OneSpaWorld Holdings Limited Price & Performance (OSW)

We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information, future events, 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 Flexman, Executive Chairman Chief Executive Officer and Steven Lazarus, President, Chief Operating Officer and Chief Financial Officer. Leonard will begin with a review of our first 1Q twenty twenty five 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 OneSpaWorld's First Quarter twenty twenty five Earnings Conference Call. It is a pleasure to speak to you today and share a strong start to the year which continues the sustained positive momentum in our business into 2025. Our team delivered first quarter results at the high end of our guidance, with our performance reflecting the impact of our to invest in our cruise line and destination resort partnerships continuously innovate our guest experiences, and enhance our productivity and profitability across our business. This led to increases across all key operating metrics during the quarter the addition of new ships to our fold and new agreements with longstanding partners. As outlined in our earnings release issued earlier this morning, based on our performance and with continued momentum, we remain confident in our ability to navigate the increasingly dynamic economic environment which is reflected in our reaffirmation of our annual guidance. In addition to our strategic growth drivers, our cruise line partners continue to experience strong bookings and onboard spend and consumers continue to prioritize experiences with cruising, a value alternative to other vacation choices. Turning to the highlights of the quarter. Total revenues increased 4% to $219,600,000 compared to $211,200,000 in the first quarter of twenty twenty four.

Income from operations of $16,800,000 included $2,500,000 of non recurring severance expense and compared to $17,000,000 in the first quarter of twenty twenty four. And adjusted EBITDA increased 5% to $26,600,000 which included $1,100,000 of non recurring cash expense when compared to $25,300,000 in the first quarter of twenty twenty four. At quarter end, we operated health and wellness centers on a 99 ships, with an average ship count of 193 for the quarter. This compares with a total of 193 ships and an average ship count of 188 ships the end of the first quarter of fiscal twenty twenty four. Also, at quarter end, we had 4,240 cruise ship personnel on vessels, compared with 4,082 cruise ship personnel on vessel at the end of first quarter of fiscal twenty twenty four. The quarter marked meaningful progress in our key Let me 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. In support of this priority, we introduced a new health and winter wellness center on Norwegian Cruise Line's first prima plus class ship Norwegian Aqua. In the first quarter and remain on track to introduce health and wellness centers on an additional eight new ships commencing voyages later this year.

In addition, following quarter end, we executed a new agreement to operate health and wellness centers on 11 ships for P and O cruise lines and Cunard, which recognizes our strong performance and continues our longstanding partnerships. Second, we continue to expand high value services and products These higher value services including MediSpa, IV therapy and acupuncture to name a few, help to grow sales productivity as we introduce these services to more ships and expand offerings with latest innovations. To this end, the quarter saw us elevate the innovation in our MediSpa services with the continued rollout of next generation technology with Simage, FLX, and CoolSculpting Elite, which offer improved results and reduced treatment time by up to 50%. These new technologies generated over 20% growth for these treatments in Q1 versus last year. In addition, acupuncture remains a after service with strong adoption of LED light therapy as a high conversion add on treatment. At quarter end, many SPa services were available on 148 ships up from a 42 ships at the end of the twenty twenty four first quarter. We continue to expect to have MediSpa offerings 51 ships this year. Third, we focused on enhancing health and wellness center productivity This is best reflected in the delivery across the board growth in key operating metrics.

Including revenue per passenger per day, weekly revenue, free cruise revenue, and revenue per staff per day. Which are 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 best in class training, 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 fuel increases in the number of guests using the spa service frequency, service spend and retail and average spend per guest. Additionally, pre booking revenue as a percentage of revenues remained strong at 23%. During the quarter, we introduced pre booking on the Virgin Voyagers fleet of three vessels. And fourth, we enhanced our capital structure and strengthened our balance sheet again. In recognition of our strong competitive and financial position, and our consistent free cash flow generation, our Board of Directors approved a new 75,000,000 share repurchase program extending our prior 50,000,000 share repurchase program that we substantially completed in the first quarter. Together with our quarterly cash dividend, this program demonstrates our commitment to enhance shareholder value through our enterprise growth and capital allocation strategies.

As we look ahead, we are experiencing favorable trends at the start of the second quarter and expect our proven operating strategies and strong competitive financial position further buoyed by decades of long experience, and the resilience of our business across economic cycles to have us poised to achieve our annual guidance. Overall, we believe we are well positioned to provide increasingly valuable service to our partners experiences to our guests, and results for our stakeholders and shareholders in fiscal twenty twenty five and beyond. With that, I'll turn the call over to Steven, who will provide more details on our first quarter results and guidance.

