OneSpaWorld Holdings Limited Price & Performance (OSW)

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 twenty twenty four earnings release which was furnished to the SEC today on Form eight ks. 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 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 twenty twenty five.

Then, Stephen will provide more details on the financials and fiscal twenty twenty five 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, Allison.

Good morning and welcome to OneSpa World's fourth quarter and fiscal year twenty twenty four earnings conference call. It's a pleasure to speak with you today and share our fourth quarter results, which included another excellent year of financial and operational accomplishments. Our team delivered a strong finish to Anat's [indiscernible] 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 center guests and invaluable service to our cruise line and destination resort 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 twenty twenty five strong and as outlined in our press release, issued earlier this morning, given our strong fiscal twenty twenty four performance, and our positive outlook for 2025 we are affirming our recently provided full fiscal year 2025 guidance. Touching on highlights of quarter, total revenues increased 11% to $217,200,000 compared to $194,800,000 in the fourth quarter of twenty twenty three, For the full year, total revenues increased 13% to a record $895,000,000 compared to $794,000,000 in fiscal year twenty twenty three.

Income from operations increased 37% to $17,200,000 compared to $12,600,000 in the fourth quarter of twenty twenty three. For the full year, income from operations increased 44% to $78,100,000 compared to $54,200,000 in fiscal year twenty twenty three And finally, adjusted EBITDA increased 14% to $26,700,000 compared to $23,400,000 in the fourth quarter of twenty twenty three. For the full year, adjusted EBITDA increased 26% to a record $112,100,000 compared to $89,200,000 in fiscal year twenty twenty three. At year end, we operated Health and Win 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 twenty twenty three. 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 twenty twenty three. [indiscernible] 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 inclusive of five new ship builds and the renovated Mitsui Ocean Fuji, and the Arroyo Menara to Ahold. In addition, we entered into a new seven year agreement with Royal Caribbean International and Celebrity Cruises. Extending our more than thirty year relationship with both banners.

We ended fiscal twenty twenty four 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 service and products In this regard, the expansion and demand for our MediSpa IV therapy acupuncture continues to drive increased revenues to those modalities. Our cryotherapy, MEGAWIGHT and LED light facial services continue to perform we will continue our ramping of these services to our fleet in fiscal twenty twenty five. 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 in revenue per staff per day driven by the increase in experienced staff members that generate higher revenue per staff per day as are 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 start, which we will continue to emphasize to further grow our operating net 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 remained strong at 22% even as we phase in new partners that are just beginning [indiscernible] 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 in this as 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 twenty twenty four 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 $100,000,000 and increased our public float as a private equity investor, Stein Leisure Limited exited. Additionally, in recognition of the confidence in our strategy and outlook this year, our Board of Directors approved initiation of an ongoing quarterly cash dividend payment and share repurchase program. We ended the year with $58,600,000 in cash after disbursing $12,600,000 in quarterly dividends paying down debt by $69,000,000 and investing $19,000,000 to repurchase our common shares during the year. At year end, we had $38,700,000 remaining on our $50,000,000 share repurchase program. First, 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 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 fourth quarter and fiscal year twenty twenty four results. [indiscernible] Thank you, Leonard. Good morning, everybody. We are extremely pleased with our performance throughout fiscal year twenty twenty four.

Which delivered record revenue income from operations and adjusted EBITDA.

Additionally, we continue to enhance our capital structure and ended 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 And product revenue were driven by fleet expansion, which contributed $11,200,000 a 5% increase in our guest spend which positively impacted revenue by $8,600,000 and $2,000,000 of higher onboard penetration from more guests. Contributing to the increased volume and spend was $3,500,000 in increased prebooked revenue on health and wellness centers. Cost of service $145,300,000 compared to $131,800,000 in the with the increase being primarily attributable to costs associated with our increased service revenue of $175,800,000 in the quarter from our operating health and wellness centers at sea and on land, compared with service revenue of $139,000,000 in the fourth quarter of twenty twenty three. Similarly, cost of products were $35,000,000 compared to $30,700,000 in the fourth quarter of twenty twenty three with the increase being primarily attributable to the increased costs associated with product revenue of $411,000,000 dollars in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $35,900,000 in the fourth quarter of twenty twenty three. Net income was $14,400,000 or net income per diluted share of $0.14 as compared to a net loss of $7,300,000 or net loss per diluted share of $0.07 for the fourth quarter of twenty twenty three.

