OneSpaWorld Holdings Limited

Good day and welcome to the One Spa World Fourth Quarter 2024 earnings call. All participants will be in 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 a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning and welcome to One Spa World Fourth Quarter and fiscal 2024 earnings call and webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. 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 the disclaimer regarding forward-looking statements that is included in our Fourth 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-GAP 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 Gluckson, 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 Fourth Quarter and Fiscal 2024 performance and provide an update on our key priorities as we begin Fiscal 2025. Then Stephen will provide more details on the financial and fiscal 2025 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 Unspal World's Fourth Quarter and Fiscal Year 2024 earnings conference call. It's a pleasure to speak with you today and share our Fourth Quarter results, which concluded another excellent year of financial and operational accomplishments. Our team delivered a strong finish to an outstanding year of growth with Fiscal 2024 marking our second consecutive year of record performance, which continues to evidence the combined power of our global operations, innovation across our business, outstanding team and a strong financial position. All of which are focused on delivering extraordinary experiences for our health and wellness and guests and invaluable service to our cruise line and destination resort partners. I want to especially recognize our dedicated, passionate and enormously capable team whose steadfast commitment and contributions every day produced our robust results. We begin Fiscal 2025 strongly positioned and expect to deliver another year of record performance. And as outlined in our press release issued earlier this morning, given our strong Fiscal 2024 performance and our positive outlook for 2025, we are affirming our recently provided full Fiscal Year 2025 guidance. Touching on highlights of the quarter, total revenues increased 11% to $217.2 million compared to $194.8 million in the fourth quarter of 2023. For the full year, total revenues increased 13% to a record $895 million compared to $794 million in Fiscal Year 2023. Income from operations increased 37% to $17.2 million compared to $12.6 million in the fourth quarter of 2023. For the full year, income from operations increased 44% to $78.1 million compared to $54.2 million in Fiscal Year 2023. And finally, adjusted EBITDA increased 14% to $26.7 million compared to $23.4 million in the fourth quarter of 2023. For the full year, adjusted EBITDA increased 26% to a record $112.1 million compared to $89.2 million in Fiscal Year 2023. At year end, we operated health and wellness facilities on 199 ships with an average ship count of 188 ships. This compares with a total of 193 ships and an average ship count of 184 ships at year end Fiscal Year 2023. Also, at year end, we had 4,352 cruise ship personnel on vessels compared with 4,120 cruise ship personnel on vessels at year end Fiscal Year 2023. Along with our strong financial results, the year included noteworthy progress towards our key strategic priorities. Let me share these 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. We expanded our health and wellness services, adding seven new maritime health and wellness centers, inclusive of five new ship builds and the renovated Mitsui Ocean Fuji and the Arroyo Minara to our fold. In addition, we entered into a new seven-year agreement with Royal Caribbean International and Celebrity Cruises. Extending our more than 30-year relationship with both banners. We ended Fiscal Year 2024 operating on board 199 vessels and expect to add nine new maritime health and wellness centers in 2025. Second, we continue to expand higher value services and products. In this regard, the expansion and demand for our MediSpa, IV therapy and acupuncture continues to drive increased revenues to those modalities. Our cryotherapy, megawide and LED light facial services continue to perform and we will continue our ramping of these services to our fleet in fiscal 2025. Third, we focused on enhancing health and wellness center productivity. We grew maritime operating metrics, which continued strong growth in revenue per passenger per day, weekly revenue and revenue per staff per day driven by. The increase in experienced staff members that generate higher revenue per staff per day as they're able to better recommend offerings as compared to a first contract staff member. We attribute the growth of experienced staff members to the success of our initiatives to attract, train and retain staff members. We continue to see staff members returning after the first contract, which we believe is a strong testament to their dedication to our company and the empowering culture we create. Looking ahead, we have a number of initiatives in place to retain our best staff, which we will continue to emphasize to further grow our operating metrics. Our operational metrics also increased, reflecting the benefit of our sales training. This field increases in total revenue, guests utilizing the spa, service frequency, service spend and retail, and average spend per guest. Prebooking revenue as a percentage of services remains strong at 22%, even as we phase in new partners that are just beginning to scale. We continue to see passengers that prebook services spending more than 30% more than those that do not prebook. And finally, we continue to expand productivity with our med spas. The quarter saw same spa revenue overall up more than 30% year over year. We continue to increase the number of doctors and nurses we have on board and add to our service offering. At year end, MediSpa services were available on 147 ships, up from 139 ships at the end of 2024 fiscal year. We now expect to have MediSpa offerings increasing to 151 ships this year. Fourth, we enhanced capital structure and strengthened our balance sheet. During the year, we reduced our debt to $100 million and increased our public float as a private equity investor, Steiner Leisure Limited exited. Additionally, in recognition of the confidence in our strategy and outlook this year, our board of directors approved the initiation of an ongoing quarterly cash dividend payment and share repurchase program. We ended the year with $58.6 million in cash, after dispersing $12.6 million in quarterly dividends, paying down debt by $69 million, and investing $19 million to repurchase our common shares during the year. At year end, we had $38.7 million remaining on our $50 million share repurchase program. Fifth, we are equally proud to have published our inaugural sustainability and social responsibility report, documenting our unwavering commitment to exemplary care for our employees, outstanding service to our cruise line and destination resort partners, and their guests and responsible stewardship of the environment and the communities our company impacts across the globe. Our commitment to sustainability is an integral part of our ability to drive successful near and long-term financial performance. In summary, we believe our ongoing positive performance clearly demonstrates the success of our strategy and the strength of our talented team that manages our highly complex business with precision. With visible growth opportunities ahead and positive business momentum, we remain confident in our ability to deliver increasing value to our shareholders in the year ahead and longer term. With that, I'll turn the call over to Stephen, who will provide more details on our fourth quarter and fiscal year 2024 results. Stephen.

