Q3 2022 Onespaworld Holdings Ltd Earnings Call
[music].
Good day and welcome to the one star was third quarter 2022 earnings conference call. All participants will be in a listen only mode should you need assistance. Please submit a conference specialist by pressing the star key followed by Seattle.
After todays presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the conference over to Allison Malkin with ICR. Please go ahead.
Thank you good morning, and welcome to the one spot where all third quarter fiscal 2022 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 ask maybe deemed to constitute forward looking statements. These forward looking statements reflect our judgment and analysis.
Yeah.
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 third quarter 2022 earnings release, which was foreign.
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.
Joining me today are Leonard Locksmiths 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.
Our third quarter performance and provide an update on our operations and our key priority.
Steven will provide more detail on the financials and our liquidity I would now like to turn the call over to Leonard.
Thank you Alison good morning, and welcome to ones fall World third quarter 2022 results conference call.
Well I'm very pleased to report quarterly net revenues, which were the highest in the company's history.
Our third quarter results.
Our record breaking performance was highlighted by net revenues rising 12% above the 2019 third quarter positive net income and positive cash flow.
We achieved these impressive results despite passenger load levels remaining below historical levels and a shifts continue to return to service.
I'm proud of our team's hard work and dedication since returning to service, including our outstanding innovation and implementation of enhanced services and product offerings and operating capabilities.
This drove high sales productivity from growing strength across virtually all of our key operating metrics.
Our third quarter results.
Out of an unprecedented adverse impact on our business during the pandemic period.
Tests to our company's unique positioning as the pre eminent operate of health and wellness centers at sea and on.
Land to drive extraordinary value for our cruise line and resort partners.
Sustained long term growth and increasing value for one spa will stakeholders.
As we look ahead, we expect our business model and strategy to generate sustained long term profitable growth.
Now turning to the highlights of our quarter total revenues were $162 $3 million as compared to $43 $6 million in the third quarter of 2021.
This growth reflects contributions from health and wellness centers that reopened.
On 172 ships that resumed operation and the contribution from 48 destination resort spas.
Adjusted EBITDA was positive $18 $3 million, an increase of $22 9 million from a loss of $4 $6 million in the third quarter of 2021 and.
And we ended the quarter with total liquidity of $57.1 billion, including $17 million of Unlevered after tax free cash flow.
A flawless returned to service continued in the quarter or the third quarter. So that's commenced service on board three new ship builds.
And two ships returned to service by cruise line partners.
At quarter end, we had health and wellness centers on board 176 ships.
Of which 172 had resumed voyages as of quarter end.
This compares to 167 ships that resumed voyages at the end of the second quarter of 2022 and versus 78 ships that presumed voyages.
By the end of Q3 2021.
We expect to be operating on 179 ships by the end of the year.
During the fourth quarter, we anticipate operating health and wellness centers on two additional new ship built that will be introduced into service by cruise line partners.
We continue to see record demand by cruise ship gifts for our services.
While load factors onboard cruise ships remain below historical in 2019 levels.
We were very pleased to see continued high demand for our services.
Key operating metrics during the third quarter of 2022 compared favorably with our third quarter 2019 performance.
The most recent comparable periods for normalized operations.
Average guest spend and revenue per store per day were up double digits compared to Q3 2019.
In addition, pre booking as a percentage of service revenue and guest penetration also compared favorably to the third quarter of 2019.
These improved operating metrics were driven by the continued innovation in our offering and focus on staff training.
In short we have emerged from the pandemic are more productive and efficient organization.
And we are eager for load factors to return to a more normalized level to showcase our even more attractive business model.
Well most of the cruise lines are not yet at pre pandemic load factors, we are accelerating our stopping efforts to be above aggregate load factors and we are experiencing robust demand for our services on board.
Our London Wellness Academy continues to experience very strong demand from applicants the.
The London Wellness Academy website generated a record number of applicants up 273% from Q3 of 2019.
Since the London Wellness Academy reopened in October 2021 we have trained 2128 health and wellness personnel at our other global training facilities.
As a further confirmation of one world leadership and training and certification.
By the end of the third quarter, we had 3087 cruise ship personnel on vessels for actual unexpected voyages and we expect 3400 employees to be on vessels by the end of December 2022.
Overall, we believe our third quarter performance continues to demonstrate the strength and resilience of our dedicated team and operating model.
We begin the fourth quarter with even more confidence that our actions have made one spot world better positioned than ever before.
With a strong business model collaborative cruise line and destination resort partnerships.
