Thank you for standing by. This is the conference operator. Welcome to the OneSpaWorld Fourth Quarter and Fiscal 2020 Earnings Conference Call. I would now like to turn the conference over to Allison Malkin, with ICR. Please go ahead..

Thank you. Good morning, and welcome to OneSpaWorld's fourth quarter and fiscal 2020 earnings call and webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements.

The COVID-19 pandemic 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 judgments and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting our business..

Thank you, Allison. Good morning, and welcome to OneSpaWorld's fourth quarter and fiscal 2020 results conference call. Before turning to our results, I would like to personally thank my entire leadership team and team members around the globe for their resiliency and agility this year.

To say that 2020 wasn't challenging would be an incredible understatement. It was without doubt, the most difficult and challenging in our company's 50 plus year history.

After delivering strong performance in 2019 after reclaiming and being awarded the Legacy Ships of Celebrity that we lost in 2013, as well as winning the luxury brands of Oceana and Region Seven Seas, the Foundation was well set for 2020 to be even more successful year than 2019 till the pandemic hit us in March of 2020.

The 2020 was unprecedented, and I'm proud of the efforts of our team as their passion, commitment, and ability to quickly adapt to the challenging environment enabled us to navigate this extraordinary period. As expected, our fourth quarter results reflected a significant impact to operations driven by the COVID-19 pandemic.

As we ended the year with the global pandemic shuttered our operations. In response to the pandemic we remain focused on three key priorities throughout fiscal 2020, which served us well. These priorities were; one, ensuring the safety of our staff.

Two; preserving liquidity and thirdly, preparing for a successful resumption of our cruise and destination resort spa operations, as restrictions are lifted through innovation and collaboration with our partners..

Thank you, Leonard, and good morning, everyone. I too would like to thank our staff for their hard work and dedication this year. We are very pleased with our staff's resiliency and ability to quickly adapt to the changing operating conditions, and they stand ready to return as soon as operations ramped back up.

During an unprecedented year of disruption, we were keenly focused on the well-being of our staff while investing in innovation and updating our operating procedures to position us to be ready to scale our global operations as soon as the no sail orders are lifted.

Returned to service remains our top priority and we're confident that our elevated practices that include digital training, the implementation of our GPS, guidelines for protection and sanitization, the new culture and standards, as well as expansion of our service offering and technology enhancements, position us for a successful return to service..

Thank you, Glenn. Good morning, ladies and gentlemen. 2020 was indeed a challenging year given the difficult COVID impact in operating environment. We closed out the year with no material revenues in the fourth quarter, given limited operations across our cruise line and resorts by entities.

Importantly, our intense focus on preserving our liquidity as well as invest in innovation and training our staff positions as well to return to normal global operations as the cruise lines resumed operations.

I will now share just a few of the fourth quarter and fiscal 2020 highlights rather than provide a full overview of our quarterly and annual results, given the continued significant negative impact that the global COVID-19 pandemic has had on our operations.

For the fourth quarter, total revenues were $3.8 million, compared to $139.4 million in the fourth quarter last year. Revenues generated in this year's fourth quarter were primarily related to the 45 destination resorts spas that will reopened during the quarter and ecommerce sales on our timetospa.com.

Cost of services were $6.9 million compared to $95.6 million in the 2019 fourth quarter. Cost of products were $6.8 million and included a $4.9 million or $6 charge for the write-down of inventory that is expected to expire as a result of the extended portion operations caused by the COVID-19 pandemic.

Adjusted EBITDA was the loss of $15.4 million as compared to positive $13 million in Q4 of 2019. And cash burn was consistent with our expectations for the quarter..

Our first question is from Steve Wieczynski with Stifel..

SteveWieczynski:.

Sure. Hi, Steven, it's Glenn. So clearly, our staffing levels are commensurate with load factors. So a 50% vessel in our calculations would require about a 60%, 65% staff. But it's all based on modalities.

