OneSpaWorld Holdings Limited

Good morning, and welcome to the OneSpar World fourth quarter and fiscal year 2025 earnings conference 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 turn the conference over to Allison Malkin, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to OneSpot World's fourth quarter and fiscal year 2025 earnings call-in webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call-in 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 fourth quarter and fiscal year 2025 earnings release, which was furnished to the SEC today on Form 8-K. 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 a review of our fourth quarter 2025 performance and provide an update on our key priorities for 2026. Then Steven 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 Small World's fourth quarter and fiscal year 2025 earnings call. It's a pleasure to speak with you all today about our record fourth quarter. The period kept a year of exceptional performance underpinned by innovation across our global operating platform and the delivery of extraordinary guest experiences and excellent results for our cruise line and destination resort partners. During the quarter, we advanced our strategic priorities, driving growth in key operating metrics and introducing two new shipbuilds. This served to further cement our market leadership and resulted in double-digit growth in total revenues and adjusted EBITDA. Our unique capabilities and the successful execution of our strategy have produced 19 consecutive quarters of year-over-year growth and a fourth consecutive year of record performance of both metrics. We continue to identify ways to elevate our positioning, increase efficiency, and accelerate growth. Innovation, AI, and the reorganization of certain operations at year held included the strategic decision to exit land-based health and wellness centers in Asia and reorganize operations in the United Kingdom and Italy have us poised to achieve this objective. We begin 2026 even more strongly positioned to maximize our powerful standing as the preeminent operator of health and wellness centers at sea. I'm extremely proud of the team that assisted in delivering the year-end, equally confident that the year ahead will represent another year of outstanding performance. At year-end, we operated health and wellness centers on 206 ships with an average ship count of 199 for the quarter. This compares with a total of 199 ships at year-end and an average ship count of 188 ships in fiscal 2024. Also at year end, we had 4,582 cruise ship personnel on vessels compared with 4,352 cruise ship personnel on vessels at year end in fiscal 2024. Along with our strong financial results, the quarter year and year included noteworthy progress towards our key strategic priorities. Let me share some of those highlights with you. First, we captured highly visible new ship growth with current cruise line partners. We continue to solidify our market leadership, introducing two new health and wellness centers aboard two new ship builds, Disney Destiny and Star Seeker, during the quarter, which brought our total ship builds to eight for the year. In 2026, we'll introduce health and wellness centers on six new ship builds, three of which are expected to commence voyages in the first half of the year. Second, we continue to expand higher value services and products. These higher value services include MediSpar and acupuncture, to name a few, increases our addressable market and help to grow some ship revenue performance. We continue to introduce these services to more ships and expand offerings with the latest innovations and adding to our growth. In addition, we continue to elevate the innovation in our MedSpar services with the expansion of further rollout of next generation technology with the Marge FLX CoolSculpting Elite and Acupuncture LED, which offer improved results and reduce treatment time by up to 50%. These new technologies generated between 23% and 40% revenue growth in Q4 versus last year. In addition, the adoption of LED light therapy with acupuncture remains a high conversion Add on the treatment. At year end MediSpar services were available on 153 ships up from 147 ships at year end of fiscal 24. We expect to have MediSpar offerings on 157 ships by year end 2026. Thirdly, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of across the board increases in key operating metrics, including revenue per passenger per day, weekly revenue, pre-cruise revenue, and revenue per staff per day. Our unique ability to identify onboard and retain staff is leading to this performance. We continue to be known as a great place to work and take pride in being a desired employer, striving to create an environment that fosters retention. These and other onboard employee initiatives have led to a four percentage point increase in stop retention versus 2024. Importantly, experienced stop generates significantly higher revenue per day versus first stop contract. And lastly, we possess a strong and durable balance sheet, which combined with our ongoing successful growth enabled us to advance each of our capital allocation objectives in the quarter. These are invest in our future growth, return value to our shareholders, and reduce debt. During the year, we returned nearly $93 million to shareholders. During the year, through our stock buyback and quarterly dividend and reduced outstanding debt. Our AcidLight business model delivers consistent off-the-tax free cash flow. This combined with our positive long-term growth prospects has made us poised to continue to advance our value creation objectives going forward. We remain confident in our ability to continue our strong performance in 2026. Our positive outlook is supported by the continued innovation of our product and service offerings and the unwavering commitment to service excellence by our standing staff, further buoyed by the implementation of emerging AI technologies that enhance our unique global positioning. These growth drivers are complemented by the contribution from the annualization of new ships that entered service in 2025, six of which commenced voyages in the second half of the year, as well as the introduction of six new health and wellness centers beginning voyages in 2026. In summary, we believe our highly visible revenue growth, along with the continued discipline with which we execute our asset-light business model, positions us very well to deliver strong results for our stakeholders and shareholders in the near and long term. As Stephen will share momentarily, we have reiterated our 2026 guidance and expect total revenues excluding revenues associated with restructured operations and adjusted EBITDA to increase high single digits at the midpoint of the range. With that, I will turn the call over to Stephen, who will provide more details on our third quarter financial results and guidance. Stephen.

