Q3 2019 Earnings Call
Thank you for standing by this is the conference operator welcome to the O S. W Holdings third quarter 2019 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
Joined the question Q you May press Star one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to this Jessica Schmidt I see our please go ahead.
Thank you good morning, and welcome to one spot World third quarter fiscal 2019 earnings call in Black.
Before we begin I'd like to remind you that certain statements information made available on todays call in webcast, maybe deemed to constitute forward looking statements. These forward looking statements reflect our judgment and analysis only as of today, an actual results may differ materially from current expectation.
Based on a number of factors affecting our business. Accordingly, you should not place undue reliance on these forward looking statements from more thorough discussion of the risks and uncertainties associated with the forward looking statements to be need in this conference call and webcast. We refer you to the disclaimer regarding forward looking statement.
Got it included in our third quarter 2019 earnings release, which we furnished to the SBC today on form 8-K.
We do not undertake any obligation to update or alter any forward looking statements whether at the result of new information future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics in the.
Explanation of these metrics can be found in the earnings could be filed earlier today joining me on today's call. Our Lonore spokesman executive Chairman blind spots feel Chief Executive Officer, I'm confident and Steven Lazard Chief Financial Officer.
Operating locker, thank you and I'll now turn the call over to Leonard.
Thank you Jessica.
Good morning, and welcome to one Falwell third quarter fiscal 2019 earnings conference call.
As we indicated that I lost earnings call, we'll be providing an update on our capital allocation framework with third quarter results.
We remain confident that I problem and market position in an ever growing industry positions us for sustained success.
Consistent with our focus on delivering value to shareholders. We are delighted to announce the initiation of a cash dividend program today.
The boards approval of a dividend program to be paid quarterly.
Flex our strong cash flow generation offer investment denied growth initiatives.
The initial quarterly dividend payments approved its full pennies per common share.
And the indicated annual rate all 16 cents Christian I represents dividend yield of approximately 1%.
The first quarterly dividend is payable on February 28, 2020.
The shareholders of record as of the close of business on January 10 2020.
Furthermore, the board continues to evaluate the various options and advice as it relates to the conversion of the 24 million outstanding warrants.
Now turning to review about third quarter period.
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Our third quarter performance was highlighted by increases in sales and adjusted EBITDA growth in adjusted net income as a strong off the tax free class cashflow conversion.
We continued to show our ability to generate strong cash flow with a 92% conversion of adjusted EBITDA to Unlevered after tax free cash flow for the quarter.
And 93% for the yesterday period.
We were pleased to deliver these results even as we enjoyed an unprecedented hurricane and lost revenue days from unexpected ships out of service.
Hurricane Dorian was a unique storm given its duration slow movement strength and thought.
Close ports from Miami.
All the way up north to Port Canaveral.
Well, we have returned to normal operations, we do expect a small impact to fourth quarter performance related to the hurricane which is included in our updated guidance.
As many of Oh, you are aware we attended could find this person station for the RFP process for the celebrity legacy fleets, which includes nine ships and we believe our presentation was received favorably.
We are encouraged and remain hopeful that a favorable outcome will be determinant imminently.
Let me touch on some of the highlights from our third quarter. My remarks will focus on adjusted results that excludes the negative impact of American Dorian an unexpected ships out of the this year over year.
Total revenues increased 3% to $147 million.
Adjusted net income grew 24% to 9 billion in line with guidance.
Adjusted EBITDA was $15.9 million.
Up 7% in line with guidance.
An unlevered after tax free cash flow increased 7% to $14.6 million.
But I like to spend a few minutes discussing our progress on our growth strategy.
We continue to focus on a core growth strategies, which include securing contracts on new cruise lines and select destination resorts.
Servicing new vessels under existing cruise line contracts.
So it'd be executing programs to life increase on to increase onboard revenues through new products and services all of which we have executed during the year to date period.
Well it is for new ships by cruise line partners remain robust.
Paving the way for future growth.
So far in the fourth quarter, we commenced service on the Sky Princess the Norwegian Encore and the Carnival pet around the is on track for early December .
The cost us where all the which was due to come into service late October has now been delayed too late December .
As mentioned we are on track with up has commenced operations as exclusive health and wellness provider for the regent seven seas and oceana vessels.
