furnished to the SEC 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 yesterday.
Joining me today are Leonard flux men Executive Chairman, Glen Suffield, Chief Executive Officer, and President and Stephen Lazarus, Chief Financial Officer, and Chief operating Officer.
Leonard will begin with a review of our third quarter performance and provide an update on our operations. Our key priorities sound liquidity, then Glenn will discuss their actions taken in response to COVID-19, including an update on our staff and that.
View, our service offering innovation.
Following this Steven will provide a more detailed on the financials and liquidity.
And now I would like to turn the call over to limit.
Thank you Allison good morning, and welcome to one's Falwell third quarter fiscal 2020 results conference call.
As expected our third quarter results reflect the significant impact to operations driven by the COVID-19 pandemic.
As we mentioned last quarter, all about health and wellness centers on crucial closed passengers.
On March 14th.
As of today to health and wellness centers on cruise ships resumed operations.
Our destination resorts flaws or closed since March 26.
37 reopened as of today, albeit with capacity restrictions.
During the quarter, we continued to focus on three par priorities, namely.
Ensuring the safety and well being of our associates and stuff.
Having liquidity.
Certainly preparing for when our operations resumed with strong innovation.
Active collaboration with our partners.
As it relates to our first priority to keep us at the Stasi, if I'm extremely appreciative of our cruise line and resort partners in each of our corporate employees.
For the efforts to ensure the safety of us to Florida resort personnel.
As a result of these efforts as of quarter end, all but 29 crucial personnel were.
Created and as of today 39 crucial personnel have re embarked on three vessels that commence saving in the quarter.
Moving to our second priority liquidity.
We remain intensely focused on tightly managing expenses and capital investment while continuing to pursue.
Initiatives to ensure a strong performance at our health and wellness centers voyages.
We ended the quarter with 62.2 million at ash, including availability on our credit facility.
We continue to believe we have the liquidity to sustain our operations with no significant voyages through December 2021.
As it relates to our third party preparing for the resumption of operations as.
As many of you are aware the U.S. centers of disease control and prevention, the CDC lifted its nose sale order.
At the same time, the CDC issued a framework for conditional sailing.
That is expected to lead to phase two.
I'll cruise ship passengers voyages.
We continue to expect limited sales this year as our cruise line partners implement the three phases of the framework, including testing and implementing additional safeguards for.
Crew members conducting simulated voyages to test cruise operators abilities to litigate COVID-19 risk.
Providing a certification two ships that meet specific requirements.
We are working alongside our partners to ensure success during the stimulated voyages and look forward to and passengers can embark on cruises again.
Overall, we remain committed to investing our resources and collaborating with our cruise line partners.
In areas that we expect will add to it.
Fair and the operation.
Okay and wellness centers FC.
We remain confident that the advantages of our business model and significant market share we possess as a.
This place to achieve a long term performance objectives as business conditions normalize.
In keeping with this focus we have expanded our management team to include Susan BARDA as Chief Commercial Officer Susan.
Susan joined our company in October and will lead our revenue growth initiatives reporting to Glenn.
Now I'd like to turn the call over to Glenn Thank you.
Thank you Linda good morning, everyone.
We continue to navigate the pandemic or adapting quickly to the current operating environment with the health and safety of our stuff our number one priority.
Along those lines, we have repatriated over 29 of our personal aboard cruise ships, eliminating all ongoing expenses related to these repatriated employees.
As Lynn mentioned at quarter end, 30 learned crucial personal reimbursed and three vessels commencing in the quarter.
I remain thankful to those that ensured the safe passage over a cruise ship stuff I am grateful for their efforts.
Equally proud of the way our onboard staff handled this crisis over many months [noise] dip.
Their professionalism and understanding and patience during this difficult time is commendable.
As of quarter end 31 destination resorts bars have reopened reduce capacity. We were pleased with the willingness of gifts to book appointments and relaxing response, while lubrication during todays unprecedented codes.
We've also been pleased by the demand for Spa appointments.
