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Overview
In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in the sections entitled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" and in "Risk Factors" in our Form 10-K for the fiscal year endedDecember 31, 2021 . We assume no obligation to update any of these forward-looking statements. Due to the global impact of COVID-19, we experienced a near cessation of our operations commencing in the first quarter of 2020. We cannot fully predict the continuing impacts of the COVID-19 pandemic on the industry or on our business. Despite this uncertainty, we believe we have certain strengths that have positioned us as a leader in the hospitality-based health and wellness industry and to participate in the recovery of the cruise industry and the hospitality industry.OneSpaWorld Holdings Limited ("OneSpaWorld ," the "Company," "we," "our, "us" and other similar terms refer toOneSpaWorld Holdings Limited and its consolidated subsidiaries) is the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Our highly trained and experienced staff offered guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard cruise ships and at destination resorts globally. We are the market leader at more than 10x the size of our closest maritime competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise, broad and innovative service and product offerings, expansive global recruitment, training and logistics platform, as well as decades-long relationships with cruise line and destination resort partners. Throughout our history, our mission has been simple: helping guests look and feel their best during and after their stay. At our core, we are a global services company. We serve a critical role for our cruise line and destination resort partners, operating a complex and increasingly important aspect of our cruise line and destination resort partners' overall guest experience. Decades of investment and know-how have allowed us to construct an unmatched global infrastructure to manage the complexity of our operations. We have consistently expanded our onboard offerings with innovative and leading-edge service and product introductions, and developed the powerful back-end recruiting, training and logistics platforms to manage our operational complexity, maintain our industry-leading quality standards, and maximize revenue and profitability per center. The combination of our renowned recruiting and training platform, deep proprietary labor pool, global logistics and supply chain infrastructure, and proven health and wellness center and revenue management capabilities represents a significant competitive advantage that we believe is not economically feasible to replicate. A significant portion of our revenues are generated from our cruise ship operations. Historically, we have been able to renew almost all of our cruise line agreements that expired or were scheduled to expire. InAugust 2021 , we extended our current agreement with Azamara throughMay 2026 . In response to the COVID-19 pandemic, theU.S. Centers for Disease Control and Prevention ("CDC") have taken various measures intended to manage risks associated with the pandemic, including, most recently, publishing a voluntaryCOVID-19 Program for Cruise Ships , with which virtually all cruise lines, including all of the Company's cruise line partners, had agreed to voluntarily participate. As ofJuly 18, 2022 , theCOVID-19 Program for Cruise Ships is no longer in effect. TheCDC has published new guidance for cruise ships on the mitigation and management of COVID-19, and will periodically reevaluate and update this guidance as needed. Cruise ship operators are encouraged to develop and maintain their own COVID-19 response plans to prevent and mitigate introduction and onboard transmission of COVID-19. The global spread of the COVID-19 pandemic is complex and the disruptions it has caused to our industry have had a negative impact on our business performance. As the growth of new COVID-19 cases has generally declined in recent months, restrictions on traveling and other measures previously implemented by governments, public institutions and other organizations to contain the spread of the pandemic have gradually been lifted or relaxed. As a result, certain businesses in the global travel and hospitality industry, including our cruise line partners, have gradually resumed their operations and there has been increasing demand for travel and hospitality services. However, there is no assurance of when the global travel and hospitality industry can resume operations without restrictions imposed in response to the COVID-19 pandemic or when, or if, global demand for travel and hospitality services will return to pre-pandemic levels. As new variants of the COVID-19 pandemic have recently emerged and may continue to emerge in the future, it is difficult to predict the ultimate impact of the COVID-19 pandemic, but we anticipate that it will continue to have an adverse impact on our business performance in 2022. 20 --------------------------------------------------------------------------------
Key Performance Indicators
In assessing the performance of our business, we consider several key performance indicators used by management. These key indicators include:
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Ship Count. The number of ships, both on average during the period and at period end, on which we operate health and wellness centers. This is a key metric that impacts revenue and profitability.
