Q3 2021 Onespaworld Holdings Ltd Earnings Call
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 die.
NAMIC 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 <unk>.
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 third quarter 2021 earnings release, which will be 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 and explanation of these metrics can be found in our earnings release issued earlier. This morning. Joining me today are Leonard flux men executive Chairman and Chief Executive Officer, and Stephen Lazarus Chief <unk>.
Operating officer, and Chief Financial Officer, Leonard will begin with a review of our third quarter 2021 performance and provide an update on our operations and our key priorities then Steven will provide more details on the financials and liquidity I would now like to turn the call over to Leonard.
Thank you Alison good morning, and welcome to <unk> third quarter 'twenty to 'twenty, one results conference call.
We are very pleased with our third quarter performance, which was highlighted by significant growth in <unk>.
Revenue.
And operating profitability compared to prior year in the 'twenty to 'twenty, one the second quarter.
Greatly encouraged with the results sort of enhanced business model.
Worked so hard to implement prior to return to service.
The quarter included significant progress on these initiatives to ensure a strong return to service.
Physician, one spa world for consistent future growth and profitability.
I want to thank our entire team for their tireless efforts that contributed to our improved performance.
Youll combined efforts led to an outstanding experience for the guests that visit to that health and wellness centers is more voyages resumed and occupancy increased at our destination resort spas.
The combined efforts of our teams allowed us to bring back train and really more than 1653 cruise ship stuff this year.
During the quarter 64 additional ships regime sailings.
Maintained an elevated level of offerings and continue to ensure a positive guest experience.
Turning to highlights of the quarter.
Revenues were $43 $6 million, reflecting contributions from health and wellness centers that reopened on 78 ships that resumed operation and the contribution from 45 destination resort spas.
Adjusted EBITDA was a loss of $4 $6 million.
Note my.
A destination resort spas generated positive EBITDA in the quarter and we are increasing staffing at most locations to meet higher than expected demand.
And lastly, we ended the quarter with total liquidity of $46 million.
We had many accomplishments for the quarter most notably.
A flawless returned to service continued as mentioned the quota source ready and trained staff to reimburse on an additional 64 cruise ships.
At quarter end, we had health and wellness centers on 78 ships.
That had resumed voyages and expect to resume services on a 118 ships by year end.
We also saw a record demand by cruise ship guests for our services.
Well capacity on cruise ships remains below historical levels. We were very pleased to see continued high demand for our services.
Operating metrics during the quarter for 2020, one also compared favorably with our third quarter 2019 performance.
The most recent comparable period of normalized operations.
For example, we saw the highest ever penetration rate of overall cruise ship guests serviced in our health and wellness centers. Additionally, pre booking statistics and average guest spend handily exceeded 2019 performance.
In keeping with one spa worlds tradition of supporting our onboard staff, our corporate team completed more than 100 ship visits in 200 sailings in the third quarter.
Ensuring a flawless returned to service, we will continue to be a top priority going forward with the team completing numerous training and service orders while on board these vessels.
We had a tremendous response from prior personnel in new applicants, who have been eager to come back to a health and wellness centers.
Through the third quarter, we successfully placed 1653, Kris cruise ship personnel on vessels for actual and anticipated voyages.
Becoming the challenges of the pandemic securing visas COVID-19 testing and many other travel restrictions.
Despite these hurdles our team members are ecstatic to be back to see.
By year end, we expect to have 2467 store free embarked on vessels there'll be 118 of them at year end.
As a leader in training and certification. We were also pleased to see our London Wellness Academy reopened during the third quarter.
The Academy is experiencing very strong demand from Africans with nearly 300 students trained since reopening.
Innovation in our service and product offering continued.
The quarter saw the introduction of three new Medi Spa technologies, including Samaj F. L X micro needling and IV therapy in <unk>.
Product, we launched one new carrier starts Institute and six new flagships.
We continue to cement our partnerships with cruise ship operators further demonstrating our leadership position and strong execution of health and wellness centers at sea.
To this end we are delighted that one spa world has extended its contract with US tomorrow through early 2026, covering all of US are more ships sailing during the term of the agreement.
As we look ahead, we continue to expect our exemplary staff commitment and service are always innovating guest service product and solution offerings.
Virtually virtually era, a replicable global operating infrastructure will enable us to capitalize on our significant opportunities to further expand our preeminent position as conditions continue to normalize.
Clearly, we believe our unwavering strategy through this devastating pandemic position positions us to deliver long term revenue and earnings growth across the global expansion of our operations always seeking to enhance value for our one spa world stakeholders.
Our performance outperformance during the initial return to service confirms that we are positioned powerfully to capitalize on the strength of our team operating platform and business model to drive long term profitable growth, that's cruise ships and destination for sports resort Spa operations fully.
