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spk12: Good morning and welcome to the OneSpot World First Quarter 2023 Earnings Conference Call. All participants will be in listening 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 Alison Malkin of ICR. Please go ahead.
spk06: Thank you. Good morning and welcome to OneSpot World's first quarter 2023 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. 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 on this conference call and webcast, we refer you to this disclaimer regarding forward-looking statements that is included in our first quarter 2023 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 Flexman, Executive Chairman, Chief Executive Officer and President, and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our first quarter 2023 performance and provide an update on our operations and our key priorities. Then Stephen will provide more details on the financials and guidance. I would now like to turn the call over to Leonard.
spk10: Thank you, Alison.
spk08: Good morning and welcome to OneSpot World's first quarter 2023 results conference call. I'm very pleased to share an excellent start to fiscal 2023, reporting record first quarter results that exceeded our guidance. The period saw better than expected performance across key financial and operating metrics, reflecting the power of our operating platform and the successful execution of our strategies by our talented team. We delivered our highest ever first quarter revenue, income from operations, and adjusted EBITDA, and also made steady progress against our strategic objectives. Our strong performance and accelerating momentum evidence our relentless focus on investing in and serving our cruise ship and destination resort partners by providing exceptional customer experiences for every guest and continuously innovating our operations to drive productivity gains across our health and wellness centers at sea and on land. As we look ahead, we are more excited than ever about our business prospects. The second quarter is off to a positive start, and we expect our favorable momentum to continue to build throughout the year, buoyed by continual advances in our guest services, product offerings, and guest experiences, together with the addition of health and wellness centers on board 10 new shipbuilds introduced into service this year. As such, we have raised our annual outlook and now expect total revenues to increase by 32% and adjusted EBITDA to increase by 45% at the midpoint of our guidance ranges. Turning to the highlights of the quarter, total revenues grew by more than 100% with adjusted EBITDA rising $16.9 million to 19.3 million, representing our best first quarter ever. The expansion in our ship count continued in the quarter. At the end of the first quarter, we had health and wellness centers on 179 ships, compared with 170 ships at the end of the first quarter of 2022. At year end, we continue to expect to have service on 187 ships, including 10 new builds two of which are scheduled to be introduced in the second quarter. And we saw strength across key operating metrics with double-digit growth in the average weekly revenue per ship, average weekly revenue per shipboard staff per day, and average weekly revenue per resort. To this end, average weekly revenue per ship rose over 30% from Q1 of 2022, and revenue per ship per staff per day increased 21% from Q1 of 2022. In addition, average weekly revenue per resort rose 19% from Q1 of 22. And all this growth reflects load factors having resumed at normalized levels with growth also at double-digit rates versus Q1 of 19. In the first quarter, we had 3,665 cruise ship personnel on vessels and expect to have 4,006 employees on cruise ships by the end of fiscal 2023. second quarter for actual and anticipated voyages. As Stephen will comment on momentarily, in addition to our robust revenue and profit growth, we also began the second quarter with a strengthened balance sheet and improved capital structure. Following quarter end, we fully extinguished our second lean term loan, thereby reducing ongoing interest expense and lowering outstanding debt. We also completed a warrant exchange last week that reduced 95% of public warrants and 50% of the private warrants. The warrant exchange allows us to simplify our capital structure, reduce short interest in our stock associated with warrant hedging, and by exchanging warrants for equity increase, up float and trading liquidity. As a reminder, our priorities in 2023 are focused on capturing highly visible new ship growth with current cruise line partners, as well as evaluating opportunities with new operators, and increasing guest spend, frequency, spark capacity utilization, and our retail revenues. Overall, we are more confident in our expectation for fiscal 2023 to represent another record year and to include significant accomplishments and increasing value for once forward world shareholders. With that, I'd like to turn the call over to Stephen, who will comment on our first quarter financial results.