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Average Weekly Revenue Per Ship. A key indicator of productivity per ship. Revenue per ship can be affected by the various sizes of health and wellness centers and categories of ships on which we serve.
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Average Revenue Per Shipboard Staff Per Day. We utilize this performance metric to assist in determining the productivity of our onboard staff, which we believe is a critical element of our operations.
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Destination Resort Count. The number of destination resorts, both on average during the period and at period end, in which we operate health and wellness centers. This is a key metric that impacts revenue and profitability.
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Average Weekly Revenue Per Destination Resort Health and Wellness Center . A key indicator of productivity per destination resort health and wellness center. Revenue per destination resort health and wellness center in a period can be affected by the mix ofU.S. andCaribbean and Asian centers for such period becauseU.S. andCaribbean centers are typically larger and produce substantially more revenues per center than Asian centers. Additionally, average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers. The Company is not reporting the financial indicators above due to the effect of COVID-19 on its business, as the comparison of these key performance indicators for the three and six months endedJune 30, 2022 is not meaningful.
Key Financial Definitions
Revenues. Revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort guests. The following is a brief description of the components of our revenues:
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Service revenues. Service revenues consist primarily of sales of health and wellness services, including a full range of massage treatments, facial treatments, nutritional/weight management consultations, teeth whitening, mindfulness services and medi-spa services to cruise ship passengers and destination resort guests . We bill our services at rates which inherently include an immaterial charge for products used in the rendering of such services, if applicable.
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Product revenues. Product revenues consist primarily of sales of health and wellness products, such as facial skincare, body care, orthotics and detox supplements to cruise ship passengers, destination resort guests and timetospa.com customers.
Cost of services. Cost of services consists primarily of an allocable portion of payments to cruise lines (which are derived as a percentage of service revenues or a minimum annual rent or a combination of both), an allocable portion of wages paid to shipboard employees, an allocable portion of staff-related shipboard expenses, costs related to recruitment and training of shipboard employees, wages paid directly to destination resort employees, payments to destination resort venue owners, the allocable cost of products consumed in the rendering of a service and health and wellness center depreciation. Cost of services has historically been highly variable; increases and decreases in cost of services are primarily attributable to a corresponding increase or decrease in service revenues. Cost of services has tended to remain consistent as a percentage of service revenues. Cost of products. Cost of products consists primarily of the cost of products sold through our various methods of distribution, an allocable portion of wages paid to shipboard employees and an allocable portion of payments to cruise lines and destination resort partners (which are derived as a percentage of product revenues or a minimum annual rent or a combination of both). Cost of products has historically been highly variable; increases and decreases in cost of products are primarily attributable to a corresponding increase or decrease in product revenues and includes impairment of inventories. Cost of products has tended to remain consistent as a percentage of product revenues. Administrative. Administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business, including fees for professional services, insurance, headquarters rent and other general corporate expenses.
Salary, benefits and payroll taxes. Salary, benefits and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business, including fees for employee salaries, bonuses, stock-based compensation, payroll taxes, pension/401(k ) and other employee costs.
21 -------------------------------------------------------------------------------- Amortization of intangible assets. Amortization of intangible assets are comprised of the amortization of intangible assets with definite useful lives (e.g. retail concession agreements, destination resort agreements, licensing agreements) and amortization expenses associated with prior transactions.
Other expense, net. Other expense, net consists of interest expense and change in the fair value of warrant liabilities.
Income tax (benefit) expense. Income tax (benefit) expense includes current and deferred federal income tax expenses, as well as state and local income taxes.
Net loss. Net loss consists of loss from operations less other (expenses) income and income tax (benefit) expense.
Revenue Drivers and Business Trends
Our revenues and financial performance are impacted by a multitude of factors, including, but not limited to:
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The impact of COVID-19. Our health and wellness centers onboard cruise ships and in destination resorts have been and continue to be negatively affected by the COVID-19 pandemic.
