Thank you for your patience. This is the conference operator. Welcome to the OneSpaWorld Third Quarter 2020 Earnings Conference Call. The conference is being recorded.

Thank you. Good morning and welcome to OneSpaWorld's Third Quarter 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 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 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. An explanation of these metrics can be found in the earnings release filed yesterday. 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 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 overview of the financials and liquidity. And now I would like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld'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 14. As of today, 2 health and wellness centers on cruise ships resumed operations. Our destination resort spas have been closed since March 26, with 37 reopened as of today, albeit with capacity restrictions. During the quarter, we continued to focus on 3 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 reembarked on 3 vessels that commenced 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 our operations, as many of you are aware, the U.S. 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 3 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 our long-term performance objectives as business conditions normalize. In keeping with this focus, we have expanded our management team to include Susan Bonner 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.

Thank you, Leonard, and 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 as 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 reembarked on 3 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'm equally proud of the way our onboard staff handled this crisis over many months. Their professionalism, understanding, and patience during this difficult time are 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 opened 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 5 health and wellness centers open on cruise ships that resumed their voyages by year-end. While early, on 2 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 5 guests, or 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.

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 remain 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 sailing orders are lifted and more of our destination resort spas 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 our 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 timetospa.com website. Adjusted EBITDA was a loss of $12.2 million as compared to a 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 onboard 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 no significant voyages through December of 2021. As it relates to our outlook, due to the ongoing business disruption and uncertainties surrounding the impact of the COVID-19 pandemic, we will continue to not provide guidance. Notwithstanding this foregoing, the company expects to sustain a GAAP adjusted and GAAP 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 to reopen 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 sailing that 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, and clients are comfortable with our enhanced 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 4-wall basis, we would expect to break even. And when normalization of operations occurs, we expect to deliver revenue and EBITDA consistent with historical levels. With that, we will open the call to questions. Sylvia, if you could please do that for us.

Our first question is from Steve Wieczynski with Stifel.

So 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 of 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?

Yes. So Steve, thank you. Look, we've guided where our cash burn is currently. Clearly, as Stephen mentioned, when we get back to up to 44 resort spas by year-end, the gradual start, I'm 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 the $4 million cash flow that we're burning right now, even with bringing back some staff because while they're going to be quarantined prior to getting on board, the lodging expenses in and of itself, yes, they are more than we typically would have prior to starting up the 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.

Have you received any updates from your cruise line partners regarding when you might need to have staff in place for some of the test cruises?

I think they're all working through things and are very happy that there is a pathway to resume service. However, I don't believe we have a specific number by banner, especially for the top or largest three banners, regarding which of their ships will participate in the test cruises and receive certification.

Okay. Got you. And then...

I haven't seen any specific number. Glenn, have you?

No, nothing specific. We all know it will be one vessel to start, scheduled for Q1, with its first voyages for the big three. Perhaps another vessel or two will follow if the test voyages go smoothly, which we all expect. We will be operating with reduced occupancies and staffing, so we plan to start bringing crew in around the holidays to prepare for January. As Leonard mentioned, we need to take precautions and not wait for a phone call, so we are making progress. Right now, we've just begun a few test voyages in January, but that's speculative. We do have some operations starting where crew is currently moving in Asia on two vessels set to begin by year-end Q4.

Okay, got it. Sorry. So for my second and last question, long term, we've seen Carnival and some other operators significantly reduce the capacity in their fleets. I believe Carnival alone has around 18 ships removed. I'm curious if you could provide some insight into the profitability impact of these removed ships. Specifically, if we look back to the pre-COVID period, can you give us an idea of what those ships typically contributed to your EBITDA? I realize this might be a challenging question due to various changes and itinerary adjustments, but I hope it makes sense.

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 or otherwise moving around maybe into different ownership positions, that those are the oldest ships typically in the fleet, that tend to underperform sort of 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 forward 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.

Our next question is from Sharon Zackfia with William Blair.

I have a few questions. I just wanted to clarify, the 50% occupancy where you think you can break even, was that breakeven at the ship level? Or is that breakeven at the enterprise level?

That's at the ship level.