spk07: Stephen. Thank you, Leonard. Thank you, Leonard. Good morning, everyone. We are pleased to report a strong start to fiscal 2023 with better than expected first quarter performance across key financial metrics, as well as further improvements to our balance sheet, including our warrant exchange completed last week. Sharing details on our first quarter that we reported this morning. Total revenues were $182.5 million as compared to $87.7 million in the first quarter of 2022. This increase was primarily attributable to our average ship count of 173 health and wellness centers onboard ships operating during the quarter. compared with our average ship count of 104 health and wellness centers onboard ships operating during the first quarter of 2022 and the occupancy of the average ships in service in the respective quarters. In addition, we operated health and wellness centers on an average of 49 destination resorts compared to an average of 47 destination resorts in the first quarter of fiscal 2022. Cost of services were $126.3 million compared to $62.7 million in the first quarter of 2022. The increase was primarily attributable to costs associated with increased service revenues of $150.1 million in the quarter from our operating health and wellness centers at sea and on land compared with service revenues of $71.2 million in the first quarter of 2022. Cost of products were $28.3 million compared to $14.7 million in the first quarter of 2022. The increase was primarily attributable to costs associated with increased product revenue of $32.3 million in the quarter from our operating health and wellness centers at CNN Land compared to product revenue of $16.5 million in the first quarter of 2022. Net loss was negative $15.9 million compared to a net loss of $6.3 million in the first quarter of 2022. The decrease was primarily attributable to the negative change in the fair value of warrant liabilities as a result of the increase in our share price. As you know, the change in fair value of warrant liabilities is a function of the share price and was a loss of $21.9 million in the quarter compared to a gain of $3.4 million in the first quarter of 2022. Excluding the change in fair value of warrant liabilities, the improvement in the fourth quarter of 2022 was primarily a result of the $17.6 million increase or improvement in income from operations derived from the increase in the number of health and wellness centers operated onboard cruise ships during the quarter. Adjusted net income was $12.4 million or adjusted net income per diluted share of 13 pennies as compared to an adjusted net loss of $2.7 million or an adjusted net loss per diluted share of three pennies in the first quarter of 2022. Adjusted EBITDA was $19.3 million compared to adjusted EBITDA of $2.3 million in the first quarter of 2022. Turning to the balance sheet, cash at quarter end was $24 million compared to $30.9 million at the end of the first quarter last year, reflecting the pay down of the second lean term loan. Total debt, net of deferred financing costs at quarter end was $202.6 million compared to $230.5 million at the end of the first quarter last year. This decrease reflected the $20 million repayment of the second term loan and the $7 million pay down of the revolving facility since March of 2022. In the first quarter, unlevered after-tax free cash flow increased $16.5 million to $17.9 million, compared to $1.4 million in the first quarter of 2022. The company expects to continue to generate positive cash flow from operations in the second quarter of 2023 and throughout the fiscal year. The Warrant Exchange was completed on April 26th. As a result of the Warrant Exchange, we issued 3.9 million common shares and eliminated 15.3 million public warrants and 4 million private warrants. We are pleased to have completed the Warrant Exchange, which simplifies our capital structure, increases our float and trading liquidity, while reducing short interest related to hedges associated with the warrants that were exchanged. Moving then onto guidance. We are increasing our fiscal year guidance based on our better than expected first quarter performance and favorable outlook while introducing expectations for the second quarter. For fiscal 2023, we now expect total revenues in the range of $710 million to $730 million, up from $660 to $680 million previously, and adjusted EBITDA in the range of $70 million to $76 million, up from $64 to $70 million previously. We expect to end fiscal 2023 operating on 187 cruise ships and at 53 results. For the second quarter, we expect total revenue in the range of $185 million to $190 million, and adjusted EBITDA in the range of $18 to $20 million. Our second quarter guidance assumes an ending ship count of 183 and ending resort count of 52. In addition, as it relates to our share count, assuming an average share price of $12 in the second quarter, the year-to-date diluted share count would be approximately 99.1 million shares. Overall, we feel very confident about our positioning and growth initiatives. We are encouraged by the strong start to the second quarter and expect our favorable momentum to continue throughout the year, driven by our ongoing ability to deliver unsurpassed guest experiences, introduce compelling innovation in our products and services, and add new health and wellness centers given new shipbuilds introduced into service this year. With that, operator, could you please open up the call for questions?