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The number of ships and destination resorts in which we operate health and wellness centers. Revenue is impacted by net new ship growth, ships out of service, unanticipated dry-docks, ships prevented from sailing due to outbreaks of illnesses, such as the COVID- 19 outbreaks, and the number of destination resort health and wellness centers operating in each period.
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The size and offerings of new health and wellness centers. We have focused our attention on the innovation and provision of higher value added and price point services such as medi-spa and advanced facial techniques, which require treatment rooms equipped with specific equipment and staff trained to perform these services. As our cruise line partners continue to invest in new ships with enhanced health and wellness centers that allow for more advanced treatment rooms and larger staff sizes, we are able to increase the availability of these services, driving an overall shift towards a more attractive service mix.
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Innovation and expansion of value-added services and products across modalities in existing and planned health and wellness centers. We continue to innovate and expand our higher value added and higher price point offerings in existing and planned health and wellness centers. We have introduced premium medi-spa services, including Thermage FLX®, CoolSculpting®, truSculpt™ and microneedling, along with precision health therapies, including micronutrient IV Infusions. We have also launched Hyperice™ percussion and vibration body care services and products in selected onboard health and wellness centers, resulting in higher guest spending.
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The mix of ship count across contemporary, premium, luxury and budget categories. Revenue generated per shipboard health and wellness center differs across contemporary, premium, luxury and budget ship categories due to the size of the health and wellness centers, services offered, guest demographics and guest spending patterns.
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The mix of cruise geography and itinerary. Revenue generated per shipboard health and wellness center is influenced by each cruise itinerary including the number of sea versus port days, which impacts center utilization, as well as the geographic sailing region which may impact offerings of services and products to best address guest preferences.
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Collaboration with cruise line partners, including targeted marketing and promotion initiatives, as well as implementation of proprietary technologies to increase center utilization via pre-booking and pre-payment. We are directly marketing and distributing promotions to onboard passengers as a result of enhanced collaboration with select cruise line partners. We also are implementing our proprietary pre-booking and pre-payment technology platforms that interface with our cruise line partners' pre-cruise planning systems. These areas of increased collaboration with cruise line partners are resulting in higher revenue generation across our health and wellness centers.
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The impact of weather. Our health and wellness centers onboard cruise ships and in select destination resorts may be negatively affected by hurricanes, which may be increasing in frequency and intensity due to climate change. The negative impact of hurricanes is highest during peak hurricane season from August to October.
The effect of each of these factors on our revenues and financial performance varies from period to period.
22
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Recent Accounting Pronouncements
Refer to Note 2 to the Condensed Consolidated Financial Statements in this report for a discussion of recent accounting pronouncements.
Results of Operations Our results of operations for the three months endedJune 30, 2021 were materially adversely impacted by COVID-19. We believe this should be taken into consideration when comparing the results for the three months endedJune 30, 2021 to the results for the three months endedJune 30, 2022 . Three Months Three Months Ended % of Total Ended % of Total June 30, 2022 Revenue June 30, 2021 Revenue (dollars in thousands, except per share amounts) REVENUES: Service revenues$ 103,616 81 % $ 7,648 84 % Product revenues 23,766 19 % 1,507 16 % Total revenues 127,382 100 % 9,155 100 %
COST OF REVENUES AND OPERATING
EXPENSES: Cost of services 87,019 68 % 9,561 104 % Cost of products 23,278 18 % 1,504 16 % Administrative 3,861 3 % 4,862 53 % Salary, benefits and payroll taxes 7,994 6 % 5,988 65 % Amortization of intangible assets 4,206 3 % 4,206 46 % Total cost of revenues and operating expenses 126,358 99 % 26,121 285 % Income (loss) from operations 1,024 1 % (16,966 ) -185 % OTHER INCOME (EXPENSE), NET: Interest expense (3,544 ) -3 % (3,412 ) -37 % Change in fair value of warrant liabilities 58,500 46 % 20,700 226 % Total other income (expense), net 54,956 43 % 17,288 189 % Income (loss) before income tax expense (benefit) 55,980 44 % 322 4 % INCOME TAX EXPENSE (BENEFIT) 86 0 % 17 0 % NET INCOME (LOSS)$ 55,894 44 % $ 305 3 % NET INCOME (LOSS) PER VOTING AND NON-VOTING SHARE: Basic $ 0.61 $ 0.00 Diluted (1) $ 0.46 $ (0.04 ) WEIGHTED-AVERAGE SHARES OUTSTANDING: Basic 92,352 90,563 Diluted 94,798 92,932
(1) Refer to Note 2 to the Condensed Consolidated Financial Statements in this report for details underlying
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Comparison of Results for the three months ended
The results of operations in the second quarter of 2022 continue to recover from the material adverse impacts of COVID-19, which at its peak resulted in the cessation of operations of all of the Company's health and wellness centers on board cruise ships and the closing of or substantial restrictions imposed on the operation of substantially all our health and wellness centers at destination resort spas at the end of first quarter 2020. As ofJune 30, 2022 , our operations have resumed on 167 cruise ships and in 48 destination resort spas, as compared to 14 cruise ships and 42 destination resort spas as ofJune 30, 2021 . Accordingly, we believe that the comparison of these results to the three months endedJune 30, 2021 is not meaningful.