The change was primarily attributable to a $10,000,000 positive change in the fair value of warrant liabilities reflected in other income expense in 2023 a $7,200,000 decrease in interest expense net and a $4,600,000 increase in income from operations. All warrants were exercised or canceled in 2020 with zero expense in during the fourth quarter of twenty twenty four. 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 fourth quarter of twenty twenty three, reflects [indiscernible] and other observable inputs deriving the value of those financial instruments. The $7,200,000 decrease in interest expense was primarily attributable to lower debt balances offset by a one time $5,400,000 deleveraging fee incurred during the fourth quarter of twenty twenty three. The $4,600,000 change in income from operations primarily derived from the increase in the number of health and wellness centers onboard ships operating during the year and increased productivity of our Maritime Health and Wellness Centers. Adjusted net income was $21,400,000 or adjusted net income per diluted share of $28,000,000 as compared to adjusted net income of $12,500,000 or adjusted net income per diluted share of $0.12 in the fourth quarter of twenty twenty three.

Adjusted EBITDA was $26,700,000 compared to adjusted EBITDA of $23,400,000 in the fourth quarter of last year. For the fiscal year, total revenue of $895,000,000 reflecting an increase of 13% compared to $790,000,000 for the 2023 year with adjusted net income increasing 45% to $89,700,000 or $0.85 per diluted share from adjusted net income of $61,900,000 or $0.63 per diluted share in fiscal twenty twenty three. And adjusted EBITDA increased 25.7% in fiscal twenty twenty three. Turning to the balance sheet. The U. S. Saw us enhance our capital structure reducing debt to $100,000,000 and increasing our public float with the exit of our private equity sponsor, Spine and Leisure Limited. We ended the year with total cash of $58,600,000 and full availability on our $50,000,000 revolving term facility. Giving us total liquidity of $108,600,000 In the fourth quarter, we utilized $4,200,000 in cash to pay dividends. Since returning to service in fiscal twenty twenty two, we have repaid over $133,000,000 of indebtedness reducing our debt to the $100,000,000 mark and have repurchased 2,140,000.00 shares in total for $28,000,000 Total debt net of deferred financing costs was $98,600,000 at December 31, 2024 compared with $158,200,000 at 12/31/2023. And as mentioned, the $50,000,000 revolving facility was undrawn at year end.

We expect to continue to generate positive cash flow from operations and after tax cash flow throughout fiscal year twenty twenty five We move forward with an efficient capital structure and robust cash flow 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 $38,000,000 remaining on our current share repurchase authorization and the company expects to continue to repurchase shares in 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 twenty twenty four results. As a reminder, for the full year of fiscal twenty twenty five, we expect total revenue in the range of $950,000,000 to $970,000,000 Adjusted EBITDA is expected in the range of 101 hundred and $25,000,000 And we expect to open Health and centers onboard nine new ship build introductions in 2025 the majority of which are expected to commence voyages in the fourth quarter of the year.

For the first quarter of twenty twenty five, we expect total revenue in the range of $215,000,000 to $220,000,000 with adjusted EBITDA expected in the range of $25,000,000 Due to the decrease last year in '24, The first fiscal quarter of twenty twenty five includes one less operating day and in addition we are expecting a higher number of drydocks in the first quarter of twenty twenty five versus 2024. The combination of both of these factors is expected to negatively impact total revenue in the first quarter by approximately $4,300,000 And in summary, we are entering 2025 strongly positioned and with favorable momentum. We remain confident that fiscal twenty twenty five will represent another year of record performance for OneSpa 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. Our first question comes from Sharon Zackfia William Blair. Please go ahead.

Hi, good morning. Thanks for taking the question. On the Metasby Leonard, did you say that same spa revenue is up more than 30% And if so, can you talk about kind of how those kinds of increase Sorry, Sharon, you broke up at the end there.

Can you just repeat the second part? Yes, sorry. Well, I was asking about the durability and same spa revenue on MediSpa. Right. Whether that's primarily driven by ticket or traffic, So [indiscernible] Medispar, which has been a huge focus of ours to grow, obviously, it's 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% year 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 will continue through 2025. To the extent we can get incremental real estate or starting, all of that contributes better growth.