spk09: Operator, could you open the call for questions, please?
spk12: We will now begin the question and answer session. To ask a question, you may press Start and 1 on your telephone keypad. If you are using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press Start and 2. In the interest of time, please limit yourself to two questions only. At this time, we will pause momentarily to assemble our roster. The first question comes from Steve Winski from Stiefel. Please go ahead.
spk01: Hey, guys. Good morning. So, Leonard or Steven, if we think about your revised guidance for the year, it seems to us like you're assuming there really isn't going to be a material change to your customers' spending patterns once they come on board. Maybe that's not a good way of asking this question, but I would assume as load factors continue to ramp across the cruise industry, even if your customer did pull back some in terms of spa or product utilization, These revised EBITDA targets still seem very achievable to us, and hopefully that makes sense, but any color there would be helpful.
spk08: Yes, so Steve, I mean, you know, the business, as we mentioned, even on our fourth quarter call, you know, got started in Q1 very well, and similarly here in Q2. It's difficult for us to say the consumer is In any way, there's no decay around demand or spend right now. If anything, it continues to be quite robust. We're moving into, I believe, a much better European season with more Americans flying over. Airlines have said bookings are up. I would think that with less COVID in Europe this year, the presence of more Americans, Alaska with more ships, which has really got off to a good season, it's very hard for us to have left consensus where you all were very upset with the conservative guide on the fourth quarter. Clearly, we continue to see the cruise line to build the load factors. Some have come up a little faster than we had originally forecasted, all of which is going to continue to build momentum for us. And, you know, listening to, you know, Norwegian's call, listening to our partners, we continue to see similar trends with the onboard revenue. So demand is good. I think all the hard work that we did during the pandemic, coming out of the pandemic, the training now at a great level, all in person, no longer virtual. We're starting to be highly selective with staff. We, in fact, have an abundance of staff. And so to the extent that we can be selective with staff and put the best staff, we're We can make the most amount for each person being on board and drive revenue. You know, I think that circles why we feel confident about the rest of the year.
spk01: Okay, gotcha. Good color there. And then, Leonard, in your prepared remarks, you made a comment about – I think it was something along the lines of exploring – new partnerships with cruise operators, and maybe I misunderstood that or maybe I have that phrasing wrong, but can you just go into a little bit more detail around, you know, what that might possibly mean?
spk08: You know, Steve, you know, a lot of ships were either sold or sold off to new players in the market. I mean, we don't yet participate in Sri Lanka, India, there's new operators and some more operators coming to play. I mean, we certainly got to see some of them at C-Trade this year. So I think it's inevitable that there will be newer players, albeit small. But the market seems to be attracting, whether it be in the luxury small yacht type of offerings, Not that those are the ships that can really drive revenue, but there are new players. And so selectively, we will look at what makes sense for us to do.
spk09: Okay, gotcha. Thanks, guys. Thanks for the color.
spk12: The next question comes from Sharon Zack here from William Blair. Please go ahead.
spk03: Hi, good morning. I guess a question on the trends to date and the outlook. So I know coming out of the fourth quarter, you were maybe concern that discounting to utilize the spa might have to ramp up kind of more in line with historical patterns. Did you see anything along the lines of increased discounting and does the outlook assume some sort of need to do further discounting for the rest of the year?