We had an extraordinary team we look forward to advancing our operational and financial performance throughout 2022 and beyond to increase value for all our one spa world stakeholders.
With that I will turn the call over to Stephen who will comment on.
For the third quarter results and our liquidity position Steven.
Thank you Lynette good morning, everybody.
In the third quarter, our focused execution of return to service efforts led to record revenues and the positive operating performance.
As well as a further strengthened balance sheet.
Some of the highlights of the third quarter include.
Total revenues at $162 $3 million as compared to $43 $6 million.
In the third quarter of 2021.
The revenues generated in the three months ended September 30th 2022 we derived primarily from a 100 and save any to health and wellness centers onboard ships neighborhoods wages.
And our health and wellness centers at 48 open and operating destination resort spas.
The three months ended September 30, 2021 revenues were primarily related to the 78 cruise ships and 45 destination resort spas that were opened during the quarter and e-commerce product sales through the companies time to sport Dot Com website.
Cost of services were 100, and pinpointing $6 million compared to $33 $2 million in the third quarter of 'twenty or 'twenty one.
The increase was primarily attributable to costs associated with increased service revenues of $97 9 million in the quarter from our operating health and wellness centers at sea and on land compared with service revenue of $34 $8 million in the third quarter of 2021.
And increased costs related to the resumption of operations at our health and wellness centers during.
During the quarter.
Cost of products with $25 $3 million compared to $8 $4 million in the third quarter of 2021 the.
The increase was primarily attributable to costs associated with increased product revenues of $27 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $8 $8 billion in the third quarter of 2021.
Net income was $5 $9 million compared to a net loss of $12 $3 million in the third quarter of 2021.
The improvement in the third quarter of 'twenty 'twenty. Two was primarily a result of the $22 million change in income from operations derived from about 100 and savings to health and wellness changes onboard ships, having resumed wages.
Adjusted net income was $12 $5 billion or adjusted net income per share of 13 pennies as compared to adjusted net loss of $9 $6 million, while adjusted net loss per diluted share of 11th pennies in the third quarter of 2021.
Adjusted EBITDA was $18 $3 million compared to an adjusted EBITDA loss of $4 $6 million in the third quarter of last year.
This represents the fourth quarterly period that the company recorded positive EBITDA since the onset of the COVID-19 pandemic.
We ended the quarter with total liquidity of $57 $1 million during the quarter, we had repaid the remaining $7 million drawn under our line of credit ending the period with the full $20 million available on this facility.
In October we repaid $5 million on our second lien term loan, leaving $20 million remaining under that loan which carries interest at a rate of LIBOR plus seven and a half to say, we expect to continue to utilize cash generated from operations to extinguish the debt facility.
In the third quarter Unlevered after tax free cash flow was $17 million compared to a negative $5 $2 million in the third quarter of 2021.
As it relates to our outlook for 2022 at this time, we continue to refrain from providing guidance pending the establishment of normalized operations of substantially all of our health and wellness centers onboard our contracted cruise ships following the adverse impact of the COVID-19 pandemic on our business.
Notwithstanding the foregoing for fiscal 2022 and 'twenty 'twenty three we expect to report GAAP net income and generate positive adjusted EBITDA and positive adjusted net income.
Overall, our strengthened balance sheet. The continued ramp of our operations and no material debt maturities until March of 'twenty 'twenty six has us well positioned to continue innovating a highly complex business model.
To deliver annual year over year growth in revenue earnings and cash flow.
With that we will open up the call for questions. Michelle If you could do that please.
Okay.
We will now begin the conference.
To ask a question.
And then one on your phone.
He is most speaker phone please be cool.
Nicky.
Dan Your question have been asking and you would like to withdraw your question. Please press star.
At this time, we will pause momentarily to assemble over.
Yeah.
Okay.
Our first question for today comes from D.
And King with Stifel. Please go ahead.
Yeah, Hey, guys good morning.
So look I understand you're not prepared to give.
Detailed guidance for the next 12 months or so but.
From a from a high level perspective, I mean, if we think about this.
The business did let's say $60 million EBITDA back in 2019 is there any reason not to believe that as we start to think about 2023, I mean, assuming that consumer spend patterns remain pretty stable that EBITDA.
It should easily exceed that threshold given a.
Larger and more profitable capacity based at this point.
Okay.
Yeah.
Okay.
Steve I'm wondering.
Yeah. Thanks for the congrats on a good quarter, but anyhow, let's jump into your question.
[laughter] Este Lauder.
Thanks.
Look I hear you and as much as Stephen and I would like to give the guidance because we do believe we are settling into a much more normalized environment and we do see.