Customer feedback has been overwhelmingly positive with those utilizing our facilities, noting that we have made them feel comfortable with our enhanced safety protocols and guests are extremely satisfied with the level of service being provided.
As we look ahead, we're continuing to focus on treaty or stuff and investing in innovation. So that we are ready to scale. Our global operations were more of a health and wellness centers reopened.
Thats voyages resumed in destination resorts spas continue to open.
We anticipate that the majority of our destination resorts bars will be opened by the end of the fourth quarter, but again with reduced occupancy and operating within the Cobrand rating guidelines with local jurisdictions.
In addition, we expect to have five health and wellness centers opened on cruise ships that resumed their voyages by year end.
While early on to cruise ships that are currently certainly we have experienced very good results. In fact, our penetration rates are strong and consistent with prior years, despite the lower occupancy we.
We have seen wouldn't focus to really pursue book one of our new contactless service options.
With that I will turn the call over to Steven who will comment on our third quarter results and liquidity position.
Thank you Ken good morning, ladies and gentlemen.
Third quarter continued to be challenging for us amidst a pandemic type backdrop.
While we were again had no material revenues given limited operations across our cruise line and the short ball partners. We remain focused on preserving our liquidity as revenue of investing activation and turning out stops. So that we are ready to scale our global operations.
Conditional change orders on the books.
And one of our destination resorts Bosch reopened.
Well I will then provide a review of our quarterly results given the continued significant impact at the global COVID-19 pandemic head on our operations during the quarter.
Ill now share just a few other third quarter highlights.
Total revenues were $1.8 million compared to $144.9 million in the third quarter last year.
Revenue was generated in this year's third quarter were primarily related to the 31 destination resorts fourth stack, we opened during the quarter.
On the sales on our time to score Dot Com website.
Adjusted EBITDA was a loss of $12.2 million as compared to positive $15.4 million in the third quarter 2019.
As previously mentioned some of the increased costs that we incurred in the second quarter continued into the third quarter and related to the house the repatriation of our teams on board and in preparation absolute layoffs.
Total impact of these costs, along with cost relating to the equity financing in the third quarter were approximately $3.5 million.
We ended the quarter with cash and borrowing capacity under our line of credit of $62.2 million as compared to $18 million at the end of the second quarter fiscal 2020.
We expect this liquidity to be sufficient to sustain operations.
No significant bridge us through December of 2021.
As it relates to our outlook due to the ongoing business corruption disruption and uncertainty surrounding the impact of the COVID-19 pandemic. We will continue to not provide guidance notwithstanding the foregoing the company expects to sustaining capital, Jeff Good and correct.
For the fourth quarter and 2021st Korea.
However, I would like to share some insights into our business and take into consideration when thinking about the remainder of the year.
Firstly, we expect quarterly core destination resorts call. It will be opened by year end.
We'll continue to tightly manage expenses and identify additional cost savings.
He was on the industry Association issued a framework for additional solar which is set to expire on November 1st 2021 for the U.S.
They mention well his thoughts for operations has improved.
We have seen strong receptivity to all things and science becomes comfortable with our enhanced safety and health protocols.
While we do not expect to generate material revenues from health and wellness San Cristobal cruise ships. This year. We believe we have the talent and capabilities to quickly bring that personnel and scaled our operations when the blade just this year.
We continue to expect cruising to return on a gradual basis and even to the passenger capacity limited to 50% on an overall basis, we would expect to breakeven.
Well normalization of operations occur, we expect to deliver revenue and EBITDA consistent with historical levels.
With that we will open the call to questions. So if you could please do that for us.
Certainly we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If you are using a speaker phone please pick up your handset before pricing and Keith.
With that only a question. Please press star then too.
We will talk for a moment callers join the queue.
Our first question is from Steven we Sninsky with Stifel. Please go ahead.
Hey, good morning, guys.
So you don't Leonard I guess as you look at the the cruise lines potentially starting.
To get operations back up and potentially running here over the next couple of months.
Can you guys help us think about what your cash burn might look like going forward over the next quarter or two quarters, given I would assume at this point, you're probably got to start getting some of your employees back in.
In position sometime soon.