spk08: Sharon, we, as you know, historically have always given autonomy to our spa managers based upon, you know, the pre-book window, the activity during the cruise to obviously, you know, play with yield or discounting, whatever you want to call it. Clearly we're discounting perhaps of higher price points. So we're getting down to some of the classical price levels and all of which is still accretive to what we are doing in 2022. So we're being opportunistic with some of our, Hallmark pricing, which is the highest level, and where we see it still holding, we hold, and where we see we need a discount of Hallmark, it's still better than Classic. So, you know, I think we're gauging consumer appetite, spend, and demand, and as necessary, as we've trained our staff and our managers and our banner leaders, we all monitor this very, very carefully to see that if there's a trend of excessive discounting, we dig in very fast and figure out what's going on. And we haven't really seen anything that we need to triage right now.
spk03: Thanks for that. And then I think you did some higher price points over the holidays that you talked about, and you thought maybe there would be some stickiness in that pricing. Is that something you've been able to keep going through the first quarter and Are you realizing higher, I guess I would call it, initial prices on the services?
spk08: We certainly are seeing some stickiness on certain banners where we have rolled that out, and that gives me high confidence in not just the demand for our services, but the appetite to spend as much on services. Where we still see it being sticky, we're staying with that. Where we need to discount a little of it, we will. And where it's not working, we'll just replace it with some of our historical classical pricing. But we've seen nothing material change what we initiated, as we mentioned, during the sort of the December peak period where we rolled out some of that Hallmark crossing, as we call it.
spk03: Okay, and then last question for me. I think you were planning on rolling out a large cruise company on the pre-booking platform in the first quarter. Did you complete that, and how are trends kind of ramping for that network of brands?
spk09: Sorry, I lost you at the end there.
spk08: Can you just repeat that?
spk03: Oh, sorry. So I think you were rolling out another banner in pre-booking a large cruise company in the first quarter. I just wondered if you completed that rollout and how pre-booking trends are ramping.
spk08: Thank you. We have commenced with NCL a little slower than we anticipated. You know, it's getting the right resources, obviously, from our partners at the right time. I think we're trying to push as hard as we can because you know, there's real opportunity, real money to be had. We know the guest spends better with a pre-booked customer, not only in terms of booking, you know, at times or services that we yield manage, but certainly frequency and overall spend with a pre-booked customer is favorable to us and to the cruise lines.
spk12: Thank you. The next question comes from Dr. Rakalenko from TD Cohen. Please go ahead.
spk05: Great. Thanks a lot, guys. And congrats on a really nice quarter. So first, can you just speak to the health of your consumers and if you're starting to see any divergences potentially across banners or any other lead indicators that you're looking at as we think about the year ahead?
spk08: Yeah, no, we haven't as yet. And we're in that transition period right now. So we're just starting the... season in Alaska, ships are in process of moving over to the Med, and that season will commence, you know, at the end of May. So we've got some longer cruises in process right now. Clearly, obviously, our guidance incorporates sand, which tends to be a little lower on the longer cruises, but those ships that are already in Alaska have started off the season very nicely. So I, as I said in my remarks or earlier questions to Steve, feel that the med should be more positive than last year. Alaska was good for us last year because we had a lot more ships there, but I think Alaska equally will be a good season again.
spk05: Got it. Okay. And then can you speak to your top growth initiatives for the year, the sequencing, and then which ones do you think will provide the biggest lift? If I recall correctly, you're trying to get frequency up a little bit and you're working on a few other things. So just any updates there.
spk08: Yeah, so our real focus is really around spend utilization and retail capture. Those are all the initiatives that we and the strategies that we're doing, as well as launching some of the new initiatives, which are in process right now, but too early to tell how they're tracking, is really where the focus of the team is every single week around spend utilization and retail. So if we can get all of those metrics pointed in the right direction, It bodes for success.
spk05: Got it. Okay, and then just last quick one for me. Your product revenues are trending roughly 3% above 2019 levels, which is a bit softer than on the services side. So can you just remind us what the top initiatives are on the product side specifically, whether it's staff training, new products, AURs, and anything that we should think about as far as a normalized level of growth?
