Onespaworld Holdings Ltd (OSW) 2024 Q4 法說會逐字稿

Good day and welcome to the OneSpaWorld fourth quarter 2024 earnings call. All participants will be in listen only mode. Should you need assistance please signally conference specialist by pressing 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 and one on your touch tone phone (Operator Instructions)

I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning and welcome toOneSpaWorld's fourth quarter and fiscal 2024 earnings call and webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's common 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 Timi date on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our 4th quarter 2024 earnings release, which was furnished to the FEC today on Form AK.

We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-gap metrics on this call. An explanation of these metrics can be found in our earnings release issued earlier this morning.

Joining me today are Leonard Fluxman, Executive Chairman, Chief Executive Officer and President, and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our fourth quarter and fiscal 2024 performance and provide an update on our key priorities as we begin fiscal 2025. Then Stephen will provide more details on the financials and fiscal 2025 guidance.

Following our prepared remarks, we will turn the call over to the operator to begin the question-and-answer portion of the call. I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning and welcome to One Spa World's 4th quarter and fiscal year 2024 earnings conference call. It's a pleasure to speak with you today and share our 4th quarter results, which concluded another excellent year of financial and operational com accomplishments.

Our team delivered a strong finish to an outstanding year of growth, with fiscal 2024 marking our second consecutive year of record performance, which continues to evidence the combined power of our global operations, innovation across our business, outstanding team, and a strong financial position. All of which are focused on delivering extraordinary experiences for our health and wellness.

Send a guest an invaluable service to our cruise line and destination resort partners. I want to especially recognize our dedicated, passionate, and enormously capable team whose steadfast commitment and contributions every day produced our robust results.

We begin fiscal 2025 strongly positioned and expect to deliver another year of record performance. And as outlined in our press release issued earlier this morning, given our strong fiscal 2024 performance and our positive outlook for 2025, we are affirming our recently provided full fiscal year 2025 guidance.

Touching on highlights of the quarter, total revenues increased 11% to $217.2 million compared to $194.8 million in the fourth quarter of 2023. For the full year, total revenues increased 13% to a record $895 million compared to $794 million in fiscal year 2023. Income from operations increased 37% to $17.2 million compared to $12.6 million in the fourth quarter of 2023.

For the full year, income from operations increased 44% to $78.1 million compared to $54.2 million in fiscal year 2023. And finally adjusted EBITDA increased 14% to $26.7 million compared to $23.4 million in the fourth quarter of 2023. For the full year, adjusted EBITDA increased 26%. To a record $112.1 million compared to $89.2 million in fiscal year 2023. At year end, we operated health and wellness facilities on 199 ships with an average ship count of 188 ships. This compares with a total of 193 ships and an average ship count of 184 ships at year end fiscal 2023.

Also, at year end, we had 4,352 cruise ship personnel on vessels compared with 4,120 cruise ship personnel and vessels at year-end fiscal 2023. Along with our strong financial results, the year included noteworthy progress towards our key strategic priorities. Let me share these highlights with you.

First, we captured highly visible new ship growth with current cruise line partners and added new cruise line partnerships to our fold. We expanded our health and wellness services, adding 7 new maritime health and wellness centers. Inclusive of 5 new ship builds and the renovated Mitsui Ocean Fuji and the Arroya Manara to our fold, in addition, we entered into a new seven-year agreement with Royal Caribbean International and Celebrity Cruises, extending our more than 30-year relationship with both banners. We ended fiscal 2024. Operating on board 199 vessels and expect to add 9 new maritime health and wellness centers in 2025.

Second, we continue to expand higher value services and products. In this regard, the expansion and demand for our Medi-spa, IV therapy, and acupuncture continues to drive increased revenues to those modalities. Cryotherapy, mega White, and LED light facial services continue to perform, and we will continue our ramping of these services to our leet in fiscal 2025. Third, we focused on enhancing health and wellness center productivity.

We grew maritime operating metrics, which continued strong growth in revenue per passenger per day, weekly revenue 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 the dedication to our company and the empowering culture we create.

Looking ahead, we have a number of initiatives in place to retain our best staff, which we will continue to emphasize to further grow our operating metrics.

