ONESPAWORLD HOLDINGS LIMITED Overview
In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in the sections entitled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" and in "Risk Factors" in our Form 10-K/A for the fiscal year endedDecember 31, 2020 . We assume no obligation to update any of these forward-looking statements. Due to the global impact of COVID-19, we experienced a near cessation of our operations commencing in the first quarter of 2020. We cannot fully predict the continuing impacts of COVID-19 on the industry or on our business. Despite this uncertainty, we believe we have certain strengths that have positioned us as a leader in the hospitality-based health and wellness industry and to participate in the recovery of the cruise industry and the hospitality industry.OneSpaWorld Holdings Limited ("OneSpaWorld ," the "Company," "we," "our, "us" and other similar terms refer toOneSpaWorld Holdings Limited and its consolidated subsidiaries) is the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Prior to the near cessation of our operations due to COVID-19, our highly trained and experienced staff offered guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard cruise ships and at destination resorts globally. We are the market leader at more than 20x the size of our closest maritime competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise, broad and innovative service and product offerings, expansive global recruitment, training and logistics platform as well as decades-long relationships with cruise line and destination resort partners. Throughout our history, our mission has been simple: helping guests look and feel their best during and after their stay. At our core, we are a global services company. We serve a critical role for our cruise line and destination resort partners, operating a complex and increasingly important aspect of our cruise line and destination resort partners' overall guest experience. Decades of investment and know-how have allowed us to construct an unmatched global infrastructure to manage the complexity of our operations. We have consistently expanded our onboard offerings with innovative and leading-edge service and product introductions, and developed the powerful back-end recruiting, training and logistics platforms to manage our operational complexity, maintain our industry-leading quality standards, and maximize revenue and profitability per center. The combination of our renowned recruiting and training platform, deep proprietary labor pool, global logistics and supply chain infrastructure and proven health and wellness center and revenue management capabilities represents a significant competitive advantage that we believe is not economically feasible to replicate. A significant portion of our revenues are generated from our cruise ship operations. Historically, we have been able to renew almost all of our cruise line agreements that expired or were scheduled to expire. In 2019, we signed an agreement withCelebrity Cruises as the exclusive operator of health and wellness centers on Celebrity's entire fleet, increasing the Celebrity vessels on which we operated in 2020 by nine, extended our current agreement with Norwegian Cruise Lines through 2024, won a contract with the new lifestyle brand Virgin Voyages to operate the spa and wellness offerings onboard Virgin vessels, and entered into an amended agreement withP&O Cruises to extend our operations on P&O's vessels for the next five years. InDecember 2019 , COVID-19 was initially reported inWuhan, China . Shortly thereafter, theWorld Health Organization declared COVID-19 to be a "Public Health Emergency of International Concern" affecting all parts of the world on a global-scale. OnMarch 14, 2020 , theU.S. Centers for Disease Control and Prevention ("CDC") issued a No Sail Order, as a result of which a majority of our cruise line partners voluntarily suspended their operations. The No Sail Order was replaced by theCDC 's Framework for Conditional Sailing Order onOctober 30, 2020 , which will remain in effect until the earliest of (1) the expiration of the Secretary ofHealth and Human Services' declaration that COVID-19 constitutes a public health emergency, (2) theCDC Director rescinds or modifies the order based on specific public health or other considerations, or (3)November 1, 2021 . The Framework for Conditional Sailing Order outlines a phased approach for gradually permitting cruise ship passenger operations inU.S. waters, subject to certain conditions and guidelines. As of the date of this report, the Conditional Sailing Order and related measures, such as technical guidelines, have become nonbinding recommendations for cruise lines arriving in or departing from a port inFlorida , which mostFlorida -porting ships have chosen to voluntarily follow. We are continuing to review theCDC 's guidelines in connection with the Framework for Conditional Sailing Order as well as monitor the actions of our cruise line partners with respect to the status of the voluntary suspension of cruise sailings. We also believe that there have been positive developments around the availability and widespread distribution of effective COVID-19 vaccines, which we believe will be important to achieve historical occupancy levels of our cruise line and resorts partners. TheFood and Drug Administration has approved certain vaccines for Emergency Use Authorization. These COVID-19 vaccines have been shown to be highly effective in clinical trials and are being distributed to populations inthe United States and around the world. While these vaccines are a promising milestone in global efforts to contain and eliminate COVID-19, uncertainties remain, including whether any additional vaccines will receive regulatory approval, the risk of differing interpretations and assessments by the scientific community during 22
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the peer review/publication process, widespread adoption of the vaccines by consumers, the availability of the raw materials needed in the quantities required to manufacture the vaccine, pricing and access challenges, storage, distribution and administration requirements, and logistics. Recently, new COVID-19 variants were recognized inIndia ,Brazil ,South Africa , theUnited Kingdom andthe United States , among other jurisdictions. These variants have the potential to increase the lethality and have increased the spread of COVID-19, may reduce vaccine effectiveness, and may prolong the COVID-19 pandemic. The global spread of the COVID-19 pandemic is complex and rapidly-evolving, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs. The COVID-19 pandemic is currently impacting global operations in the travel and hospitality industry worldwide by necessitating the closure of destination resorts, travel and hospitality services and significantly reducing demand worldwide for travel and hospitality services. We are unable to predict the course of COVID-19, but it has had, and we anticipate that it will continue to have, a material negative impact on our business performance, results of operations and financial condition in 2021.