He was a resume.
That I will hand, the call over to Stephen who will comment on our third quarter 2021 results and liquidity position Steven.
Thank you Linda good morning, ladies and gentlemen, thank you for joining us today.
As Lynn had mentioned the third quarter for sales and operating performance accelerate from the second quarter of the year.
Licking, our team's expert ability to prepare and returns.
And the extraordinary conditions.
I will now show you just a few of the third quarter 2021 highlights.
The third quarter total revenues were $43 $6 million compared to $1.8 million in the third quarter of 2020.
For the three months ended September 32021 revenues.
Were derived primarily from our 78 health and wellness centers on board ships have been resumed wages and a 45 open and operating destination resort health and wellness centers.
Cost of services were $33 $2 million compared to $7 $2 million in the 'twenty 'twenty third quarter the.
The increase was primarily attributable to costs associated with the increased service revenue up $34.8 million in the quarter for Mt operating health and wellness centers at sea and on land.
And increased costs related to the resumption of operations at our health and wellness centers at sea and on land.
Cost of products were $8 $4 million compared to $1.5 million in the 'twenty 'twenty third quarter. The increase was primarily attributable to costs associated with increased product revenues of $8 $1 billion in the quarter from our operating health and wellness centers at sea and on land.
Together with a $2 million inventory reserve recorded in the current quarter to reflect the write down of inventory that is expected to expire due to the extended pausing operations caused by the COVID-19 pandemic.
Net loss was $12 $3 million compared to a net loss of $47 $5 million in the third quarter of 2020.
The $35 2 million improvement was primarily a result of a 7.2 million dollar reduction in our loss from operations plus the $28 2 million positive change in the fair value of warrants.
Changing February lube Orange is the result of changes in market prices deriving the value of financial instruments.
Adjusted EBITDA, which includes the negative impact of the $2 million inventory reserve.
Was a loss of $4 $6 million as compared to an adjusted EBITDA loss of $12 2 million in the third quarter of 2020.
We ended the quarter with total liquidity of $47 $6 million at quarter end $13 $6 million remained available under the ATM program and as of today $10 million remains available under that program.
The variability Undrawn line of credit was $13 billion at quarter end.
The cash burn rate for the quarter of $12 $7 billion was slightly above our expectations driven by the timing of receipts.
We expect cash burn between eight and $10 million in the fourth quarter as revenue generated from an increasing number of voyages offset some of the higher cash expenditure in anticipation of these sailings.
As it relates to our outlook for 2021 due to the ongoing business disruption and uncertainty surrounding the continued impact of our business from the COVID-19 pandemic, we will continue to not provide guidance.
Notwithstanding the foregoing, we expect to record a sequential improvement in revenue and profitability in the fourth quarter as compared to the third quarter 2021 results and generate positive cash flow from operations in December.
We continue to expect to incur a net loss on a GAAP and adjusted basis for the fourth quarter and fiscal year.
With that we'll open up the call for questions operator please.
Thank you 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'll hear a tone acknowledging your request.
Please limit yourself to one question and one follow up should you have further questions. Please rejoin the queue if youre using a speakerphone. Please pick up your handset before pressing any teeth to withdraw. Your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from <unk> <unk>.
Sharon Zackfia of William Blair. Please go ahead.
Hi, good morning.
Sounds like you're seeing really good metrics and see yourself or I was hoping you could maybe contextualize and expand on that a bit more I know originally you know a lot of the passengers who have come on board our more seasoned sailor. So.
So I'm wondering you know how that's influenced your ability to kind of penetrate that passenger base and maybe if youre seeing more normalization on that penetration is more new to cruise kind of comes on board as well also just curious if you're seeing favorability versus 2019 at crossroads.
Geography.
And then lastly on the discounting dynamic can you kind of help us understand I guess, what pricing looks like in terms of discounting or full price selling today relative to 2019.
Great. Thanks, Sharon I could take a few Steve and you can jump in on some of the other stuff that maybe.
Maybe financially oriented.
Susan.
Sure and I think you know you're right we are seeing really positive momentum here.
You know with with sort of Delta subsiding here in the summer clearly I would say occupancies were somewhat negatively impacted across all the brands. Some brands have had stronger occupancies than others. Some have had better marketing initiatives in place to drive better Occupancies.
But there have been challenges on some of the other ones and some of the bad as they've been selling at less than 40%. So overall, the occupancies have been below 40% sorry, 50% in the third quarter, having said that though.
Every single one of our metrics bar occupancy, which we don't we don't.
Troll.
Is up versus 2019 and in some cases up double digits. So you know, we're not going to get into every one of those metrics right now until we really sort of settled into normalize operations, which I expect will start to see by the end of the first quarter of 2022 but spend is healthy.