Yes, so Steve Thank you.
We we've guided.
Our cash burn is currently clearly.
As Steven mentioned, when we get back to up to 44.
Or resorts caused by year end the gradual starts.
I'm not quite sure how many ships will get through the initial CDC guidelines forget acidification, but.
But clearly as we move further into the first quarter we.
We expect to see us eating into that.
4 million of cash flow that we learning right now.
And with bringing back some stock because.
While they're going to be quarantined prior to getting on board.
Now the lodging expenses in of itself, yes. They are more than we typically would have prior to starting up occurs but we believe once we get cruising despite lower occupancy is as Weve currently seen in Europe.
We believe we will.
Start to eat into that I can give you an exact number right now until we see two what kind of scale, we get to the first quarter.
So just to add on add on that a little bit have you gotten any word from any of your partners. Your cruise line partners yet as to when you potentially could need to have folks in place for some of these tests cruises.
You know I think they're all working through I look I think they are all very.
Happy that at least as a pathway to resumption and return to service, but I don't believe we have an exact number by banner, particularly those that the top largest rebanners as to which of these ships will follow the test cruises and get certified.
Okay got you and then.
I haven't seen any specific number Glenn if you.
No nothing specific we all know it'll be one vessel to start it'll be in Q1 at this point there first voyages, let's call it for the big three.
Maybe if we were to thereafter, assuming that those were just go flawlessly, which we don't expect them to do.
So.
We're going to be operating at reduced occupancy and reduced staffing.
So we will expect to start bringing crewing.
Probably you know around the holidays and prepare for January.
Twitter mentions without any specificity, but we have to hedge a little bit because you can't just wait for the protocol for we're moving but right now we're in a little bit Steve coming.
Commenced a few of the tests, where it was in January but that's really hedging without any information other than a little bit of speculation we.
We do have some operations commencing where crude is moving now in Asia on two vessels to commence by year end of Q4.
Okay got you.
Yeah.
Sorry.
Sorry <unk>.
So second question and my last question.
Long term, we have we've now seen carnival and a few other operators remove a significant amount of capacity from.
No the operating or their operating fleets I think carnival loan right now is that a good up to about 18 ships or so.
I guess I'm just wondering if you guys can help us think about.
These ships that had been removed from a from a profitability perspective, and I guess, what I'm getting at here is if we went back to.
Pretty cold it is there any way to help us think about what those ships contributed on average to your you know to your EBIT EBITDA line I understand that might be a tough question given a bunch of changes you know itineraries change and whatnot. So I hope that question makes sense.
You know, Steve we've we've never given you spin.
Specific guidance on the ship by ship basis, we do know and you know that the ships that are being retired sold or otherwise.
Moving around maybe in two different ownership positions.
But those are the oldest ships typically in the fleet.
That tend to underperform.
You know the rest of the ships in service right now and so with that one can assume that the profitability associated with the ships that are either being retired or sold.
So too.
Is the profitability of the poor profitability of the ships less material than the ones either remaining in service are the ones that will come into service as expected at 2021.
Okay got you. Thanks, guys appreciate and Glenn Congrats on the retirement.
Thanks, Dave appreciate them.
Our next question is from Sharon Zackfia with William Blair. Please go ahead.
Hi, Good morning, I have a few questions I just wanted to clarify on the 50% occupancy where you think you can breakeven was that breakeven at the ship level or is that breakeven at the enterprise level.
At the show.
Okay, and maybe could you talk about how that two sets that you're selling on kind of what the cash flow dynamics are on those ships at this point I don't know if they're up to the 50% occupancy levels I don't know, if you're actually generating cash yet on the selling dark you're still losing money.
The occupancy is were significantly below 50% in the quarter on the two cost the vessels that we lost just a little bit of money, but based upon the level of Lucky princes, we're actually pleased with the results.
There was a chart additional net sales of silver spring.
I mean, we did make some money on that initial [noise].
Okay, and it's good to hear that you're kind of maintaining that normal penetration that you get.
Even on the reduced occupancy I, just wonder if you're seeing.