Thank you, Leonard. Good morning,

everybody. We are extremely pleased with our performance throughout fiscal year 2024, which delivered record revenue, income from operations, and adjusted EBITDA.

Additionally,

we continue to enhance our capital structure and end of the year with a strong balance sheet and strong cash flow generation. I'll now share further details on our fourth quarter and year results that we reported earlier this morning. Total revenues increased 11% to $217.2 million compared to $194.8 million for the fourth quarter of 2023. The increase in each of service revenue and product revenue were driven by fleet expansion, which contributed $11.2 million, a 5% increase in our guest spend, which positively impacted revenue by $8.6 million, and $3.5 million of higher onboard penetration from more guests. Contributing to the increased volume and spend was $3.5 million in increased pre-booked revenue on health and wellness centers. Cost of service were $145.3 million compared to $131.8 million in the fourth quarter of 2023, with the increase being primarily attributable to costs associated with our increased service revenue of $175.8 million in the quarter from our operating health and wellness centers at sea and on land compared with service revenue of $139 million in the fourth quarter of 2023. Similarly, cost of products were $35 million compared to $30.7 million in the fourth quarter of 2023, with the increase being primarily attributable to the increased costs associated with product revenue of $41.9 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $35.9 million in the fourth quarter of 2023. Net income was $14.4 million, or net income per diluted share of 14 pennies, as compared to a net loss of $7.3 million, or net loss per diluted share of 7 pennies for the fourth quarter of 2023. The change was primarily attributable to a $10 million positive change in the fair value of warrant liabilities reflected in other income expense in 2023, a $7.2 million decrease in interest expense net, and a $4.6 million increase in income from operations. All warrants were exercised or canceled in 2024 with zero expense incurred during the fourth quarter of 2024. As you know, the change in fair value of warrant liabilities was the result of the remeasurement to fair value of the warrants exercised during the fourth quarter of 2023, reflecting changes in market prices of our common stock and other observable inputs deriving the value of those financial instruments. The $7.2 million decrease in interest expense was primarily attributable to lower debt balances offset by a one-time $5.4 million de-leveraging fee incurred during the fourth quarter of 2023. The $4.6 million change in income from operations primarily derived from the increase in the number of health and wellness centers on-board ships operating during the year and increased productivity of our maritime health and wellness centers. Adjusted net income was $21.4 million, or adjusted net income per diluted share of 20s, as compared to adjusted net income of $12.5 million, or adjusted net income per diluted share of 12 pennies in the fourth quarter of 2023. Adjusted EBITDA was $26.7 million, compared to adjusted EBITDA of $23.4 million in the fourth quarter of last year. For the first full year, total revenue of $895 million, reflecting an increase of 13%, compared to $790 million for the 2023 year, with adjusted net income increasing 45% to $89.7 million, or 85 pennies per diluted share, from adjusted net income of $61.9 million, or 63 pennies per diluted share in fiscal 2023. And adjusted EBITDA increased .7% to $112.1 million, as compared to adjusted EBITDA of $89.2 million in fiscal 2023. Turning to the balance sheet, the US saw us enhance our capital structure, reducing debt to $100 million, and increasing our public flow with the exit of our private equity investors, sponsors, Dinalesia Limited. We ended the year with total cash of $58.6 million, and full availability on our $50 million revolving term facility, giving us total equity of $108.6 million. In the fourth quarter, we utilized $4.2 million in cash to pay dividends. Since returning to service in fiscal 2022, we have repaid over $133 million of indebtedness, reducing our debt to the $100 million mark, and have repurchased 2.14 million shares in total for $28 million. Total debt, net of deferred financing costs, was $98.6 million at December 31st, 2024, compared with $158.2 million at December 31st, 2023. And as mentioned, the $50 million revolving facility was unborn at year end. We expect to continue to generate positive cashflow for operations and after-tax cashflow throughout fiscal year 2025. We move forward with an efficient capital structure and robust cashflow generation that will enable us to invest in our long-term growth and return value to shareholders through our quarterly dividend payment and share repurchase program. We have $38 million remaining on our current share repurchase authorization, and the company expects to continue to repurchase shares in 2025. Moving on to the guidance that provided, with our strong 2024 performance and a positive outlook, we are affirming our recently provided full year fiscal year 2025 guidance, reflecting high single-digit growth in revenue and adjusted EBITDA at the midpoints of our guidance range as compared to fiscal 2024 results. As a reminder for the full year of fiscal 2025, we expect total revenue in the range of $950 million to $970 million. Adjusted EBITDA is expected in the range of $115 to $125 million, and we expect Open Health and Health Centers onboard nine new ship-built introductions in 2025, the majority of which are expected to commence wages in the fourth quarter of the year. For the first quarter of 2025, we expect total revenue in the range of $215 to $220 million, with adjusted EBITDA expected in the range of $25 to $27 million. Due to the leap year, last year in 2024, the first fiscal quarter of 2025 includes one less operating day, and in addition, we are expecting a higher number of dry-docs in the first quarter of 2025 versus 2024. The combination of both of these factors is expected to negatively impact total revenue in the first quarter by approximately $4.3 million. And in summary, we are entering 2025 strongly positioned and with favorable momentum. We remain confident that fiscal 2025 will represent another year of record performance for one small world and increased value for our shareholders. And with that, we will open up the call for questions. Dave, if