Insisting of 10 vessels plus the three view, though.
These agreements underscore our and ongoing ability to provide ex <unk> exceptional spar and wellness offerings and further enhance crews governs guest experiences.
In closing we are confident in the future of our business Im pleased to communicates our shareholders. Our first ever dividend announcement in such a short period of time of being public.
The company continues to make progress on furthering our leading market share and capitalizing on the ongoing momentum in the cruise line travel industry.
We continue to expect our strategies to lead through libel growth and value creation for all our stakeholders for years to come.
The favorable industry Tailwinds in combination with I bought infrastructure and operational expense positions us well through each these goals.
In fact, the global cruise sector is expected to continued its strong sustained.
Yes.
With the cruise capacity projected to increase at a CAGR of 8% from 2018 through 2022 fueled by favorable demographic trends, including the aging of global population continues health and wellness trends and the worldwide millennial focus on expenses.
By way of examples of publicly available global order book for news cruise ships has reached an all time high.
I'll now turn it over to Glenn to provide details regarding other operational highlights, including an update on a pre booked and dynamic pricing initiatives, but.
Thank you Mr.
We continue to expand our superior service and product offering, giving guests more choice and experiences while making it easier for them to book and prepaid.
This drives incremental revenue for once far world and our cruise line partner.
To this end during the quarter.
The booking is now available on 81% of our total vessels increasing from 68% at the end of Q2.
Pre payment is offered on 64% of our total vessels increasing from 51% at the end of Q2.
Dynamic pricing is utilized on 57% of our vessels up from 32% at the end of Q2.
Our plan is to roll out these initiatives to the majority of it if we as appropriate.
As you know 2020 marks an unprecedented amount of new ships for ones bar World. As you would expect our resources are intently focused on staffing and training ahead of this activity.
With that I will now turn the call over to Steven who will provide additional information on our third quarter financials and guidance.
Thank you Glenn good morning, ladies and gentlemen.
I'll begin with a review of the third quarter, and then share I stated guidance.
Total revenue for the quarter were $145 million, a 2% increase compared to the third quarter last year.
You can dorian an unexpected ships that were out of service negatively impacted revenue in the quarter by approximately $2 million.
Excluding this negative impact revenue increased 3%.
The increase from last year was primarily driven by three incremental net new shipboard health and wellness centers edit to the fleet of cruise line partners.
They continue to trend towards larger and enhanced shipboard health and wellness centers.
The increase in collaboration with cruise line partners.
This was partially offset by the aforementioned negative impact of the Harry can an unexpected trips other service.
The split the revenue growth between service and product revenue was as follows.
This revenue increased 2% to 111 million, while product revenues were essentially flat at $34 million compared to the third quarter fiscal 2018.
Average weekly revenue per ship was $63473 up one person from $62787 in the third quarter last year.
Average revenue per shipboard stock per day was down 1% year over year to $493.
Excluding the impact on three large vessels with significant year over year itinerary changes stock productivity would have been unchanged.
Average weekly revenue per land based resort decreased 25% as expected due to the larger number of managed pausing on mix during the quarter, which generate less revenue per facility, coupled with a negative impact of how are you couldn't dorian specifically as it related to our destination resort.
Health and wellness centers in the Bahamas and Florida.
Cost of service increased $1.9 million or two per cent compared to this third quarter fiscal 2018, and this increase was primarily attributable to the increase in service revenue.
Cost of product decreased $300000 or 1% compared to the third quarter fiscal 2018.
The decrease was primarily attributable to lower product revenue.
Partially offset by the noncash impact of purchase price accounting adjustments related to inventory fit that your adjustments in connection with the business combination.
Administrative expense increased $3 million to $5.4 million compared to the third quarter fiscal 2018, driven primarily by expenses incurred in support of our operations as a new publicly traded company.
And in increasing depreciation expense due to the noncash impact of purchase price adjustments related to the fair value adjustment to property and equipment in connection with the business combination.
Salary and payroll taxes decreased 1.1 million to 3 million compared to the third quarter fiscal 2018 as lower incentive compensation expense was partially offset by increased headcount necessitated by being a new publicly traded company.
