Thank you for waiting. This is the conference operator. Welcome to the OneSpaWorld Holdings First Quarter 2020 Earnings Conference Call. I will now hand it over to Allison Malkin of ICR. Please proceed.

Thank you. Good morning and welcome to OneSpaWorld’s first quarter fiscal 2020 earnings call and webcast. Before we begin, I would 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 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 the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. Joining me today are Leonard Fluxman, Executive Chairman; Glenn Fusfield, Chief Executive Officer and President; and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with highlights of our first quarter, including the impact of COVID-19, and then review our key priorities. Then Glenn will discuss our actions taken to return our staff home and our service offering innovation followed by Stephen, who will provide more details on the financials, our liquidity, and actions taken due to the impact of COVID-19. And now, I would like to turn the call over to Leonard.

Thank you, Allison. Good morning and welcome to OneSpaWorld’s first quarter fiscal 2020 results conference call. The environment we are operating in today is one that no one would have predicted at the start of the year. Indeed, we began fiscal 2020 with outstanding momentum. Our global market share at sea was at an all-time high at over 90%, and we had the highest vessel count and largest vessel additions in our history. Further to this, our initiatives and the innovation in our services and product offerings were expected to add materially to our growth. Our performance through February was tracking in line with our expectations for increased sales and EBITDA despite headwinds from COVID-19 in the Asia-Pacific region, affecting both crews and resort activity in the region. We continue to advance our growth initiatives, commencing operations as the exclusive health and wellness provider for Oceana Cruises and Regent Seven Seas Cruises. In total, we added 5 net new ships to our fleet of cruise line partners during the quarter. We furthered our trend towards larger and enhanced health and wellness centers and continue to expand our close collaboration with our cruise line partners to elevate our service offerings. This drove increases across all key business metrics, including average weekly revenue per ship and average weekly revenue per ship staff through February. However, mid-quarter, the global spread of COVID-19 disrupted operations for our company and the cruise and hospitality industry overall. We proactively pivoted our priorities, focusing first and foremost on the safety and well-being of our staff as well as preserving cash and enhancing our capital structure, to ensure we are positioned to not only navigate through an extended period of time with limited operations, but also emerge from a position of strength following this extraordinary period with the financial flexibility to cement our industry leadership, advance our cruise line partner relationships, leverage our highly differentiated business model, and continue to innovate our product and service offerings to prepare for the eventual resumption of voyages and opening of destination resorts. I would like to thank our entire team and attentive staff for their dedication, commitment, and service during this unprecedented time. Our team moved quickly to begin the process of bringing cruise ship staff home, and our corporate employees transitioned with ease to remote working. In total for the first quarter, net revenues were $114.3 million, a decline of $23.2 million from the prior year first quarter. The estimated revenues lost related to COVID-19 and the resulting canceled voyages and closed destination resorts during the quarter were $35 million. Adjusted net loss was $1.2 million compared to adjusted net income of $9 million in the first quarter of fiscal 2019. Adjusted EBITDA was $5.1 million as compared to $15.3 million in the first quarter of fiscal 2019, and un-levered after-tax free cash flow was $3.6 million as compared to $15.3 million in the first quarter of fiscal 2019. In response to this unprecedented pandemic, we took decisive actions to protect our staff and preserve our liquidity. We eliminated all non-essential operating and capital expenditures, deferred payment of our previously announced dividend, and suspended our dividend program. These actions, combined with our highly strategic equity offering backed by L Catterton, our longstanding partner, provided us with the resources to sustain our business for more than 24 months with limited operations. Going forward, we will continue to aggressively manage expenses while remaining focused on investing our resources in areas that will elevate our more than 90% market share in the operation of health and wellness centers at sea. While all our operations on cruise ships and destination resorts are currently closed, we continue to advance the priorities we set for the business at the start of the year. These are two. First, efficiently and effectively introduce our health and wellness programs. As I mentioned, we began service on 4 Oceana and 1 Regent vessels in late December 2019, and having completed our rollout to the remainder of the fleet in January 2020, including the Regent Seven Seas Splendor, prior to the cancellation of all voyages. At the same time, we remain focused on maintaining excellent service levels across our entire fleet. Second, to expand our treatments, products, and services to our customers as we seek to grow onboard revenue. While work was ongoing to expand medi-spa and recovery treatments as well as body contouring and advanced Thermage FLX, among other new services, this activity has temporarily been put on hold due to COVID-19. And now I will turn the call over to Glenn to provide details regarding our actions taken to ensure the safety of our staff and update you on our service and product offering initiatives, including in the areas of medi-spa pre-booking and dynamic pricing. Glenn?