Revenues. Revenues for the three months ended
The break-down of revenue growth between service and product revenues was as follows:
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Service revenues. Service revenues for the three months ended
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Product revenues. Product revenues for the three months endedJune 30, 2022 were$23.8 million , an increase of$22.3 million , or 1,477%, compared to$1.5 million for the three months endedJune 30, 2021 . Cost of services. Cost of services for the three months endedJune 30, 2022 were$87.0 million , an increase of$77.4 million , or 810%, compared to$9.6 million for the three months endedJune 30, 2021 . The increase was primarily attributable to costs associated with increased service revenues of$96.0 million in the quarter from our operating health and wellness centers at sea and on land, compared with service revenue of$7.6 million in the second quarter of 2021, and increased costs related to the resumption of operations at our health and wellness centers at sea during the quarter. Cost of products. Cost of products for the three months endedJune 30, 2022 were$23.3 million , an increase of$21.8 million , or 1,448%, compared to$1.5 million for the three months endedJune 30, 2021 . The increase was primarily attributable to costs associated with increased product revenues of$22.3 million in the quarter from our operating health and wellness centers at sea and on land, compared to product revenue of$1.5 million in the second quarter of 2021. Administrative. Administrative expenses for the three months endedJune 30, 2022 were$3.9 million , a decrease of$1.0 million , or 21%, compared to$4.9 million for the three months endedJune 30, 2021 . The decrease was primarily attributable to higher costs in the three months endedJune 30, 2021 in connection to professional services provided for the valuation of warrant liabilities accounting of$0.5 million , an allowance for accounts receivable of$0.2 million , and a$0.2 million accrual in connection with a formal assessment by a foreign tax authority regarding the application of the VAT law on the change in the ultimate beneficial ownership of one of our subsidiaries as result of the Business Combination. Salary, benefits and payroll taxes. Salary, benefits and payroll taxes for the three months endedJune 30, 2022 were$8.0 million , an increase of$2.0 million , or 34%, compared to$6.0 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the measured increase in corporate head count to account for the return to sailing and lower corporate salaries in the three months endedJune 30, 2021 due to salary reductions and lower headcount which were implemented due to the COVID-19 pandemic.