You know a lot more predictability as we used to see in in our model. However, having said that.
Let's not forget that there are many many banners that are still.
Below their load factors.
And those will impact us in a positive manner once they come back to a 100% of legacy type levels. Some of them may not get there before the second quarter of next year.
We have two large banners already at the hundred percent shipped some moving now on to the Caribbean. So we expect load factors to continue to move upwards and.
And I think with that said and.
Just you know.
Not quite sure what if anything.
Or what compression there may be on spend if any or that we've been through those kind of.
Recessions before and now eight or nine and we know what they look like.
We are of the opinion, that's going to be mild ish.
But that being said you know we have to still continue to see if they're very very strong demand that we have experienced thus far particularly in the third quarter, which we expected continues robustly into you know.
The first and second quarter of next year. So.
Oh wait wait.
We are moving closer to getting ready to give the guidance you're looking for but this is not the right time at this point.
Okay. I didn't think he really gives me a a detailed answer there, but I thought I would take a shot at it.
Second question is obviously the free cash flow Heeter has clearly inflected.
You've got $20 million left on your second lien term loan and I guess, just just wondering maybe you know.
Thinking about timing about when do you think you could potentially exhaust the rest of that $20 million and then once that 20 billion is gone.
Where do you go from there in terms of excess cash flow I mean, obviously your stock is.
You know, it's been kind of stuck in this.
It's upper single digit range and you know wondering if at some point it makes more sense for you guys to go out and start buying back some of your own stock.
Okay.
Yes.
I mentioned, our focus our focus is going to be immediately in.
Getting red and reduction of the two L, which is at an interest rate well above 10% and that's just very accretive probably more accretive than buying back stock buying back stock in and of itself given the liquidity around the stock probably doesn't make the most sense right now.
So what we wanted to do is continue to extinct extinguished the two L as fast as possible.
And then at the same time.
Simultaneously look at what are the things we can do to increase liquidity in the market because that's the single biggest thing that's holding the stock back from moving into double digits.
Okay, great. Thanks, guys.
Okay.
Our next question comes from.
Yeah with William Blair. Please go ahead.
Hi, good morning, really nice to see them on my part.
I guess, a couple of questions first and I apologize for my boyfriend battling something here, but for that services gross margin I mean, it's been kind of nicely ahead of pre pandemic levels for first or the last couple of quarters.
Is that a function of your consumer choosing more of value added services and you're getting a better flow through on that just trying to figure out if there's something structural that's happening in that services gross margin that might you know it changed the dynamics of the margins of the business.
We go into 'twenty, three and 'twenty four.
Yeah.
So Sharon yeah, sorry to hear you're not doing so well.
Look I think you know a lot of.
Pricing structural changes the frequency of moving more demand into longer services operating as lean as possible.
During the first three quarters on both land and sea Sydney has moved a lot more demand into services, we are pushing towards a longer more expensive services and you know where we want to keep pace with our retail percentage as a total percentage of total revenue, but remember we do.
Did take prices up last year, we have structurally changed our menu such that that's having a positive influence on the business as you can see but I think you know, we've really really try to run as lean as possible wherever possible. So I think all of that has demonstrated.
And has flown has flowed through the.
The P&L in this quarter and it started in the second quarter as well.
I think I'm following onto that.
Back in there some metrics, which.
You know you used to give like revenue per staff per day. It just seems like that has to be about where 2019 was do you think there is.
You know you you've had this crisis you've learned a lot do you think that is something as well.
That you've seen something just change and chefs as consumers move towards more pre bucking and you've been able to better optimize perhaps the.
Occupancy and utilization of their size.
Yeah. So look I mean, it's it's a combination of everything that you mentioned a revenue per store per day are substantially higher than 2019 now that's a function of both strong demand and stopping on ships is still not at 100% at least not all of them and so obviously your revenue per stop is going.
To be at a slightly higher or shall I say compared to 19 at materially higher.
You know double digits higher.
Guess penetration when we started off last year.
It was in the high double digits, it's starting to move back towards the legacy 11% still above that so that continues to be very positive.
And our pre booking has has grown again, despite us not adding.
Third large banner, which will hit in the fourth quarter beginning of the first quarter and that's a fantastic banner so that too.
We will have a positive impact on what we are producing because of the facilities and the types of spas and you know the the newness of their ships and the incredible spa. So I just think once we get that banner on board, which will be late fourth quarter impacting first quarter, because the bookings will be.
For the first quarter that too will have a positive impact next year.
