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spk04: Thank you for standing by. This is the conference operator. Welcome to the One Star World Third Quarter 2020 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Alison Malkin of ICR. Please go ahead.
spk01: Thank you. Good morning, and welcome to OneSpell World's third quarter fiscal 2020 earnings call-in webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call-in webcast may be deemed to constitute forward-looking statements. The COVID-19 pandemic continues to have a significant impact on our operations, cash flow, and financial position. The uncertain and dynamic nature of current conditions and its ongoing impact could materially alter our outlook. These forward-looking statements reflect our judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting our business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 2020 earnings release, which was furnished to the SEC on Form 8K. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. An explanation of these metrics can be found in the earnings release filed yesterday. Joining me today are Leonard Fluxman, Executive Chairman, Glenn Fussfield, Chief Executive Officer and President, and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our third quarter performance and provide an update on our operations, our key priorities and liquidity. Then Glenn will discuss our actions taken in response to COVID-19, including an update on our staff and review our service offering innovation. Following this, Stephen will provide a more detailed on the financials and liquidity. And now I would like to turn the call over to Leonard.
spk06: Thank you, Alison. Good morning and welcome to One Spa World's third quarter fiscal 2020 results conference call. As expected, our third quarter results reflected the significant impact to operations driven by the COVID-19 pandemic. As we mentioned last quarter, all of our health and wellness centers on cruise ships closed to passengers on March 14th. As of today, two health and wellness centers on cruise ships resumed operations. Our destination resort spas were closed since March 26, with 37 reopened as of today, albeit with capacity restrictions. During the quarter, we continued to focus on three priorities, namely ensuring the safety and well-being of our associates and staff, preserving liquidity, And thirdly, preparing for when our operations resume with strong innovation and active collaboration with our partners. As it relates to our first priority to keep our staff safe, I'm extremely appreciative of our cruise line and resort partners and each of our corporate employees for their efforts to ensure the safety of our shipboard and resort personnel. As a result of these efforts, as of quarter end, All but 29 cruise ship personnel were repatriated, and as of today, 39 cruise ship personnel have re-embarked on three vessels that commence sailing in the quarter. Moving to our second priority, liquidity. We remain intensely focused on tightly managing expenses and capital investment while continuing to pursue initiatives to ensure a strong performance at our health and wellness centers as voyages resume. We ended the quarter with $62.2 million in cash, including availability on our credit facility. We continue to believe we have the liquidity to sustain our operations with no significant voyages through December 2021. As it relates to our third priority, preparing for the resumption of operations, As many of you are aware, the US Centers of Disease Control and Prevention, the CDC, lifted its no-sail order. At the same time, the CDC issued a framework for conditional sailing that is expected to lead to a phased return of cruise ship passenger voyages. We continue to expect limited sailings this year as our cruise line partners implement the three phases of the framework, including testing and implementing additional safeguards for crew members, conducting simulated voyages to test cruise operators' abilities to mitigate COVID-19 risk, and providing a certification to ships that meet specific requirements. We are working alongside our partners to ensure success during the simulated voyages and look forward to when passengers can embark on cruises again. Overall, we remain committed to investing our resources and collaborating with our cruise line partners in areas that we expect will add to our dominant market share in the operation of health and wellness centers at sea. We remain confident that the advantages of our business model and significant market share we possess has us poised to achieve a long-term performance objective as business conditions normalize. In keeping with this focus, we've expanded our management team to include Susan Barner as chief commercial officer. Susan joined our company in October and will lead our revenue and growth initiatives reporting to Glenn. And now I'd like to turn the call over to Glenn. Thank you.