Amortization of intangible assets. Amortization of intangible assets for the three months ended
Other income (expense), net. Other income (expense), net includes interest expense and change in the fair value of the warrant liabilities. Interest expense for the three months endedJune 30, 2022 was$3.5 million , an increase of$0.1 thousand , or 4%, compared to$3.4 million for the three months endedJune 30, 2021 . The increase in other income (expense) was primarily attributable to the change in fair value of the outstanding warrants for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The change in fair value of the outstanding warrants during the three months endedJune 30, 2022 was a gain of$58.5 million compared to a gain of$20.7 million during the three months endedJune 30, 2021 . The change in fair value of warrant liabilities is the result of changes in market prices deriving the value of the financial instruments. Income tax expenses. Income tax expense for the three months endedJune 30, 2022 was a expense of$86 thousand , an increase of$69 thousand , or 406%, compared to$17 thousand for the three months endedJune 30, 2021 . 24 -------------------------------------------------------------------------------- Net income (loss). Net income for the three months endedJune 30, 2022 was$55.9 million , an increase of$55.6 million , or 18,226%, compared to$0.3 million for the three months endedJune 30, 2021 . The improvement in the second quarter of 2022 was primarily a result of the$18.0 million change in income (loss) from operations derived from our 167 health and wellness centers onboard ships having resumed voyages and the change in the fair value of warrant liabilities. The change in fair value of the outstanding warrants during the three months endedJune 30, 2022 was a gain of$58.5 million compared to a gain of$20.7 million during the three months endedJune 30, 2021 . The change in fair value of warrant liabilities is the result of changes in market prices deriving the value of the financial instruments. Consolidated Six Months Six Months Ended % of Total Ended % of Total June 30, 2022 Revenue June 30, 2021 Revenue (dollars in thousands, except per share amounts) REVENUES: Service revenues$ 174,778 81 %$ 12,252 83 % Product revenues 40,267 19 % 2,493 17 % Total revenues 215,045 100 % 14,745 100 %
COST OF REVENUES AND OPERATING
EXPENSES: Cost of services 149,686 70 % 17,045 116 % Cost of products 37,930 18 % 2,799 19 % Administrative 7,694 4 % 8,706 59 % Salary and payroll taxes 16,721 8 % 13,640 93 % Amortization of intangible assets 8,412 4 % 8,412 57 % Total cost of revenues and operating expenses 220,443 103 % 50,602 343 % Loss from operations (5,398 ) -3 % (35,857 ) -243 % OTHER (EXPENSE) INCOME, NET: Interest expense (6,951 ) -3 % (6,763 ) -46 % Change in fair value of warrant liabilities 61,900 29 % (2,600 ) -18 % Total other income (expense), net 54,949 26 % (9,363 ) -63 % Income (loss) before income tax expense (benefit) 49,551 23 % (45,220 ) -307 % INCOME TAX (BENEFIT) EXPENSE (27 ) 0 % 43 0 % NET INCOME (LOSS)$ 49,578 23 %$ (45,263 ) -307 % NET INCOME (LOSS) PER VOTING AND NON-VOTING SHARE Basic $ 0.54 $ (0.51 ) Diluted (1) $ 0.39 $ (0.51 ) WEIGHTED-AVERAGE SHARES OUTSTANDING: Basic 92,278 88,903 Diluted 94,864 88,903
(1) Refer to Note 2 to the Condensed Consolidated Financial Statements in this report for details underlying
Comparison of Results for the six months ended
Results of operations in the six months endedJune 30, 2022 continue to recover from the adverse impact of COVID-19, which at its peak resulted in the cessation of operations of all of the Company's cruise ship health and wellness centers and the closing of or substantial restrictions imposed on the operation of substantially all of the destination resort spas where we operate health and wellness centers at the end of first quarter 2020. As ofJune 30, 2022 , our operations have resumed on 167 cruise ships and in 48 destination resort spas, as compared to 14 cruise ships and 42 destination resort spas as ofJune 30, 2021 . Accordingly, we believe that the comparison of these results to the six months endedJune 30, 2020 is not meaningful. Revenues. Revenues for the six months endedJune 30, 2022 and 2021 were$215.0 million and$14.7 million , respectively. The revenues generated in the six months endedJune 30, 2022 were derived primarily from our 167 health and wellness centers onboard ships having resumed voyages and our health and wellness centers at 48 open and operating destination resort spas. Revenues for the six months endedJune 30, 2021 were negatively impacted by the COVID-19 pandemic and the resultingMarch 14, 2020 No Sail Order, with revenues derived primarily from the 14 health and wellness centers onboard ships and 47 destination resort spas where we operate health and wellness centers that were open during the six months and e-commerce product sales through the Company's timetospa.com website. 25