As I said I mean, we're seeing very healthy spend we're seeing utilization frequency and most importantly, we see pre booking up very dynamically and some of that.
A function of the experience cruises, knowing exactly what they want to do when they wouldn't get on the ship them and when they want to spend their time in the spa, but also you know we did a huge drive towards the end of 2019, beginning of 2020 with some of the banners who were not on a pre booking platform and that has also helped drive pre <unk>.
King's up significantly so we're very pleased to see you know were clicking on every single one of the metrics that we set out to do and that we analyze every single week and we continue to be you know very satisfied if not I would say our scorecard is reflecting very well just a recent flash reports even October continue to them.
So as Stephen said, you know operations and revenue will continue to develop and improve in the fourth quarter and we rollout you know a bunch of new ships.
Got 40 ships to rollout here in the fourth quarter and I have to say I think the worst is behind US I think the cruise lines in every single geography that we operate presently have done a remarkable job of.
Inserting new protocols in fact, making them as seamless and uncomfortable.
Uncomfortable for passengers as possible and I think the experience across all the banners has it been a very very positive ones. So.
You know from all that we can tell you know cruise lines are positioned well the safety protocols are working the contact tracing working they are really doing an amazing job of protecting the guest experience. So we.
We are we are going to see better and better occupancies here in the fourth quarter and the first quarter of 'twenty, 'twenty, two which bodes well obviously for us because it allows us to penetrate get more guests into the spar and obviously produce more revenues.
Thank you.
Our next question comes from Steve with Lynskey of Stifel. Please go ahead.
Yeah, Hey, guys good morning.
So some kind of adding on to some of those comments Leonard could could you give us or maybe give us a little bit of a look into what our add on sales look like post treatment I'm just trying to get a better feel for you you made a comment around.
Some of your metrics are up handily relative to 2019 I'm just.
Handily means a lot of different things to a lot of different folks I don't know if that's okay.
Just mentioned, that's a double digit increase in some cases, but just trying to get a better sense for you know really the add on sales and then you know how those progressed, maybe through the quarter and into or through October as well.
Steve I, you know I don't want to trip me up here by pointing out any single metric because I know you hold me to it but I can tell you across.
12 different metrics outside of occupancy we're up versus 2019.
Some cases, they're up nicely, particularly in areas such as guests spend which is up.
Yeah, virtually double digits pre bookings are up more than double digits, all of that bodes well for utilization and penetration with lower guest counts. So you know, we're continuing to see better occupancies on some of the banners that have struggled and that too will bode well.
For generating higher revenues.
I don't want to get into the specifics of any other metrics that we measure because we don't publish that as Dave as you know, but I can tell you every single one of those metrics that we know.
With incredible data that we have developed during the pandemic period to monitor.
<unk> discussed these metrics channel better performance from each of our Spa directors and banner directors.
They're watching every one of those metrics and I think that's helped us.
Improve what are we doing how we're doing it in an NDA and week to week I see improvements across the board. So it's working we've got an incredible team. They they're hyper focused on these metrics and thus far I can tell you you know we are seeing really positive performance from our team.
Okay Gotcha, and then obviously I mean, when you look at your your three major partners I think at this point all three of them are talking about having their entire fleet back in service sometime in.
Sometime in the second quarter of next year, so kind of based on that you know I would assume at that point you guys are going to be starting to generate a decent amount of of a free cash flow.
And I guess the question is you know that the priority of that free cash flow from here. This is always or this was historically is supposed to be a very strong dividend distribution story and I guess are you know how do you think about that now versus paying down some of your debt.
So I think you know I don't think our position has changed and Youre right by the end of the second quarter, we will start to generate nice positive cash flow.
To the extent that we're able to firstly pay down debt, particularly the second lien we gonna have we got to do that.
That's certainly been a sort of something that's a higher focus for us because of its unfavorable interest rates, we'd love to get rid of it as soon as we can.
And then following that obviously all of the other options are fantastic consider and we consider that at every single board meeting and Stephen and I talk about the options. What are we going to do with that free cash flow going forward post second quarter of 2022.
Okay got you thanks, guys appreciate it.
Yeah.
Our next question comes from Steph Wissink of Jefferies. Please go ahead.
Thank you good morning, everyone I wanted to follow up comments on the increased cost of operation. If you could just share with us a little bit about what you're seeing from a costing perspective as you bring labor back.
Anything we should be thinking about and then the same question with respect to menu pricing any price advancement that you're taking to help cover if there is any labor inflation.
So Steph as you know the two models on land and sea differ.
And honestly with respect to cost and infrastructure cost on land.
We are seeing some creep in wages.