Thank you, Leonard. Before I begin, I would like to thank our team for their dedication and commitment during this very challenging period. Since the start of this pandemic, our priority has been intently focused on the safety and well-being of our staff. Throughout this period, we have been working tirelessly with our cruise line partners and government authorities to securely transport staff home as soon as possible. Since our update on April 30, we have repatriated an additional 7% of our cruise ship personnel, bringing the total thus far to 52%. We expect that an additional 20% of our cruise ship personnel will be repatriated shortly as the vessels in which they are sailing head to their home countries. We are also maintaining close alignment with our cruise line partners by retaining operational agility to rapidly scale our business once voyages do resume. During this period, we are collaborating with our cruise line partners on initiatives to enhance our onboard guest experience and maximize our shared economics, while developing and implementing strict comprehensive personal care and safety protocols for our staff and guests. We are maintaining readiness to rapidly engage and scale our global operations when voyages resume and resorts open. While all of our spa operations on cruise ships and at destination resorts remain closed, we continue to make progress on expanding our treatments, products, and services to customers in order to continue to increase onboard revenue. Prior to COVID-19, we experienced continued favorable trends in average spend, pre-book services, as well as dynamic pricing. In fact, onboard revenue and productivity metrics through February were trending higher than the prior year. We are continuing to work with our partners to roll out these initiatives across our fleet. However, due to the uncertainty of the timing of new ship introductions and the resumption and scale of cruise lines returning to service, it is difficult to ascertain our initiatives rollout at this point. While 2020 will be challenging, we plan to accelerate our investments by expanding our offering of new products, services, and rollouts of key programs to certain vessels when voyages resume. With our recent capital raise, we will continue to fuel our innovation of these service offerings and spa experiences during this period. These efforts will enable us to fully capitalize on our commanding market share, position, and growth opportunities when normal operations resume. With that, I will turn it over to Stephen, who will provide additional information on our first quarter financials and discuss our liquidity position related to the COVID-19 impact.