Okay. And maybe could you talk about how the 2 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?

The occupancies were significantly below 50% in the quarter on the 2 Costa 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.

It's encouraging to know that you're maintaining consistent penetration despite the reduced occupancy. I'm curious if you've noticed any changes in the demographic profile of spa users, whether at sea or on land, even though it involves just a couple of ships. Additionally, have you observed any shifts in the mix of services offered?

Thanks, Sharon. So obviously, on these 2 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. So it wasn't a large 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 the affluent or again, people who had the ability and willingness to travel. But it was a very small set of folks that we can 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 that covered both our traditional as well as our new touchless technology that we are offering in 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 who 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 our contactless facials just 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 spas. So the good news is they are crossing the threshold when the businesses do open up, and we're really happy about that.

That's really helpful. And then my last question was just getting them to cross the threshold, have you had to do any kind of unusual promotional activity or discounting to the...

No. Actually, we're maintaining our pricing quite effectively. We've consistently offered great promotions, cross-promotions, and valuable opportunities. At sea, we tend to do more of this compared to land, but we haven't yet had the chance to fully capitalize on it. However, we haven't resorted to any significant discounting to boost the business.

Our next question is from Stephanie Wissink with Jefferies.

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?

It's still very much a work in progress. As you know, 80% of our business has the opportunity to prebook and prepay. I'm trying to emphasize the pre-tailing concept and the chance to sell retail in addition to services. There’s a significant amount of development and IT innovation that needs to be integrated simultaneously. This isn't just about technology; it involves concepts as well, since we’re considering beauty bars and the possibility of offering products in cabins for guests who may hesitate to visit the spa. Initially, we thought people might not want to enter the spa environment, but we've realized there is now a willingness to do so. The pre-tail opportunity aligns with our efforts to provide digital in-cabin content in collaboration with our cruise partners, focused on wellness, mindful living, physical fitness, yoga, and other exercises. We're creating digital content to help guests maintain their wellness routines in their cabins while integrating retail components. It's still early to make definitive decisions since we haven’t received confirmation from our partners. We need their approval for our execution. However, we have a game plan and are actively pushing forward.

Okay. And then just one final question on the cost structure. I think maybe the follow-up to Steve's question, but I wanted to understand a little bit around the kind of back-office infrastructure that you need to support some of the return to sea 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?

At this point in time, the corporate expense structure is sufficient to support the phased return to service that we expect to see over the next 6 months or so. There will be a point in time, obviously, when the volume of return to service becomes significant enough that we will have to potentially reengage folks at a corporate and training level. But we don't anticipate that happening in the near term.

Our next question is from Assia Georgieva with Infinity Research.

In terms of the resumption of service, you mentioned possibly lower crew staffing levels corresponding with lower occupancy levels and also starting to transfer 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 crewing levels that you would generally have? Or do you expect to have people available closer to the Caribbean for the winter season and possibly being around South Florida?

We can't keep the staff on site waiting for deployment, as that would incur unnecessary costs. It's important to assess staffing levels based on the specific service areas. For instance, in body services, we would significantly reduce staff if occupancy decreases. In contrast, teams in areas like medi-spa or pain management might remain fully staffed, with possible slight reductions as occupancy fluctuates. Therefore, the analysis should first consider each service modality. We anticipate starting with a staff mix that supports around 60% occupancy, which will increase as occupancy improves over the weeks following a vessel's return to service. Staff will be deployed from their homes. It's important to note that each vessel and cruise line has unique requirements and regulations regarding quarantine and COVID measures, which vary by region and cruise line.

Glenn, I can't imagine the logistics involved in all of this.

Yes, it's an incredible logistics machine right now, without any consistency ship to ship.

Any possibility to use some of the vessels that the cruise lines already have then in Southeast Asia to bring crew onboard the ships as opposed to having to fly them through various...

Well, there absolutely would be if, in fact, they start to do that, 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.

That will 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 OneSpaWorld necessarily, given the more personal service that you provide?

No. First of all, you have to remember, we created our own guidelines for safety and protection, what we call 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, these 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 the 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.

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

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, etc., on our fourth quarter call. Thank you again.

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