spk08: Thank you, Leonard. Good morning, everyone. We continue to navigate the pandemic by adapting quickly to the current operating environment with the health and safety of our staff, our number one priority. Along those lines, we have repatriated all but 29 of our personnel aboard cruise ships, eliminating all ongoing expenses related to these repatriated employees. As Leonard mentioned, at quarter end, 39 cruise ship personnel re-embarked on three vessels that commenced sailing in the quarter. I remain thankful to those that ensured the safe passage home for our cruise ship staff. I am grateful for their efforts. I am equally proud of the way our onboard staff handled this crisis over many months. Their professionalism, understanding, and patience during this difficult time is commendable. As of the quarter end, 31 destination resort spas have reopened at reduced capacity. We are pleased with the willingness of guests to book appointments and relax in our spas while they vacation during today's unprecedented times. We have also been pleased by the demand for spa appointments. Customer feedback has been overwhelmingly positive with those utilizing our facilities, noting that we have made them feel comfortable with our enhanced safety protocols and guests are extremely satisfied with the level of service being provided. As we look ahead, we are continuing to focus on training our staff and investing in innovation so that we are ready to scale our global operations when more of our health and wellness centers reopen as voyages resume and destination resort spas continue to open. We anticipate that the majority of our destination resort spas will be open by the end of the fourth quarter, again, with reduced occupancy and operating within the COVID-19 guidelines of local jurisdictions. In addition, we expect to have five health and wellness centers open on cruise ships that resume their voyages by year end. While early, on two cruise ships that are currently sailing, we have experienced very good results. In fact, our penetration rates are strong and consistent with prior years despite the lower occupancy. We have seen one in five guests, 20%, book one of our new contactless service options. With that, I will turn the call over to Stephen, who will comment on our third quarter results and liquidity position.
spk07: Thank you, Glenn. Good morning, ladies and gentlemen. The third quarter continued to be challenging for us amidst a pandemic-impacted backdrop. While we again had no material revenues given limited operations across our cruise line and resorts for our partners, we remained focused on preserving our liquidity as well as investing in our innovation, and training our staff so that we are ready to scale our global operations as the framework for conditional saving orders are lifted and more of our destination resorts bars reopen. Rather than provide a full overview of our quarterly results, given the continued significant impact that the global COVID-19 pandemic had on our operations during the quarter, I will now share just a few of the third quarter highlights. Total revenues were $1.8 million compared to $144.9 million in the third quarter last year. Revenues generated in this year's third quarter were primarily related to the 31 destination resort spas that reopened during the quarter and e-commerce sales on our time2spa.com website. Adjusted EBITDA was a loss of $12.2 million and as compared to positive $15.4 million in the third quarter of 2019. As previously mentioned, some of the increased costs that we incurred in the second quarter continued into the third quarter and related to the housing and repatriation of our teams on board and in preparation for fleet layups. The total impact of these costs, along with costs relating to the equity financing in the third quarter, were approximately $3.9 million. We ended the quarter with cash and borrowing capacity under our line of credit of $62.2 million as compared to $80 million at the end of the second quarter of fiscal 2020. We expect this liquidity to be sufficient to sustain operations with more significant voyages through December of 2021. As it relates to our outlook, Due to the ongoing business disruption and uncertainty surrounding the impact of the COVID-19 pandemic, we will continue to not provide guidance. Notwithstanding the foregoing, the company expects to sustain a gap adjusted and gap net loss for the fourth quarter and 2020 fiscal year. However, I would like to share some insights into our business and take into consideration when thinking about the remainder of the year. Firstly, we expect 44 destination resort spas will be open by year-end. We will continue to tightly manage expenses and identify additional cost savings. The Cruise Line Industry Association issued a framework for conditional servo, which is set to expire on November 1, 2021, for the U.S. As Glenn mentioned, where resort spa operations have resumed, we have seen strong receptivity to our offerings safety, and health protocols. While we do not expect to generate material revenues from health and wellness centers aboard cruise ships this year, we believe we have the talent and capabilities to quickly bring back personnel and scale our operations when voyages resume. We continue to expect cruising to return on a gradual basis, and even with passenger capacity limited to 50% on a four-wheel basis, we would expect to break even. And When normalization of operations occur, we expect to deliver revenue in EBITDA consistent with historical levels. With that, we will open the call to questions. Claudia, if you could please do that for us.
spk04: Certainly. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your hands before pressing any keys. To withdraw your questions, please press start then two. We will pause for a moment as callers join the queue. Our first question is from Steve Wisniewski with Stifel. Please go ahead.