Adjusted net income increased 17% to 8.5 million and adjusted EBITDA was 15.4 million in the third quarter up 3% from the third quarter fiscal 2018.
Excluding Harry can Dorian at an unexpected ships out of service adjusted net income an adjusted EBITDA would've increased 24% and 7% respectively.
Adjusted net income per diluted share totaled 11, pennies on 75 million diluted shares.
Or 13 pennies per diluted share excluding the one penny per diluted share negative impact of Harry can Dorian and unexpected chips other service and a one penny per diluted share impact due to the increasing the diluted share count versus guidance.
Cash at September 30th totaled $16 million and total debt near to deferred financing costs at the end of the quarter was $226 million.
In the fourth quarter, we anticipate reducing debt by approximately $10 million.
Unlevered after tax free cash flow for the third quarter fiscal 2019 was $14.1 billion.
Moving on to our guidance.
We are updating our full year guidance to reflect our sales and net income performance year to date and increasing the diluted share count as well as our current expectations for the fourth quarter.
We're also introducing our fourth quarter guidance as follows we expect revenue in the range of $137 million to $142 million adjusted EBITDA is expected between 12 and $14 million.
Adjusted net income is expected between six and $8 million or between eight pennies and 11 pennies per diluted share based on 75 million shares diluted and outstanding as of September Thirtyth 2019.
Capex is expected in the range of $1 million to $1.4 million.
Our full cost assumes 170 ships at the end of the period within every ship count of 164 for the quarter every chip conflicts. The ships that are expected to be in another service during the quarter. It also assumes 60 acres, let's pause at the ended the quarter within every two years old count of 60 not.
For fiscal 2019, we expect revenue between 560, and 565 million, we expect adjusted EBIT, there between 58 and $60 million.
And this compares to 2018, adjusted EBITDA of $58.6 million, all 55.8 million, including comparable.
The company costs.
Adjusted net income between 33, and 54 million is our forecast, which is consistent with the adjusted net income guidance that we provided on our very first Q1 earnings cool, which was our first guidance as a public company.
Adjusted net income per share is expected between 44 and 47 pennies per diluted share based on 73.4 million diluted shares outstanding on the year to date basis as of September Thirtyth 2019.
For the full year, we expect capex to be between 3.4 and $3.8 million.
A full cost assumes 170 ships and 68 resorts at the end of your within every chip count of 161 in every just sort count of 60 age.
And with that we'll open the call it up for questions service. If you could please open the call.
Thank you Sir we will now begin the question and answer session did join the question Q You May Press Star one on your telephone keypad, you'll hear a town acknowledging your request if you're using a speakerphone. Please pick up your handset before pricing any Keith.
Withdraw your question. Please press star too, we will pause for a moment as colors join the queue.
Our first question comes from George Kelly with Imperial Capital. Please go ahead Sir.
Hi, guys. Thanks for taking my questions.
So first just if you could.
Go back to guidance I'm curious about your full year guidance and.
You know that it sounds like the impact from the storms is about two and a half million and full year revenue guidance came down somewhere around 10. So just wondering if you could bridge.
Bridge said that difference.
Hey, good morning, George So.
Obviously from a full year perspective, the guidance takes into account the actual performance in Q3, which is lower than what is implied previously.
It also takes into account the second delay unfortunately in the delivery of the cost as much older which is unprecedented and typically ships are always delivered on time, but as you know this is a unique vessel and then it's going to be LPG powered and so hopefully that'll come out on time as well.
There is also some lingering effects on our resorts in the Bahamas, where we're seeing some lower occupancy and a little bit lower than expected performance.
And then finally, there is a slight that fly in and we're taking account of that with regards to some.
Union itineraries that lost sailing.
That is reflected in my guidance as well.
Okay. Okay.
That's helpful.
Then next question for me just about high the dividend and free cash so.
Oh your dividend.
Hi.
Still allows for a lot of flexibility. So what are your priorities I always with a few additional with Oh the free cash.
That's left.
Yeah. So the properties still remains obviously the de leveraging.
With our expectation that we would continue to see leverage and bring down the.
Yeah that the company currently has while at the same time paying the dividend and also a investing in any other [noise].
Gross initiatives et cetera that you see but as it relates to debt that we would anticipate by the end of 21 getting down to $175 million on this and then down to 140.