We will be offsetting that later on this year with some price increases that we're going to take and we will implement.
That being said, we're not meeting our full we're starting to get.
Well Manny on the ground clearly, there's hyper competition out there for staff, but I will say that stuffing less than an opening less hours has actually helped us improved EBITDA performance across the Atlanta based platform.
Let's see we're not seeing any kind of labor pressure that we're seeing out of those.
Hang on land and then that's the model remains very very insulated and protected from some of the inflationary pressures that perhaps are hitting other leisure providers of restaurants et cetera, et cetera that you're seeing across the economy.
We have put in place some price increases across certain banners and we continued to roll out and review, where we can take pricing up so that continues to be fluid.
And we've been successful thus far and is it as you can tell based on the fact that.
Frequencies up demands up spends up none of the increases that we have taken have impacted us in a negative manner. So we are very pleased with what we've done so far.
Okay. That's great one follow up for you on the cash neutrality and I think you mentioned Q2 cash flow positive wanted to just understand a little bit how that benchmarks back to some of the historic framework, you've given us around 50% of 2019 capacity was kind of a threshold that you were looking for it to break even on the cash flow base.
Are you finding that you're able to turn cash a bit sooner in part because of the the kpis that you just referenced or is there something else structural that's happening in the body of the P&L that we should be conscious of that's helping you get there a little bit sooner maybe than what that 50% capacity would have assumed.
Yeah I'll take that there are a couple of things that are playing into that one of the most important talk which is yes. Overall performance is better even at lower occupancy levels and so the expectation is that you might.
As you move into next year, we would move to cash neutrality, and then very quickly to generating positive cash flow on an enterprise basis.
Which obviously, we're all talking about to knock on and wanted to get back to the point to look good and cash anymore. So the biggest piece of it comes from improved operating performance. We are seeing at the moment some benefit from <unk>.
Continued reduction in some of our corporate costs, however, overtime as more vessels returned to service on a state basis, we will need to start increasing some of the corporate overhead.
In order to support those increased savings and so some of it been applicable go away. However, despite that it is our expectation that in December will be EBIT positive and as we move into next year. It will be cash flow neutral and cash flow positive very quickly in the year.
Thank you very helpful.
Once again, if you have a question. Please press Star then one.
Our next question comes from Assia Georgieva of Infinity Research. Please go ahead.
Good morning, guys I'm glad that things are starting to get closer to normal I have a couple of questions. The first one relates to <unk> do you think that those who has been a significant driver in terms of the higher spend and penetration rates I imagine.
Those have been helpful and as we go through 2022 probably a lot of those who have been spent but then the offset is that we'll have hopefully a more normal environment in the second half of next year is that fair assessment.
So I'd say, it's very hard for us to track that because what happens with those onboard credits credits.
Credits that anyone yes.
Yes. It has its posted as a credit to their portfolio or their statement on board.
Well, you don't get to see where they utilizes its just the credits used against spend I mean, we'd love to see how much of that is being is towards spend into the spa, but it's just a credit against the total spend on board.
We don't have the ability to track.
Where well target.
Target, how they've spent their their own boat credits.
Lee envelope credits is helping spend but how much that's helping us we have no idea.
Okay. I think Stephen had mentioned that you would try to be able to track that but I can understand how you know its very difficult to go through that barrier and dig deeper into each customer okay.
We've we've tried and we can't get the utilization of their onboard credits by department spend and the cruise lines I'm not going to give that to us.
Yeah, I know that they tend to be like that my second question was.
The ATM do you anticipate continuing to use that program given that you are so close to being EBITDA positive in soon cash neutral should we anticipate further use of the remaining $10 million.
Yeah.
No definitive decision has been reached with regards to.
Utilizing the remaining 10 million ICR, obviously to.
To the extent, we do it we just enable us to use those proceeds and pay off the two L.
Quicker, which would be accretive to shareholders and certainly at these stock prices. It would be so we will be opportunistic if we feel that it's appropriate we'll take in the cash in and really what that will translate into though it's just too early or pay down on the debt. So.
We'll leave it out there and what kind of play it by ear and see how it goes as opposed to committing to whether or not we're going to use it at this point in time.
Okay, that's fair enough, but at this point it would be an accretive transaction. If you continue to use that program.
Yes, correct.
Okay. Good okay, well. Thank you so much have a great day.
Yeah.
Thank you you too.
This concludes the question and answer session I would like to turn the conference back over to Mr. Clarkson for any closing remarks.
Alright, Thank you all for joining us today on our third quarter call.
We wanted to take this opportunity.
I wish you all a very happy.
Healthy and safe holiday season.
And we look forward to speaking with you at our upcoming Investor conferences in the next few weeks and when we report our fourth quarter results next year. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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