spk00: Hey, good morning, guys. So, you know, Leonard, I guess as you look at the cruise lines potentially starting to get operations back up and potentially running here over the next couple months, can you guys help us think about what your cash burn might look like going forward over the next quarter or two quarters given? I would assume at this point you're probably going to have to start getting some of your employees back in position sometime soon.
spk06: Yeah, so Steve, thank you. Look, we've guided where our cash burn is currently. Clearly, as Steven mentioned, when we get back to up to 44 resort spas by year end, the gradual start, not quite sure how many ships will get through the initial CDC guidelines for getting certification. But clearly, as we move further into the first quarter, we expect to see us eating into, you know, the $4 million cash flow that we're burning right now, even with bringing back some stuff. Because, you know, while they're going to be quarantined prior to getting on board, you know, the lodging expenses in and of itself, yes, they are more than we typically would have. prior to starting up a cruise, but we believe once we get cruising, despite lower occupancies as we've currently seen in Europe, we believe we will start to eat into that. I can't give you an exact number right now until we see to what kind of scale we get to in the first quarter.
spk00: So to add on that a little bit, have you gotten any word from any of your partners, your cruise line partners yet as to when you potentially could need to have folks in place for some of these test cruises?
spk06: You know, I think they're all working through – look, I think they're all very happy that at least there's a pathway to resumption and return to service. But I don't believe we have an exact number by banner, particularly the top or largest three banners, as to which of their ships will follow the test cruises and get certified. Okay, gotcha. I haven't seen any specific number. Glenn, have you?
spk08: No, nothing specific. We all know it'll be one vessel to start. It'll be in Q1 at this point, their first voyages. Let's call it for the big three. Maybe a vessel or two thereafter, assuming the test voyages go flawlessly, which we all expect them to do. So, you know, and we're going to be operating at reduced occupancies and reduced staffing. So, you know, we'll expect to start bringing crew in and probably, you know, around the holidays and get prepared for January. And we're, as Leonard mentions, without any specificity, but we have to hedge a little bit because we can't just wait for the phone call. So we're moving. But right now we're in a little bit, Steve, to commence a few of the test forages in January. But that's really hedging without any information other than a little bit of speculation. We do have some operations commencing where crew is moving now in Asia on two vessels to commence by year end of Q4.
spk00: Okay, gotcha. Sorry. So second question, and my last question, you know, I guess long term, we've now seen Carnival and a few other operators remove, you know, a significant amount of capacity from aircraft. you know, the operating or their operating fleets. And I think, you know, Carnival alone right now is, I think, you know, up to about 18 ships or so. I guess I'm just wondering if you guys can help us think about, you know, these ships that have been removed from a, you know, from a profitability perspective. And I guess what I'm getting at here is if we went back to pre-COVID, is there any way to help us think about what those ships contributed on average to your EBITDA line? And I understand that might be a tough question given a bunch of changes, itineraries change and whatnot. So I hope that question makes sense.
spk06: You know, Steve, we've never given you specific guidance on a ship-by-ship basis. We do know, and you know, that the ships that are being retired sold are or otherwise moving around maybe into different ownership positions, that those are the oldest ships typically in the fleet that tend to underperform the rest of the ships in service right now. And so with that, one can assume that the profitability associated with the ships that are either being retired or sold So, too, is the profitability or the full profitability of the ships less material than the ones either remaining in service or the ones that will come into service as expected in 2021.
spk00: Okay, gotcha. Thanks, guys. Appreciate it. And, Glenn, congrats on the retirement. Thanks, Dave. Appreciate that.
spk04: Our next question is from Sharon Zaktia with William Blair. Please go ahead.
spk03: Hi, good morning. I have a few questions. I just wanted to clarify the 50% occupancy where you think you can break even. Was that break even at the ship level or is that break even at the enterprise level?
spk07: At the ship level.
spk03: Okay. And maybe could you talk about how the two ships that you're sailing on kind of what the cash flow dynamics are on those ships at this point. I don't know if they're up to the 50% occupancy level, so I don't know if you're actually generating cash yet on the sailings or if you're still losing money.