Key Performance Indicators
In assessing the performance of our business, we consider several key performance indicators used by management. These key indicators include:
• Ship Count. The number of ships, both on average during the period and at
period end, on which we operate health and wellness centers. This is a key
metric that impacts revenue and profitability.
• Average Weekly Revenue Per Ship. A key indicator of productivity per ship.
Revenue per ship can be affected by the various sizes of health and
wellness centers and categories of ships on which we serve.
• Average Revenue Per Shipboard Staff Per Day. We utilize this performance
metric to assist in determining the productivity of our onboard staff,
which we believe is a critical element of our operations.
• Destination Resort Count. The number of destination resorts, both onaverage during the period and at period end, on which we operate the
health and wellness centers. This is a key metric that impacts revenue and
profitability.
•
A key indicator of productivity per destination resort health and wellness
center. Revenue per destination resort health and wellness center in a
period can be affected by the mix of
for such period because
and produce substantially more revenues per center than Asian centers.
Additionally, average weekly revenue can also be negatively impacted by
renovations of our destination resort health and wellness centers.
The Company is not reporting the financial indicators above due to the effect of
COVID-19 on its business, as the comparison of these key performance indicators
for the three and six months ended June 30, 2021 is not meaningful.
Key Financial Definitions
Revenues. Revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort guests. The following is a brief description of the components of our revenues:
• Service revenues. Service revenues consist primarily of sales of health
and wellness services, including a full range of massage treatments,
facial treatments, nutritional/weight management consultations, teeth
whitening, mindfulness services and medi-spa services to cruise ship
passengers and destination resort guests. We bill our services at rates
which inherently include an immaterial charge for products used in the
rendering of such services, if applicable.
• Product revenues. Product revenues consist primarily of sales of health
and wellness products, such as facial skincare, body care, orthotics and
detox supplements to cruise ship passengers, destination resort guests and
timetospa.com customers.
Cost of services. Cost of services consists primarily of an allocable portion of
payments to cruise lines (which are derived as a percentage of service revenues
or a minimum annual rent or a combination of both), an allocable portion of
wages paid to shipboard employees, an allocable portion of staff-related
shipboard expenses, costs related to recruitment and training of shipboard
employees, wages paid directly to destination resort employees, payments to
destination resort venue owners, the allocable cost of products consumed in the
rendering of a service and health and wellness center depreciation. Cost of
services has historically been highly variable; increases and decreases in cost
of services are primarily attributable to a corresponding increase or decrease
in service revenues. Cost of services has tended to remain consistent as a
percentage of service revenues.