Thank you, Glenn. Good morning, ladies and gentlemen. I’ll begin with a brief overview of the first quarter performance and then provide additional details regarding our mitigation actions in response to the COVID-19 pandemic. As Leonard mentioned, the quarter began positively despite the early impact in Asia from COVID-19 beginning in January. However, the rapid spread of COVID-19 depressed our results as cruise line partners and hotel operators took steps to ensure passenger and guest safety, which led to cancellation of voyages and the closing of destination resorts where we operate. With this in mind, for the first quarter, total revenue declined $23 million to $114 million from the 2019 first quarter. We continue to see progress on our priorities, adding 5 incremental net new shipboard health and wellness centers to the fleet of cruise line partners during the quarter. The estimated revenues lost related to COVID-19 and the resulting canceled voyages and closed destination resorts during the quarter were $35 million. While I typically share our performance metrics, I will not go into that level of detail today, given the material impact of COVID-19 and the resulting cancellation of voyages and closure of hotel spas. I will focus instead on the actions we have taken in response to COVID-19. As you know, operations on all vessels and spas are currently closed. Therefore, we have taken the following actions to reduce costs, prioritize liquidity, and preserve cash in response to COVID-19. To date, we have closed all spas on ships where voyages have been canceled, closed all U.S. Caribbean-based and Asian-based destination resort spas, and we have repatriated 52% of all cruise ship personnel, eliminating all ongoing expenses related to these employees. We continue to work towards repatriating substantially all remaining cruise ship personnel as soon as practicable, with an additional 20% of our cruise ship personnel set to be repatriated shortly. We have furloughed 96% of U.S. and Caribbean-based destination resort personnel and 38% of our corporate personnel. We have eliminated all non-essential operating and capital expenditures and have suspended our dividend program until further notice, deferring payment of the dividend declared on February 26, 2020, until approved by the Board of Directors. Net of transaction fees, we expect to receive proceeds of $70 million related to the April 30, 2020, announced private placement. These actions leave us with the resources available to maintain limited operations for more than 24 months, with monthly cash burn expected to approximate $3.6 million, including $1.1 million in monthly debt service. The terms of the private placement include the issuance of approximately 18.8 million common shares for a total of $75 million, reflecting a 5% premium to the 20-day volume weighted average price of our shares through the market close on April 29, 2020. The issuance of 5 million warrants to purchase common shares of the company at an exercise price of $5.75 per share, and these exercise warrants will expire on the 5th anniversary of closing and are redeemable at the option of the company when OneSpaWorld shares trade at $14.50. Steiner Leisure will expand its representation on our Board to 3 of the 10 directors, and the Steiner Leisure and OneSpaWorld management and Directors’ newly issued shares will be subject to a lockup period of 12 months from closing. Proceeds from the transaction will be used for general, corporate, and working capital purposes as well as to pay transaction fees and expenses related to the transaction. We expect the transaction to close in June, and the increased liquidity should enable us to remain in compliance with our loan agreements for the foreseeable future, as well as provide us with the resources to continue investing in innovation and the necessary support to quickly resume operations and fully capitalize on our market position and growth opportunities when conditions warrant. Given the unprecedented disruption related to COVID-19 and the rapidly evolving nature of the pandemic, we are currently unable to provide a reasonable basis for guidance at this time. As such, we are not providing an outlook for our second quarter or full year. And with that, we will open up the call to questions. Steve, if you could please take ahead?

The first question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi, good morning. Thanks for taking my question. I guess obviously, there is a lot of fluidity in the situation right now, and we’ve heard a number of the publicly traded companies that are in the cruise business talk about cold lay-ups for a number of their ships. I guess as you look at the going-forward plan as it stands right now, I mean, how would you peg kind of the maximum number of ships that you might serve in the third quarter? And then if you can help us kind of understand, once those ships start to sail – if they do sail at kind of lower-than-normal occupancy, how that might affect any kind of revenue or margin opportunity for you? And in particular, as it relates to any kind of minimums that you might owe the cruise companies at that point?

Right. Thanks, Sharon. It’s really difficult to answer exactly how many ships could be in service in the third quarter. The only thing that’s governing return to service right now is obviously the CDC orders, which extend through July 24. And despite the fact some cruise lines have start dates earlier than that, I just don’t think they’ve been revised, and they will continue to be revised. It’s a fluid situation, as you said. I think we will see in the third quarter, based upon at least what we saw Carnival show on their website with an August 1 return to service, if that’s even possible, is much shorter cruises focused on where sort of they drive cruises available for people that can drive and board. So I think you’re going to see shorter cruises, less ports of call, clearly because not all the ports are open to the cruise lines, even in the Caribbean. As such, you will probably see a shorter number of ports, more sea days, which is obviously good for us. But at the same time, as you mentioned, we are not expecting occupancies to be much higher than 60% starting out. In fact, they will probably be 50%, maybe a little better. We have seen the cruise lines release some really positive numbers on sort of pent-up demand going into 2021 as well as in the fourth quarter. So there’s clearly demand for cruising out there. I know the cruise lines are working very, very hard and closely with the CDC to step up in every single way, what’s going to be required to return to service. But I think it’s too early for us to say exactly how many ships will be in service at that time.