Million dollars by the end of 22 or less so I think I'd say say combination of returning cash to shareholders. While at the same time continues to be leverage at a fairly rapid rights and having cash available to invest as appropriate in any both initiatives.
Okay and then last question for me just about CBD.
Can you give us an update where you are with or without testing.
[noise] George this is Glenn working in forging for heavily we will start U.S. space with our resorts and ecommerce you for a maritime at this point it looks like it'll be Q1 of 2020 still overcome the all of the regulatory hurdles and the federal.
Oh agencies that we want to step in [noise] as it pertains to the maritime industry. So product is is developed.
Packaging is done marketing is ready, we're just doing with all the regulatory issues, but.
2020 would be the year proceed.
Hey, Joe just getting back to your last question on cap structure, you know we still have.
But I I spoke a little of about.
So that we are studying the water and situation and the way, where we're going to move.
I lost board meeting, we did a very very deep dive a long conversation a lot of advice given a lot of optionality there.
I think we very very close to making a decision we haven't as yet finalized exactly which possibly going to take but I would say we much closer than we were on our last quarter when this stuff too.
Okay. Thank you.
Our next question is from Sharon Zackfia with William Blair. Please go ahead.
Hi, good morning.
I said I missed part of the answer to the last question I think you said something about the Mediterranean and the fourth quarter I'll now could you just clarify.
What that impact is.
Yeah. So sure enough. Good morning, it's even we have seem a little bit of softness with certain grand sailing in the Mediterranean as it relates to spend on board, particularly as it relates to product sales.
And we don't necessarily know whether that will continue or not but we've taken some of that into account to not guidance or that specifically, what I was referring to.
Okay. That's helpful. And then one other things I kind of set out for me just on the quarter, rather than obviously hurricane Doran was that salary and payroll decline and dollars sequentially is that something seasonally in your business or was there some sort of what all offset there that would have brought down that number from the second.
Corner.
Yeah, It's a one off it is a wonderful said thats basically so it's an incentive compensation was lowered because of not reaching targets.
Okay. So that's something we should expect to hopefully rebound and then another fourth quarter.
We all hope so [laughter] perfect and then my last question is really on celebrities. So can you give us an idea I mean, obviously it would be a big win in terms of a number of shops and.
And you know why you would need to do to mobilize so what's the latest you could get a decision actually take over their ships and I'm kind of a corollary was what's prestige.
I don't know aside if I know how integrated you'll be when you just when you take over because she is like will you be where will you be up pretty lucky in pre payment as dynamic pricing you know the moment you take over policies next year.
So and how we plan and I will jump in on both aspects. So on Christie's is.
So we have a lot more.
Visibility into start dates which is gonna be very late in the fourth quarter beginning of the first quarter up 2020.
To the extent it it sooner obviously, we are ready.
We have stopped already we have systems ready, we have inventory ready and able to the deployed.
With respect to pre booking a systems et cetera, Glenn anywhere near its hard to be we are targeting the latter half a 2024 pre booking and prepayment for those two best for those two brands.
Not new age so the two smaller brands regeneration and we are targeting between two and.
And then to your second question celebrity as much as I called it says in here I mean, clearly at determination on the RFP process as you have to be made all I can say is.
You know we did everything we lost to do I presentation. We believe was well received we're still anxiously waiting for the results of that I'm. So we really have no idea enough visibility.
We just know they are nine ships up for grabs, but we don't know when those ships will become available should we win.
The contest.
Okay. Thank you.
Our next question is from Harry Curtis with Instinet. Please go ahead.
Hi, good morning, everybody.
Yeah, you can you comment I'm on a kind of same store revenue gross in the third quarter.
To me like it was up roughly 1% and specifically if you could address what you think pricing power looks like a going forward given that most of the revenue growth is is really coming from from new units.
And you talk about Nixon and higher versus lower.
Lower priced services that kind of thing.
[noise] sure.
Same store, we certainly would stabilize and stable to flat on the same store sales.
On again tough comparable measuring a holes and all the changes that take place year over year quarter over quarter.
Oh, I scenarios shifts and changing boys variables.
The onboard initiatives.
And programs that we have im pleased to drive.