Cost of products. Cost of products consists primarily of the cost of products
sold through our various methods of distribution, an allocable portion of wages
paid to shipboard employees and an allocable portion of payments to cruise lines
and destination resort partners
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(which are derived as a percentage of product revenues or a minimum annual rent or a combination of both). Cost of products has historically been highly variable, increases and decreases in cost of products are primarily attributable to a corresponding increase or decrease in product revenues. Cost of products has tended to remain consistent as a percentage of product revenues. Administrative. Administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business, including fees for professional services, insurance, headquarters rent and other general corporate expenses. Salary and payroll taxes. Salary and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business, including fees for employee salaries, bonuses, payroll taxes, pension/401(k) and other employee costs. Amortization of intangible assets. Amortization of intangible assets are comprised of the amortization of intangible assets with definite useful lives (e.g. retail concession agreements, destination resort agreements, licensing agreements) and amortization expenses associated with prior Transactions.
Other income (expense), net. Other income (expense) consists of royalty income, interest income, interest expense, changes in the fair value of warrant liabilities, and noncontrolling interest expense.
Provision for income taxes. Provision for income taxes includes current and deferred federal income tax expenses, as well as state and local income taxes. See "-Critical Accounting Policies-Income Taxes" included in our Form 10-K/A for the year endedDecember 31, 2020 (the "2020 10-K/A").
Net income. Net income consists of income from operations less other income (expense) and provision for income taxes.
Revenue Drivers and Business Trends
Our revenues and financial performance are impacted by a multitude of factors, including, but not limited to:
• The impact of COVID-19. Our health and wellness centers onboard cruise
ships and in select destination resorts have been and continue to be
negatively affected by the COVID-19 pandemic.
• The number of ships and destination resorts in which we operate health and
wellness centers. Revenue is impacted by net new ship growth, ships out of
service, unanticipated dry-docks, ships prevented from sailing due to
outbreaks of illnesses, such as the COVID-19 pandemic, and the number of
destination resort health and wellness centers operating in each period.
• The size and offerings of new health and wellness centers. We have focused
our attention on the innovation and provision of higher value added and
price point services such as medi-spa and advanced facial techniques,
which require treatment rooms equipped with specific equipment and staff
trained to perform these services. As our cruise line partners continue to
invest in new ships with enhanced health and wellness centers that allow
for more advanced treatment rooms and larger staff sizes, we are able to
increase the availability of these services, driving an overall shift
towards a more attractive service mix.
• Expansion of value-added services and products across modalities inexisting health and wellness centers. We continue to expand our higher
value added and price point offerings in existing health and wellness
centers, including introducing premium medi-spa services, resulting in
higher guest spending.
• The mix of ship count across contemporary, premium, luxury and budget
categories. Revenue generated per shipboard health and wellness center
differs across contemporary, premium, luxury and budget ship categories
due to the size of the health and wellness centers, services offered,
guest demographics and guest spending patterns.
• The mix of cruise geography and itinerary. Revenue generated per shipboard
health and wellness center is influenced by each cruise itinerary
including the number of sea versus port days, which impacts center
utilization, as well as the geographic sailing region which may impactofferings of services and products to best address guest preferences.
• Collaboration with cruise line partners, including targeted marketing and
promotion initiatives, as well as implementation of proprietary
technologies to increase center utilization via pre-booking and
pre-payment. We are now directly marketing and distributing promotions to
onboard passengers as a result of enhanced collaboration with select
cruise line partners. We have also begun to implement proprietary
pre-booking and pre-payment technology platforms that interface with our
cruise line partners' pre-cruise planning systems. These areas of
increased collaboration with select cruise line partners are resulting in
higher revenue generation across our health and wellness centers.
• The impact of weather. Our health and wellness centers onboard cruise
ships and in select destination resorts may be negatively affected by
hurricanes, which may be increasing in frequency and intensity due to
climate change. The negative impact of hurricanes is highest during peak
hurricane season from August to October.
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Table of Contents The effect of each of these factors on our revenues and financial performance varies from period to period, but we expect the COVID-19 pandemic to continue to negatively impact our revenues and financial performance throughout the rest of 2021 and thereafter.
Recent Accounting Pronouncements
Refer to Note 2 to the Condensed Consolidated Financial Statements in this report for a discussion of recent accounting pronouncements.