you could go ahead, please. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Also, please limit yourself to one question and one follow-up, re-queue to ask additional questions. Our first question comes from Sharon Zaxia with William Blair. Please go ahead.

Hi, good morning, thanks for taking the question. I'm from MetaSpy. Leonard, did you say that same spa revenue is up more than 30%? And if so, can you talk about kind of what do you have those kinds of increased or ticket or kind of what the leading factor is there?

Sorry, Sharon, you broke up at the end there. Can you just repeat the second part?

Yeah, sorry. Well, I was asking about the durability and the same spa revenue on MetaSpy.

Whether

that's primarily driven by ticket or traffic.

So indeed MetaSpy, which has been in a huge focus of ours to grow, obviously it's just an incredible part of our offering, higher prices on a single ticket. Volume continues to increase and the outcome of the 30% -over-year growth on same spas has been the result of major focus also adding more staff in that modality. And so to the extent that we can load up more doctors and nurses to take care of the demand and the volume that we're seeing, we will see this continue to grow. So a large focus has been there for 2024 and will continue through 2025. To the extent we can get incremental real estate or staffing, all of that contributes to better growth.

Okay, so then the primary driver is just more passengers partaking in MetaSpy. So it's not more MetaSpy visits per passenger, if that makes sense.

It's a little bit of more passengers coming in. Obviously we're limited to the extent that on some ships, we don't have more than say a doctor or two doctors. On the ships that we have a doctor and two nurses, we definitely can extend the real estate by sharing different rooms for different modalities. And that's been a part of the utility, at least the facility utilization, maximization strategy that we continue to follow across all modalities on board. So yeah, it's definitely paying off.

Okay, and then my second question was on the services gross margin. I know that there's a lot of variable costs there, but the expansion -over-year was a little bit less than what we've seen recently. Is there, are we kind of in a more normalized run rate for that gross margin on services, or is there anything that's kind of weighing that down a little bit?

There is nothing weighing

it down, Sharon. The fourth quarter, as you know, total revenue is less than the third quarter. And so in the third quarter, we just saw a little bit of incremental flow through, covering a proportion of the fixed costs. Yes, it's primarily variable, but there are some fixed costs. And so when the revenue levels are significantly higher, we did see some benefit from that. There is nothing fundamental though, as it relates to that decrease in the fourth quarter.

Okay, thank you.

And the next question

comes from Steve Wozneski with Stiefel, please go ahead.

