Q1 2023 OneSpaWorld Holdings Limited Earnings Call
Good morning, and welcome to the once power first quarter 2023 earnings conference call all participants.
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Please note. This event is being recorded I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.
Thank you good morning, and welcome to one thought world's first quarter 2023 earnings call and webcast before we begin I would 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 judge.
Men 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.
For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made on this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our first quarter 2023 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.
The company May refer to adjusted non-GAAP metrics on this call and explanation of these metrics can be found in our earnings release issued earlier this morning.
Joining me today are Leonard Watson Executive Chairman, Chief Executive Officer, and President and Stephen Lazarus, Chief Financial Officer, and Chief Operating Officer, Leonard will begin with review of our first quarter 2023 performance and provide an update on our operations and our key priorities.
Then Steven will provide more details on the financials and guidance I would now like to turn the call over to Leonard.
Okay.
Thank you Alison good morning, and welcome to <unk> first quarter 2023 results conference call.
I'm very pleased to share an excellent start to fiscal 2023 reporting record first quarter results that exceeded our guidance.
The parents feel better than expected performance across key financial and operating metrics, reflecting the power of our operating platform.
Successful execution of our strategies by our talented team.
Delivered our highest ever first quarter revenue income from operations and adjusted EBITDA and also made steady progress against our strategic objectives.
Our strong performance and accelerating momentum evidenced a relentless focus on investing in and serving our cruise ships and destination resort partners.
Providing exceptional customer experiences for every guest and continuously innovating our operations to drive productivity gains across our health and wellness centers at sea.
On land.
As we look ahead, we are more excited than ever about our business prospects. The second quarter is off to a positive start.
We expect a favorable momentum to continue to build throughout the year buoyed by continued advances in I guess services product offerings and guest experiences.
Gather with the addition of health and wellness centers on Board 10, New shipboard introduced into service this year.
As such we have raised our annual outlook and now expect total revenues to increase by 32% and adjusted EBITDA to increase by 45% at the midpoint of our guidance ranges.
Turning to the highlights of the quarter.
Total revenues grew by more than 100% with adjusted EBITDA rising $16.9 million to $19 3 million, representing our best first quarter ever.
The expansion in our ship count continued in the quarter.
At the end of the first quarter, we had health and wellness centers on 179 ships compared with 170 ships at the end of the first quarter of 2022.
Year end, we continue to expect to have service on 187 ships.
Looting 10, new builds two of which are scheduled to be introduced in the second quarter.
And we saw strength across key operating metrics with double digit growth in the average weekly revenue per ship average weekly revenue per shipboard staff per day and average weekly revenue per resort.
To this end average weekly revenue per ship was over.
30% from Q1 of 2022 and revenue per ship that stuff. The day increased 21% from Q1 of 2022.
In addition average weekly revenue per resort rose, 19% from Q1 of 'twenty three.
And all those cash effects load factors, having ASEAN at normalized levels with growth also at double digit rates versus Q1 of 19.
The second quarter with a strengthened balance sheet and improved capital structure.
Following quarter end, we fully extinguished our second lien term loan, thereby reducing ongoing interest expense and lowering outstanding debt.
We also completed the warrant exchange last week that reduced 95% of public warrants and 50% of the private warrants.
The warrant exchange allows us to simplify our capital structure reduce short interest in our stock associated with warrant hedging and by exchanging warrants for equity increase our float and trading liquidity.
As a reminder, our product priorities in 'twenty two 'twenty three are focused on capturing highly visible new ship growth with current cruise line partners as well as evaluating opportunities with new operators and decreasing guests spend frequency spot capacity utilization and our retail revenues.
<unk>.
Overall, we are more confident in our expectation for fiscal 2023 to represent another record year than to include significant accomplishments and increasing value for one's forwards would shareholders with that I'd like to turn the call over to Stephen who will comment on our first quarter financial results.
Steven Thank you Lynette, Thank you Dan and good morning, everyone.
We are pleased to report a strong start to fiscal 'twenty to 'twenty three with better than expected first quarter performance across key financial metrics as well as further improvements to our balance sheet, including our exchange completed last week.
Sharing details on our first quarter that we reported this morning.
Total revenues were $182 $5 million as compared to $87.7 million in the first quarter of 2022.
This increase was primarily attributable child every ship count of 173 health and wellness centers on board ships operating during the quarter compared with that every ship count of 100 and for health and wellness centers onboard ships operating during the first quarter of 2022.