And I know, it's only a couple of ships, but is there any change in kind of the demographic profile of the appeal is using the spas I guess either at sea or on land and then you know any change in the mix of services that you're seeing.
<unk>.
Sure. So you know obviously on these two ships, it's [noise] Italia.
Italian recently so.
Certainly.
Little bit younger.
That we would expect so that's the risk tolerance folks that are there and as Stephen mentioned it was very low occupancy.
So it wasn't a large.
I said to folks to measure give.
They were.
Enjoying our contact with services, we have a full menu of.
Basically no touch services. If they are so inclined there was a great demand for our traditional services as well. So we're very happy to I think that plays to our high penetration rate.
But going back to that crowd I'd have to say it was strictly Europeans who was the affluent or you know are getting people, who had the ability and willingness to travel.
But it was a very small set of folks that we can measure in a very small time frame, but at the same time on a very small number of voyages. So it's.
Really difficult to make any generalizations, we were happy with their selection of services covered both our traditional as well as our new touchless technology that we're offering and our notebook services. So we will continue to expand on those offerings and we will broaden our entire scope as we.
Moving to other geographies and demographics.
And on the resort side. Similarly, you know outside of the jurisdictions that some of our offerings.
[noise] people, who are asking for the traditional services they don't seem to mind, having the officials and they were asking for it where we couldn't offer it.
Massages and body services are still being asked for and at the same time people are taking advantage, where they can where we're promoting you know our.
Contact with racial just to put it into their their stress or anxiety over the over 19.
Precautions from.
We're very happy with the with our offerings and the selection of the folks when they come into our spot. So the good news is there are crossing the threshold when the businesses do open up and we're really happy about that.
That's really helpful. And then my last question was just on you know getting them to cross that threshold have you had to do any kind of unusual promotional activity or discounting to add no actually we're hoping you were actually holding pricing fairly well I mean, we've always had a great promotions in cross promotions and nice added value opera.
Communities of.
Of course, let's see we do more of that than we do on on land.
We don't have an opportunity just yet to take advantage of that but we have not really done any.
Through discounting to drive that business.
Okay. Thank you very much.
Our next question is from Stephanie Wissink Jeffrey Please go ahead.
Thanks, Good morning, everyone. Glenn a question for you just as you think about returning to see Im wondering if you can update us on some of your pre tailing tailing CRM initiatives that you've been working on with your partner.
Well, it's still very much a work in progress right. So as you know 80% of our business is currently you know has the opportunity to breed pre book and the pre paid and I'm really heavily trying to get the message across about that pretty telling concept that an opportunity to sell retail.
So they're not your services.
It is a work in progress is a tremendous amount of development.
An IP innovation that has to be.
Integrated at the same time before that and not just from a technology perspective.
Concept, because we're talking about beauty bars, and putting product into cabins potentially for guests to choose from is if they have any for years to come upstairs to the spar remembering though that these are concepts that we created when we had the initial reaction that may be folks wouldn't even want to come into the spot environment right.
Realizing that now they are there is a willingness to come up to the spa, but.
But that Prieto for US is an opportunity that we think will go along very well with our digital in cabin content. We're trying to work with her and collaborate with their crews partners at the same time from a wellness perspective, whether it be mindful living or just the physical fitness and yogurt and other exercise them recruit.
Leading digital content for folks to be able to.
In the world with regimens within their cabins at the same time, and then we're going to piggyback that with the retail component.
At the same time so.
But again its really early to say, we don't have a definitive plan because we don't have our partner, saying, yes. It could go and as you know we need their bodies to do all of our execution at the same time, but the game plan as laid out through.
We're pushing pricing so.
Okay.
And then just one final question on the cost structure I think maybe the follow up to Steve's question, but wanted to understand a little bit around it.
He came back office infrastructure that you need to support.
Some of the return to see and restocking event should we think about it not only at the variable expense it staffing being prepared at ports, but also your corporate infrastructure to support training and staffing and Medina anything we should just be mindful of in terms of a step function in the corporate expense structure. Thank you.
At this point in time, the corporate expense structure is sufficient to support.