Results of Operations
Three Months
Three Months Ended
Ended % of Total June 30, 2020 % of Total
June 30, 2021 Revenue (as restated) Revenue
(dollars in thousands, except per share
amounts)
REVENUES:
Service revenues $ 7,648 84 % $ 214 21 %
Product revenues 1,507 16 % 784 79 %
Total revenues 9,155 100 % 998 100 %COST OF REVENUES AND OPERATING
EXPENSES: Cost of services 9,561 104 % 12,559 1258 % Cost of products 1,504 16 % 1,623 163 % Administrative 4,862 53 % 4,940 495 % Salary and payroll taxes 5,988 65 % 5,091 510 % Amortization of intangible assets 4,206 46 % 4,206 421 %Goodwill and tradename intangible assets impairment - 0 % - 0 % Total cost of revenues and operating expenses 26,121 285 % 28,419 2848 % Loss from operations (16,966 ) -185 % (27,421 ) -2748 % OTHER INCOME (EXPENSE), NET: Interest expense and warrants issuance cost (3,412 ) -37 % (5,387 ) -540 % Change in fair value of warrant liabilities 20,700 226 % 12,100 1212 % Total other income (expense), net 17,288 189 % 6,713 673 % Income (loss) before tax expense (benefit) 322 4 % (20,708 ) -2075 % INCOME TAX EXPENSE (BENEFIT) 17 0 % (15 ) -2 % NET INCOME (LOSS) $ 305 3 %$ (20,693 ) -2073 % NET INCOME (LOSS) PER VOTING AND NON-VOTING SHARE: Basic $ 0.00$ (0.31 ) Diluted $ (0.04 )$ (0.31 ) WEIGHTED-AVERAGE SHARES OUTSTANDING: Basic 90,563 65,916 Diluted 92,932 65,916 25
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Comparison of Results for the three months ended
Results of operations in the second quarter of 2021 continued to be materially adversely impacted by the COVID-19 pandemic that resulted in cancellation of all of the Company's voyages and the closing of many destination resort health and wellness centers as of the end of the first quarter of 2020. During the second quarter of 2021, our operations had resumed on 14 cruise ships and in 42 destination resort spas. Accordingly, we believe that the comparison of these results to the three months endedJune 30, 2020 is not meaningful. Revenues. Revenues for the three months endedJune 30, 2021 and 2020 were$9.2 million and$1.0 million , respectively. The three months endedJune 30, 2021 revenues were derived primarily from our destination resort health and wealth centers. Fourteen of our health and wellness centers onboard ships had resumed operation as ofJune 30, 2021 , with the majority of those coming into service towards the end of the quarter. Revenues for three months endedJune 30, 2020 were negatively impacted by the COVID-19 pandemic and the resultingMarch 14, 2020 No Sail Order with revenues derived primarily from our e-commerce product sales through the Company's timetospa.com website. The break-down of revenue growth between service and product revenues was as follows: • Service revenues. Service Revenues for the three months endedJune 30, 2021 were$7.6 million , an increase of$7.4 million , or 3,474%, compared to$0.2 million for the three months endedJune 30, 2020 . The increase
is related to health and wellness centers having resumed operations in
the second quarter of 2021, whereas the substantial majority were closed
in the second quarter of 2020.
• Product revenues. Product Revenues for the three months ended
2021 were
related to health and wellness centers having resumed operations in the
second quarter of 2021, whereas the majority were closed in the second
quarter of 2020.
Cost of services. Cost of services for the three months endedJune 30, 2021 were$9.6 million , a decrease of$3.0 , million or 24%, compared to$12.6 million for the three months endedJune 30, 2020 . The decrease was primarily attributable to the three months endedJune 30, 2020 having included significant costs related to the repatriation of onboard personnel and costs related to the closure of our facilities on land and at sea. Cost of products. Cost of products for the three months endedJune 30, 2021 were$1.5 million , a decrease of$0.1 million , or 7%, compared to$1.6 million for the three months endedJune 30, 2020 . The three months endedJune 30 ,2021 includes significant freight costs related to the resumption of service and the three months endedJune 30, 2020 included the establishment of a$0.5 million inventory reserve.
Administrative. Administrative expenses for the three months ended
Salary and payroll taxes. Salary and payroll taxes for the three months endedJune 30, 2021 were$6.0 million , an increase of$0.9 million , or 18%, compared to$4.9 million for the three months endedJune 30, 2020 . The increase was primarily attributable to non-cash stock-based compensation expense partially offset by lower corporate salaries due to salary reductions and lower headcount, which were put in place due to the COVID-19 pandemic. The three months endedJune 30, 2021 had$1.7 million non-cash stock-based compensation expense compared to$0.4 million in the three months endedJune 30, 2020 .
