OneSpaWorld Holdings Limited (NASDAQ:OSW) Q1 2024 Earnings Call Transcript

OneSpaWorld Holdings Limited (NASDAQ:OSW) Q1 2024 Earnings Call Transcript May 1, 2024

OneSpaWorld Holdings Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the OneSpaWorld First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. And now I would like to turn the conference over to Allison Malkin for some introduction. Please go ahead, Allison.

Allison Malkin: Thank you. Good morning, and welcome to OneSpaWorld’s first quarter 2024 earnings call and webcast. Before we begin, I’d like to remind you that certain statements and information made available on today’s call and webcast may be deemed to constitute forward-looking statements. These forward-looking statements reflect our 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 first quarter 2024 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, Chief Executive Officer and President; and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our first quarter 2024 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and our guidance. I would now like to turn the call over to Leonard.

Leonard Fluxman: Thank you, Allison. Good morning, and welcome to OneSpaWorld’s first quarter 2021 results conference call. I’m very pleased to report another strong start to the year with our first quarter generating record results. We delivered robust double-digit growth in total revenue, income from operations and adjusted EBITDA, all of which were at record setting levels. We also achieved significant accomplishments towards our strategic priorities, which provide for our ongoing growth in the current year and well into the future. In fact, the ongoing strong momentum of our business from fiscal 2023 into early 2024 resulted in the best first quarter in history of our company. The resounding success across all fronts is a testament to the superior execution of our strategy by our exceptionally talented team.

Their relentless dedication to innovation, enhancement of partnerships, leveraging of our category dominance and adept navigation of our intricate business model have yielded extraordinary guest experience and outstanding service to our esteemed cruise line and destination resort partners that is translating into increased value to our shareholders. As we look ahead, the second quarter is off to a positive start, and we expect the continued superior execution of our strategy, combined with our ongoing ability to provide extraordinary service levels to our cruise and resort partners through a differentiated luxury experience for guests, and will position the company for continued success. Based on the continued strong execution by talented team, new partnerships and new initiatives, which continue to drive organic growth, we have raised our annual outlook beyond the outperformance achieved in the first quarter.

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Q&A Session

We currently expect total revenues to increase by 10% and adjusted EBITDA to increase by 12% at the midpoint of our guidance ranges from fiscal 2023. Additionally, in further demonstration of the confidence in our strategy, our near and long-term business prospects and our strong balance sheet, our Board of Directors approved a $50 million share repurchase authorization. Turning now to the highlights of the quarter. Total revenue was $211.2 million, increasing 16% from $182.5 million in the first quarter of 2023. The income from operations increased 52% to $17 million from $11.2 million a year ago, and adjusted EBITDA rose 31% to $25.3 million from $19.3 million last year. The expansion in our ship count continued during the period. At quarter end, we had health and wellness centers on 193 ships, and an average ship count of 188 for the quarter compared with 179 ships and an average ship count of 173 ships at the first quarter of 2023.

Also, at quarter end, we had 4,082 cruise ship personnel and vessels compared with 3,665 at the end of the first quarter of 2023. We also saw strength across key operating metrics, recording increases in average weekly revenue per ship and average weekly revenue per shipboard staff per day above the levels achieved in the first quarter of 2023. Keep in mind that the first quarter fiscal 2023 cruise ship personnel was below full count levels as passenger load factors were still returning to normalization post COVID-19. Notably, in the first quarter, we continued to surpass the level of experienced staff members in 2019, reflecting the success of our ongoing initiative to retain onboard staff members. These experienced staff members contribute to the delivery of double-digit growth across certain key operating metrics as compared to fiscal 2023 and 2019.

The quarter also marked a key milestone for our company as we reached the fifth-year anniversary of our de-SPAC public listing. As Stephen will comment momentarily in addition to our robust revenue and profit growth, notably OneSpaWorld warrant holders expressed their support for the company with 98% of all outstanding warrants converted. The remaining warrants were canceled. Importantly, we also eliminated the overhang of our private equity investor, which sold its final tranche of shares, simplifying our capital structure while increasing trading liquidity in our public float. The quarter included progress towards our four strategic priorities, let me share some highlights. First, we captured highly visible new ship growth with current cruise line partners and added new cruise line partnerships to our fault.

To this end, in the first quarter, we entered into a new exclusive agreement with Royal Caribbean and Celebrity Cruises for their 40 ships currently in service and future ships entering service during the agreement terms. In addition, at quarter end, we added Aroya Cruises to our list of partners where we operate all health and wellness facilities beginning late 2024, thereby, strengthening our market-leading competitive position and providing further evidence of our best-in-class operating capabilities. We expect to end fiscal 2024 operating on about 198 vessels. Second, we continue to launch high-value services and products. Our innovation pipeline is robust this year with introductions of cryotherapy body services and new cryotherapy and LED facial services to complement the new technology driven by ELEMIS BIOTEC 2.0 facial.

Additionally, we continue to introduce LightStim therapy, augmenting other acupuncture services, which has dramatically improved acupuncture revenue on the vessels where we have introduced this protocol. Third, we focused on enhancing health and wellness center productivity. We grew key maritime operating metrics at double-digit rates, supported by a sustained pipeline of strategic initiatives to increase pre-booking, the number of treatments per client and the number of passengers utilizing the spa. As we previously discussed, pre-booking guests spend on average 30% more than those who book on board while allowing us to better optimize staffing, facilities and service capacities to drive higher health and wellness center economics. We also continue to drive higher revenue services by simplified service menus and modified treatment lens, which contribute to growth in average spend per guest.

Average guest spend also benefits from refinements in length of service and pricing architecture of certain services, which resulted in increases in service frequency and a mix towards higher-priced services and products. We also increased our Medi-spa offering with services on 122 ships at the end of the first quarter of 2024, up from 122 ships in 2023. We continue to expand our Medi-spa offering to 148 ships this year. Fourth, we further enhanced our financial position and flexibility. In addition to the simplification of our capital structure, we utilized our strong cash flow to repurchase our common shares and repaid $20 million of our first lien term loan during the quarter. This brought total debt reduction to $94.1 million since the second quarter of 2022, which has substantially lowered ongoing interest expense.

And fifth, our Board of Directors approved a $50 million share repurchase program, further demonstrating the confidence in our strategy and long-term growth opportunities. Overall, we remain excited about our business outlook. We expect a strong start to the year, coupled with visible growth opportunities made possible by the advantages we possess in the operation of health and wellness centers at sea, and a destination resorts and on land, further buoyed by highly favorable market dynamics across the Cruise Line industry to position us for another record-setting year in 2024. With that, I will turn you over to Stephen, who will comment on our first quarter financial results. Stephen?

Stephen Lazarus: Thank you, Leonard. Good morning, everybody. We are pleased to report a strong start to the year with better-than-expected top and bottom-line results, along with further improvements to our balance sheet. I will share some more details on our first quarter that we reported this morning. Total revenue was $211.2 million, up 16% as compared to $182.5 million in the first quarter of 2023. The increase principally was attributable to our average ship count increasing 9% to 188, health and wellness centers on board ships operating during the quarter, compared with our average ship count of 173, health and wellness centers onboard ships operating during the first quarter of 2023. In addition, we benefited from our initiatives to drive revenue growth and profitability in each of our onboard health and wellness centers, through enhanced pre-booking of guest services, onboard guest engagement and experiences, our guest service and product offering innovations, and the disciplined execution of our complex operating protocols by our onboard and corporate teams.