spk08: Yeah, so just remember, though, when you go back and compare it to 2019, right, pricing has moved up faster on service and it's moved up on product. So in an effect, that's going to impact your percentage attachment. So it really hasn't slumped as much, if you want to call it a slump, which I don't. But training, you know, initiatives are focused around retail attachment. When people join us, we clearly train them. teach them on the solution selling and how to attach the retail product. And, you know, when we were doing virtual training, it was not as successful. But now that we're doing in-person training, we're visiting many more ships. The teams are out there focusing on all the banners where we see there's opportunity. And so we will do, you know, visits to ships. help them, you know, focus on the areas where we think there's opportunity to improve. So, you know, we're happy with where retail is. We think there's opportunity to move upwards, but clearly it's got to move at a much higher, you know, pace to catch up with where we've moved Hallmark pricing to.
spk05: Got it. That's very helpful. Thanks a lot in best regards.
spk09: You're welcome.
spk12: The next question comes from Gregory Miller from Tourist Securities. Please go ahead.
spk11: Hi, good morning. I'd like to start off more of a long-term question. With regards to the private islands from the cruisers, could you share what offerings exist today for OSW and what may be the case in the next couple of years?
spk09: What kind of material upside opportunity there might be to revenues?
spk08: I think the island experiences or the private islands that each of our cruise line partners have, I think the experience has been substantially elevated for guests. In some cases, we have spa services available on some of the islands. I think to the extent that we can continue to support why we should improve those facilities on those islands, it will bode well for us. But You know, we still continue to do services when they're visiting the islands because clearly people, you know, can find the opportunity to sort of stay on board and participate in spa services and still go off to the island. But I think the overall experience that the cruise lines are developing in their own private islands continues to improve and is something well sought after by the guests.
spk11: Okay, thanks. My second question, there's been some media attention to robot manicures. I'm curious to get your receptivity or the operational feasibility of implementing that in the resorts or on the cruise ships.
spk10: Did you just repeat that? Did you say robot management?
spk09: The robot manicures, the ones that are not handled by a human? All of our products are handled by humans.
spk08: I'm not sure I'm understanding your question.
spk09: You know, if this is something you'd be interested in implementing as well, if this is something you're receptive to.
spk10: Yeah, look, I mean, if...
spk08: If a robot was able to do a manicure as well as our trained estheticians, I guess we'd look at it, but I've yet to see something that can actually do it in the same fashion and with the same critical care that you have to do with various types of manicures. I mean, it looks easy, but you've got to have great knowledge about critical care, et cetera. So I'm not going to dispute the fact that AI or robots could play into certain parts of our business, but manicures, massages, I'm not sure that's possible at this juncture.
spk09: Okay, I'll leave it there. Thank you. Yep.
spk12: The next question comes from Laura Champagne from Loop Capital. Please go ahead.
spk00: Hi, my question is also about technology, but a little more low-key. So as cruise lines roll out their own apps and that helps drive pre-bookings. How significant of a driver is that to your very strong growth in weekly revenue per ship this quarter? And what phase are we in that rollout of technology to spike better pre-booking trends?
spk08: It's a great question, and it's something that we're looking into right now. you know, as part of what I would say RevTech and anything that we feel that data enabled decisions, marketing initiatives, that we can then automate what's currently not only being done or sent from this office, but to the extent that we can automate those processes over time. And I'm not saying we have anything in place right now, but it's something that we're looking into. I clearly think there's an opportunity and it's something that we have to consider just like any other CEO or business is looking at is how can we utilize AI for more efficiencies, either in looking at the data that's being produced or the revenue capture, anything that's going on on board and to the extent that we can integrate AI into that decision-making and give our managers better information as to what to promote, et cetera, I think that will be something, you know, in the future that we will study and look at very, very carefully.
spk09: Got it. Thank you. Of course.
spk12: The next question comes from Asya Georgiaba for MBT Research. Please go ahead.