Amortization of intangible assets. Amortization of intangible assets for the
three months ended
Other income (expense), net. Other income (expense) expenses, net includes interest expense and warrants issuance cost and change in the fair value of the warrant liabilities. Interest expense and warrants issuance cost for the three months endedJune 30, 2021 were($3.4) million , a decrease of$2.0 million or 37%, compared to($5.4) million for the three months endedJune 30, 2020 . The decrease was primarily attributable to warrant issuance cost of$1.4 million recorded in 2020 and lower interest rates for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . The change in fair value of the outstanding warrants during the three months endedJune 30, 2021 was a gain of$20.7 million compared to a gain of$12.1 million during the three months endedJune 30, 2020 . The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments. Income tax expenses (benefit). Income tax expenses (benefit) for the three months endedJune 30, 2021 were an expense of$17 thousand , an increase of$32 thousand , or 213%, compared to a benefit of$15 thousand for the three months endedJune 30, 2020 . Net income (loss). Net income for the three months endedJune 30, 2021 was$0.3 million , an increase of$21.0 million , or 101%, compared to a loss of$(20.7) million for the three months endedJune 30, 2020 . The$21.0 million improvement in the second quarter of fiscal 2021 was primarily a result of a$10.5 million improvement in the Company's loss from operations plus the$8.6 million positive change in the fair value of warrants. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments.
Comparison of Results for the Six Months Ended
As discussed above, our results of operations for the six months endedJune 30, 2021 continued to be materially adversely impacted by the COVID-19 pandemic. Accordingly, we believe that the comparison of these results to the six months endedJune 30, 2020 is not meaningful. 26
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Consolidated
Six Months
Six Months Ended
Ended % of Total June 30, 2020 % of Total
June 30, 2021 Revenue (as restated) Revenue
(dollars in thousands, except per
share amounts)
REVENUES:
Service revenues $ 12,252 83 % $ 89,787 78 %
Product revenues 2,493 17 % 25,518 22 %
Total revenues 14,745 100 % 115,305 100 %COST OF REVENUES AND OPERATING
EXPENSES: Cost of services 17,045 116 % 93,138 81 % Cost of products 2,799 19 % 23,759 21 % Administrative 8,706 59 % 9,523 8 % Salary and payroll taxes 13,640 93 % 10,263 9 % Amortization of intangible assets 8,412 57 % 8,412 7 %Goodwill and tradename intangible assets impairment - 0 % 190,777 165 % Total cost of revenues and operating expenses 50,602 343 % 335,872 291 % Loss from operations (35,857 ) -243 % (220,567 ) -191 % OTHER (EXPENSE) INCOME, NET: Interest expense and warrants issuance cost (6,763 ) -46 % (9,130 ) -8 % Change in fair value of warrant liabilities (2,600 ) -18 % 62,400 54 % Total other (expense) income, net (9,363 ) -63 % 53,270 46 % Loss before tax expense (45,220 ) -307 % (167,297 ) -145 % INCOME TAX EXPENSE 43 0 % 1,758 2 % NET LOSS$ (45,263 ) -307 %$ (169,055 ) -147 % NET LOSS PER VOTING AND NON-VOTING SHARE: Basic $ (0.51 ) $ (2.66 ) Diluted $ (0.51 ) $ (2.66 ) WEIGHTED-AVERAGE SHARES OUTSTANDING: Basic 88,903 63,543 Diluted 88,903 63,543 Revenues Revenues for the six months endedJune 30, 2021 and 2020 were$14.7 million and$115.3 million , respectively. The 2021 decrease of$100.6 million , or 87%, was significantly driven by the COVID-19 pandemic, which resulted in the cancellation of all cruise ship voyages and closure of all destination resort health and wellness centers where we operate duringmid-March 2020 throughJune 30, 2020 . The six months endedJune 30, 2021 revenues were derived primarily from our destination resort health and wealth centers. Fourteen of our spas onboard ships had resumed operation as ofJune 30, 2021 with the majority of those coming into service towards the end of the quarter.