The occupancy of the every chips in service in the respective quarters.
In addition, we operates at health and wellness centers on an average of 49 destination resorts compared to an average of 47 destination resorts in the first quarter of fiscal 2022.
Cost of services were $126 $3 million compared to $62 $7 million in the first quarter of 2022 the.
The increase was primarily attributable to costs associated with increased service revenues of $151 billion in the quarter from our operating health and wellness centers at sea and on land compared with service revenues of $71 $2 billion in the first quarter of 'twenty to 'twenty two.
Cost of products were $28 $3 million compared to $14 7 billion in the first quarter of 2022.
Increase was primarily attributable to costs associated with increased product revenue of $32 3 billion in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $16 5 million in the first quarter of 2022.
Net loss was negative $15 $9 million compared to a net loss of $6 3 billion in the first quarter of 2022.
The decrease was primarily attributable to the negative change in the fair value of warrant liabilities as a result of the increased share price as you noted the change in fair value of warrant liabilities is.
He is a function of the share price and was a loss of $21.9 million in the quarter compared to a gain of $3 $4 million in the first quarter of 2022.
Excluding the change in fair value of warrant liabilities.
The improvement in the fourth quarter of 2022 was primarily a result of the $17 $6 million increase or improvement in income from operations derived from the increase in the number of health and wellness centers operates at onboard cruise ships during the quarter.
Adjusted net income was $12 $4 million or adjusted net income per diluted share of 13 pennies as compared to an adjusted net loss of $2.7 million.
Or an adjusted net loss per diluted share of three pennies in the first quarter of 2022.
Adjusted EBITDA was $19.3 million compared to adjusted EBITDA of $2.3 million in the first quarter of 2022.
Turning to the balance sheet.
Cash at quarter end was $24 million compared to $39 million at the end of the first quarter last year.
Reflecting the pay down of the second lien term loan.
Debt net of deferred financing costs at quarter end was $202.6 million compared to $235 million at the end of the first quarter last year.
This decrease reflected the $20 billion of repayment of the second term loan and the $7 million pay down of the revolving facility since March of 2022.
In the first quarter Unlevered after tax free cash flow increased 16 in a hospital.
Just $17 $9 million compared to $1.4 million in the first quarter of 2022.
The company expects to continue to generate positive cash flow from operations in the second quarter of 2023 and throughout the fiscal year.
The warrant exchange was completed on April 26, as a result of the warranty exchange, we issued three 9 million common shares and eliminated 15.3 million public Orange and 4 million private words.
We are pleased to have completed the warrant exchange, which simplifies our capital structure increases our float and trading liquidity, while reducing short interest related to hedges associated with the warrants that were exchanged.
Moving then onto guidance, we are increasing our fiscal year guidance based on our better than expected first quarter performance and favorable outlook, while introducing expectations for the second quarter.
So fiscal 2023 we now expect total revenues in the range of 710 billion two $730 million up from 662 $680 million previously.
And adjusted EBITDA in the range of 70 million to $76 million up from $64 million to $7 million previously.
We expect to end fiscal 2023 operating on 187 cruise ships and at 52 years old.
For the second quarter, we expect total revenue in the range of 185 million to $190 million and adjusted EBITDA in the range of $18 million to $20 million.
Our second quarter guidance assumes an ending ship count of 183 and Indy resort counter 52.
In addition, as it relates to our share count assuming an average share price of $12 in the second quarter. The year to date diluted share count would be approximately 99.1 billion shares.
Overall, we feel very confident about our positioning and growth initiatives. We are encouraged by the strong start to the second quarter and expect a favorable momentum to continue throughout the year.
Driven by our ongoing ability to deliver unsurpassed guest experiences.
Introduced compelling innovation in our products and services and add new health and wellness centers given you shipped boats introduced into service this year.
With that operator could you. Please open up the call for questions.
Okay.
Yeah.
Operator could you open the call for questions. Please.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two in the interest of time, please limit yourself to two questions.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Steve Winski from Stifel. Please go ahead.
Hey, guys good morning.
So so leonard or Steve I mean, if if if we think about your revised guidance for the year.
It seems to us like you're assuming there really isn't going to be a material change to your customers spending patterns. Once you know once they come on board.
Maybe that's not maybe that's not good way of asking this question, but you know I I would assume is as load factors continue to ramp across the cruise industry. Even if your customer did pull back some in terms of spa product utilization. These revised EBIT targets still theme.