Thank you, Leonard. Good morning, everyone.

We ended the year on a high note, delivering record performance in total revenues and adjusted EBITDA in the fourth quarter and continued strong and predictable cash flow generation. This record performance reflects our investment in breakthrough technology applications across our business, reinforcing our market-leading strengths and deepening our cruise line and resort partnerships. At URN, we implemented strategic actions to focus operational and capital investment on our highest growth and most profitable operations, exiting land-based health and wellness centers in Asia and reorganizing operations in the United Kingdom and Italy. In addition, our initiatives in AI will serve to accelerate our strategic growth initiatives and increase efficiency, further building our revenue and profitability growth potential. Let me provide some highlights prior to reviewing our financials and guidance. First, as it relates to revenue enhancement. As I mentioned with our Q3 results, we have implemented a machine learning algorithmic engine to improve revenue and utilization, which is progressing well. In addition, we recently began work that allows us to implement a true dynamic price optimization model that we will start to introduce with pre-booking. Today, we have over 11,500 itineraries that are open for pre-booking, which makes it virtually impossible to have true dynamic pricing with only humans involved, and we're confident that adding these agentic AI tools will improve utilization and yield. By leveraging advanced recommendations and algorithmic optimization, this initiative aims to unlock additional revenue and improve utilization. On the operational efficiency and scalability side, we are seeing early success with our rollout of our onboard virtual assistant. This AI assistant helps our managers receive and respond to questions immediately and meaningfully reduce help desk hours. For example, this tool enables our managers to close voyages and start booking the next cruise faster than before. Currently, 80% of all questions are answered within seconds by the virtual assistant, which is compared to perhaps a day or more if only humans were involved. Our virtual assistant tool has now been deployed across 180 vessels, up from 40 vessels in the third quarter. Third, automation and streamlining. is part of our broad efficiency initiative to continue to explore and develop solutions to reduce manual work, simplify operation shoreside, and improve scalability at our corporate locations. Although still in the early stages, our steering committee meets regularly to analyze different metrics, such as time to implementation, cost of implementation, potential impact and difficulty, return on investment, and the prioritization of where to focus next. This is very exciting work for all of us, has strong buy-in across our organization, and we hope will further enhance productivity, operational scalability, and our key operating metrics over time. Overall, our AI initiatives demonstrate our commitment to leveraging cutting-edge technology to strengthen our market position and deliver value for our shareholders. Turning now to review of the fourth quarter and fiscal year, starting with the quarter. Total revenue increased 11% to $242.1 million compared to $217.2 million for the fourth quarter of 2024. Growth was driven by fleet expansion from 2025 new shipbuilds a two percent increase in revenue days and a one percent increase in average gas spend contributing 15.5 million 8.7 million and 2.1 million dollars respectively the increase in total revenues of this 2.8 million was attributable to increased gas spend from pre-booked services Growth in our maritime total revenue was offset by a $1.3 million decrease in destination resorts total revenue, partially due to the closure of hotels where we had previously operated. Cost of services increased $18.5 million attributable to the $21.5 million increase in service revenues compared to the fourth quarter of 2024. Cost of product increased $3.4 million attributable to the $3.4 million increase in product revenue compared to the fourth quarter of 2024. A $.3 million quarter-over-quarter increase in freight expense related to the timing of purchases and $3 million of non-recurring inventory right of charges in the fourth quarter of 2025 related to the exit from our land-based health and wellness centers in Asia. Admin expenses were $4.9 million compared to $5.8 million in the fourth quarter of 2024, with the decrease being primarily attributable to higher professional fees incurred in the prior year quarter, including approximately $700,000 related to incremental public company costs such as Sarbanes-Oxley compliance. Salaries, benefits, and payroll taxes were $8.9 million compared to $9.3 million in the fourth quarter of 2024. This decrease was primarily attributable to lower incentive-based compensation of