The break-down of revenue between service and product revenues was as follows:
• Service revenues. Service revenues for the six months ended
2021 were
to
ended
pandemic on
revenues related to the resumption of service at our destination resort
health and wellness centers and 14 of our spas onboard ships which had
resumed operation as of June 30, 2021 , with the majority of those coming
into service towards the end of the second quarter.
• Product revenues. Product revenues for the six months ended
2021 were
ended
pandemic on
revenues related to the resumption of service at our destination resort
health and wellness centers and 14 of our spas onboard ships which had
resumed operation as of June 30, 2021 , with the majority of those coming
into service towards the end of the second quarter.
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Cost of services. Cost of services for the six months endedJune 30, 2021 were$17.0 million , a decrease of$76.1 million , or 82%, compared to$93.1 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to the decline in revenue due to the impact of the COVID-19 pandemic. Cost of products. Cost of products for the six months endedJune 30, 2021 were$2.8 million , a decrease of$21.0 million , or 88%, compared to$23.8 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to the decline in revenue due to the impact of the COVID-19 pandemic. Administrative. Administrative expenses for the six months endedJune 30, 2021 were$8.7 million , a decrease of$0.8 million or 9%, compared to$9.5 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to the reduction in costs of recruitment and training of onboard staff necessitated by cancelled cruises in the six months endedJune 30, 2021 , offset by higher professional fees. Salary and payroll taxes. Salary and payroll taxes for the six months endedJune 30, 2021 were$13.6 million , an increase of$3.4 million , or 33%, compared to$10.3 million for the six months endedJune 30, 2020 . The increase was primarily attributable to non-cash stock-based compensation expense partially offset by lower corporate salaries due to salary reductions and lower headcount, which were put in place due to the COVID-19 pandemic. The six months endedJune 30, 2021 had$5.4 million non-cash stock-based compensation expense, compared to$0.9 million in the six months endedJune 30, 2020 .
Amortization of intangible assets. Amortization of intangible assets for the six
months ended
Goodwill and trade name impairment charges.Goodwill and trade name impairment charges for the six months endedJune 30, 2020 were$190.8 million . This was comprised of goodwill and trade name impairment charges of$190.1 million and$0.7 million , respectively. Other income (expense), net. Other income (expense) expenses, net includes interest expense and warrants issuance costs and changes in the fair value of the warrant liabilities. Interest expense and warrants issuance cost for the six months endedJune 30, 2021 were($6.8) million , a decrease of$2.4 million , or 26%, compared to($9.1) million for the six months endedJune 30, 2020 . The decrease was primarily related to$1.4 million warrant issuance costs during the six months endedJune 30, 2020 . Income tax expenses. Income tax expenses for the six months endedJune 30, 2021 were$43 thousand , a decrease of$1.7 million , or 98%, compared to$1.8 million for the six months endedJune 30, 2020 . The increase was driven by a$1.7 million increase in valuation allowance related to the Company's beginning-of-year deferred tax assets that are not realizable during the six month period endedJune 30, 2020 . Net loss. Net loss for the six months endedJune 30, 2021 was$(45.3) million , a decrease in net loss of$123.8 million , or 73%, compared to a net loss of$(169.1) million for the six months endedJune 30, 2020 . The decrease in the net loss principally resulted from the non-recurring$190.8 million goodwill and tradename intangible asset impairment charge recorded in 2020 period and the$65.0 million change in the fair value of warrants versus the prior year six month period. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments.
