OneSpaWorld Holdings Limited

Good day and welcome to the One Spa World second quarter fiscal 2024 earnings 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 touchtone phone. And 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 Ms. Alison Malkin of ICR. Please go ahead.

Thank you. Good morning, and welcome to One Smile World's second quarter 2024 earnings conference 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. These forward-looking statements reflect our judgment and analysis only as of today. and actual results may differ materially from current expectations based on a number of factors affecting our business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements That is included in our second quarter 2024 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, Chief Executive Officer and President, and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our second quarter 2024 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and fiscal year 2024 guidance. Following our prepared remarks, we will turn the call over to the operator to begin the question and answer portion of the call. I would now like to turn the call over to Leonard.

Thank you, Alison. Good morning and welcome to One Star World second quarter 2024 earnings conference call. It's a pleasure to speak to you all today to share another period of record performance. Our team delivered an outstanding second quarter, capping off an excellent first half of the year. The consistent, strong performance of our business evidences the power of our operating platform to provide unsurpassed guest experiences for our cruise line and destination resort partners. And driven by our continued momentum and scaling impact of our growth drivers, we are once again increasing our annual guidance beyond the quarter's outperformance. With earnings today, we also announced that our board of directors adopted an annual cash dividend program, which recognizes our ability to leverage our industry-leading operating platform, integrated growth initiatives, and asset-like business model to generate ongoing increasing of the tax-free cash flow. Turning to the highlights of the quarter, Total revenues increased 12% to a record $224.9 million compared to $200.5 million in the second quarter of 2023. Income from operations increased 40% to a record $18.8 million compared to $13.4 million in the second quarter of 2023. Adjusted EBITDA increased 25% to $27.1 million compared to $21.6 million in the second quarter of 2023. And unlevered after-tax-free cash flow increased 18% to $23.8 million compared to $20.1 million in the second quarter of 2023. The unlevered after-tax-free cash flow conversion rate was 88% in the second quarter of 2024. The expansion in our ship count continued during the period. At quarter end, we had health and wellness centers on 197 ships with an average ship count of 188 ships for the quarter compared with 183 ships and an average ship count of 177 ships in the second quarter of 2023. At quarter end, we had 4,300 cruise ship personnel on vessels, compared with 3,813 cruise ship personnel on vessels at the end of the second quarter of 2023. The quarter included continued progress towards our key strategic priorities. Let me share some highlights with you. First, we captured highly visible new ship growth with current cruise line partners and added new cruise line partnerships to our fold. To this end, in the second quarter, we opened health and wellness centers on two new shipbuilds, one with Cunard and the other with Silver Sea Cruises. This follows the opening of our health and wellness centers on the Icon of the Seas and Sun Princess in the first quarter, bringing our year-to-date new builds to four. We continue to expect to end fiscal 2024 operating on board 198 vessels. Second, As it relates to our higher value services and products, as you recall, we introduced new cryotherapy body services and new cryotherapy and LED facial services to complement the new technology driven Elemis Biotech 2.0 facial and light stem therapy, which augments our acupuncture revenue. We will continue to ramp these new services to the entire fleet over the next few quarters. Third, we focused on enhancing health and wellness center productivity. We grew key maritime operating metrics with continued strong growth in revenue passenger per day, weekly revenue, and revenue per staff per day. This was driven by growth in total cruise guests utilizing the spar and the number of treatments per guest, which benefits from the success of our technology enhancements, our expertise in staff training, and the simplification of our service menu options and treatment blends. Additionally, we continue to attract and retain staff, which has led to an increasing percentage of experienced staff members working on board. We are pleased to see more of our staff members sign on for additional contracts, reflecting the compelling workplace environment we provide and their affinity towards our company. These more experienced staff members are also skilled at recommending product and service options which combined with the simplification of our service menu and treatment length led to growth in higher-priced products and services. Pre-booking revenue as a percentage of services remained strong at 23%, even as we phase in new partners that are just beginning to scale. We continue to see passengers that pre-book services spend 30% more than those that do not pre-book. And finally, we continue to expand productivity within our MediSpa. The quarter saw same spa revenue overall up double digit year over year. We continue to increase the number of doctors and nurses we have on board and add to our service offering. At quarter end, MediSpa services were available on 144 ships, up from 142 ships in the first quarter this year, and up from 129 ships at the end of the second quarter of 2023. We remain on track to expand many spot offering to 148 ships this