approximately $500,000 compared to the fourth quarter of prior year. Restructuring expenses were $2.7 million in the fourth quarter of 2025. attributable to the aforementioned reorganization of operations in the United Kingdom and Italy and the exiting of resort health and wellness operations in Asia. Long-lived asset impairment was $3 million compared to $400,000 in the fourth quarter of 2024 Due to exiting resort operations in Asia, the fourth quarter of 2025 included a $2.8 million impairment charge with respect to the value of associated long-lived assets, $2.2 million attributable to intangible assets, and $600,000 attributable to property and equipment and right-of-use assets. Net income was $12.1 million, or net income per annuity share of 12 pennies, as compared to net income of $14.4 million or net income per annum of 14 pennies for the prior year. The decrease was primarily attributable to the recognition of these restructuring expenses and long-lived asset impairments, totaling $5.7 million during the current quarter, partially offset by $4.4 million improvement in income from operations. Adjusted net income was 24.2 million, or adjusted net income per diluted share of 24 pennies, as compared to adjusted net income of 21.4 million, or adjusted net income per diluted share of 20 pennies in the fourth quarter of prior year. And finally, adjusted EBITDA was $31.2 million, compared to adjusted EBITDA of $26.7 million in the fourth quarter of 2024. For the fiscal year, total revenue of $961 million increased 7% compared to $895 million for the prior year. Adjusted net income rose 15% to $102.9 million or 99 pennies per diluted share from adjusted net income of $89.7 million or 85 pennies per diluted share in 2024. And adjusted EBITDA increased 10% to $123.3 million as compared to adjusted EBITDA of $112.1 million in fiscal 2024. Our strong balance sheet included a total cash of $17.5 million at year end, reflecting the disbursement of $17.5 million throughout the year in quarterly dividend payments, investment of $75.5 We purchased 3.9 million of our common shares and payment of $50 million on our term loan. In addition, we had full availability of our $50 million revolving line of credit, giving us total liquidity of $67.5 million at year end. Total debt net of deferred financing costs was $84 million at December 31st, 2025, and compared to $98.6 million at December 31st, 2024. Also, at quarter end, we had $37.5 million remaining on our prior $75 billion 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 our ongoing quarterly dividend while evaluating opportunities to repurchase our shares and retire debt. We believe this positions us well to create long-term value for our shareholders. Turning now to guidance, we are reaffirming our fiscal 2026 outlook and begin the year with strong momentum and confidence to deliver another record performance. Based on our market outlook, outstanding team, proven strategies and execution, scaling innovations, new shipbuilds, and strong capitalization, we expect fiscal 2026 total revenues to exceed the $1 billion mark for the first time. Total revenues are expected in the range of $1.01 billion to $1.03 billion, representing high single digit increases at the midpoint of our guidance range from actual 2025 results, excluding exited and reorganized operations mentioned previously. Adjusted EBITDA continues to be expected in the range of 128 to $138 million, representing high single-digit increases at the midpoint of our guidance from actual fiscal 2025 results. And for the first quarter of 2026, we expect total revenue in the range of 241 to $246 million, with adjusted EBITDA expected in the range of 30 to $32 million. Please bear in mind that exited and reorganized revenue contributed $5.3 million to first quarter 2025 revenue and $23 million to fiscal 2025 revenues. And with that, we will open the calls up for questions. Gary, if you could take over, please.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please limit yourselves to one question and one follow-up. If you have additional questions, you may rejoin the queue. At this time, we will pause momentarily to assemble our roster.

Our first question today is from Steve Lazinski from Stiefel.

Please go ahead.

Hey guys, this is Jackson Gibb on for Steve Wisinski. Thanks for taking my questions. I wanted to dig in a little further on the AI integration and with another quarter under your belts, is there any more color you can give on the potential benefits you guys could realize from this investment, whether that's on the cost side or the revenue side and any updated thoughts on how that might impact margins? Up to this point, you guys have kind of talked about these initiatives starting to show up meaningfully in the second half of 2026. Is that cadence still accurate? And would we be correct to assume you have not factored in any of this potential impact to current full-year guidance?

