OneSpaWorld Holdings Limited

Good day and welcome to the OneSPAW World Second Quarter 2025 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 your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to hand the call over to Allison Malkin of ICR. Please go ahead. Thank

you. Good morning and welcome to OneSPAW World Second Quarter 2025 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 current 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 2025 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 Stephen Lazarus, President, Chief Operating Officer, and Chief Financial Officer. Leonard will begin with review of our Second Quarter 2025 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and 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 Spa World's Second Quarter 2025 Earnings Conference Call. It's a pleasure to speak to you today to share better than expected Second Quarter results, which completed a strong first half of the year for our company. Our ongoing strength reflects the efforts of our outstanding team that continues to leverage our powerful global operating platform and our strategic investments to drive innovation, productivity, and profitability across our operations. Highlights of our Second Quarter were total revenues increased 7% to a record $240.7 million compared to $224.9 million in the Second Quarter of 2024. Income from operations increased 17% to a record $22.1 million compared to $18.8 million in the Second Quarter of 2024. Net income increased 27% to $19.9 million compared to $15.8 million in the Second Quarter of 2024. And adjusted EBITDA increased 13% to a record $30.5 million compared to $27.1 million in the Second Quarter of 2024. At quarter end, we operated health and wellness centers on 200 ships with an average ship count of 171 for the quarter, compared to the total of 197 ships and an average ship count of 188 at the end of the Second Quarter of fiscal 2024. Also at the quarter end, we had 4,365 cruise ship personnel on vessels compared with 4,300 cruise ship personnel on vessels at the end of the Second Quarter of fiscal 2024. The quarter marked meaningful progress on our key priorities, and I'm going to share some of those 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 continued to solidify our market leadership during the quarter, renewing our partnership with Windstar Cruises and introducing a new health and wellness center on board the newly launched Oceana Allura. For the year, we remain on track to introduce health and wellness centers on an additional seven new ship builds, commencing voyages in the second half of the year. Second, we continue to expand higher value services and products. These higher value services, including MediSpa, IV therapy, and Acupuncture, to name a few, help to grow sales productivity. In the quarter, we continue to introduce these services to more ships and expand offerings with the latest innovations, adding to our growth. To this end, we continue to elevate the innovation in our MediSpa services with the expansion of our rollout of next generation technology with the Marge FLX and CoolSculping Elite, which offer improved results and reduced treatment time by up to 50%. These new technologies generated over 20% growth for these treatments in Q2 versus last year. In addition, Acupuncture remains a sought-after service with very strong adoption of LED light therapy as a high conversion add-on treatment. At quarter end, MediSpa services were available on 147 ships, up from 144 ships at the end of 2024 second quarter. We continue to expect to have MediSpa offerings on 151 ships this year. Third, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of -the-board growth and key operating metrics, including revenue per passenger per day, weekly revenue, pre-cruise revenue, and revenue per staff per day driven by, one, staff retention, which remains a key contributor to our consistent gains in operating metrics as experienced team members are driving incremental revenue through more effective customer recommendations. We continue to invest in -in-class training and have recently redesigned our talent management process to further support productivity and long-term growth in our operating metrics. Our enhanced sales training continues to feel increases in the number of guests using the service frequency, service spend, and retail and average spend per guest. Additionally, pre-booking revenue as a percentage of services remains strong at 23%. During this quarter, we introduced pre-booking on Azumaric cruises. Fourth, we ended the quarter with a very strong balance sheet, which allowed us to invest in our growth while returning value to shareholders through our quarterly dividend payment. We remain confident in our outlook as we begin the second quarter of the year, with our business continuing its favorable momentum at the start of the third quarter. In addition to the introduction of seven new health and wellness centers beginning the voyages through the remainder of 2025, we are also excited by developing initiatives employing emerging AI technologies to enhance our unique global positioning towards delivering increased exceptional experiences for our guests and service to our partners. We believe this, along with continued discipline with which we execute our asset-light business model, positions us well to deliver strong results for our stakeholders and shareholders in fiscal 2025 and beyond. As Stephen will share momentarily, we have affirmed our annual revenue guidance and have increased our 2025 adjusted EBITDA guidance. With that, I will turn the call over to Stephen, who will provide more detail on our second quarter results and guidance. Stephen.