Yeah, you guys, good morning. Wanna stay on the margin side of the story. So, if we look at the midpoint of your guidance for the year, you're expecting a margin, I think it's probably right around 12 1 1⁄2% or somewhere in that range, which is essentially flat with kind of where you were for 2024. So, I just wanna understand a little bit better why there wouldn't be some opportunity for margin expansion this year, given the opportunity not only to take price on board, but you obviously have higher pre-booking activity as well, which I think would add to spend levels once folks are on board. So, just wondering what I'm missing in terms of maybe some of the headwinds that might be out there on the cost side of things.

No, Steve, there

aren't any, you're not missing anything as it relates to headwinds on the cost side of things. We're not experiencing anything specifically as it relates to that. I think simply put, we would say a flat margin profile in the numbers presented thus far is something that we feel very comfortable with. As you know, we have not built in any pricing into now that it's being provided to date. And so, with our focus all the time being on absolute dollar generation, maintaining margin would be something that we feel comfortable with at this point in time. To the extent there is opportunity for pricing, et cetera, we may see that improve at a slight rate, but at the end of the day, from a headwind perspective, there certainly is nothing.

Okay, gotcha. Thanks for that, Steve. And then second question, capital allocation. Just Leonard made me wondering how you guys are thinking about balancing dividend growth versus share repurchases. And obviously, a move, today the market isn't reacting well to your release. And would these types of uncharacteristic moves in your stock be the type of things where you get more aggressive on the buyback? Just trying to understand how you guys are kind of thinking about buyback versus dividend growth now.

Yes, so Steve, we absolutely on a day like this, we'll take a look at it and see if it's the right price to go at. We have an algorithm. I think we're getting close to that range. So to the extent it's likely dilutive or neutral, we will continue to buy stock. I think buying stock to the extent it's at the right price, we will continue to pick it up. As Stephen said, we have quite a substantial amount left on the authorizations, and so we'll continue to utilize that. And then the dividend is in place right now, but we expect to grow this dividend over the next couple of years. I mean, it's not a tremendous yield that now, but it's a start, and we will continue to look at it, evaluate it, and determine how we can continue to grow this with the excess cash that we can continue to accumulate.

Okay, and one quick housekeeping, if I could, Steve. Do you have the projected ship count by quarter? Just wanna kind of understand where you guys are on a quarterly basis, given the nine ships look like they probably won't be coming more into the, probably more into the fourth quarter.

Yeah, I can tell you specifically. I mean, there's only one ship that comes in in Q1, two ships in Q2, one in Q3, and the remainder are all in Q4.

Okay, so everything's kind of fourth quarter loaded this year. Got it, okay, thanks guys, appreciate it.

Yeah, you really only get one 12th, Steve, most of the capacity, but you get a full year in 2026, which is great.

Okay, appreciate it, thanks guys.

And the next question comes from Gregory Miller with Truist, please go ahead. Go ahead.

Thanks, good morning. Couple of questions for you on your guidance. Start off with 1Q, I'm curious, were neurovirus incidents materially impactful to your 1Q25 outlook?

Not at all. Not at all.

Okay. And then as it relates to the dry docs, could you provide some more detail in terms of how we should be thinking about dry docs impact over the course of this year, if there was any quarterly cadence or any anticipation of above average dry docs in the second quarter as well? I think that's a good question.

Thanks.

There is not great, but the first quarter was more, but I think that forward, we should take normalization.

Okay, I appreciate it, that's all for me.

And the next question comes from Laura Champagne with Loop Capital, please go ahead.

Thanks for taking my question. In the past few quarters, you've talked about restructuring your product, your architecture to have kind of a clear, good, better, best product offering, and that was resulting in trade up. Is that changing in Q1?

So we continue

to do pricing transformation, de-rationalization, that's been a process throughout last year to bring into focus, which of our products are not necessarily in the top, 50 or 30 selling products. And so we're starting to do that rationalization, some of the benefits paid off last year, we will continue to focus on that Laura. But yeah, when you're moving across 199 ships, it takes a little work. So it's not a quick process, it's not a flip of a switch or anything. And then banner by banner, we have to make sure that we have it right. So in some cases, we will take a look at it, we'll test it and then determine if we're at the right place, if we've over rationalized, or if we've done pricing transformation that's working or not working, and we make subtle changes and tweak it all the time.

Got it. I think that you called out in your press release a $20 million increase in revenues just from pre-bookings. Does your guidance imply that you continue to see increases at the same type of pace that you saw in 2024?