Liquidity and Capital Resources
Overview
Due to the impact of COVID-19, we have taken prudently aggressive actions to increase our financial flexibility, including closing all spas on cruise ships where voyages had been cancelled, and closing allU.S. ,Caribbean -based and Asian based destination resort spas, certain of which reopened during the first quarter of 2021 and the third and fourth quarters of 2020. Additionally, we have increased financial flexibility by securing and reallocating capital resources, including: (i) eliminating all non-essential operating and capital expenditures, (ii) withdrawing the Company dividend program until further notice, (iii) deferring payment of a dividend declared onFebruary 26, 2020 until approved by the Board of Directors, (iv) the completion of the 2020 Private Placement onJune 12, 2020 ; (v) borrowing$7 million , net, on our revolving credit facility, leaving$13 million available and undrawn; (vi) furloughing 96% ofU.S. andCaribbean -based destination resort spa personnel and subsequently terminating the employment of 66% of such personnel, of which substantially all had returned to work as ofJune 30, 2021 ; and (vii) entering into an agreement to allow for the Company to operate its ATM Program, which permits the Company to sell, from time to time, common shares up to an aggregate offering price of$50.0 million . We have historically funded our operations with cash flow from operations. 28
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Table of Contents The ATM Program described above is governed by an At-The-Market Offering Sales Agreement withStifel Nicolaus & Company , entered into onDecember 7, 2020 . Under the ATM Program, we may offer and sell, from time to time, common shares having an aggregate offering price of up to$50.0 million (the "ATM Shares"). Any ATM Shares sold under the ATM Program will be issued pursuant to the Company's registration statement on Form S-3 (File No. 333-239628), which was declared effective by theSEC onJuly 22, 2020 , the base prospectus filed as part of such registration statement, and the prospectus supplement, datedDecember 7, 2020 and filed by the Company with theSEC . During the six months endedJune 30, 2021 we issued and sold an aggregate of 1.7 million common shares at an average price of$11.18 per share for aggregate net proceeds of$18.5 million , which were net of equity issuance costs of$0.6 million . During the year endedDecember 31, 2020 , we issued and sold an aggregate of 1.3 million common shares at an average price of$9.18 per share for aggregate net proceeds of$11.1 million , which were net of equity issuance costs of$0.6 million . Our principal uses for liquidity have been debt service and working capital. We expect that as our cruise line partners resume operations, we will have increased costs related to the redeployment of employees to sailing locations and other costs associated with resuming our operations. Taking into account the costs described above, our current resources and vessels expected to return to sailing, we have concluded that we will have sufficient liquidity to satisfy our obligations over the next twelve months and comply with all debt covenants as required by our debt agreements.
Cash Flows
The following table shows summary cash flow information for the six months ended
Six Months Six Months
Ended Ended
(in thousands) June 30, 2021 June 30, 2020
(as restated)
Net loss $ (45,263 ) $ (169,055 )
Depreciation and amortization 11,370 12,337
Goodwill and tradename intangible asset impairment - 190,777
Amortization of deferred financing costs 513
513
Warrant issuance costs -
1,386
Change in fair value of warrant liabilities 2,600 (62,400 ) Stock-based compensation 5,360
850
Provision for doubtful accounts 81
162
Inventories write-downs -
500
Loss from write-offs of property and equipment 156 - Deferred income taxes - 1,671 Change in working capital 5,509 14,544 Cash Flow (Used in) from Operating Activities (19,674 ) (8,715 ) Capital expenditures (677 ) (1,532 ) Cash Flow Used in Investing Activities (677 )
(1,532 ) Proceeds from At-the Market Equity Offering, net of issuance costs paid
18,550 -
Proceeds from 2020 private placement, net of
issuance cost - 72,012
Proceeds from revolver facility -
20,000
Repayment on revolver facility - (13,000 ) Purchase of public warrants - (879 ) Cash paid to acquire noncontrolling interest - (10,810 ) Distribution to noncontrolling interest - (4,011 ) Cash Flow from Financing Activities 18,550
63,312
Effect of exchange rates 148 (304 ) Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash$ (1,653 ) $ 52,761 29
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Comparison of Results for the six months ended
Operating activities. Our net cash provided by (used in) operating activities for the six months endedJune 30, 2021 and 2020, were$(19.7) million and$(8.7) million , respectively. In the six months endedJune 30, 2021 , the Company incurred a cash deficit as it had minimal revenue generation on cruise ships due to the COVID-19 pandemic, while still incurring operating expenses. Investing activities. Our net cash used in investing activities for the six months endedJune 30, 2021 and 2020 were$(0.7) million and$(1.5) million , respectively. In the six months endedJune 30, 2021 , the Company incurred less capital expenditures due to the COVID-19 pandemic as compared to the six months endedJune 30, 2020 . Financing activities. Our net cash provided by financing activities for the six months endedJune 30, 2021 and 2020 were$18.6 million and$63.3 million , respectively. For the six months endedJune 30, 2021 , the Company sold 1.7 million common shares under the ATM Program, resulting in$18.5 million in net proceeds. In the six months endedJune 30, 2020 , the Company closed the 2020 Private Placement ($72.0 million proceeds throughJune 30, 2020 , net of issuance costs paid), purchased the 40% noncontrolling interest ofMedispa Limited for$12.3 million in a combination of$10.8 million in cash and 98,753 shares of the Company's common stock at a share price of$15.26 , and borrowed a net$7.0 million under the First Lien Revolving Facility due to COVID-19.
