OneSpaWorld Holdings Limited

Good morning and welcome to the One Spa World first quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Allison Malkin. Please go ahead.

Thank you. Good morning and welcome to OneSpot World's first quarter fiscal 2022 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 during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements That is included in our first quarter 2022 earnings release, which was furnished to the SEC today on Form 8K. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. An explanation of these metrics can be found in our earnings release issued earlier this morning. Joining me today are Leonard Fluxman, Executive Chairman and Chief Executive Officer, and Steven Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our first quarter performance and provide an update on our operations and our key priorities. Then Stephen will provide more details on the financials and our liquidity. I would now like to turn the call over to Leonard.

Thank you, Alison. Good morning and welcome to One Star World first quarter 2022 results conference call. I'm pleased to report a very positive start to the year despite the COVID-19 Omicron variant's negative impact on scheduled voyages, occupancy rates, and onboard staffing in the quarter. I'm equally proud of our corporate team and our onboard and resort spa leadership who mitigated Omnicom's impact on our staff and our operations while always assuring our extraordinary standard of guest experience. Financially, the quarter included a significant increase in revenue compared to the fiscal 2021 first quarter, making marking our fifth consecutive quarter of sequential revenue growth. We reported positive adjusted EBITDA and adjusted net income with a better than expected cash burn rate. Operationally, we saw continued growth across key operating metrics while maintaining our floorless return to service. As we look ahead, we continue to expect our performance trends to accelerate quarterly and generate sequential revenue growth with our annual performance expected to deliver positive adjusted EBITDA and positive adjusted net income. Turning to highlights of the quarter, total revenues were $87.7 million, up from $5.6 million in the first quarter of 2021, and improving sequentially from fourth quarter 2021. The growth reflects contributions from health and wellness centers that reopened on 127 ships that resumed operation and the contribution from 48 destination resort spas. Adjusted EBITDA was positive, $2.3 million, with positive contribution from our health and wellness centers on board cruise ships and in destination resort spas on land. And we ended the quarter with total liquidity of approximately $44 million. We had many accomplishments for the quarter, most notably our flawless return to service continued. The quarter saw us ready and trained staff to re-embark on additional 15 cruise ships. In addition, we commenced services aboard five new ships, five new ship builds. As I mentioned at quarter end, we had health and wellness centers on 127 ships that had resumed voyages and expect to resume services on 168 ships by the end of the second quarter and all 178 ships by the end of the year. During the remainder of 2022, we anticipate operating health and wellness centers on seven additional new ship builds that will be introduced into service by our cruise line partners. We saw record demand by cruise ship guests for our services. While capacity on cruise ships remains below historical levels, we were very pleased to see continued high demand for our services. Key operating metrics during the first quarter of 2022 compared favorably with our first quarter 2019 performance, the most recent comparable period of normalized operations. For example, pre-booking percentage of service revenue was 4.5 percentage points above Q1 2019, and average guest spend saw improvement in the high teens over 2019. Service frequency per guest, guest penetration, and revenue per staff per day were also positive compared to the first quarter of 2019. These improved operating metrics were driven by the continued innovation in our offering and focus on staff training. With this in mind, during the quarter we implemented five intensification initiatives to increase guest spend and utilization, which contributed to the growth in key operating metrics. These included improving retail conversion through solution sales training, where we reinforced our five-step program. Increased guest utilization through cross-promotion and rebooking tracking mechanisms and additional staff trainings. Growing guest spend with trainings on our skin lab to convert more guests to biotech facials and by introducing facial add-on menus that add to the experience with no additional treatment time needed. And lastly, increasing penetration by targeting families and teen audiences over the holiday period with the introduction of a spring break and team menu. As we look ahead, ensuring a flawless return to service will continue to be our top priority. We have had a tremendous response from prior personnel and new applicants who have been eager to come back to our health and wellness centers. At quarter end, we successfully placed 2,369 cruise ship personnel on vessels for actual and anticipated voyages, overcoming the challenges of the pandemic, securing visas, COVID testing, and travel restrictions. Despite these hurdles, our team members remain ecstatic to be back at sea. By the end of the second quarter, we