Thank you, Leonard. Good morning, everyone. We are indeed teased at our second quarter performance, which saw total revenue increase 7%, adjusted EBITDA rise 13%, with continued strong and predictable cash flow generation. We continue to expand our innovation, products and services, and leverage our strong operating platform and technology enhancements, which enabled us to deliver revenue growth at increasing rates of profitability. Additionally, our capital-efficient asset-light business model predictably generates strong free cash flow, fueling the return of $4.1 million to our shareholders through our quarterly dividend. We are very excited to be making strides in embracing AI within one small world. We are currently piloting an AI-driven initiative focused on increasing revenue by enhancing yield improvement through machine learning-powered recommendations and algorithmic optimization. And in parallel, we are advancing a second group initiative centered on efficiency and automation, using AI to streamline operations, reduce manual effort, and drive scalable process improvements across the organization. Turning now to a review of the quarter. Total revenue increased 7% to $240.7 million, compared to $224.9 million for the second quarter of 2024. The increase in service revenue and product revenues were driven by a 4% increase in average guest spend, which positively impacted revenue by $8.5 million, a 1% increase in revenue days, which positively impacted revenue by $4.5 million, and fleet expansion, which contributed $3.5 million. Contributing to the increased volume and spend was $2.7 million in increased pre-booked revenue at our health and wellness centers, included in our ship count as of June 30, 2025. This was partially offset by a $900,000 decrease in our land-based spa business, partially due to the closure of hotels where we had previously operated. Cost of services increased $10.4 million, attributable to the $12.5 million increase in service revenue, and cost of product increased $2.8 million, attributable to the $3.3 million increase in product revenue versus prior quarter.

Salaries and benefits

were $8.8 million, compared to $9.2 million in the second quarter of 2024. The decrease was primarily due to a $700,000 decrease in incentive-based compensation expense versus the second quarter of 2024. Net income was $19.9 million, or net income per diluted share of 19 pennies, compared to net income of $15.8 million, or net income per diluted share of 15 pennies for the second quarter of 2024. The change was primarily attributable to a $3.3 million increase in income from operations and a benefit from a $800,000 decrease in net interest expense. The decrease in interest expense was primarily due to lower debt balances and a lower effective interest rate. Adjusted net income was $25.8 million, or adjusted net income per share of 25 pennies, as compared to adjusted net income of $21.7 million, or adjusted net income per diluted share of 20 pennies for the second quarter of prior year. Adjusted EBITDA improved to $30.5 million, compared to adjusted EBITDA of $27.1 million in the second quarter of last year. Moving on to the balance sheet, we continue to possess a strong balance sheet at quarter end with total cash of $36.2 million after paying the $4.1 million in support of our quarterly dividend. In addition, we had full availability on our $50 million revolving loan facility, giving us total liquidity of $86.2 million as of quarter end. Total debt, net of deferred financing costs, was $96.2 million as of quarter end, compared to $98.6 million as of December 31, 2024. Also at quarter end, we had full availability of our $75 million share repurchase authorization. We expect a disciplined execution of our growth initiatives and strong cash flow generation driven by our asset-like business model to enable the payment of ongoing quarterly dividends while evaluating opportunities to repurchase our shares under the $75 million authorization and to retire debt. We believe this positions us well to create long-term value for our stakeholders. Turning to guidance, as we look ahead, we are excited about our business and continue to expect total revenue for fiscal 2025 to increase in the high single digit range, reflecting our strong first half performance and our positive outlook, as well as the addition of seven new health and wellness centers on cruise ships beginning wages during the second half of this year. Adjusted EBITDA is now expected to increase by 9% at the midpoint of our guidance as we deliver increased productivity from our enhanced products and services. Our guidance does not assume a significant deterioration in guest spending on board or slowdown in cruising activity. For the fiscal year 2025, we expect total revenue in the range of $950 to $970 million and Adjusted EBITDA is expected in the range of $117 to $127 million, which represents an increase from our previous range for Adjusted EBITDA of $115 to $125 million. For the third quarter of 2025, we expect total revenue in the range of $255 to $260 million and Adjusted EBITDA is expected in the range of $33 to $35 million. With that, Andrea, if you could please open

the call to questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue.