So if you have ships that are sailing at half occupancy, can you talk about what that means for your minimum payments to the cruise lines? I mean are those handicapped based on occupancy or would we see pretty significant margin implications for you?

So remember, minimums are based upon when the ships are actually sailing. So to the extent there’s no sailing, obviously, the minimums are a – there are no minimums in play right now. So when they return to service, and if they are selling at 50%, 60%, or slightly better, depending on where the geography is – remember, we only need 11% of the best possible guests’ onboard participation to do what we need to do. Obviously, we’re hoping that the guest profile demographic is decent. I expect it’s going to be challenging in the beginning, but it will be a reset, obviously, with respect to guarantees every single year. So what happens in the third and fourth quarter, to the extent the cruise lines start sailing again, then clearly, that will impact how the guarantees are calculated going into 2021.

Thank you. And then just the last question, as you get ready to start sailing again in the third quarter, can you talk about any start-up costs that you might incur in getting staffing back in place? And whether or not you’re seeing any challenges or reluctance for folks to go back and work on the cruise ships or if that’s still a pretty fertile market for you in terms of recruiting new staff? I know you’ve done an extraordinary job with staff turnover in the past several years. I just don’t know what the headlines might mean for the ability to attract staff now.

Sharon, this is Glenn. If I can take this one, Leonard, if I may.

Yes.

The demand to come back has just been phenomenal, believe it or not. And given the low occupancies of the guests on each ship, of course, we’re going to have reduced staffing – or commensurately reduced staffing. So we’re actually in a position where we’re handpicking the staff that we’re bringing back now. We’ve actually ranked our high producing staff by modality and so forth. So we’re going to be bringing back the best of the best. And certainly, the folks are already lining up and requesting to come back. We just don’t know what ships to assign them to or what brands are going to go first as it is a fluid situation, as Leonard remarked. So clearly, we’re not so concerned about the recruitment effort. Our back to sea program has been in touch with all of our already repatriated staff. We have daily communication with all of the vessels to which our staff still remain onboard the ships. And as you know, there’s a tremendous number of crew members that still remain industry-wide around the world. We communicate fluidly with all. So again, the only true efforts are just to coordinate who and what and when, and really bring back the veterans. As the new builds start to reenter the marketplace, then we’ll start to enhance the recruitment efforts because we always like to infuse new vessels with some new staff as well, not just the veterans. And then, of course, we will resume our halted training operations at that point. So we’re not expecting a large expense associated with that task, by any means. It will certainly be an effort, but we’re in a very nice position to pick and choose the folks that we want to bring back.

Thank you. Best of luck.

Thanks, Sharon.

The next question comes from Steven Wieczynski of Stifel. Please go ahead.

Hi, guys. Good morning. So starting with the equity and the warrant raise you guys recently did and dig into that a little bit more. And I guess the question here is, how did you decide on kind of going down that route? And maybe help us think about other options you explored as well as you try to raise capital. And then the last part of that question is, moving forward, what options are still out there today, if you needed to raise additional liquidity down the road?

Yes. Good morning Steve, it’s Stephen Lazarus speaking. So we chose the private placement transaction as it gives the company the most certainty on the timing and size of the investment necessary to be in compliance with our covenants and to continue operating for an extended period. We obviously engaged financial advisers to aid the Special Committee with regards to the process. Both have significant experience in their respective fields; Nomura particularly has expertise with the company previously. With regards to other options, this is the option we are pursuing right now. The preliminary proxy was filed on Monday, and we’re setting this up for a shareholder vote at the Annual General Meeting in June. So we do not have other options right now with regards to additional liquidity. This is the path that we are proceeding down.

Okay, got it. The second question would be – you hinted at this before, but around maritime operations commencing again. And I assume you guys have done all kinds of scenarios around when operations resume and what capacity levels look like but asking this a little bit differently. Is there any way you guys can help us think about what kind of cruise capacity needs to be in service in order for you guys to break even from a cash flow perspective?