expect to have 3,087 staff reembarked on 168 vessels. A London Wellness Academy continues to experience very strong demand from applicants, with nearly 1,300 students trained in the London Wellness Academy and at our other global training facilities since reopening. This is further confirmation of One Spa World's leadership in training and certification. We believe how we manage our relationships with our employees, with the staff and guests of our crews and destination resort spas with the teams of our suppliers and with the communities we operate is fundamental to the success of our operations. We expect to have over 80% of our pre-pandemic staff return to service on 178 operating ships by year end. Further evidence of our commitment to the welfare and well-being of our people and its impact on our company's success and the value we deliver to our shareholders. With the onset of yet another unforeseeable global crisis, we have mobilized our corporate and onboard teams to support our staff impacted by the hostilities in Ukraine. We've enabled our Ukrainian staff who have returned to service to elect to remain on board or to be repatriated to their homes at our cost through a gateway city of their choosing. And we have contacted all Ukrainian staff members of our staff who have not yet returned to service, offering to promptly transport them to the safety of our shipboard facilities. Overall, we believe our first quarter performance continues to demonstrate the strength and resilience of our dedicated team and operating model. We begin second quarter with even more confidence that our actions have made One Spa World better positioned than ever before. With a strong business model, collaborative cruise line and destination resort partnership, and an extraordinary team, we look forward to advancing our operational and financial performance throughout 2022 and ongoing to increase the value of all one's far world stakeholders. With that, I'll turn the call over to Steven who will comment on our first quarter results and liquidity position. Steven. Thank you, Leonard. Good morning, everyone. As Leonard mentioned, the first quarter saw the focused execution of our team and return to service drive significant growth in sales and a positive operating performance despite the Omicron variant's negative impact in the quarter of approximately $17 million to revenue. We are very proud of our team and staff for their commitment to One Small World and their dedication to providing service excellence is exemplary, especially given the extraordinary circumstances of the pandemic and for our Eastern European staff members who are impacted by Russia's war in Ukraine. I will now share some of the highlights of the first quarter. Total revenues were $87.7 million compared to $5.6 million in the first quarter of 2022, and up from $85.7 million compared to the fourth quarter of 2021, even with the impact of the Omicron variant. The three months ended March 31st, 2022 revenues were derived primarily from our 127 health and wellness centers onboard ships having resumed voyages and our 48 open and operating destination resort health and wellness centers. Cost of services were $62.7 million compared to $7.5 million in the 2021 first quarter. The increase was primarily attributable to costs associated with increased service revenues of $66.6 million in the quarter from our operating health and wellness centers at sea and on land, and increased costs related to the resumption of our operations at our health and wellness centers at sea and on land. Cost of products were $14.7 million compared to $1.3 million in the 2021 first quarter. The increase was primarily attributable to costs associated with increased product revenues of $15.5 million in the quarter from operating health enrollment centers at sea and on land. Our net loss was $6.3 million compared to a net loss of $45.6 million in the first quarter of 2020. The $39.3 million improvement was primarily a result of a $12.5 million reduction in our loss from operations, plus the $26.7 million positive change in the fair value of our warrants. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments. Adjusted EBITDA was $2.3 million as compared to an adjusted EBITDA loss of $9.4 million in the first quarter of 2021. This represents the second quarterly period that the company recorded positive adjusted EBITDA since the onset of the COVID-19 pandemic. We ended the quarter with total liquidity of $43.9 million. At quarter end, $10 million remained available under the ATM program. And with projected liquidity continuing to improve, we do not intend to utilize the remainder of the ATM program. The current availability under our line of credit was $13 million at March 31st, 2022. The cash burn rate for the quarter of $1.9 million was better than our expectation of $2 to $3 million. We expect to generate positive cash flow beginning in the second quarter and continuing quarterly thereafter, as well as for the full fiscal year. As it relates to our outlook for 2022, Due to the ongoing business disruption and uncertainty surrounding the continued impact to our business from the COVID-19 pandemic, we will continue to not provide guidance. Notwithstanding the foregoing, we continue to expect to incur a net loss in fiscal 2022 on a gap basis. However, we expect to achieve positive adjusted EBITDA and positive adjusted net income for the year. With that, we will open up the call for questions. Chad, if you could take the line, please.