No very achievable to us and hopefully that makes sense, but any color there would be helpful.
Yeah, So Steve I mean, you know how the business is.
Mentioned, even though now on our fourth quarter call. You now got started in Q1, very well and some really here in Q2, it's difficult for us to say.
The consumer area.
Is in any way that there's no decay around demand will spend right now if anything it continues to be quite robust we're moving into.
I believe a much better European season.
With more American flying other airlines have said you know bookings are up I would think that with less COVID-19.
In Europe this year.
Guidance up more Americans, Alaska with more ships, which is really got off to a good a good season.
It's very hard for us to have less consensus where you all are very upset with a conservative guide on the fourth quarter clearly we continue to see the cruise lightened the load factors.
So I'll have to come up a little faster than we had originally.
Forecast it all of which he is going to continue to.
Build momentum Floris and you know listening.
Listening to Norwegians.
Norwegians call listening to our partners, we continue to see similar trends with the onboard revenue. So demand is good I think all the hard work that we did.
The pandemic coming out of the pandemic with training now at a great level all in in person longer virtual or starting to be highly selective with staff. We in fact have an abundance of staff and so to the extent that we can be selective with staff and put the best stuff, where we can make the most demand for.
For each person being on board and drive revenue.
No I think that.
Cycles, why we feel confident about about the rest of the year.
Okay got you good color there.
And then Leonard and in your prepared remarks.
Made a comment about.
I think it was something along the lines of exploring new partnerships with with cruise operators and maybe maybe I misunderstood that or maybe I have that phrasing wrong, but can you just go into a little bit more detail around what that might possibly mean.
You know Steve.
Lot of ships, where either sold or sold off too.
New players in the market so I mean.
We got into yet participate in.
India, there's new operators and some more operators coming to play I mean, we certainly got to.
See some of them at sea trade. This year. So I think it's inevitable that there will be newer players, albeit small.
But that the market seems to be attracting.
Whether it would be in the luxury small yacht type of.
Of offering.
But that does have a chip that can really drive revenue, but there are new players and so selectively we will look at what makes sense for us to do.
Okay got you. Thanks, guys. Thanks for the color.
The next question comes from Sharon Zackfia from William Blair. Please go ahead.
Hi, good morning.
I guess a question on E.
And the outlook, so I know coming out of the fourth quarter you were.
Maybe concerned that discounting to utilize with Bob might have to ramp up kind of more in line with historical pattern.
Did you see anything along the lines of increased discounting.
Does the outlook assume some sort of need to deal where they're just counting for the rest of the year.
Sharon we as you know historically have always given autonomy to US bond manager is based upon you know that pre book when the activity during the crews to obviously.
Play with yield with discounting whatever you want to call it.
Clearly with discounting perhaps have higher price points that are getting down to some of the classical price levels and all of which is still accretive to what we're doing in 'twenty 'twenty. Two so we're being opportunistic with some of our hallmark pricing, which is the highest level and where we see it's still holding we hold.
So you know I think we're gauging consumer appetite spanned.
And demand and as necessary as we've trained our staff and our managers and our banner leaders. We will monitor this very very carefully to see that if there's a trend of excessive discounting we dig in very fast.
Figure out what's going on and we haven't really seen anything that we need to triage right now.
Thanks for that and then I think you did some higher price points over the holidays that you talked about and you thought maybe there'd be some stickiness in that pricing is that something you've been able to keep you know going into the first quarter and you know you're realizing higher I guess I would call it.
Initial python onto surfaces.
We certainly are seeing some stickiness on certain banners and where we have rolled that out and.
That gives me high confidence in not just you.
You know the demand for our services, but the appetite to spend.
Nacho the services, so where we see it being sticky we were staying with that where we need to discount to the love. It we will and where it's not working we'll just replace it with some of that historical tactical pricing, but.
We've seen nothing.
Material change what we initiated as we mentioned during the sort of the percent of peak periods that we rolled out some of that hallmark crossing as we call it.
Okay and then last question for me I think you.
We're planning on rolling out a large company I'm, a pretty fucking platform in the first quarter did did you complete that and how are trends kind of ramping for that.
That work of brands.
Alright, I lost it then they can you can you just repeat that.
I'm sorry, so so I think you were rolling out another banner.
A large cruise company in the first quarter I, just wonder if you completed that rollout and how quick.
Thank you yes.