Okay. So then the primary driver is just more passengers partake in MediSpa. So it's not more MediSpa visits per passenger, if that makes sense. It's a little bit of more more passengers coming in. Obviously, we're 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 a part of the utility at least the facility utilization map strategy that we continue to follow across all modalities on board. So yes, 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 the expansion year over year was a little bit less than what we've seen recently. Is there are we just 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 in 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 significantly higher, we did see some benefit from that. Is nothing fundamental though as it relates to that decrease in the fourth quarter.

And the next question comes from Steve Wissness with Stifel. Please go ahead.

Want to stay on the margin side of the story. So 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 12.5% or somewhere in that range, which is essentially flat with kind of where you for 2024. So I just want to 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 prebooking activity as well, which I think would add to spend levels once folks are on board. 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 numbers that have been 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, etcetera, 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, got you. Thanks for that, Steve. And then second question, capital allocation. Just Leonard maybe wondering how you guys are thinking about balancing dividend growth versus share repurchases and obviously a move today the market is in reacting well to your release. And with these types of uncarassed uncharacteristic moves in your stock be the type of things where you 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 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 slightly 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 deal right 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 want to 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 [indiscernible] 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.

Yes. Yes. You really only get one twelve, Steve, of 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.

Thanks. Good morning. A couple of questions for you on your guidance. 1Q, I'm curious, were neurovirus incidents materially impactful 1Q twenty twenty five outlook. Not at all. Okay.

And then as it relates to the dry docks, could you provide some more detail in terms of how we should be thinking about [indiscernible] impact over the course of this year if there is any quarterly cadence or any anticipation of in the second quarter as well. Thanks. [indiscernible] [indiscernible] Okay. I appreciate it. That's all for me.

And the next question comes from Laura Champine with Loop Capital. Please go ahead.

Thanks for taking my question. In the past few quarters, you've talked about restructuring your product 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 SKU 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 yes, it's when you're moving across 199 ships, it it takes a little work. So it's not a quick process, 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 [indiscernible] We've over rationalized or if we've on 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 $20,000,000 increase in revenues just from pre bookings. Does your guidance imply that you continue to see increases the same type of pace that you saw in 2024? [indiscernible] 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, attached And to the extent which we are getting more and more passengers, through our doors, obviously, the attachment from a prebook is going to [indiscernible] better growth on the revenue. And to the extent that there's a mix of services in there, that's helpful. To margin. We'll benefit from that too. Got it.

Thank you very much. Welcome.

And the final question comes from Asiya 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 nurse 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, have you are the plans the actual infrastructure in the spa, flexible enough to where you could have and expand not only from day one inaugural sailing, but further down the road, the square footage that the Medi Spa would be part of the overall spa? So that was my first question.

I apologize, kind of a longest question. Okay.

So look, the meds by economics have not changed. They are the same. So So service margins are what they are. The increase in having for 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 out [indiscernible] 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 We'll 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 [indiscernible] Look, I'm not going to say it's not a limitation. I'd like to see bigger med spas 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 going to be on the flow, The mix of different rooms and the MedSpa and sort of the areas where the relaxation area. So all of that contributes to the overall experience. But no, it's not it's not an absolute limitation. What we have today. It's more us utilizing our spa layout in the rooms at a maximum use and demand. [indiscernible] we continue to look at that across every banner. We'd love to have more space, but always that [indiscernible] Yes. Well, I know you would love 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 and L out of The UK. Because you're almost like a simultaneous indicator, because you're seeing what's going on board for about one point five months 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 is actually being spent. Do you expect that the current spending would bode well for the rest of the year because it's seems that way for advanced bookings. And I just wanted to compare what's happening in real time versus the advanced ticket bookings.

Yes. Look, I mean, 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 So we continue to see demand for our services. So it's very early on in the year, but it's no different than every year. We sit here in January, February and we've we start developing our view of the quality of the passenger. But so far, if we take a look at where the discounting in of itself has materially changed, it hasn't, which is our 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 September '7, a year after the IPO. And I think today is the first time whether we have discussed the leap year having an extra day. I am fully aware of of the drydocks 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?

Even I guess that's a question for you more.

Yes. The information we provided see, is the combination of the drydocks and the day was $4,300,000 Right. And the day is We didn't provide the breakout we did not provide the breakout between the day and the dry docks.

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.

Thank you, Dave, and thank you everybody for joining our first quarter call.

And we appreciate everybody's attention and enthusiasm about the story. We look forward to seeing you in our upcoming investor conferences and when we report our first quarter results you very much everybody.

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