So pre-booking is a huge focus, not only for all the banners that we serve, some do it better than others as I mentioned before. We will continue to press them for better focus, better imagery, trying to get that attachment as quickly as possible, because we see the spend at 30% more. And to the extent which we are getting more and more passengers through our doors, obviously the attachment from a pre-book is going to support better growth on the revenue. And to the extent that there's a mix of services in there that's helpful to margin will benefit from that too.

Got it. Thank you very much.

You're welcome.

And the final question comes from Asya Georgieva with Infinity Research. Please go ahead.

Good morning, Leonard and Steven. A couple of quick questions. First of all, can we understand a little bit better the economics of the MediSpa setup? So if you have a doctor and two nurses, obviously more real estate, greater utilization, but is the cost equation higher, for example, if you have two doctors and two nurses? And in terms of new builds, are the plans, the actual infrastructure in the spa flexible enough to where you could have an expand, not only from day one inaugural sailing, but further down the road, the square footage that the MediSpa would be part of the overall spa? So that was my first question. I apologize, kind of a longest question.

Okay, so look, the MedSpa economics have not changed. They are the same. So service margins are what they are. The increase in having, or the benefit of having say two nurses and a doctor doesn't necessarily change the requirement for a larger spa. We could operate a massage room that's not maximized under our facility utilization algorithm and decide that it's better utilized by two nurses doing IV infusions or other similar types of services. So to the extent we need to go outside of the MedSpa where space is limited, we have the ability to look at that, look at our facility utilization algorithm and change up where we're offering the MedSpa. So I think all of that and the focus on better utilization across all of our facilities will continue to assist not only MedSpa, but certainly the services that are higher priced, the acupuncture, other services where we definitely see the demand continue.

So real estate is not really a limiting factor at this point. It's more attracting the right doctors and nurses, the personnel aspect.

Look, I'm not gonna say it's not a limitation. I'd like to see bigger MedSpa's on board. I think we can certainly push the demand through that. I think there's an opportunity. We're starting to see areas that we can perhaps repurpose in a dry dock. I mean, that's not to say it's enough, but on the new builds going forward, obviously our focus is gonna be on the flow, the mix of different rooms and the MedSpa and sort of the areas where, you know, the relaxation areas. So all of that contributes to the overall experience, but no, it's not an absolute limitation what we have today. It's more us utilizing our spa layout and the rooms at a maximum use and demand. So, you know, we continue to look at that across every banner. We'd love to have more space, but always that's a challenge, you know?

Yeah, well, I know you would love to have more space. And my second question is more in terms of the tone of the industry. As you know, I track about 35,000 voyages each week and so far wave season seems to be very strong. And I believe that some of the cruise banners have said that they've had record bookings, including P&O out of the UK. Because you're almost like a simultaneous indicator, because you're seeing what's going on on board for about a month and a half now, I imagine you're probably seeing sort of what people were planning on doing about three months ago or six months ago, and now the money's actually being spent. Do you expect that the current spending would bode well for the rest of the year? Because it seems that way for advanced bookings. And I just wanted to compare what's happening in real time versus the advanced ticket bookings.

Yeah, look, I mean, you know, if you look at all the analyst reports that we've been reading lately, I mean, it still supports strong ticket deals, some geographies, maybe more so than others. And clearly when you've got ticket strength and demand and less discounting, you've got a better passenger on board. So, you know, we continue to see demand for our services. So it's very early on in the year, but, you know, it's no different than every year. We sit here in January, February, and we start developing, you know, our view of the quality of the passenger. But so far, if we take a look at whether discounting in of itself has materially changed, it hasn't, which is a clear indicator of softness. And so that hasn't materially changed.

Okay, well, thank you for that. And just one comment, I have been following you guys since November of 97, a year after the IPO. And I think today is the first time where we have discussed a leap year having an extra day. I am fully aware of the dry dogs, because again, I track each voyage, each ship, each cruise company, so I can pinpoint those. But the one day less in 2025, would that be 5% of the overall figure that you quoted for Q1? Steven, I guess that's a question for you more.

Yeah, the information we provided us is a combination of the dry dogs and the day was $4.3 million.

Right, and the day is $4.3 million?

We didn't provide the breakout. We did not provide the breakout between the day and the dry dogs.

I know, I was trying. Thank you so much.

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

Well, thank you, Dave. And thank you everybody for joining our first quarter call. And we appreciate everybody's attention and enthusiasm about the story. And we look forward to seeing you in our upcoming investor conferences. And when we report our first quarter results in May. Thank you very much, everybody.

The conference is now concluded. Thank you for attending today's presentation.