Thanks for that and then last question for me.
You know you you'd be top.
Top line by like 20% this quarter I don't know if you.
Our internal projections by as much but I recall at the last quarterly call you had expected kind of sequential acceleration through the second half of the year and I'm wondering if you still expect that in the fourth corner I'm getting about what factors are still improving or if we would see a more normal seasonality.
Because you over achieved I guess relative to consensus so much in the third quarter.
Yeah excellent question definitely we are going to return to more normalized seasonality.
October did get off to a decent start but then you go through the very you know sort of shoulder period of <unk>.
So then the Thanksgiving being obviously a good week for the most part and then you get the two front weeks of December before everybody starts loading up for Christmas New year. So this this is gonna be sort of more traditional but still I believe it'll be.
You know decent for us just because demand.
Has thus far remained pretty stellar.
Thank you.
Your next question comes from Mark Shockley.
Cowen and company. Please go ahead.
Hi, This is Bradley Jameson on for Max Leonard and Stephen first congrats on a great quarter first I'd love if you could dig.
Dig into what the current average spend per guest today is.
And how are you thinking about taking pricing and increasing that metric as we go forward.
Yeah.
Yeah. So we haven't we haven't really given average guest spend out we probably will do that certainly as we start guidance next year.
But average guest spend as I mentioned in my remarks was up double digits. So versus 19, so we continue to see.
Very very accretive guest spend and demand for our services.
We will continue to look at pricing opportunity, all whereas we get a call at hallmark pricing around peak seasons holidays, Valentine's day, and Sydney during the summer next year. So I think there is opportunity.
For further pricing, but obviously, we kind of look at it more opportunistically as opposed to sitting in and stone right now.
Yeah.
Great and then just switching gears a little bit down the P&L are.
Are we at more of a normalized run rate level of payroll costs or is there still more to come as you add staff and what's kind of the best way you, obviously had a pretty stellar EBITDA margin in the quarter, what's the best way to think about that for 2019 as we move forward into 2023.
There are some additional payroll cost at Sydney.
We will come into play here as we move forward and then into mixture as Linda mentioned, we've been running really really really lead trying not to hire ahead of demand and as ships tend to service, but the reality is we are going to have to start bringing back some of the positions just to make sure. The businesses are appropriately supported.
So we would expect going forward for there to be some increase in the salary and payroll costs.
EBITDA margin in the quarter. The adjusted EBITDA margin just over 11% was obviously really really really good as some of these factors come into play that should moderate.
A little bit and back to 19 levels, perhaps depending on obviously demand and what happens with the economy, but our.
Our expectations overall remained good with regards to delivery.
And again, you know as we've always said I'll focus is to deliver absolute total.
Cash flow for the business right. So.
As demand improves that's all stuff that goes up on boards.
It's probably better to trade likely in terms of margin percentage, but deliver overall dollars into the company.
Well.
Did that answer your question.
Yes.
Yes. Thank you.
Alright.
Yeah, well no wonder one question from Gregory Miller with Chili's take Andy. Please go ahead.
Hi, Thanks, good morning.
I'd like to start off with your partnership announcement with X financial fitness and Princess cruises I appreciate that it may not be terribly material to the company, but just love to hear more about the background on the partnership and if we should anticipate any material higher opex on the Ram.
Of this new engagement.
Yeah, Hi, So this is Leonard we.
We got together with the printer reached out to us and you know they feel the specifically.
Something that makes sense for their guests and they're trying to suddenly elevate penetration into the database.
Exponential exponential as a fantastic offering off a lot of different.
Modalities some of the names that you probably familiar with in terms of the type of space.
We have just commenced.
So it had a kickoff meeting last week.
In terms of rolling it out on to some or most of the ships that all of the ships will be able to accommodate.
Because of spacing studio space et cetera et cetera. So.
We're in the early stages, we do not expect any opex increase from this.
We certainly think there'll be cross promotional opportunity from the exponential clauses.
But we've yet to see sort of the traction and penetration that princess will be able to do in terms of marketing to the database, which they think is a database that is highly attractive to them. Obviously a lot of female participants in that database.
I'll know a lot of females tend to make location decisions for us. So I think that's how it's nuanced in terms of the importance of penetrating that demographic and clearly for us that's opportunity to mystic and we look forward to kicking off the program.
Later on in the fourth quarter early first quarter.
Yeah.
Thanks, and then my follow up.
Oh I was I'm looking back at your one Karen.
Paul and you spoke about a five step program on increasing guest spending utilization and perhaps you alluded to some of these elements are within the remarks. This morning.