At this time, we will pause momentarily to assemble the roster. Our first question comes from Steve Wysinski of Stiefel. Please go ahead.

Hey guys, good morning. So Leonard or Stephen, I want to dig in a little bit more around some of the strategies that it sounds like are going to help you enhance your profitability, which sounds like it's very much AI driven. Look, to us, One Spiral World, in terms of the story, was never really about margin enhancement given the revenue share agreements, but it sounds like that now might be changing. So guess what I'm trying to understand here is maybe how material this could be over time in terms of improvement, whether that's in flow through or margins, whichever way you want to think about it.

Yeah, Steve, good morning. Let

me take that question because I think it's a really, really state of exciting initiatives that we're working on and throughout the organization is tremendous optimism. So we break it down broadly into two categories. On the one hand, there is specific focus on yield improvement and driving revenue on board through AI, machine learning, algorithmic recommendations and optimization, which we are currently piloting and is proprietary Once Spiral World intellectual property that has been built. And the initial results are optimistic and we hope it will help us expand revenue opportunity on board. But in terms of margin, the opportunity primarily lies below the line in efficiency and automation. And that is where through a second set of initiatives, we're doing multiple things. We're using a genetic AI cross platform automation, for example, email agents, calendar agents, presentation agents, to name a few, which will drive productivity. They will help us scale our operations without having to add people. And we hope will ultimately lead to increased flow through. There's also GenAI in-front knowledge work and documentation query, some of which is already in place, for example. And so just one quick example, instead of somebody having to call in and inquire about what their benefits might be or leave policy might be and having to take somebody's time to answer that, the system now will answer that for you literally in one minute. So it's all really good. It's really exciting. We've added five new employees to this project, people that are focused and specialized on this, a director, a data scientist, a data architect, an AI business analyst and a software integration engineer. So people that are super smart and we believe will ultimately help us take a really nice step forward overall in this entire arena.

So will the brunt of this be kind of seen or more out into 2026? Is that kind of the way we should think about it?

Yes, that is the way you should think about it. Exactly.

Okay. And then second question, just want to ask about the revenue guidance for the year in terms of maintaining that. It seems like spend rates, attachment rates, pre-booking, I mean, all seem to be really strong through – it sounds like in terms of your commentary through July. So just trying to understand maybe what kind of keeps you from not raising that range now or at least even upping the low end of that range.

And

that's all

for me. Thanks, guys. Yes. So we continue to remain

very comfortable around where the consumer is at, the amount on board and how we are progressing from a revenue optimization standpoint. Really what it comes down to is the introduction of the timing of the new vessels and the majority of those coming out in the fourth quarter and perhaps later in the fourth quarter. So that is all it comes down to is to use just timing of when we expect ships to be coming into service.

Okay. Fair enough. Thanks, guys. Appreciate it.

The next question comes from Max Rohencloh of

TD Talon. Please go ahead.

Hey, thanks a lot, guys, and congrats on a really nice second quarter. So my first question is just want to dig down a little bit more in terms of what you're seeing in the state of the consumer and the onboard spend. Any changes or leading indicators that you guys normally follow that help inform your view on the state of the consumer and just how that's impacting your outlook

for the second half year?

So, I think the way in which we look at it is

through the metric lens, Matt, and that's basically saying, are our operational metrics and financial metrics on board continuing to indicate strength in the consumer, not only in terms of demand, but the actual spend itself. And all of those metrics were positive and remain positive and a lot of the positive spend in the quarter contributed to the over delivery. So we are we're not sitting on our laurels here saying that we have the best consumer, but we have a very, very strong consumer on board through the summer season here into the third quarter, which is a transition quarter. But the quarter's got off to a good start or ending with a sort of a straddle cruise here. But so far so good. We have not seen any deteriorations for the first six months in consumer spend. So we remain very optimistic about the health of consumers. Okay, that's

awesome. And then just on capital allocation. So to Potter. First, how are you thinking about cash deployment on repurchases and just a framework for us to consider given sort of what we saw on one two versus two Q. And then separately, this is not the fourth quarter since you launched your dividend. So should we assume that it's a growth dividend and we'll see a step up next quarter or how are you approaching the dividend from here? Thanks a lot.