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The break-down of revenue between service and product revenues was as follows:
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Service revenues. Service revenues for the six months ended
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Product revenues. Product revenues for the six months endedJune 30, 2022 were$40.3 million , an increase of$37.8 million , or 1,515%, compared to$2.5 million for the six months endedJune 30, 2021 . Cost of services. Cost of services for the six months endedJune 30, 2022 were$149.7 million , an increase of$132.7 million , or 778%, compared to$17.0 million for the six months endedJune 30, 2021 . The increase was primarily attributable to costs associated with increased service revenues of$162.5 million in the six months from our operating health and wellness centers at sea and on land, compared with service revenue of$12.3 million in the six months endedJune 31, 2021 and increased costs related to the resumption of operations at our health and wellness centers at sea and on land. Cost of products. Cost of products for the six months endedJune 30, 2022 were$37.9 million , an increase of$35.1 million , or 1,255%, compared to$2.8 million for the six months endedJune 30, 2021 . The increase was primarily attributable to costs associated with increased product revenues of$37.8 million in the six months endedJune 30, 2022 , compared to product revenues of$2.5 million in the six months endedJune 30, 2021 from our operating health and wellness centers at sea and on land. Administrative. Administrative expenses for the six months endedJune 30, 2022 were$ 7.7 million , a decrease of$1.0 million , or 12%, compared to$8.7 million for the six months endedJune 30, 2021 . The decrease was primarily attributable to higher costs in the six months endedJune 30, 2021 in connection to professional services provided for the valuation of warrant liabilities accounting of$0.5 million , an allowance for accounts receivable of$0.2 million , and a$0.2 million accrual in connection with a formal assessment by a foreign tax authority regarding the application of the VAT law on the change in the ultimate beneficial ownership of one of our subsidiaries as result of the Business Combination. Salary, benefits and payroll taxes. Salary, benefits and payroll taxes for the six months endedJune 30, 2022 were$16.7 million , an increase of$3.1 million , or 23%, compared to$13.6 million for the six months endedJune 30, 2021 . The increase was primarily attributable to the measured increase in corporate head count to account for the return to sailing and lower corporate salaries in the six months endedJune 30, 2021 due to salary reductions and lower corporate headcount which were implemented due to the COVID-19 pandemic.
Amortization of intangible assets. Amortization of intangible assets for the six months ended
Other income (expense), net. Other income (expense), net includes interest expense and changes in the fair value of the warrant liabilities. Interest expense for the six months endedJune 30, 2022 was$7.0 million , an increase of$0.2 million , or 3%, compared to$6.8 million for the six months endedJune 30, 2021 . The Increase in other income (expense), net was primarily attributable to the change in fair value of the outstanding warrants for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The change in fair value of the outstanding warrants during the six months endedJune 30, 2022 was a gain of$61.9 million compared to a loss of($2.6) million during the six months endedJune 30, 2021 . The change in fair value of warrant liabilities is the result of changes in market prices deriving the value of the financial instruments. Income tax (benefit) expense. Income tax (benefit) expense for the six months endedJune 30, 2022 was a benefit of$27 thousand , a decrease of$70 thousand , or 163%, compared to an expense of$43 thousand for the six months endedJune 30, 2021 . Net income (loss). Net income (loss) for the six months endedJune 30, 2022 was$49.6 million , a change in the income (loss) of$94.9 million , or 210%, compared to a net loss of$45.3 million for the six months endedJune 30, 2021 . The improvement in the six months endedJune 30, 2022 was primarily a result of the$30.5 million change in income (loss) from operations derived from our 167 health and wellness centers onboard ships having resumed voyages and the change in the fair value of warrant liabilities. The change in fair value of the outstanding warrants during the six months endedJune 30, 2022 was a gain of$61.9 million compared to a loss of($2.6) million during the six months endedJune 30, 2022 . The change in fair value of warrant liabilities is the result of changes in market prices deriving the value of the financial instruments.
