Earnings Call: Q1 2021

May 12, 2021

Thank you for standing by. This is the conference operator. Welcome to the 1 Spa World First Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. 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 OneSpa World's Q1 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-nineteen 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 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 Q1 2021 earnings release, which was furnished to the SEC today on Form 8 ks. 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 Steven Lazarus, CFO and COO, Leonard will begin with a review of our Q1 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, Alison. Good morning and welcome to OneSpa World's Q1 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 OneSpa World 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 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 starts utilization in line with our Expectations and with operating metrics increasing sequentially month over month. These initial returns Confirm that we are positioned powerfully to capitalize on the strength of our team, operating platform and business model, 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 Q1, Making strong progress on both fronts, including continuing to focus on elevating our practices, Including previously mentioned digital training, 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 ensured a flawless return to service. Following the completion of return to service checklist and utilizing Manning's strategies to align stopping to expected return dates and load factors, we estimate approximately 6.40 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 Welders Academy. Today, 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-nineteen, 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 operation, we are confident in the advantages of our business model. Noticeably, we remain encouraged by the early strong demand and spend we are seeing where we are operating with destination resorts by revenue And stock utilization increasing sequentially month after month. Overall, we believe we remain partly positioned To capitalize on the strength of our operating platform and advantages business model as operations resume And importantly, achieve our goal to drive long term profitable growth for the benefit of 1 Smart shareholder. With that, I'll turn the call over to Steven, who will comment on our Q1 2021 results and liquidity position. Steven? Thank you, Leonard, and good morning, ladies and gentlemen. While the Q1, as you know, continued to be impacted by the Global pandemic's impact on the travel and tourism industry, we remained 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 Q1 2021 highlights rather than provide a full overview of our quarterly results given the continued significant impact that the global COVID-nineteen pandemic has had on our operations. For the Q1, total revenues were $5,600,000 compared to $114,300,000 in the Q1 last year. Revenues generated in this year's Q1 were primarily related to the 47 destination resort spas that were opened during the quarter and e commerce product sales through our time2spa.com website. Cost of services were $7,500,000 compared to $80,600,000 in the 20 21st quarter And cost of products were $1,300,000 compared to $22,100,000 in the 20 21st quarter. And adjusted EBITDA was a loss of $9,400,000 as compared to a positive $5,100,000 in the Q1 of 2020. We ended the quarter with total liquidity of $65,700,000 $9,300,000 higher than where we ended the year, resulting from $18,500,000 in net cash proceeds from the sale of 1,700,000 shares As part of our at the market equity offering program and a lower than forecast cash burn rate of $9,300,000 for the quarter, The cash burn rate for the quarter of $9,300,000 was approximately $5,700,000 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 $30,000,000 in the second quarter destination resort operations to accelerate commencing in the 3rd 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 ks originally filed on March 12, 2021 with our amended 2020 Annual Report on Form 10 ksA 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 effective periods. The company had previously classified the warrants as equity consistent with common market practice, which existed prior to the stock 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-nineteen pandemic, We will continue to not provide guidance. Notwithstanding the foregoing, for the Q2 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. We will now begin the question and answer session. The first question comes from Steven Wieczynski with Stifel. Please go ahead. Yes. Good morning, guys. So I understand the cash burn is going to look something like $15,000,000 for the Q2. 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 Q3, 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, good morning. We do not anticipate currently with that number of ships that we would be cash flow positive In the Q3, we do expect though based upon what we're seeing and with regards to anticipated incremental sailings In the Q4 that by the end of the year, we would start to be cash positive that we're not anticipating at this time, Although we certainly don't expect to get at a cash burn rate of $50,000,000 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, I thought this is limited data, Steve. So it's Two ships that certainly the ship, the Quantum of the Seas, we're seeing strong demand and higher Despite the lower occupancies and that's happening in the resorts as well, we're actually starting to increase our staffing levels at 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. There's 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 a follow-up on that. And for the land based Operations you have today, are you guys capacity constrained, meaning that whatever jurisdiction you're operating 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. Okay. Got you. Thanks guys. Appreciate it. The next question comes from Sharon Zackfia with William Blair. Please go ahead. Hi, good morning. I want to apologize, my cell phone dropped. So if I Ask something that was in the prepared commentary. It's AT and T's fault 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 sell? On the pre booking side, Sharon, we still don't have visibility from the crude lines yet. I mean, the only thing we're seeing is obviously High demand, pent up demand, obviously, from the cruise ticket perspective, but the pre open booking on Back end right now, as they start to confirm passenger counts 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 On 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 don't look at it on a revenue per start basis like we look at sea. We really look at it for the revenue per occupied room 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-fifty percent. And so when I look at the size of the ship, It's about a third of maybe even less than a third 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 they 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 staff at probably a minimum 50% to 60% of our staff to start out with depending on the occupancies that we have visibility to from the 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 4th 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 it would 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 by the end of July. Okay. Thank you. The next question comes from Stephanie Wissink with Jefferies. Please go ahead. Hi, team. It's Couple of questions for me, please. The first one is, any learnings from the resorts pass 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. Yes. Are you any learnings from the resort spas? Those have been 47 are now operating. That's influencing how you reshape your service menu onboard 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 and inclusive body services, There is a much higher demand for just the legacy type services, both on land and certainly from what we're seeing from 2 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? Well, 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 I think there's going to be a much faster scaling into the Q4 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 Q1 of 2020 Okay. And up your just talking specifically about your portfolio, you ended Q1 of $159,000,000 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 cruise lines return to service and particularly when they return to service with North American sailings depending on how they progress with the CDC. Okay. Thank The next question comes from Assia Georgiova with Infinity Research. Please go ahead. Good morning, guys. I was trying to get into the queue earlier. Couple of quick questions. First of all, different cruise brands and 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 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. We certainly saw the WHO approve 1 of the Chinese vaccinations For 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 re vaccinated. But we see just an enormous Tense up demand from our staff to return and most of them will get vaccinated, whether it's done by the cruise line, Whether they'll accept vaccinations, because there are different vaccines out there, obviously, that are preferred than a Vibana. But most of the cruise lines right now that we I've 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 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 Okay. So one of the matters 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 sell 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 Extend the vaccinations that they're doing in Puerto Canaveral. So they are moving rapidly, some little faster than others, but those are the ones that are going first. Sometimes I wish I was a crew member because I've been fighting to get a vaccine. I didn't get the 1st shot. And a completely separate question, maybe Steven, you can help me out on this one. In terms of RamBase Resorts, So yes, 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 our 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 are starting to see positive cash flow generation from the results that are open. That's great news. Thank you, Stephen. Thank you, guys. You're welcome. Thanks. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Leonard Fleckman, Executive Chairman, for any closing remarks. Thank you all for joining us on this call. I did want to mention that we which we didn't mention was We actually had some very successful contract extensions during the Q1, 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 To 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 Q1 and we continue to look at some other opportunities as well. So The future looks brighter than EBITDA before and hopefully we'll have more to share with you and talk with you on our Q2 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.