Capital allocation strategies Max have not changed. We remain focused in order of precedent on stock buyback, then dividend and get repurchase and reiterate that that those do not have to be mutually exclusive. We did indeed not buy back any stock in the quarter. Obviously, you're aware of that. We have talked about the stock purchases being opportunistic and buying on weakness. The stock performed really, really well. Perhaps dropped off a little bit just in the last day or so, but recognizing obviously we're in a blackout period. So we will remain opportunistic and repurchase shares as we deem appropriate for the organization. And perhaps when there's some softness in the stock as it relates to the dividend. Yes, you're correct. We have talked about next quarter would be the anniversary of when it was initiated. And so an increase at that time would be the most opportune timing for

us.

Great. Thanks a lot guys. Best regards. Thanks.

The next question comes from Tanya Anderson of

William Blair. Please go ahead.

Hi, I just wanted to ask a question about the course margin. It was flat year over year, and I just wanted to know any details on the push and pulls for gross margin for the rest of the year.

Thanks. Yes, so gross margin, as you know, because of the variable cost nature of our business on board is something that slightly increases slightly is something

that we feel comfortable about. But as it relates to the current quarter, nothing really of interest, so to speak. The slight change was really due to a mix of products and services being sold. And then as it relates to the remainder of the year. So we remain optimistic about consumers on board don't anticipate having to do incremental discounting and or promotions. Having said that though, you know, we don't historically guide specifically on gross margins. We would expect even to margin though to improve a little bit as is reflected in some of the numbers. So we'll see how it plays out. But I think the takeaway should be that we feel good about where things are at and what we

anticipate for the remainder of the year.

The next question comes from Gregory Miller of Truest Security. Please go ahead.

Thanks. Good morning. I'd like to first ask about the thermal suites. And if you could share some detail on latest trends and spend or behavior. Are you seeing any spend shifts more to the thermal suites? Are there parts of the wellness operation or are or is thermal suites spend pretty steady? And I'm thinking more from a same vessel comparison, not from new vessels or expanded facilities on select ships.

The thermal suites are definitely continuing to be a high demand. I mean, some of the ships have much larger thermal suites. Clearly the demand for those thermal suites will change geographically. So Alaska will see a very high utilization just because people like to hang out there and sort of watch the topography as they sit there. But it's also a great way for us to get people into the spa, begin to promote some services and extend their time in the spa. So we would love to see thermal suites on some of the banners become a little larger because there's definitely multi-use purposes for the thermal suites. We can actually do IV therapy whilst they're relaxing. We can do a number of other things whilst they're getting prepared for a particular service. So I would say that the bond is steady, but seasonally you can see a slight shift upwards, particularly with itineraries such as Alaska.

Thanks. And shifting to another region of the world, you've had a little more time with Aurora. And I'm curious if you could share any commentary on how that banner is starting to trend or any other expectations you have for either Aurora or Mitsuie as that comes online in time.

Yeah, so these are both very early new brands adjusting to market trends and challenges. Aurora, I think, is starting to look at expanding where they're offering the cruises. I think it's been very much UAE focused. I think they're going to go, and the same for Mitsuie, I think they're going to go and do more outreach on a global basis and not just specifically within, say, Japan or the UAE. So load factors are still a little challenging, not quite where they need to be. And I think they'll get there. I think once they open the aperture and start selling cruises on a wider basis, I think so too will the load factors improve, but it's early days.

Thank you, Leonard. Yeah, you're welcome.

The next question comes from Astia

Geogevia of Infinity Research. Please go ahead.