Yeah, Jackson, good morning.

As previously mentioned and you reiterated, we did say that we would begin to talk about that after our second quarter results with more specificity. So we remain on track to do that. We are encouraged obviously by the initial results. And that is reflected in the incremental rollout of these initiatives to vessels and starting of additional initiatives as well. So we remain pleased with where we're at. And to your last point, yes, our current guidance does not include potential impact from these initiatives.

Okay. Got it. Thanks. And then switching gears for my follow-up, I was hoping to get a little bit more detail around how consumer trends are shaping up. specifically attachment rates and how you're going about discounting. Are you seeing any differences worth calling out in these metrics or anything that stands out as far as changes in spend patterns across different brands, geographies, ship sizes, et cetera? And then how are you thinking about your ability to take price throughout 2026 relative to price action taken in 2025?

So I'll address the last part first.

As you know, in 2025, we effectively did not take service price increases. We do always continue to evaluate that, and if there's opportunity to do so. In 2026, we will certainly address an action upon it. Again, from a guidance perspective, we are not assuming any service price increases embedded at this point in time. We'll see how things play out. With regards to the consumer, we had previously mentioned in the fourth quarter of last year a little bit of softness in November. We did not see that reoccur in December, which was great. So far, year to date, we are definitely seeing overall higher prices being accepted by the consumer. So on a net basis, we are sending at a higher price. There may be slightly additional discounting, but at the end of the day, the net that's going to the customer in our percentage remains high. And it's also, therefore, a reflection of, as you will have noted, our first quarter guidance, which we feel good about and is about consensus and we think is a reflection of what we anticipate going forward with the consumer.

Again, if you have a question, please press star then 1. The next question is from Gregory Miller with Truist. Please go ahead.

Thank you. Good morning. I'd like to ask first about the dynamic price optimization model that you spoke about in your prepared remarks. Unless I missed it in your remarks this morning, have you discussed in terms of detail, in terms of the rollout, are there certain banners or itineraries or vessels that you're going to start this implementation first, or is this going to be a broader rollout across the fleet?

Specifically, as it relates to that initiative, Greg, the first place we will begin with is actually on pre-booking. So effectively, it will cover 94% of the vessels that today are on that pre-booking platform. I would like to say it's still relatively early stages. Obviously, we're excited about it because, as mentioned, the sheer volume of itineraries available on the pre-booking platform make it effectively impossible for humans to have a true dynamic pricing impact that can literally look at day to day, even ultimately hour to hour, where we might want to adjust it. We are excited about it. When we roll it out, the phases will be, number one, pre-booking. Once we get that working and finalized, there will be a relatively quick rollout to the remaining vessels. But realistically, we're talking here into the back half of the year.

Okay, thanks. Shifting gears, I was on one of your ships recently, and I noticed that the spa menu appeared reformatted. it looked like the offerings were perhaps more condensed and just different stylistically than what I've seen in the past. And I'm curious if you have any intentions of a broader rollout of reformatting your spa menus in terms of the offerings that you're presenting to passengers on board.

No, actually, we took a very proactive approach in doing that, so I'm glad you noticed. We decided to condense and rather focused guest choice on sort of the more popular items versus a full Chinese menu of everything and anything as opposed to the top choices that everybody takes, but also a focus to moving people into specific price points and time slots. So it's a much more manageable and conversion into the higher treatment rates, particularly around face and body. So I just think narrowing the aperture to the more popular treatments that we want to sell with the higher retail attachments is sort of the strategy and science behind the narrower menu. We have no intention of broadening it because from what we did and looked at it statistically, there was just no purpose in having an extensive menu that we did sort of like three years ago.

Thank you both.

Once again, if you have a question, please press star then 1. Please stand by as we poll for questions. Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

All right. Thank you, everybody, for joining us today. As Stephen mentioned, we've got off to a great start here in the first quarter and look forward to speaking with you all on our next investor call, as well as conferences that we may attend through the first quarter entering the second quarter. So thank you and look forward to speaking to you next time. Thank you.

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