I'm just curious if you could share any.
Recent impact related to this.
This particular five step initiative as it relates to your three key results.
Yeah, So like I can't remember exactly what my remarks, where if I don't have them in front of me, but.
Look our focus has been from the get go of a return to service is flawless returned to service number one.
And that means making sure that everybody, who we put on board was adequately trained and remember in the beginning we had to do a tremendous amount of virtual training not hands on training.
With a lot of new first office, so as a new first time is became more and more experience we're starting to see.
You know delivery and performance improve and so we're focusing on intensification of training where.
We're certainly putting more sales and revenue managers out into the field now that we'd be on.
Out of the Covid restrictions that were in place last year.
Were starting to focus obviously on the areas of improving guest spend.
Participation service frequency and as we drove a lot of new innovation on our I T platform and we actually call. This product curse. It enables us to really take a look at the things that can help us drive outside performance. So.
No.
Creasing grass utilization.
Through cross promotion.
Improving retail conversion was the thing that I mentioned and growing guest spend and I think we've done all of the above so these remain the important.
Areas of focus for our team and where we start to see any ship.
Apps not performing against our key metrics.
We deploy stuff to either go and do you know in one part a lot of additional training all wheel board, a certain shift and focus on certain people onboard what do we think we can improve some of the elements that I spoke about in the first quarter highlighted does for you right now.
Terrific I appreciate the color. Thank you.
Yeah.
The next question comes true.
Jackie.
Please go ahead.
Hi, Good morning, let Atkins Stephens, a fantastic quarter, great job I was very happy to see the results.
I could ask just one of them.
Question in terms of and maybe some of the key drivers on a sequential basis.
About $35 million increase in revenue I understand that we have.
Almost quite almost 10% more ships and service them.
But the revenue increase is closer to 25%.
Or would you be able to identify the key drivers.
Yeah.
Other ships.
Yeah. So thanks, Sarah I think a lot of it has to do with certainly in this quarter, which is typically our strongest quarter right being the summer.
They're more revenue days there are more ships in service.
A lot of our intensification around.
Things that we can do to improve guest spend Sydney started to impact the business very positively and load factors did move up sequentially and so that certainly helped and I got to tell you and I think I've mentioned this on the second quarter that we expected to see many more.
Shifts in the Alaska area operating versus 2019, and Alaska performed very well for us Despite Europe being slightly softer as we all know.
The offset in Alaska was was much better.
Great.
He hadn't thought about the Alaska ship count being up which has been significant versus three years ago.
Look it up.
The trajectory going into the seasonally yeah.
Weaker quarters Q1 Q1.
It seems that it might be quite durable two we paid the remainder of D. L. Two by the end of Q1.
Estimation on my part to reasonable.
Okay.
So as we've talked about before having a goal of repaying the drill by the summer you're about a quarter ahead of where we've talked previously I think at this stage. We're most comfortable continuing to say by the summer if we can do it sooner than that we certainly will.
Okay that sounds like it's like yes, Steven.
You haven't done one last question.
We are cycling out of them.
Oh Gee.
Basically.
And then cause us to have people received all over the last three years would that affect a possibly some of the pre bookings and some of the wallets that would be coming into the 2023 ceilings.
And I'm talking about that sorry.
Yeah, I think it's the onboard service.
Yep, she was referring to.
Yeah.
Yeah look I mean, there's still I mean, the the the the free onboard credits Sept dwindle down substantially.
Being you know heading out of full Twenty-twenty Chinny U 22 of usage to the extent anybody hasn't perhaps taken that cruise.
I cant imagine you know the free onboard credits are going to have a material impact now.
If there is as you know us yet any form of recession, we have seen the cruise lines introduce you know.
Free onboard credits.
In addition to perhaps.
Yield.
A modification in order to drive continued demand obviously all of that.
In Europe positively towards us so.
No I would say they probably at a much lower level than they were a year ago, but to the extent they need to use that as an assist.
In terms of motivating people to at least try sit and amenities and then spend more is obviously that.
That's something that that will help us.
Okay.
Enough and I'm, hoping that.
Whatever is ahead of US is the mildest recession as you put it again congratulations guys great job.
Alright, thank us here.
Yeah.
Yeah.
A question and answer session I would like not.
The conference back over to Linda.
For any closing remarks.
Alright, Thanks again, everybody for joining us today I want to take this opportunity to wish you all the <unk>.
Happy and healthy holiday season.
We look forward to speaking with you when we report fourth quarter results in February and seeing you all at the ICR Conference in January 2023, Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.