spk02: Good morning, guys. Congratulations on such a great quarter. I'm glad we're back to basically sailing and working under more normal circumstances. I had kind of a fact-checking question. It seems to me that productivity on board is up about 16% versus Q1 of 2019 per staff member. Am I off? And Stephen, you probably have those numbers.
spk09: Hello?
spk07: Yeah, I'm going to pull it versus 2019. I have it versus 22. I'll come back to you on that.
spk02: Okay, so still even versus 22. that's a significant increase from 542 at this point relative to 449?
spk08: Yeah, but remember, in Q1 of 2022, we had probably one month of really good activity and then Omricon came along and that certainly impacted staffing. I think it impacted spend a little bit. So to compare it to Q1, There is an Omicron factor in there, but still, it's a very, very decent improvement year over year.
spk02: Which is why I went back to 2019, because that was a year where the whole industry was doing very well. Okay, so I'll catch up with Stephen a little bit later then. I wondered in terms of, you mentioned that the MED should be more positive this year versus last year. And it seems that airlift has gotten just as expensive as it was last year. And last year we had a lot of logistical difficulties in terms of North Americans getting to Europe. Do you expect that this year will have more demand, more people flying into Europe, or do you expect European source demand?
spk08: You know, I think we can only take a look at what we are seeing out of sort of the bigger international transatlantic, you know, people that are talking about demand pricing and that they're seeing a lot of airfare pre-booking into Europe. I think I mentioned that about a month ago. I think other airlines have come out that do similar routes and have said that despite pricing, demand continues to be strong. I think based upon that and the reiteration by the booking window with the cruise line, it seems to me that without similar impact from COVID in Europe, we will get a good mix of both a European customer and maybe more North Americans this year. And even we will see more Europeans coming out into, you know, than we did, which we've started to see since they lifted the restrictions coming into the U.S. as long as you're vaccinated. So I think it works both ways, both in Alaska and the mid. Alaska tends to be frequented by you know, Europeans and Americans, but I do feel more positive momentum and confidence going into Europe this year based upon data that we've certainly taken a look at.
spk02: Okay, that makes sense. In terms of Alaska, you had mentioned that you're seeing a good start, but it's really early into the season there. It's still pretty cold, I imagine. Being in Florida, I wouldn't want to be in Alaska in early May. So I guess we'll have to see how the season there develops. And again, I think airlifts might play a role. And my last question is... In terms of liquidity priorities, at this point you've done such a great job in terms of extinguishing what was pretty much the most imminent and necessary. So how should we look at the balance sheet going forward, sort of on a one, two-year basis?
spk07: On a one-year basis, I think we continue to evaluate uses for cash, given interest rates where they are perhaps going up again later this afternoon. Our priority is likely to be paying down debt, but we'll continue to evaluate best uses of cash, including a potential dividend payment, although realistically, I don't think that's imminent. I did just want to follow up regarding your question as it relates to 2019. So that increase, it has improved productivity to approximately a 17% increase.
spk02: That is what I had, 16% plus. So I'm not out. Okay, good. Thank you. So if we look towards the end of the fiscal year 2023, what do you think – how much debt do you think you might – have on your balance sheet? You know, give us a range. Obviously you can't be too specific.
spk07: Well, it's, you know, it's just over 200 million now. So it really depends on how much we pay off. I mean, you can, we've given you EBITDA guidance, which is pretty much translates as you know, through to unlevered off the tax free cashflow. So it'll be somewhere in the range of, using some or all of that cash, depending on what other things we may want to address. I don't want to give a specific number just yet, to be honest.
spk02: I understand. Thank you, Stephen. Thank you, Leonard.
spk09: Okay, thanks. Thank you. For any further questions, please press star followed by one. So far, there are no more questions from the phone. Right. Thank you, everybody, for joining us today.
spk08: We look forward to speaking with you when we report our second quarter results in August.
spk09: Thanks for joining today. Bye for now.
spk12: Ladies and gentlemen, this concludes our conference call. Thank you for attending today's presentation. You may now disconnect. Goodbye.
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