Good morning, guys. Congratulations on a great quarter. I had a couple of questions. We're pretty much caught on occupancy post industry restart, but yet we are seeing some increases of select brands. How important is occupancy to your revenue generation? I understand that most of those additional passengers may be kids, so probably less important than making sure that we're back to a 70% plus levels of occupancy in general for the cabins. I don't know if that makes sense.

Yeah, it does make

sense. Your question is accurate. So is your own answer accurate, which means, yes, during this time of the year, you do get a lot more kids on board. So load factors are higher because the kids are all in those additional bunks in single cabins. So we typically have that every single year during this time of the year when people go on vacation, but during the third, fourth quarter, they settle back to their normalized load factors. But yeah, load factors continue to hold very nicely.

Great. And I think I heard you say that this might not be the best cruise passenger ever, but it's a strong passenger at this point and no deterioration during the first half of the year. Is that correct?

No, let me clarify. What I'm saying is we have a good passenger on board. We certainly see across 200 ships clearly that that's a lot of different passengers and on some ships, you know, it's not your best, but they're still good. So you've got to you've got to use your marketing toolkit a lot more and

you've

got to be a little bit more outwards on your offerings. And so, yeah, on certain of the vessels, it's still a very, very good passenger, but there are stronger passengers on some of the ships. But that's normal. So I'm not saying anything other than the fact that there's a very good consumer on board across all the ships.

And the more challenging ones, would those be kind of further down market? Is there any sort of a way to summarize where you're seeing the need for more marketing?

I think it depends on the itinerary geography. It also depends on the age of the ship or the facilities, etc. So all of those typically are challenges. You know, your best passengers go into ships and other ships are slightly more discounted. So they go on those. So I think, you know, it's a plethora of opportunity for a guest to pick where they want to be and, you know, how much they want to pay for their trip. So I don't think this is anything different to what we've seen historically. And it falls in line with, you know, new ships come out, they go into the best itineraries, best passengers, obviously. So, you know, it's a domino effect where we see best ships coming out and they price the highest. But that's normal. Nothing changes.

Great. And can I ask a second question with regard to AI? So I understand it's a below the line help, if you will, on the cost side. And with some of the EBITDA margin expansion for the back half of the year related to these efforts or it's too soon to see that. And as part of that. Yeah. Okay. Thank you. No, no,

no. So, AI will not impact either the revenue opportunities that Stephen spoke about or cost efficiencies that he clarified as well. We expect that to probably have an or start having some kind of an impact that we can measure beginning, I would say, almost the second quarter of next year. Once we fully rolled out a couple of other initiatives. So we're really in a testing phase right now.

All right. Okay. This makes sense. Is there any logic to try to apply AI tools to the pre-cruise to expanding the pre-cruise portion of the business? Or is that more and not an issue, but working with the cruise lines in terms of embedding the pre-cruise booking opportunity within their own pre-cruise engines?

Okay. I think there's always opportunity to improve pre-cruise, whether we utilize AI or we can get the cruise lines to focus more resources on it. It's a work in progress. I would say right now. I think there's real opportunity on some of the banners where we're not perhaps quite up to the 23%. So I think our teams are working closely with them. To the extent we can get them to incorporate new thinking around AI. Obviously, we'd love to do that. But the adoption rates pretty slow. So we go to the meetings on a quarterly basis. We show them where the opportunity is and we follow through and see if some of them adopt and some of them don't. So it's one of the number one items. I think they're focused on it. Not only in terms of other prepaid opportunities on board, but for us, it's super important to continue to try and get that. Metric a little higher over time.

Sure. Yeah. And last question, could you remind us what sort of a multiple you get for every dollar spent on pre-cruise? I think for the industry to generally two and a half times more spend if they book pre-cruise.

As is generally the pre-cruise passenger generally spends about 30% more than somebody who doesn't pre-book.

Great. Great. Thank you so much, Leonard.

And thank you, Stephen. This concludes our question and answer session. I'd like to turn the

call over to Leonard Fluxman for any closing remarks.

Right. Thank you, Andrea. Thanks again for joining us today. We look forward to speaking with many of you at our upcoming investor meetings and when we report our third quarter results in October. Thanks

for joining today.

Bye

bye.

The conference is now concluded before attending today's presentation and you may now.