Liquidity and Capital Resources
Overview
Since the onset of COVID-19, we have taken prudently aggressive actions to increase our financial flexibility by securing and reallocating capital resources, including: (i) eliminating all non-essential operating and capital expenditures, (ii) withdrawing the Company dividend program until further notice, (iii) deferring payment of a dividend declared onFebruary 26, 2020 until approved by the Board of Directors, (iv) the completion of the 2020 Private Placement onJune 12, 2020 ; (v) borrowing$7 million , net, on our first lien revolving facility, leaving$13 million available and undrawn; and (vi) entering into an agreement to allow for the Company to operate its ATM Program, which permitted the Company to sell, from time to time, common shares up to an aggregate offering price of$50.0 million , pursuant to which, as ofJune 30, 2022 , shares representing approximately$10 million remained available for sale under the Agreement, and which Agreement was terminated by the Company onAugust 1, 2022 . We have historically funded our operations with cash flow from operations, except prior toMarch 19, 2019 with 26 -------------------------------------------------------------------------------- respect to certain expenses and operating costs that had been paid prior to the Business Combination bySteiner Leisure Limited ("Steiner Leisure") on our behalf, and, when needed, with borrowings under our credit facility.Steiner Leisure has paid on our behalf expenses associated with the allocation ofSteiner Leisure corporate overhead and costs associated with the purchase of products from related parties and forgiven bySteiner Leisure . Historical operating cash flows exclude the expenses and operating costs ofSteiner Leisure's operating business acquired during the Business Combination paid bySteiner Leisure on our behalf. Consequently, our combined historical cash flows may not be indicative of cash flows had we been a separate stand-alone entity, or of our future cash flows. Our principal uses for liquidity have been debt service and working capital. We expect that as our cruise line partners continue resuming operations, we will have increased costs related to redeployment of employees to sailing locations and other costs associated with resuming our operations. Our results experienced significant recovery during the three and six months endedJune 30, 2022 when compared to the prior year periods, which drove positive net operating cash flows generation for the first periods since the onset of COVID-19. Taking into account the actions described above and our current resources, we have concluded that we will have sufficient liquidity to satisfy our obligations over the next twelve months and comply with all debt covenants as required by our debt agreements.
Cash Flows
The following table shows summary cash flow information for the six months ended
Six Months Six Months
Ended Ended
(in thousands) June 30, 2022 June 30, 2021
Net income (loss) $ 49,578 $ (45,263 )
Depreciation and amortization 10,717 11,370
Amortization of deferred financing costs 514
513
Change in fair value of warrant liabilities (61,900 )
2,600
Stock-based compensation 6,121
5,360
Provision for doubtful accounts 3 81 Loss from write-offs of property and equipment 10 156 Deferred income taxes 70 - Changes in working capital (748 ) 5,509 Net cash provided by (used in) operating activities 4,365 (19,674 ) Capital expenditures (2,025 ) (677 ) Net cash used in investing activities (2,025 ) (677 ) Proceeds from At-the Market Equity Offering, net of issuance costs paid -
18,550
Proceeds from exercise of public warrants 59 - Repayment on term loan facilities (734 ) - Net cash (used in) provided by financing activities (675 )
18,550
Effect of exchange rates (612 )
148
Net increase (decrease) in cash, cash equivalents
and restricted cash $ 1,053 $ (1,653 )
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Comparison of Results for the six months ended
Operating activities. Our net cash provided by (used in) operating activities for the six months endedJune 30, 2022 and 2021 were$4.4 million and$(19.7) million , respectively. The six months endedJune 30, 2022 net operating cash flows were significantly impacted by the ongoing resumption of our health and wellness operation onboard vessels and in destination resorts. In the six months endedJune 30, 2021 , the Company incurred a deficit in net cash provided by (used in) operating activities as the Company had immaterial revenues from operations onboard cruise ships and substantially reduced revenues from operations in destination resorts due to the COVID-19 pandemic, while still incurring operating expenses. Investing activities. Our net cash used in investing activities for the six months endedJune 30, 2022 and 2021 were$2.0 million and$0.7 million , respectively. In the six months endedJune 30, 2022 , the Company incurred more capital expenditures than in the six months endedJune 30, 2021 , during which the Company incurred more limited capital expenditures due to the COVID-19 pandemic. Financing activities. Our net cash provided by (used in) financing activities for the six months endedJune 30, 2022 and 2021 were$0.7 million and$18.6 million , respectively. For the six months endedJune 30, 2022 , the Company repaid$0.7 million on the First Lien Term Loan facility and received proceeds from the exercise of public warrants of$0.059 million . For the six months endedJune 30, 2021 , the Company sold 1.7 million common shares under the ATM Program, resulting in$18.5 million in net proceeds.