Our operational metrics also increased, reflecting the benefit of our sales training. This is fuel this field increases in total revenue, guests utilizing the spa, service frequency, service spend and retail, and average spend per guest. Pre-booking revenue as a percentage of services remains strong at 22%, even as we phase in new partners that are just beginning to scale. We continue to see passengers that pre-book services spending more than 30% more than those that do not pre-book.

And finally, we continue to expand productivity with our [medspas. The quartera]. Same spa revenue overall up more than 30% year over year. We continue to increase the number of doctors and nurses we have on board and add to our service offering. At year end, Medi-spa services were available on 147 ships, up from 139 ships at the end of 2024 fiscal year.

We now expect to have Medi-spa offerings increasing to 151 ships this year. 4th, we enhanced capital structure and strengthened our balance sheet. During the year, we reduced our debt to $100 million and increased our public float as a private equity investor, Steiner Leisure Limited exited. Additionally, in recognition of the confidence in our strategy and outlook this year, our board of directors approved the initiation of an ongoing quarterly cash dividend payment and share repurchase program.

We ended the year with $58.6 million in cash after dispersing $12.6 million in quarterly dividends, paying down debt by $69 million and investing $19 million to repurchase our common shares during the year.At year end, we had $38.7 million remaining on our $50 million share repurchase program.

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 positive performance clearly demonstrates the success of our strategy and the strength of our talented team that manages our highly complex business with precision. With visible growth opportunities ahead and positive business momentum, we remain confident in our ability to deliver increasing value to our shareholders in the year ahead and longer term. With that, I'll turn the call over to Stephen, who will provide more details on our fourth quarter and fiscal year 2024 results. Stephen.

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

Additionally, we continued 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 4th quarter and year results that we reported earlier this morning.

Total revenues increased 11% to $217.2 million compared to $194.8 million for the fourth quarter of 2023. The increase in each of service revenue and product revenue were driven by fleet expansion, which contributed $11.2 million a 5% increase in our guest spend, which positively impacted revenue by $8.6 million and $3.5 million of higher onboard penetration from more guests.

Contributing to the increased volume and spend was $3.5 million in increased pre-booked revenue on health and wellness centers. Cost of service were $145.3 million compared to $131.8 million in the fourth quarter of 2023, with the increase being primarily attributable to costs associated with our increased service revenue of $175.8 million. In the quarter from our operating health and wellness centers at sea and on land compared with service revenue of $139 million in the fourth quarter of 2023.

Similarly, cost of products with $35 million compared to $30.7 million in the fourth quarter of 2023, with the increase being primarily attributable to the increased costs associated with product revenue of $41 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $35.9 million in the fourth quarter of 2023.

Net income was $14.4 million or net income per diluted share of $0.14 as compared to a net loss of $7.3 million or net loss per diluted share of $0.07 for the fourth quarter of 2023. The change was primarily attributable to a $10 million positive change in the fair value of warrant liabilities reflected in other income expense in 2023. A $7.2 million decrease in interest expense net and a $4.6 million increase in income from operations. All warrants were exercised or canceled in 2024 with zero expense incurred during the fourth quarter of 2024.

As 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 2023, reflecting changes in market prices of our common stock and other observable inputs deriving the value of those financial instruments. The $7.2 million decrease in interest expense was primarily attributable to lower debt balances. Offset by a one-time $5.4 million deleveraging fee incurred during the fourth quarter of 2023.

The $4.6 million change in income from operations, primarily derived from the increase in the number of health and wellness centers on board ships operating during the year and increased productivity of our maritime health and wellness centers.

Adjusted net income was $21.4 million or adjusted net income per diluted share of $0.20 as compared to adjusted net income of $12.5 million or adjusted net income per diluted share of $0.12 in the fourth quarter of 2023. Adjusted EBITDA was $26.7 million compared to adjusted EBITDA of $23.4 million in the fourth quarter of last year.

For the fiscal year, total revenue of $895 million reflecting an increase of 13% compared to $790 million for the 2023 year, with adjusted net income increasing 45% to $89.7 million or $0.85 per diluted share from adjusted net income of $61.9 million or $0.63 per diluted share in fiscal 2023. And adjusted EBITDA increased 25.7% to $112.1 million as compared to adjusted EBITDA of $89.2 million in fiscal 2023.