Hey come into service. They expect this is over the next six months or so.
We will get acquainted harmoniously.
When the revenue.
Turning to service, becoming significant enough that we will have to potentially reengage folks corporate and trainee level, but we don't anticipate that happening in the near term.
Thank you.
Our next question is from Crts Huh.
Research. Please go ahead.
Good morning, guys in terms of the resumption of service.
Lunch and possibly lower crew staffing levels corresponding with the lower occupancy levels and also starting to transfer.
Staff over the holidays in anticipation of a January you know trial run.
<unk> inch <unk>, how do you expect this to be ramping up a initially just a couple ships. It may be half of the usual crewing levels that you would.
Generally have or do you expect to have people available closer to the Caribbean for the winter season, and possibly being around South Florida.
Hi, interfere or well first of all we can't really just keep the stuff here and have them waiting for deployment.
So we don't want to necessarily afford that expense.
You have to look at the staffing levels by modality, So where we have a large subset of stuff. For example body services, we would have a drastic reduction in staff if occupancy drops but for your med sparkling and where your pain management team, where you would have you would be fully staffed instance, where you have one doctor who and Dr. Bal.
Coupon for <unk>.
Your fitness director, maybe they'd be a slight reduction in their tracks.
You know as occupancy drops in builds up so.
You have to look at it by modality first of all in the overall calculation I think the way it will blend out is about a 60%.
Occupancy or I'm, sorry, the stuff to.
To start.
And then ramp from there as occupancy increase.
Increase over there.
We have to invest for returns to service.
So you know we had a push from that we will deploy stuff from their who.
But remember that every vessel every cruise line every geography has different nuances as it pertains to the quarantine recorded requirements or restrictions. So it's a really it's a whole mix bag, depending on geography and cruise line right now.
And then I can't imagine the logistics involved in all this it's true yes.
The incredible.
Thank you very much.
Without any concern countries luxury.
Any possibility to use some of the vessels that the cruise lines already have in southeast Asia too.
I'll do bring cruel onboard the ships as opposed to having to fly them.
So very well they are absolutely would be if in fact, they start to do that they would include US of course is approved partners to see where they did in the repatriation thousands of crew. We did take advantage of that so far there's nothing definitive that they have earmarked as far as any easing any ships is Verizon listens to repeat.
Crew back west or anything of that nature that I'm aware of are we've been notified them, but the subject matter has certainly been discussed and if any of the big ships for many of the Big partners.
We're endeavoring down the road they would certainly include.
That will be great that would be really helpful.
In terms of the CDC order I know there is.
I'll have items that still need to be fleshed out.
Have you identified any specific technical orders or anything that would pertain to.
Two one spot world necessarily given the more personal service that you provide.
No first of all you have to remember we create their own guideline for safety and protection, what we call our or would you be regardless <unk> protection than kind of position and we've incorporated that into that along through all of our partners and it's been very well received.
Certain crude like other interpretation, whether it be on the personal protection equipment with the coffee b or whether it be on social or physical distancing bill out of the room.
Operating guidelines two weeks, they will ask us to abide by it but right now we are using an abiding by our own GPS or room guidelines.
And that's been accepted by all and we will modify as we necessarily as necessary by cruise.
But really the facilities will be opened for the most part there may be some exceptions to public facilities. We also have some great innovative ideas to enhance experiences in the private opportunity.
Opportunity.
Folks who have some reticence.
But outside of that.
Despite the myriad of obligations for the cruise lines within the CDC guidelines, we are complying we're compliant.
And we are working with our partners and we'll do everything necessary to.
Really facilitate the return to service.
Thank you so much Glenn.
Sure.
This concludes the question and answer session I would like to turn the conference back over to Larry I'd like for any closing remarks.
[noise] right. Thank you very much I just want to thank everybody for joining us today and we look forward to speaking with you in giving you further updates on return to service details et cetera on our fourth quarter call. Thank you again.
This concludes todays conference call.
You may disconnect. Your line. Thank you for participating and have a pleasant day.
[noise].
[noise] <unk>.