So you have to staff in full modalities where we have a lesser number of team members, your pain management staff, your Med Spa staff, as opposed to your massage staff when you have a much larger group, so we would reduce their -- as additions and the like would be many less folks would be staffed accordingly.

Whereas you would be fully complemented in your Med Spa, pain management, fitness, where you have typically less personnel regardless. So the calculations work out to be at 50% staff about 60% loads and then the ramps up from there.

On the test cruise is similarly, there will be much less staff because these vessels will not be full even on the test cruises. So we're trying to do it just with simple representation for the moment. And working and collaborating with the cruise lines based on their requirements..

Okay, understood.

Second question, I guess this is probably going to be for Glenn as well, but I mean, the conversations you have with your staff today as they sit at home, essentially what are those conversations like? And again, I guess what I'm getting here is, are they anxious to get back to work? Are they willing to come back to work? And it does seem like every cruise operator is going to mandate some type of vaccination for the crew.

And I guess the last part of the question is, are they comfortable getting that vaccination?.

So certainly, so as you know, we repatriated 3,600 staff last year. Of the 3,600, we've confirmed about 2,800 are raring to go, ready to come back; they would come back today, if we give them an opportunity to return. We also have just under 1,000 folks who are new team members ready to join the ranks.

So we have a full complement, a great team ready to just get back to sea and get to work all being digitally trained, and standards enhanced, et cetera. As far as the vaccinations are concerned, yes, we feel there is willingness.

They are all willing and as soon as those vaccinations are available to them, they will get vaccinated, we're working with our cruise partners as well Caribbean as an example. They would like to vaccinate their staff, they are vaccinating their staff.

We will piggyback on their program with them to get our staff vaccinated along with their crew as an example..

Okay, got it. So if I could ask one more, I apologize for asking three questions. But Stephen you talked about the cash burn in 1Q being in that $12 million to $15 million range.

And I assume that's basically assuming that you're not moving any type of your crew around the world, I guess, as we move into 2Q and, obviously, then 3Q, as you do start to put folks more into place with a cash burn move outside of that range, or would it move more on the high end of that range? Meaning as you do start to move folks around, does it move about $15 million over a quarter?.

Good morning, Steve. I know we do not believe so. We believe that $15 million would be the high end perhaps in the beginning as we start to move folks.

And then obviously, as you start to see some of these vessels sail with the income and cash flow hopefully we can generated from those vessels, they could start to offset some of the subsequent movements. So we're comfortable; we think in that range for go forward period..

Our next question is from Sharon Zackfia with William Blair..

Hi, good morning. I guess the question just given your liquidity and how aggressive you've been on making sure that you're viable.

Can you talk about why the ATM out there and kind of what optionality might be there, if you look at that relative to your debt structure as well?.

Yes. Good morning, Sharon. It's Steven. I'll take that to start off with so as I mentioned, we did have some activity on the ATM in the fourth quarter, where we had gross proceeds of $11.6 million selling 1.26 million shares and average price of $9.20, which was pretty good for the time.

Having said that, though, we've really taken a view with regards to the ATM as trying to look at it opportunistically and one of two scenarios likely will evolve right. So, the likely scenario, we hope is that cruise lines gradually returned to service throughout 2021.

And they begin to start to generate positive cash flow in the latter half and likely Q4 of the year, and it will start to go cash again and therefore cash from the ATM would de facto regarded, could be regarded as being sort of excess cash and therefore once we are at a point in time likely in 2022 when there's more visibility ships are back in the water, cash flows coming in again, that consideration would be given to using some of that cash to pay off a portion of the debt.

As you know, we have a $25 million second lien at LIBOR plus 7.5%, which is perhaps at a relatively high interest rate. And so at a minimum paying net down would certainly be accretive to the company. And from an EPS standpoint, and even if there was more than that on a first lien basis, paying off some of that as well, would help.

So I think it's really being opportunistic, taking advantage of that should have cost at an appropriate point in time with the hope that ultimately, it ends up being a zero sum game from a company standpoint where we exchange debt for equity.