Turning to the balance sheet, the US saw us enhance our capital structure, reducing debt to $100 million and increasing our public float with the exit of our private equity investor sponsors, Sin Leisure Limited. We ended the year with total cash at $58.6 million and full availability on our $50 million revolving term facility, giving us total liquidity of $108.6 million. In the fourth quarter, we utilize $4.2 million in cash to pay dividends. Since returning to service in fiscal 2022, we have repaid over $133 million of indebtness, reducing our debt to the $100 million dollar mark, and have repurchased 2.14 million shares in total for $28 million.

Total debt net of deferred financing costs was $98.6 million at December 31, 2024, compared with $158.2 million on December 31, 2023. And as mentioned, the $50 million revolving facility was undrawn at your end. We expect to continue to generate positive cash flow for operations and after-tax cash flow throughout fiscal year 2025.

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 million remaining on our current share repurchase authorization. And the company expects to continue to repurchase shares in 2025.

Moving on to the guidance that provided with our strong 2024 performance and a positive outlook, we are affirming our recently provided full year fiscal year 2025 guidance, reflecting high single digit growth in revenue and adjusted EBITDA at the midpoints of our guidance range as compared to fiscal 2024 results.

As a reminder for the full year of fiscal 25, we expect total revenue in the range of $950 million to $970 million. Adjust EBITDA is expected in the range of $115 million to $125 million. And we expect to open health centers on board 9 new ship-built introductions in 2025, the majority of which are expected to commence voyages in the fourth quarter of the year. For the first quarter of 2025, we expect total revenue in the range of $215 million to $220 million with adjusted EBITDA expected in the range of $25 million to $27 million. Due to the leap year last year in 2024. The first fiscal quarter of 2025 includes one less operating day, and in addition, we are expecting a higher number of dry docks in the first quarter of 2025 versus 2024. The combination of both of these factors is expected to negatively impact total revenue in the first quarter by approximately $4.3 million.

And in summary, we are entering 2025 strongly positioned and with favorable momentum. We remain confident that fiscal 2025 will represent another year of record performance for Sar1 World and increased value for our shareholders. And with that, we will open up the call for questions. Dave, if you could go ahead, please.

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow up. Requeue to ask additional questions.

Our first question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi, good morning, thanks for taking the question.

I me Leonard, did you say that same spa revenue is up more than 30% and if so, can you talk about kind of of those kinds of increase [unaudible]

Okay.

Or ticket or kind of what the the leading factor is there.

Sorry, Sharon, you broke up at the end there.

Can you just repeat the second part?

Yeah, sorry, the, well I was asking about the durability. And the same spa revenue on meta spa. Whether that's primarily driven by ticket or traffic.

So, indeed, Medi-Spa, which has been a huge focus of ours to grow, obviously, it's just an incredible part of our offering higher prices on a single ticket. Volume continues to increase and the outcome of the 30% year over year growth on same sass has been.

The result of major focus also adding more staff in that modality and so to the extent that we can load up more doctors and nurses to take care of the demand and the volume that we're seeing, we will see this continue to grow. So, a large focus has been there for 2024 and will continue through 25. To the extent we can get incremental real estate or staffing, all of that contributes to better growth.

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

It's a little bit of more passengers coming in. Obviously, we're limited to the extent that on some ships we don't have more than say a doctor or two doctors. On the ships that we have a doctor and two nurses, we definitely can extend.

The real estate by, sharing different rooms for different modalities, and that's been a part of the utility, at least the facility utilization, maximization strategy that we continue to follow across all modalities on board. So yeah, it's definitely paying off.

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

There is nothing weighing it down, Sharon. The 4th quarter, as total revenue, is less in the 3rd quarter and so in the 3rd quarter, we just saw a little bit of incremental flow through.

Covering a proportion of the fixed cost, yes, its primarily variable, but there are some fixed costs and so when the revenue levels are significantly higher, we did see some benefit from that. There is nothing fundamental though, as it relates to that decrease in the 4th quarter.

Okay, thank you.