Seasonality
A significant portion of our revenues are generated onboard cruise ships. The demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays, resulting in varying degrees of seasonality experienced by certain cruise lines and by us. Accordingly, the third quarter and holiday periods generally result in the highest revenue yields for us. Further, cruises and destination resorts have been negatively affected by the frequency and intensity of hurricanes. The negative impact of hurricanes in the Northern Hemisphere is highest during peak hurricane season from August to October. However, notwithstanding the periods of suppressed hurricane activity during the first six months of each of 2022 and 2021, we experienced low revenue yields during these periods as a result of the COVID-19 pandemic.
Contractual Obligations
As of
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated unaudited financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances. Our critical accounting policies are included in our 2021 Form 10-K. We believe that there have been no significant changes during the six months endedJune 30, 2022 to the critical accounting policies disclosed in our 2021 Form 10-K.
Off-Balance Sheet Arrangements
Other than the operating lease arrangements described in our 2021 Form 10-K, we
have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, income or expenses, results of operations, liquidity,
capital expenditures or capital resources.
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Inflation and Economic Conditions
We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation, global health epidemics/pandemics and customer preferences. Periods of economic softness could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent. Such a slowdown could adversely affect our results of operations and financial condition. The COVID-19 pandemic has negatively impacted our business, operations, results of operations and financial condition in 2022 and 2021. Recurrence of the more severe aspects of the recent adverse economic conditions, including a further escalation of the COVID-19 outbreak, as well as periods of fuel price increases, could have a material adverse effect on our results of operations and financial condition during the period of such recurrence. Weakness in theU.S. Dollar compared to the U.K. Pound Sterling and the Euro also could have a material adverse effect on our results of operations and financial condition.
Cautionary Statement Regarding Forward-Looking Statements
From time to time, including in this report and other disclosures, we may issue "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views about future events and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We attempt, whenever possible, to identify these statements by using words like "will," "may," "could," "should," "would," "believe," "expect," "anticipate," "forecast," "future," "intend," "plan," "estimate" and similar expressions of future intent or the negative of such terms.
Such forward-looking statements include, but are not limited to, statements regarding:
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the impact of COVID-19 on the industries and the markets in which the Company operates and the Company’s business, operations, and financial condition, including cash flows and liquidity;
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the demand for the Company's services together with the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors or changes in the business environment in which the Company operates;
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changes in consumer preferences or the markets for the Company’s services and products;
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changes in applicable laws or regulations;
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competition for the Company’s services and the availability of competition for opportunities for expansion of the Company’s business;
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difficulties of managing growth profitably;
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the loss of one or more members of the Company’s management team;
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changes in the market for the products we offer for sale;
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other risks and uncertainties included from time to time in the Company’s reports (including all amendments to those reports) filed with the
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other risks and uncertainties indicated in our 2021 Form 10-K, including those set forth under the section entitled “Risk Factors”; and
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other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target ” or similar expressions.
These risks and other risks are detailed in our 2021 Form 10-K filed with theSecurities and Exchange Commission . That report contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial condition. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these risks. For a discussion of the risks involved in our business and investing in our common shares, see the section entitled "Risk Factors" in our 2021 Form 10-K. These risks are based on information available as of the date of this report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances 29 --------------------------------------------------------------------------------
after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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