That's helpful. Thanks. One more question. I guess kind of a very specific question, administrative costs kind of tick up a lot sequentially as well as year-over-year. I don't know if there was anything unusual there. And then the stock has moved quite a bit. I mean, I know warrant cleanup is probably the lesser of the things you're focused on.

But is there any thought process and as we go throughout 2021 of cleaning up the warrants again?.

Yes, so yes, there's always conversation, particularly at a board level around the capital structure, warrants, et cetera. As the stock price continues to move, that will become more of a consideration. So they could be something that happens with regards to that nothing definitive. Obviously, at the moment, we'll kind of wait and see what happens.

With regards to the admin expense, they were, as you know some incremental costs in the quarter not in admin mode, but part of the law you pointed out as well with the $6 hit on inventory.

In admin, it's just some of the costs related to the actual ATM itself, some expenses there, some legal and professional fees and one time future -- to some other legal expenses that we would not expect to reoccur. .

Our next question is from Stephanie Wissink with Jefferies..

Hi, this is Seb Barbero for Stephanie Wissink. And a couple of questions for me please. The first one as you guided for 24 more ships by the end of 2022 relative to where you were at end of 2020.

I was wondering if you can help me bridge the gap between disposals, cancellations and push outs relative to your initial outlook two years ago for almost I think it was 211 ships..

Yes, Seb, good morning. We have currently in the 159 plus 24 vessel count that we provided by the end of 2020, not included any of the 26 so I guess it's 27 allocated additional ship vessels that have been decommissioned by the cruise lines.

As we've mentioned before, it's our understanding that all those vessels, the vast majority will return to service in some form or fashion with other cruise lines and or other operators. We remain in active negotiations and are very positive about potentially getting back some of those cruise lines into our fleet.

But at the moment, our count does not include any of that, because obviously we wouldn't increase it until we have definitive contracts signed..

All right. Thanks for that.

Second question is as resorts, spas have been reopened, anything that you can share in terms of your learning with regards to safety protocols, guest's receptivity or any measures that you're taking that could eventually be implemented on board cruise lines?.

Well, the few anecdotes we can share, our people are risk tolerant. Our mix of services, if you're looking at a pre and post COVID environment, are all leaning towards a pre Covid world. So folks are buying or leaning towards selecting the same services that they used to choose pre COVID back in, let's call it 2019. So we find that very interesting.

It's not even an 80% ratio. It's virtually in the mid-90s or greater, I mean they just really are not necessarily yearning or desiring contact lists or touchless technologies, digital technologies, they want to go to the spa, they want to relax, they want to rejuvenate. They want to get touched. And the spa is a safe haven for this.

And they want to focus on their personal care within our spas. So statistically, they're going to the traditional services. At the same time, retail numbers are good; people are buying personal care products. So those are the anecdotes I can give you from the resort division.

Also understanding that occupancies certainly are not at the historic levels yet..

Okay. And then last one for me. With the business being largely pause for 2020. They're showing the issuance of stock comp in Q4, was that part of a multi year program from prior year grants or is that new? And how should we think about deadlines for 2021..

It's a combination of both of the things you mentioned; the majority of it is a continuation of prior programs.

And there was a portion of a new program that was put in place and normal annual -- I wouldn't say new program rather but just typical annual program where equity is granted to management and participants within your organization to ensure that people are compensated and most importantly, from a retention standpoint.

I will come back to you Seb with regards to how to think about that for 2021. We haven't put anything out there yet with regards to 2021..

There are no further questions registered this time. I would like to turn the conference back over to Leonard Fluxman for any closing remarks..

Great. Thanks again, everybody for joining us. I think all I can say today is a better day than yesterday; we're looking at a two month acceleration of vaccinating every adult in the United States, based upon President Biden's announcement yesterday.

The Joint Working together of America and Johnson and Johnson I think all of the positive news and the acceleration in numbers of people being vaccinated daily, will allow one small world and the industry to get back to business with some real certainty now and that gives us a lot of confidence.

And we look forward to speaking with you all again on our first quarter call. Thank you very much..

Thank you, everyone..

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..