Stephen?

You, Leonard. Good morning, everyone. We are indeed pleased with our first quarter results realizing our expected growth in total revenues and adjusted EBITDA and generating predictably strong free cash flow. Our efficient capital structure and asset light business model combined with our strong cash flow generation funded the return of $42,000,000 to our shareholders in the quarter through our quarterly dividend payment and repurchases of our common shares. I will now share further details on our first quarter results that we reported earlier this morning. Total revenues increased 4% to $219,600,000 compared to $211.12 in the first quarter of twenty twenty four. The increase in service revenue and product revenue revenues were driven by a 2% increase in revenue days which impacted revenue by $5,300,000 and a 2% increase in guest spend which positively impacted revenue by $4,700,000 Contributing to the increased volume and spend was $2,300,000 in increased prebooking revenues at health and wellness centers included in our ship count as of quarter end. This was offset by a $1,500,000 decrease in our land based Swab business partially due to the closure of hotels where we had previously operated. Cost of services were 148,200,000.0 compared to $144,000,000 for the first quarter of twenty twenty four, with the increase being primarily attributable to costs associated with increased service revenues $178,500,000 in the quarter from our health and wellness centers at sea and on land compared with service revenue of $172,200,000 in the first quarter of twenty twenty four.

Similarly, cost of products were $35,300,000 compared to $33,500,000 in the first quarter of twenty twenty four. The increase was primarily attributable to costs associated with increased product revenue of $41,100,000 for the quarter from a health and wellness centers at CN on land compared to product revenues of $39,000,000 for the first quarter of twenty twenty four. Salary benefits and payroll tax were $11,000,000 compared to $8,500,000 in the first quarter of twenty twenty four. The increase was primarily attributable to expenses associated with the termination of employment of the company's former Chief Commercial Officer, including $1,100,000 of severance expense and $1,400,000 of expense related to vesting treatment with respect to restricted stock units and performance stock units. Net income was $15,300,000 or net income per diluted share of 15 pennies as compared to net income of 21,200,000.0 or net income per diluted share of $0.21 for the first quarter of twenty twenty four. The change was primarily attributable to a $7,700,000 benefit resulting from the change in the fair value of warrant liabilities in the first quarter of last year The first quarter of twenty twenty five benefited from a $1,800,000 in interest expense. 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 first quarter of twenty twenty four reflecting changes in market prices of our common shares and other observable inputs.

Deriving the value of these financial instruments. The $1,800,000 decrease in interest expense was primarily attributable to lower debt balances and a lower effective interest rate. Adjusted net income was $22,600,000 or adjusted net income per diluted share of $0.22 as compared to adjusted net income of $19,300,000 or adjusted net income per diluted share of $0.19 for the first quarter of twenty twenty four and adjusted EBITDA was $26,600,000 inclusive of that aforementioned $1,100,000 cash termination expense compared to adjusted EBITDA of $25,300,000 in the first quarter of twenty twenty four. If we turn then to the balance sheet, we continue to possess a strong balance sheet at quarter end with total cash of $23,800,000 after repurchasing $37,900,000 of our common shares and paying a $4,200,000 dividend in the quarter. In addition, we had full availability on our $50,000,000 revolving loan facility giving us total of $73,800,000 as of 03/31/2025. Total debt net of deferred financing costs was $97,400,000 at March 2025 compared to $98,600,000 at December 2024. As Leonard mentioned, reflecting our strong competitive and financial position and efficient capital structure and asset light business model that delivers consistent strong cash flow generation, our board of directors approved a new share repurchase program.

This program replaces the $50,000,000 share repurchase program that we initiated in the first quarter of twenty twenty four, which is substantially complete. We expect to continue to invest our surplus cash after investing in our growth to support the payment of our quarterly cash dividends repurchase our common shares and pay down debt. We expect the continued execution of our strategy and return of capital to shareholders to create long term value for all of our stakeholders. Before moving on to guidance, I would like to briefly comment on tariffs. As you are likely aware, the majority of our operations are not impacted by tariffs as products for distributions to cruise ships are held in a free trade zone In addition, for use in our MediSpa are purchased from US suppliers. These suppliers have not noted any disruption in the supply chain nor any increases in current pricing. Moving then on to guidance, as we look ahead, we remain confident in our outlook and expect total revenue growth to increase as we move through the year as we benefit from our strategic initiatives and as we add health and wellness centers on eight additional cruise ships during the remainder of the year most of them being back weighted.