Yeah, Hi, average ticket and guest spend we are focusing on or see platforms of dynamic pricing, which is moving very well we've taken out for the revenues.
Okay got it faces almost 8% now over the recent years, which is really a derivative of our Dan and pricing implementations.
As far as going very well them out on just under a 100 vessels.
So we're doing very well there was an average guest and over $1100.
With with the do that program. So we continue to remain focused on those key initiatives of course, we have quarter over quarter month over month programs that we implement to drive.
Traffic into our facilities brand by brand, we collaborate with the cruise lines on pricing on extra promotions.
And any sort of communication weekend free cruise.
The best Ratability, we want to be able to.
Rollout dynamic pricing in prepayments because we can keep platforms. We are at the mercy of our crews partner.
So we worked collaboratively with them to do this as expeditiously as possible on the platform is ready to go with them as plug and play for us, but again it takes development from both sides.
Very good end I had two quick housekeeping questions.
The first is ER and the lift in administrative expense.
Do you expect.
The Oh, the the level in the third quarter to represent what it what it should.
Stabilize that going forward.
Yes.
And.
The business combination expenses when would you expect to see those are in there and their final form.
[noise] [noise], so quite frankly, I would've thought we would have gotten much closer to then then we already Harry Reid.
Received very late quite frankly from some of our service providers in the legal and accounting fields or billings related to the business combination.
That obviously were season paid in the third quarter, and hence you see that number to pick up.
It is likely a little bit that still lingers into the fourth quarter, and obviously I would expect it to be none.
Going forward.
It except for if there any talks of a.
Sure countries that we have to participate in with shareholders, but I wouldn't expect a lot going forward.
I see very good okay that does it for me thanks very much.
Once again, if you have a question. Please press star one our next question comes from Steph Wissink with Jefferies. Please go ahead.
Thanks, most of our questions have been asked but one thing I didn't catch those on the pre payment on a dynamic pricing figures I think when you went to that's pretty quickly can you give us those numbers one more time and then see medically.
Talk about somebody gains it looks like some pretty sizable gains.
This is where you were previously what you're seeing some those two initiatives.
Certainly so just to give you the statistics and stuff. So we're now as of the end of Q3, 81% of our vessels pre book.
[noise] prepayment, 64% of our vessels, which is up from 51% last quarter.
57% of their vessels onto the dynamic pricing strategies, which is up 32%.
And the right. After the second question was.
Just inadequately Hello.
So we added added we added instead, we added Princess cruise lines and Carnival Australia.
I'm going to two brands that we added so that was over 20 vessels.
In Q2.
Q3 Hussein.
And if you look ahead, what's the optimal penetration, particularly on the dynamic pricing and.
On your present overall entrepreneur [laughter] optum over the.
Possible. So clearly we want the large players with you know the ability to communicate with can really take the messaging through I guess and the large banners.
You know or the other crookston benefit of that strategy.
We also creating widgets in an effort to help them smaller brands, who don't have the infrastructure do this platform from a user experience. So we are trying to create a widgets that they can use as a as a as a temporary.
Let's just call it front end platform on their behalf as they don't have the financial resources or full time resources to get implemented and develop so we're working on their behalf to do that.
As well so we're trying to every angle because this is how important it is and how much we believe in into strategies.
And just one final follow up on that should we see the benefits of those.
Strategies in utilization in average ticket what are the measure it's from a dashboard perspective, the sector that you're looking at in terms of validating. So that's right. So clearly the pre book prepaid guess spends on an average 30% more than that of a walk in guest.
Having said that.
About 18 to on average 18% of our service revenue is pre book and it goes as high as 25% depending on the banner.
So there is tremendous opportunities there we need to agree it's a message of course, not every guest goes online and pre books and whereas right in their area in vacation go ahead of time, but that number is growing.
Whether you want to say year over year quarter over quarter, but the statistics are improving.
In certain brands, just having better method of communicating the message to the guess, but in time, you will see more and more guests preparing their vacations. Accordingly, yeah. Let me instead of just just to reiterate I mean, while there was a big ramp you know these things take a little time a lot of the ramp was towards the back end of the quotas. So effectively we did not see what.
Lens talking about which would be the spike and success of these initiatives, but as we continue to grow more of these initiatives that we're expecting to see.