year. Fourth, we further enhanced our financial position and flexibility. Our balance sheet strength was bolstered by repayments of our first lean term loan this quarter. And fifth, as mentioned, our board of directors approved and reinstated an annual cash dividend program with the initial quarterly dividend payment of four pennies per common share payable to shareholders on September 4th, 2024 record as of the close of business on August 21st, 2024, reflecting the strength of our asset life business model and consistent record of growth. In summary, we are pleased to report an excellent second quarter and first half of the year and remain excited about our business outlook. Our third quarter is off to a strong start, and we remain confident in our ability to deliver robust operating and financial performance, both in the near and long term. Overall, we continue to expect fiscal 2024 to represent another year of record growth and increased value for our shareholders. With that, I'll turn the call over to Stephen, who will provide more details on our second quarter results and guidance. Stephen. Thank you, Leonard. Good morning, everyone. We are pleased to report ongoing strength with the delivery of better than expected results across all key financial metrics in the second quarter. We continue to drive shareholder value with the quarter generating record revenue, record net income, and record adjusted EBITDA. And we ended the period with a stronger balance sheet and delivered positive cash flow. I am also pleased that our board demonstrated confidence in our business outlook and our ongoing ability to generate strong cash flow with the initiation of an annual cash dividend program. Very more detail on the second quarter we reported earlier this morning. Total revenues were $224.9 million compared to $200.5 million in the second quarter of 2023. The increase primarily was attributable to our average ship count increasing to 188 health and wellness centers onboard ships operating during the quarter, compared with our average ship count of 177 health and wellness centers onboard ships operating during the prior quarter, together with our continued productivity gains across our operations. Cost of services were $150.8 million, compared to $137.2 million in the second quarter of 2023, with the increase again being primarily attributable to costs associated with increased service revenues of $180.8 million in the quarter, compared with service revenue of $163.2 million in the second quarter last year. Cost of products were $37.1 million compared to $32.2 million in the second quarter of 2023. The increase primarily attributable to costs associated with increased product revenue of $44 million in the quarter compared to product revenue of $37.3 million in the second quarter of 2023. Net income was $15.8 million or net income per diluted share of 15 pennies as compared to a net loss of $3.2 million or net loss per diluted share of three pennies in the second quarter of 2023. The improvement was primarily attributable to a $12.2 million decline in other expense from the change in the fair value of the warrant liabilities, and more importantly, a $5.4 million increase in income from operations. As you know, the change in fair value of warrant liabilities was the result of the re-measurement to fair value of the warrants exercised during the second quarter of 2024, reflecting changes in the market price of our common stock and other observable inputs deriving the value of these financial instruments. Importantly, though, there are no outstanding warrants as of quarter end. The $5.4 million positive change in income from operations primarily derived from the increase in the number of health and wellness centers onboard vessels and our continued productivity gains. Adjusted net income was $21.7 million or adjusted net income for diluted share of 20 pennies as compared to adjusted net income of $15 million or adjusted net income per diluted share of 15 pennies in the second quarter of last year. Adjusted EBITDA was 27.1 million compared to adjusted EBITDA of 21.6 in the same period of 2023. Moving on to the balance sheet, we ended the quarter with a stronger balance sheet, including total cash of $63.7 million after repaying $15 million of our first lien term loan during the quarter. Since the second quarter of fiscal 2022, we have repaid over $109 million of indebtedness, and we have reduced our debt now to $123.8 million as of June 30th, 2024. In the second quarter, unlevered after-tax free cash flow was $23.8 million compared to $20.1 million in the second quarter of 2023. Moving then on to the guidance, with our strong second quarter performance and a positive outlook, for the second time this year, we have increased our fiscal 2024 guidance beyond the outperformance in the first half. We now expect revenues to increase 11% and adjusted EBITDA to increase 18% at the midpoint of the guidance ranges from our fiscal 2023 actual results. For full year 2024, we now expect total revenue in the range of $870 to $890 million versus our previous guidance of $860 to $880 million. And adjusted EBITDA is now expected in the range of $102 million to $108 million, up from our previous guidance of $95 to $105 million. We expect to end fiscal 2024 on 198 cruise ships and at 52 resorts. For the third quarter, we expect total revenue in the range of $235 to $240 million and adjusted EBITDA in the range of $27 to $29 million. Our third quarter guidance assumes an ending ship count of 197 and resort count of 52. In summary, we enter the third quarter strongly positioned. We are confident in our outlook and our ability to continue to deliver increased value for our shareholders as we execute our proven strategies supported by our advantageous operating platform, robust growth initiatives, and asset-light business model. And with that, we will open up the call for questions. Chuck, if you could please open the call. Thank you.