As such, we continue to expect to report high single digit revenue and adjusted EBITDA growth rates at the midpoints of our guidance ranges. In fiscal twenty twenty five compared to fiscal twenty twenty four. Our guidance does not assume a significant deterioration in guest spending on board or a significant slowdown in cruising activity. 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 with adjusted EBITDA expected in the range of $115,000,000 to hundred and $25,000,000 We introduced for the second quarter of twenty twenty five total revenue in the range of $235,000,000 to to $240,000,000 with adjusted EBITDA expected in a range of $28 to $30,000,000 In summary, our business continues to build momentum and we see significant opportunity ahead. With a clear growth strategy, a high performing team and strong execution across the board, we expect fiscal twenty twenty five to deliver meaningful gains and drive substantial value for all of our shareholders. With that, we will open up the call for questions. Debbie, if you could open the call please.

We will now begin the question and answer session. To ask a question, you may press And please ask one question with one follow-up, and if you have further questions, please rejoin the queue. At this time, we will pause momentarily to assemble our Ross roster. The first question is from Steve Wieczynski with Stifel. Please go ahead.

So Leonard, I want to understand spend patterns a little a little bit more on board. Maybe you could give us some more color around what you're seeing in kind of real time in terms of guest spending. I think you mentioned in your prepared remarks that April trends were essentially the same as kind of what you guys witnessed in the first first quarter. But I want to understand if you guys have seen any changes in whether it's attachment rates, whether there's a difference in terms of spending across what you've seen in your land based assets versus maritime, Any change in demand for higher end services versus traditional treatments? Just trying to dig in a little bit more in terms of if your guests are starting to change their behaviors at all.

Yeah. Well, to be honest, we we look at the same questions that you just asked because those are all the indicators of pressure from the consumer or consumer competence or sentiment starting to decline, Fortunately, in our first month here in April, we have not seen a significant increase in discounting. We have seen spend continue to increase Actually, this last week was a good week, too. And spend was up We are still seeing high end services MediSpa services, and some of the upper body services in high demand. So we scraped through every single banner to take a look at where there was any kind of significant pressure and we have not seen that. So we will keep monitoring that because for us, the first indicator of a reduction in consumer sentiment or demand would be do we have to tweak any of our marketing tools that we use on board each and every week? We have not had to do that.

So your answer simply is at this point, we've actually seen no decline. If anything, we seen a slight improvement in April. Okay. That's interesting. Thanks for that, Leonard. And then second question, guess, if we think about full year guidance, I think mentioned that full year guidance doesn't assume any material changes in spending patterns. But maybe help us think about what would get you guys you know, more towards the low end of that guidance range or even below the low end. I guess what we're trying to figure out here to understand is maybe the sensitivity of how much of a change in demand and spending would have to occur in order to get you guys you know, at the low end of that range or even below that? Range?

Steve, good morning. I think I would answer the question simply as follows. The low end of the range assumes a moderation in spending on board so some slowdown but if it's going to be a significant slowdown then perhaps it goes below that. There is nothing that we are looking at that tells us we should pause and be concerned about a deterioration we'll spend on board You know, the cruise lines have generally come out and talked about their bookings, which have been very, very strong. They still continue to offer this tremendous value alternative to the guest. We then have a further layer of insulation where we are canvassing and bringing in on the ship a smaller percentage of those folks that wanna spend money So we feel at this point in time really comfortable about delivering our number.

Okay. Gotcha. Thanks, guys. Thanks for the color.

Appreciate it. Yeah. Of course.

The next question is from Sharon Zackfia with William Blair. Please go ahead. Hi, good morning. Thanks for taking the questions. I guess I wanted to kind of follow-up with that on the pre booking trends and whether you're seeing any difference in kind of willingness for consumers to pre book ahead of time or alternatively if you're seeing the cruise lines use kind of onboard spend credit incrementally to bolster trends which could actually benefit you. And a corollary to that would just be I know that you don't control the pre booking engines that the cruise companies have Just given the uncertainty, do you or are you seeing any pullback and the cruise company is kind of willingness to invest to continue to reduce friction in those prebooking engines.