Obviously different brands respond differently is different groups work with us differently and the way we get it out to the passengers pre cruise is obviously, the most important part about getting high utilization and spend.
Okay. Thank you very helpful.
Our next question comes from Steve Why Zinski with Stifel. Please go ahead.
Hey, good morning, guys.
If I go back to Georgia is I think it was just first question I I'm still little bit confuse in terms of the.
The difference in guidance I'm on the revenue side, you know versus where it was three months ago versus where it is today I mean that that $10 million difference, obviously, you called out two and half million for you know for weather.
And I guess, what I'm confused around is it just doesn't seem like you know one cost to ship and then maybe some weakness in product sales in the med would you know what kind of caused that remaining seven enough million difference. So.
I guess the question is are you being a little bit more conservative around <unk>.
You know onboard expectations in the fourth quarter and maybe that is because of.
You know the booking window tightening a little tightening up a little bit big because of weather.
No I still look I know I think part that's correct. Steve I think you've also got account for the fact that seasonally the third quarter that is typically a stronger quarter to the extent that week quantifying the impact of Dorian in those numbers I think probably could have been a little more.
Then just you know the impact that we spoke about a 2.5 million I think overall.
We typically would have had a slightly more robust quarter.
You know the storm and.
Maybe a couple of specific unique hot off the the more impacting us a little bit more than we anticipated you know attempt at the way we could have been had we not had does impact in the third quarter. So so that collectively while they're not quantifying it gets us closer to the number that you're talking about.
And I do want to just remind everybody have a ships that went out of service you know the unexpected dry docks that truly unpack the.
As examples the Carnival Vista went out for multiple weeks, where would you consider or so there are.
Expected episode, but truly are just lost revenue days for.
So so is that embedded in the two and half million you called out.
No not the not the loss the revenue days from the unexpected dry docks no.
Okay.
Steve I think you're talking about the product sales in the med being a little little bit lighter <unk>.
Can you maybe just help us think about you know what what kind of I don't know if you will be will set us or you want but you know maybe what kind of products are not not product or what kind of ship you were seeing that weaknesses and I guess, what I'm trying to get out here is you know is this more of a.
Pure Europeana type issue or are you starting to see that with you a more normal north American type crudes as well.
No it's solely European on certain brands, but but absolutely not North America.
It's kind of like Europe Euro is the currency on board.
Gotcha, Okay and then last question for me is if I go back to your you know your presentation that you laid out when you guys. I'm you know came back to the market in January .
Good to get a little ahead of myself and you're looking to you know to 2020, but you did technically have a you know guidance out there I think it was 78 million in EBITDA next year.
And I think your guidance for this year was 62 back then and I'm just trying to come a little bit you know little bit both you know behind that because of weather.
I guess you know is that 78 ish number next year still you know still fair and still in play.
It's premature frankly for us to comment on that we were in the process of working on the numbers for next year, and obviously, depending on where we land. This year will impact way relend mixture. So at this stage it wouldn't be appropriate for us to come it gets on the 2020 number.
Okay, but I guess, that's going at a different way is there anything we need to be thinking about that might.
Not allow you to get somewhere around that number that you guys laid out.
I mean, I think if I'll answer that I'm wondering your question so until we finalize the out process of in detail going through the numbers.
With a determination being made as you know celebrity was built into the 22 any numbers and until we have certainty around that and the timing of when we go on board et cetera, all of those things will potentially impact what we had put out there for 2020. So I think could really we need to find last I work on that.
Before we say anything.
Okay. Thanks, guys appreciate it.
This concludes the question and answer session I would like to turn the conference back over to Leonard Flaxman for any closing remarks.
Right. Thank you thanks, everybody again for joining us today look we're very excited.
I'll be back in the public markets. We also extremely excited about a big 2020, covering a lot of new ships. Hopefully you know we'll have some news in a with respect to some other ships or that we haven't.
Yes, being you know that's in process of trying to choose to get those back into the fault, but it's still without that it's got to be a big year, a big here in terms of all the initiatives that were looking at to deploy so we're very excited and well be happy to talk with you very soon and the new year, when we report our fourth quarter.
Results.
Thanks, again for joining us and whats off you're saying.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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