spk07: The occupancies were significantly below 50% in the quarter on the two cost of vessels that sailed. We lost just a little bit of money. But based upon the level of occupancies, we're actually pleased with the results. There was a third charter vessel that sailed the Silver Spirit, and we did make some money on that vessel.
spk03: Okay. And it's good to hear that you're kind of maintaining that normal penetration that you get, even on the reduced occupancy. I just wonder if you're seeing, and I know it's only a couple of ships, but is there any change in kind of the demographic profile of who's using the spas I guess either at sea or on land, and then, you know, any change in the mix of services that you're seeing.
spk08: Thanks, Sharon. So, you know, obviously on these two ships it's Italians mainly, certainly a little bit younger than we would expect, so it's the risk-tolerant folks that are there. And as Stephen mentioned, it was very low occupancies, you know, so it wasn't a large group. set of folks to measure against. They were enjoying our contactless services. We have a full menu of basically no-touch services if they are so inclined. There was a great demand for our traditional services as well, so we're very happy, and I think that played to our high penetration rates. But going back to that crowd, I'd have to say it was strictly Europeans. It was affluent or, you know, again, people who had the ability and willingness to travel. But it was a very small set of folks that we could measure in a very small time frame at the same time on a very small number of voyages. So it's really difficult to make any generalizations. We were happy with their selection of services overall. that covered both our traditional as well as our new touchless technology that we're offering and our no-touch services. So we will continue to expand on those offerings, and we will broaden our entire scope as we move into other geographies and demographics. And on the resort side, similarly, outside of the jurisdictions that inhibit some of our offerings, people are asking for the traditional services. They don't seem to mind having facials, and they were asking for it where we couldn't offer it. massages and body services are still being asked for. And at the same time, people are taking advantage where they can, where we're promoting, you know, our contactless facials just, you know, to play into their stress or anxiety of the COVID-19 precautions. So we're very happy with our offerings and the selection of the folks. when they come into our spa. So the good news is they are crossing the threshold when the businesses do open up, and we're really happy about that.
spk03: That's really helpful. And then my last question was just, you know, getting them to cross the threshold. Have you had to do any kind of unusual promotional activity or discounting to...
spk08: No, we're actually holding pricing fairly well. I mean, we've always had great promotions and cross promotions and nice added value opportunities. Of course, at Sea we do more of that than we do on land, and we don't have an opportunity just yet to take advantage of that, but we have not really done any true discounting to drive that business.
spk03: Okay, thank you very much.
spk04: Our next question is from Stephanie Wissing with Jefferies. Please go ahead.
spk02: Thanks. Good morning, everyone. Glenn, a question for you. Just as you think about returning to sea, I'm wondering if you can update us on some of your pre-tailing, post-tailing CRM initiatives that you've been working on with your partners.
spk08: Well, it's still very much a work in progress, right? So as you know, 80% of our business currently has the opportunity to pre-book and pre-pay. And I'm really heavily trying to get the message across about that pre-telling concept and an opportunity to sell retail and not just services. It is a work in progress. It's a tremendous amount of development and IT innovation that has to be – integrated at the same time for that and not just from technology perspective but concepts because we're talking about beauty bars and putting product into cabins potentially for guests to choose from if they have any fears to come upstairs to the spa remembering though that these are concepts that we created when we had an initial reaction that maybe folks wouldn't even want to come into the spa environment realizing that now they are and there is a willingness to come up to the spa But that pre-tail for us is an opportunity that we think will go along very well with our digital in-cabin content that we're trying to work with and collaborate with our cruise partners at the same time from a wellness perspective, whether it be mindful living or just physical fitness and yoga and other exercise. And we're creating digital content for folks to be able to maintain their wellness regimens within their cabins at the same time. And then we're going to piggyback that with the retail components at the same time. So, again, it's really early to say we don't have a definitive plan because we don't have our partners saying, yes, it's a go. And as you know, we need their buy-in to do all of our execution at the same time. But the game plan is laid out. So we're pushing. We're pushing stuff.
spk02: And then just one final question on the cost. I think maybe the follow-up to Steve's question, but wanting to understand a little bit around the kind of back office infrastructure that you need to support some of the return to see and restaffing events. Should we think about it not only as the variable expense of staffing being prepared at ports, but also your corporate infrastructure to support training and staffing and readiness? Anything we should just be mindful of in terms of a step function in the corporate expense structure? Thank you.