Hey, Sharon. It's Leonard. Look, we actually saw a slight pickup. I mean, it's pretty much comparable 23% We're very encouraged thus far. We just rolled it out on on Virgin for the first time, as I mentioned. We have not seen a decline in the focus energy, although we're focusing on it much more with the cruise lines because it's important to keep the focus there and the pressure on the importance of pre booking. But we have not materially in any way adjusted pricing on pre booking, it's a very important part of setting the crews up as 23% of services are pre booked. So it continues to remain constant if not slightly up. We're expect with pre booking on Virgin, it will improve. There are other initiatives in place to improve it as well. So the cruise lines are being as receptive as they can and they're not pulling back in any significant way, Sharon. So we still focus on that, we still focus on that as a material and important part of setting the table for each cruise and how we yield manage through that cruise.

And and Leonard, on the, the bundling, are you seeing the cruise companies use onboard credits more aggressively at all?

Not yet, Sharon. It's you know? Okay. I mean, they only really use that level lever when they see a significant decline in booking trends. And I don't think we've seen that reported yet. Whilst I mean, Royal Caribbean's commentary yesterday was very positive about 2025. I mean, the visibility to 2026 is comparable with historical trends. NCLH continues to say it's decent, although they said there's some softening, so [indiscernible] each cruise line is gonna have a slightly different view of bookings. But, look, we focus always on the top, top suites first in order to get our 11% penetration we focus on the best guests, and then we go go everywhere else, obviously, to fill the columns. So we're not seeing the use of that magic onboard credit yet. I think when you see them start doing that, clearly then there are signs of some softening. But we haven't seen it yet in any material shape.

Okay. Great. Thank you. The next question is from Max Reklinko with TD Cowen. Please go ahead. Great. Thanks a lot and congrats on a very nice quarter. So first question, did you guys mention what what comps were for the MediSpa? I've missed that. I think you provided that the past couple of quarters. And then just how should we think about the potential slowdown in usage for MediSpa's if the backdrop were softened a little bit, just given the significantly higher ticket [indiscernible] to grow as a percentage of service. It's still max under 10% It's still eight or 9%. But we do see as we roll out more onto some of the newer ships, as we continue to improve the offering on existing ships where maybe the full platform is not rolled out, And there are ships that will still get some of the new services that are not there. We've not seen a reduction in demand thus far. So yeah, it's a high end ticket but clearly, the demand for it right now continues through April from what we've seen. And was very decent in the first quarter. So we're not seeing the early signs of deterioration even in the high end MediSpa.

Services.

Got it, that's great, appreciate it. And then if you can just take us back a little bit going to GFC, can you remind us how the business held in both on top line as well as margins as we are obviously starting to get more and more questions around what the downside can look like. So if you could just take us back and remind the business held in time.

Yeah, so the GFC was obviously the worst time, but it was a very small protracted period of time in which there was major emotional and stress to the financial systems and so people pretty much shut down. But that didn't last for a very long period of time. It pretty much kicked in at the end of 'eight and then lasted for about four months into 'nine. And then started to improve.

We We do not expect that type of contraction And our business actually fared better than most, as you can imagine. We were able to adjust marketing, maybe some discounting, The only thing that was impacted in any significant way was the retail attachment, which thus far continues effect. If anything, it's improved in the first quarter. So we've not seen that. And where we did have contraction or less demand for the retail attachment, we wanted to get the people in for services or two services, which is normal. But on the retail side, we maybe had to discount or bundle slightly differently. We've not done that thus far.

Exactly. Perfect. Thanks a lot, guys, and best regards. [indiscernible] The next question is from Laura Champine with Loop Capital. Please go ahead. Thanks for taking my question. Note you were pretty heavy in the market to buy your own stock in Q1 and that you've re upped the authorization this quarter. How sensitive is your buyback to any potential sign of softening in your business? Meaning, should we expect those buybacks to be contingent upon growth staying as strong as it is today?

Not necessarily, Laura. The Even if you go back to we're just talking about the last significant downturn in the economy. The company still continued to generate nice free cash flow. So should we see a softening in the business, which which again, I'll stress and emphasize we have not so far. And I'm not saying so far, I'm not implying that we're going to, we we we would likely still continue to buy back shares. You you know, the decision to buy back shares is more around the value where is the stock is there dislocation between the value of stock and what we where we think it should be? So I would expect us to continue to be in the market buying back shares at the right opportunities.

Understood. Thank you. The next question is from Gregory Miller with Truist Securities. Please go ahead.