So if cruise capacity – when – with regards to passengers on board, if there is 50% capacity, we would be breaking even. As you know, a significant portion of our onboard spend is variable in nature. And so as soon as we start generating revenue, we very quickly start generating profit, which helps to offset some of the fixed costs that we have elsewhere. So at a 50% onboard guest count, we would be breaking even on an EBITDA basis.

Okay, that’s helpful. And then one real quick last one probably for you, Stephen as well, but the $3.6 million monthly cash burn rate, is that pretty much as good as it gets or is there some flexibility that that number could actually go lower over time?

To the extent that there are additional and long-lasting delays, we would look at more opportunities for reducing that number. We have taken it down, as we’ve mentioned, quite significantly through a lot of the furloughs and other actions that we’ve already taken. There is some other opportunity, though not as significant. To the extent that things continue to remain closed for an extended period, we would have to consider taking additional action.

Okay, great. Thanks. Appreciate it.

The next question comes from Steph Wissink of Jefferies. Please go ahead.

Thanks. Good morning everyone. I am wondering, Stephen, if you can just help us bridge the cash balance. Without a full balance sheet and cash flow, it’s hard to see where some of the cash – use in cash – sources of cash were. Can you just give us a few thoughts on the ending cash position in the quarter relative to the December quarter end and where some of the sources and uses were?

So we ended the quarter with $20 million of cash. The queue will actually be published today and you will be able to see the cash flow with all of the detail on the sources and uses, but obviously as you would expect, prior to January and February were good months, generating some cash. However, March was a different story with no revenue coming in for a significant period of the month. Also, we had not yet implemented the activities and actions related to reducing expenses. There were uses of cash in that regard, but some of it was offset by actions taken towards working capital and delaying payments, etc. Therefore, later today, you’ll see all the details in the queue. If you have questions, we can take more from there.

Okay. That’s helpful. And then secondly, just a follow-up to a prior question – or a couple of follow-ups, can you just – on the calculus around the passenger penetration on board, looking at that 11% participation number you mentioned, but also the 50% occupancy level to breakeven. Are you assuming that your penetration of onboard passengers goes up or that you retain a similar penetration to a lower occupancy?

As a percentage of the passengers on board, we would assume that it goes up.

Okay. How should we think about throughput, just with respect to safety and protocols? Can you talk a little bit about how you are thinking about your menu of services and configuration of your wellness centers and any additional costs that you may incur to maintain higher grades of safety for your guests and your staff?

Sure. Stephen, if I can take that one. Steph, this is Glenn. So first of all, we are working diligently with each and every banner. And as you know, we have 22 cruise partners, and they’re all approaching their safety protocols with somewhat of a common thread, but of course nuanced as they have individual perspectives. So we are in a unique situation where we have to work alongside everybody’s philosophies. We have developed and are in the process of finalizing a very comprehensive and thorough set of guidelines – a playbook, as we call it, for complete health and sanitation and safety on how to operate the spa and really educate not only our staff from the new culture of safety but really the guests at the same time to give them that level of assurance as we see, of course, as all of the states and cities are reopening one by one. So without all of these protocols, we will have the typical physical distancing guidelines or social distancing guidelines. We will have reduced occupancy in the facilities. It’s much more of a reduction in facility usage than you will see in a reduction of services necessarily. We’re not looking to eliminate any services that we do. But you will see fewer individuals in the physical fitness facilities. We won’t have as many individuals queued up to make appointments. We have new procedures in place for pre-booking onboard and to make appointments onboard and to have our consultations done ahead of time. We are doing everything in place to really mitigate the potential spread of any virus or illness or concerns. We will have very thorough training that will take place, sanitation that will be taking place after each and every guest. Facility cleanliness will be the responsibility of the cruise lines in addition to our own obligations and owner responsibilities that we’ve taken upon ourselves. So we think it will be one of the safest and sanitized facilities onboard, in addition to food and beverage areas. We really want to instill that culture and education to the guests so that they feel comfortable. That will start within the cabin, and it’ll start with digital marketing. Of course, within each cabin, we’re looking at push messaging to phones and marketing that way instead of printed materials. All of our protocols have new sanitation guidelines. The PPE will be in place for all of our staff. And as you know, the cruise lines are taking incredible actions to ensure the health and safety of all the guests, and everything they are doing from embarkation to debarkation and all of the controlled experiences, just from the nature of avocation onboard. So we think it will all be covered. And again, we are working specifically with the cruise lines. There won’t be the same approach from cruise line to cruise line, but there will be a common thread of health and safety protocol work throughout. We will have some additional expense associated with PPE just because of the nature of the situation, as we didn’t have it yesterday, but we will have it tomorrow. We’re still working through what that expense will be as we’re not quite sure how many ships and staff we’ll have, at least in fiscal ‘20.