spk07: At this point in time, the corporate expense structure is sufficient to support the phase return to service that we expect to see over the next six months or so. There will be a point in time, obviously, when the value of return to service becomes significant enough that we will have to potentially re-engage folks at a corporate and training level. But we don't anticipate that happening in the near term.
spk04: Thank you. Our next question is from Asya Georgieva with Infinity Research. Please go ahead.
spk05: Good morning, guys. In terms of the resumption of service, you mentioned possibly lower crew staffing levels corresponding with the lower occupancy levels and also starting to transfer staff staff over the holidays in anticipation of a January trial run. How do you expect this to be ramping up? Initially, just a couple of ships, it may be half of the usual crowing levels that you would generally have, or do you expect to have people available closer to the Caribbean for the winter season to and possibly being around South Florida?
spk08: Hi, Asya. Well, first of all, we can't really just keep the staff here and house them waiting for deployment. So we don't want to necessarily afford that expense. And you have to look at the staffing levels by modality. So where we have a large subset of staff, for example, body services, we would have a drastic reduction in staff if occupancy drops. But for your med spa team or your pain management team where you would be fully staffed in a sense, where you have one doctor or one doctor of acupuncture and the like, your fitness directors, maybe there'd be a slight reduction there as occupancy drops and then builds up. So you have to look at it by modality, first of all, in the overall calculation. I think the way it'll blend out is about a 60%. occupancy, I'm sorry, a staff mix to start and then ramp from there as occupancies increase over the weeks after a vessel returns to service. So, you know, we would deploy staff from their home. But remember that every vessel, every cruise line, every geography has different nuances as it pertains to the quarantine and COVID requirements and restrictions. So it's a whole mixed bag depending on geography and cruise line right now.
spk05: Glenn, I can't imagine the logistics involved in all of this.
spk08: Yeah, it's an incredible logistics machine right now without any consistency for the ship. Any thoughts?
spk05: Any possibility to use some of the vessels that the cruise lines already have in Southeast Asia to bring crew on board the ships as opposed to having to fly them through various... Well, there absolutely would be if, in fact, they start to do that.
spk08: They would include us, of course, as operating partners, the same way they did in the repatriation of thousands of crew. We did take advantage of that. So far, there's nothing definitive that they have earmarked as far as using any ships as ferries, in a sense, to repatriate crew back west or anything of that nature that I'm aware of or we've been notified of, but the subject matter has certainly been discussed. And if any of the big ships from any of the big partners were endeavoring down that road, they would certainly include us.
spk05: That would be great. That would be really helpful. In terms of the CDC order, I know there's a lot of items that still need to be fleshed out. Have you identified any specific technical orders or anything that would pertain to One Spa World necessarily, given the more personal service that you provide?
spk08: No. First of all, you have to remember we created our own guidelines for safety and protection, what we call our guidelines. our GPS, so guidelines for protection and sanitization. And we've incorporated that and sent that along to all of our partners, and it's been very well received. Certain cruise lines have their own interpretation, whether it be on the personal protection equipment, what they call PPE, whether it be on social or physical distancing, they all have their own operating guidelines to which they will ask us to abide by. But right now we are using and abiding by our own GPS, our own guidelines, and that's been accepted by all, and we will modify as necessary by cruise line. But really the facilities will be open for the most part. There may be some exceptions to public facilities. We also have some great innovative ideas to enhance experiences in a private opportunity for folks who have some reticence. But outside of that, despite the myriad of obligations for the cruise lines within the CDC guidelines, we are complying, we are compliant, and we are working with our partners and we'll do everything necessary to really facilitate their return to service.
spk05: Thank you so much, Glenn.
spk08: Sure.
spk04: This concludes the question and answer session. I would like to turn the conference back over to Leonard Sachsman for any closing remarks.
spk06: All right, thank you very much. I just want to thank everybody for joining us today. We look forward to speaking with you and giving you further updates on return to service details, et cetera, on our fourth quarter call. Thank you again.
spk04: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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