Thank you. Good morning.

I'd like to ask a question similar to some of my peers as it relates to how you're seeing trends in second quarter to date. Did you see any weaknesses in spend immediately or the couple of days after the tariffs were formally announced or where there were more material stock market declines, immediately following the tariffs.

No, we didn't.

Playing devil's advocate, are you surprised that that you did not see any changes in spend activity or behavior?

You know, immediately after the tariff were announced, I mean, people are out there cruising. They had probably set in their minds what their budget was for spend or additional experiences. Did they get back home and start reevaluating with that incremental or discretionary spend needs to be? Probably. But we didn't see it whilst they were cruising during the tariff announcement. Okay.

Appreciate it. Yes, Greg, I would echo that. What Leonard says is not dissimilar to what we seen before in these short term plots. In the economy or incidents that affect the cruise lines where you're on vacation, you're gonna spend money, but certainly, potentially, the minute you get home, the wallet's slammed shut. But while you're on board, you're there. You've spent the money. You might as well have a good time and that's how we see people behaving in our business.

Terrific. Thanks, Stephen. I appreciate it.

Is Debbie. There anything else, Debbie, or are done?

I'm sorry, I was mute. Our next questioner is Ashiya Georgi Zha with Infinity Research. And she can please go ahead. Good morning, guys. Congratulations on a very strong quarter. I had a couple of questions. In terms of the pre booked revenue, the increase was $2,300,000 so about a quarter of the overall increase. How would you characterize what you have prebooked for q two and q three? I imagine you have some, pretty nice visibility at this point.

No. It's too actually, Frank. It's too soon, actually. And it's not something that we would provide a forward looking metric on that. It's still in development. We only have one quarter underway As we mentioned, at least we have one month into the quarter We've not seen any change to that number so as Steven said, yeah, it's too early. For us to comment. And historically, we wouldn't comment on a forward looking prebooking number.

Unfortunately, but I understand. Steven, you had mentioned that the provider of your Medispa products has not seen any price increases yet. Is that the keyword?

Not necessarily. So so there are many of those items and to to be completely clear, they may have seen certain input prices go up but they have at this point in time indicated to us that they did not expect any increases from them to OneSpaWorld. So our anticipation at this point in time is irrespective of what's going on in the tariff world. We would not see Medispar price increases.

So does it make sense to build inventory to possibly for that to carry you through, let's say, a few month long period of tariff impact? [indiscernible] It has expiration date. So you gotta be really careful.

Yeah. I know how those expirations Yeah.

It's refrigerated, and there's obviously limitations on the size of the refrigerator. Refrigeration capabilities on board. But at the same time, we keep sufficient inventory even for high demand or busy ships with mid spot demand. But to keep an excess of that beyond what we can store safely, we don't do that.

Makes makes perfect sense. And just two very quick housekeeping questions. In terms of land based closings, should we anticipate anything significant going forward the rest of the year?

Can you repeat that? I'm sorry.

What what do you mean? Can you repeat the question? Can you Because you had mentioned in your press release that land based revenues were slightly down because of the closings or the end of the relationship with some hotels and closing of some of those spas. Do you anticipate any significant changes in the number of spas to be operated going forward? I imagine not. And this is purely rampage. [indiscernible] I mean, the only the only thing we will say yeah. Yeah. Go ahead.

No. No. I'm gonna let you know.

Yeah. Look. I mean, look. I think every type of vacation option out there competing with cruise lines potentially might not do as well as the cruise industry itself because it's still an incredibly differentiated experience, but also great value. And the delta between land and sea is still pretty significant. I imagine that that's still gonna be your first call if you wanna take a family, and we're moving into the second quarter.

Vacations, school kids coming out. So this is a quarter where a lot of people do go onto the ships and go to Alaska. Go to Mediterranean. So you know, it's gonna be an interesting second quarter, but I think pretty much every itinerary out there, the load factors are gonna be consistently good and comparable with last year, if not better.

Perfect. And again, my very, very last question. The EBITDA number, if I were to exclude the cash severance amount, it would have come above guidance and would have been $27,700,000 Is that correct? Steve?

Yep.

Okay. Perfect. Thank you, guys. Good luck. I look forward to the next call.

Thank you.

Alright.

Thank you everybody and thanks for joining us today. We look forward to speaking with many of you at upcoming investor meetings and when we report our second quarter results in July. Thank you for joining us today.

Bye bye.

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