Thank you.

Sure.

The next question is from Assia Georgieva with Infinity Research. Please go ahead.

Glenn, maybe I can ask you my first question? With repatriating crew onboard cruise ships, do you bear any significant cost associated with that, or is it pretty much the food component that’s related to it?

No, we do. We have an obligation to repatriate our staff to get home, which we would have regardless. Even under normal operating circumstances, we would be repatriating them. Now having to repatriate thousands of crew members all at once is not our typical cash flow and expense line. But we’ve been confronted with that since March. Now having said that, it has been mitigated somewhat as these vessels, as you know, are currently about four dozen vessels sailing the world, transporting crew members home, what we call ferries. So the cruise lines are all bringing their staff home. We are participating alongside them. That’s actually helped us somewhat, and the cruise lines are great partners, and we’ve been working with them to get our staff home as all the airports have closed around the world. We’ve mitigated that expense. We do have a little bit of an expense, of course, but that’s certainly far less than astronomical airfares. So really, it’s a little bit of a wash in that regard. But remember, the staff are onboard, and we do have to provide them accommodations, room, board, and general well-being while they’re onboard and being repatriated home. So we’ll get them home one way or another, whether it is by vessel or by air or any other means possible.

And by the same token, once operations restart, the cruise lines might need to pick up their crew from some of the similar countries that you have been using as source markets for crew. So is it possible to, on the way back in, that you could use the ferrying option as opposed to airfare, which is more expensive, I imagine?

Well, I certainly think it’s a possibility. We have not necessarily heard that, but on the rebound, they’re going to be picking up as they redeploy these vessels. Where these ships are bringing the crew members, they’re not typical home ports from a vacation experience, and they’re certainly not source markets to start a vacation. We’re talking the far reaches of the Philippines, India, Asia, and the like. So if that were the case and whether it be in South America or Europe, maybe we could take it back, and they would welcome us to be a part of that. Remember, we don’t have the full obligation to bring staff at our expense to a vessel. Typically, a staff member would find their way to get to their vessel on their own.

Okay. I’m just waiting for the business to restart. So trying to foresee...

Yes, we all are.

I’m sure. And a separate question. So with some changes in terms of shareholders and some commonality, have you heard anything from the grapevine in terms of possible changes to the attitude towards your contracts? And related to that, were there any changes in America? So I wondered whether that may have any impact in terms of the people that you speak with there, and possible difference in thinking.

Those changes in management are just recent, and we’re only just hearing about that and read about it in the press as you do. We don’t have any other insight to that. But as you’ve probably heard us say many times over the years, we have the stability in this industry, and we continually educate the cruise industry on health and wellness. And we’ll continue to do so with all the new regimes that are put in place, and we’re happy to be a part of that.

Okay, Glenn. Thank you so much for your interest and thank you guys for taking the time to update us all.

Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

Alright. Thanks everybody for joining our call today. It’s briefer than usual. Obviously, different times, but we look forward to speaking with you all on our second quarter call. Thanks again for joining us today.

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