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

Hey guys, good morning, want to stay on the margin side of the story. So, if we look at the midpoint of your guidance, for the year you're expecting a margin. I think it's probably right around 12.5% or somewhere in that range, which is essentially flat with kind of where you were for 2024. So just, yeah, I just want to understand a little bit better, why there wouldn't be some opportunity for margin expansion this year, giving the opportunity not only to take price on board but. You obviously have higher pre-booking activity as well which I think would add to you know spend levels once folks are on board so just you know wondering what I'm missing in terms of maybe you know some of the headwinds that might be out there, on the cost side of things.

No, Steve, there aren't any, you, you're not missing anything as it relates to headwinds on the cost side of things. We, 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 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, etc. 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 may be wondering how you guys are thinking about. Balancing dividend growth versus share repurchases and obviously, a move, today the market isn't reacting well to your release, and you know with these types of uncharacteristic moves in your stock be the type of things where you get more aggressive on the buyback just trying to understand how you guys are kind of thinking about buyback versus dividend growth now.

Yeah, so Steve, we absolutely on a day like this, we'll take a look at it and see if it's, the right price to go at. We have an algorithm. I think we're getting close to that range. So, to the extent it's 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 yield 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 9 ships look like they probably won't be coming more into the, probably more into the 4th quarter.

Yeah, I can, I can tell you specifically. I mean there's only one ship that comes in in queue 12 ships in queue 21 in queue 3, and the remainder are all in queue 4.

Okay, so everything's kind of 4th quarter loaded this year. Got it. Okay, thanks guys appreciate it. Yeah.

Yeah, you really only get 112, 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.

Go ahead. Thanks. Good morning. A couple of questions for you on your guidance.

Start off with one cue. I'm curious, were norovirus incidents materially impactful to your 125 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 dry docks impact over the course of this year if there is any quarterly cadence or any anticipation of above average dry docks in the 2nd quarter as well.

Thanks.

There is no, the first quarter was normal.

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. Historic or 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.

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'll continue to focus on that, Laura.

But yeah, it's, when you're moving across 199 ships, it takes a little work.

So it's not a quick process. It's not a flip of a switch or anything. And then banner by banner we have to make sure that we have it right. So in some cases we will take a look at it, we'll test it, and then determine if we're at the right place, if we've over rationalized or if we've done, pricing transformation that's working or not working, and we make subtle changes and tweak it all the time.

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

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

Got it thank you very much.

You're Welcome.

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

Good morning, Leonard and Steven. A couple of quick questions. First of all, can you understand a little bit better the economics of the medi spa, set up. So if you have a doctor and two nurses, obviously more real estate, greater utilization, but, is the cost equation higher, for example, if you have two doctors and 2 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 an 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 longish question.

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

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

Look, I'm not going to say it's not a limitation. I'd like to see bigger med spass 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 med spar and sort of the areas where, the relaxation areas. So all of that contributes to the overall experience, but no, it's not an absolute limitation what we have today. It's more us utilizing our spar layout in the rooms.

At a maximum use and demand. So, we continue to look at that across every banner. We'd love to have more space, but always that's a challenge.

Yeah, well, I wouldn't, I know you would love to have more space. And my second question is more in terms of, the tone of, the industry is, I, track about 35,000 voyages each week and so far wave season seems to be very strong and I believe that some of the cruise banners have said that they've had record bookings, including P&O out of the UK, because you're almost like a simultaneous indicator because you're seeing what's going on on. Board for about a month and a half now. I imagine you're probably seeing sort of what people were planning on doing about 3 months ago or 6 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 seems that way for advanced bookings and I just wanted to compare what's happening in real time versus the advanced ticket bookings.

Yeah, look, I mean, if you look at all the analyst reports that we've been reading lately, I mean. It still supports. Strong Picadils. 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, 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 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 a clear indicator of softness and so that hasn't materially changed.

Okay, well, thank you for that. And just one comment. I have been following you guys since November of '97, a year after the IPO and I think today is the first time where we have discussed the leap year having an extra day. I am fully aware of of the dried out. 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.

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

Right, and the day is $3 million.

The, 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 Flexman for any closing remarks.

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

Thank you very much, everybody.

The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.