Seasonality
Prior to the COVID-19 pandemic, a significant portion of our revenues were generated onboard cruise ships. We experienced varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays. Accordingly, the third quarter and holiday periods generally resulted in the highest revenue yields for us. Further, cruises and destination resorts have been negatively affected by the frequency and intensity of hurricanes. The negative impact of hurricanes in the Northern Hemisphere is highest during peak hurricane season from August to October. Seasonality has not been a factor impacting our operations during the period to date of the COVID-19 pandemic. We expect seasonality factors impacting our operations will reoccur at such time as the COVID-19 pandemic substantially abates.
Contractual Obligations
As of
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated unaudited financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances. Our critical accounting policies are included in our 2020 10-K/A. We believe that there have been no significant changes during the three months endedJune 30, 2021 to the critical accounting policies disclosed in our 2020 10-K/A.
Off-Balance Sheet Arrangements
Other than the operating lease arrangements described in our 2020 10-K/A, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation and Economic Conditions
We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation, global health epidemics/pandemics and customer preferences. Periods of economic softness could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent. Such a slowdown could adversely affect our results of operations and financial condition. The COVID-19 pandemic has negatively impacted our business, operations, results of operations and financial condition in 2020 and 2021. Recurrence of the more severe aspects of the recent adverse economic conditions, including a further escalation of the COVID-19 outbreak, as well as periods of fuel price increases, could have a material adverse effect on our results of operations and financial condition during the period of such recurrence. Weakness in theU.S. Dollar compared to the U.K. Pound Sterling and the Euro also could have a material adverse effect on our results of operations and financial condition. 30
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Cautionary Statement Regarding Forward-Looking Statements
From time to time, including in this report and other disclosures, we may issue
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). These forward-looking statements reflect our
current views about future events and are subject to known and unknown risks,
uncertainties and other factors which may cause our actual results to differ
materially from those expressed or implied by such forward-looking statements.
We attempt, whenever possible, to identify these statements by using words like
"will," "may," "could," "should," "would," "believe," "expect," "anticipate,"
"forecast," "future," "intend," "plan," "estimate" and similar expressions of
future intent or the negative of such terms. Such forward-looking statements
include, but are not limited to, statements regarding:
• the impact of the COVID-19 pandemic on the Company's business, results
of operations and financial condition, including cash flows and
liquidity;
• the Company's plans to resume its business operations in accordance
with the CDC 's guidelines in connection with the Framework for
Conditional Sailing Order;
• the demand for the Company's services and products, together with the
possibility that the Company may be adversely affected by other
economic, business, and/or competitive factors or changes in the
business environment in which the Company operates;
• changes in consumer preferences or the market for the Company's
services and products;
• changes in applicable laws or regulations;
• competition for the Company's services and products and the
availability of competition for opportunities for expansion of the
Company's business;
• difficulties of managing growth profitably;
• the loss of one or more members of the Company's management team;
• changes in the market for the services and products we offer for sale;
• other risks and uncertainties included from time to time in the
Company's reports, including the Company's 2020 10-K/A, and all
amendments to those reports, as filed with the U.S. Securities and
Exchange Commission ; and
• other statements preceded by, followed by or that include the words
"estimate," "plan," "project," "forecast," "intend," "expect,"
"anticipate," "believe," "seek," "target" or similar expressions.
These risks are discussed in further detail, along with other risks and uncertainties, in our 2020 10-K/A filed with theSecurities and Exchange Commission . That report contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial condition. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these risks. For a discussion of the risks involved in our business and investing in our common shares, see the section entitled "Risk Factors" In our 2020 10-K/A. These risks are based on information available as of the date of this report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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