We have commenced with its N C L.
You know, it's getting the right resources, obviously from our partners at the right time I think we are trying to push as hard as they can because you know there's real opportunity real money to be had we said we know the guest spends better with a pre book customer not only in terms of booking at times of services that we yield manage that.
Suddenly frequency and overall spend with the customer is favorable to us and to the cruise lines.
Okay. Thank you.
The next question comes from Alterra clinker from TD Cowen. Please go ahead.
Okay.
Great. Thanks, a lot guys and congrats on a really nice quarter. So first can you just speak to the health of your consumers and if you're starting to see any divergences potentially across banners or any other lead indicators that you're looking at you know.
As we think about the year ahead.
Yeah, No we haven't as yet and you know where we are in that transition period right. Now. So we are just starting.
The season in Alaska ships.
In process of moving of its been bad and that season will convince you know at the end of May. So we've got some longer cruises in process right now clearly obviously that guidance incorporates.
Ban, which tends to be a little lower on the longer cruises, but those ships that are already in Alaska have started off the season very nicely. So I as I said on my in my remarks earlier question to states feel.
Feel that the Meg should be more positive than last year, Alaska was good for us last year, because we had a lot more ships there, but I think the Alaska equally it will be a good season again.
Got it Okay, and then can you speak to your top growth initiatives for the year. The sequencing and then which ones do you think will provide the biggest lift.
Call it correctly youre trying to get frequency up a little bit and you're working on a few other things. So I guess any updates there.
Yeah, So I I real focus Israeli Iran spanned utilization in retail capture those are they all the initiatives that we are in the strategies that we're doing as well as launching some of the new initiatives, which are in process right now, but too early to tell how they're tracking.
It's really where the focus of the team is every single week around spend utilization and retail. So if we can get all of those metrics pointed in the right direction. It bodes for success.
Got it Okay and then just last quick one for me buy your product revenues are trending roughly 3% above 2019 levels, which is a bit softer than on the services side. So can you just remind us what the top initiatives are on the project side, specifically, whether it's SAP training on new products.
AUR is and anything that we should think about as far as a normalized level of growth.
Yeah. So just remember, though when you go back and compare it to 2019 right pricing has moved that foster on service and it's moved up on products or in an effect that's going to impact your percentage attachment. So it really hasn't.
As much if you want to call it a slump, which I don't.
That training.
Initiatives are focused around retail attachment when people join us we clearly train them teach them on solution selling and how to attach the retail product and you know when we were doing virtual training it was not as.
Successful, but now that we're doing in person training.
<unk> many more shifts the teams are out there focusing on all the banners, where we see there's opportunity.
So we will do.
No.
Visits to ship helps them focus on the areas, where we think there's opportunity to improve so.
We're happy with where retail is we think there's opportunity to move upwards.
Really it's going to move at a much higher.
You know pace to catch up with where we've moved hallmark pricing too.
Got it that's very helpful. Thanks, a lot and best regards.
Youre welcome.
The next question comes from Gregory Miller from <unk> Securities. Please go ahead.
Hi, good morning.
I'd like to start off worry of a long term question.
With regards to the private islands from the cruisers.
Could you share what offering as they exist today.
For a W and what may be the case in the next couple of years.
Kind of material upside opportunity there might be to revenues.
But I think the island experiences as a private island that each of the cruise line partners have I think the experience has been substantially elevated so guests in some cases.
We have spots services available on some of the island I think to the extent that we can continue to support why we should improve those facilities on those islands, it will bode well for us.
Now we still continue to do services when they are visiting the islands because clearly people.
Can find the opportunity to sort of stay on board and participate in an spa services and full go off to the island, but I think the overall experience that the cruise lines are developing in their own private islands continues to improve and is something well sought after by the guests.
Okay. Thanks.
My second question.
Theres been some.
Media attention to robot managers.
Curious to get your rest of passivity or the operational feasibility of implementing that.
And the resorts.
On the cruise ships.
Could you just repeat that did you say.
Robot manages.
The robot Manicures you know the ones that are not handled by.
A human.
All of our products are handled by humans I'm not I'm not sure I'm understanding your question.
You know it if this is something you'd be interested in implementing as well.
Okay.
If this is something like.
I mean, if if.
If a robot was able to do in Medicare as well as our trained as petitions I guess, we'd look at it but I've yet to see something that can actually do it in.
In the same fashion.
The same critical care that you have to do with various types of Medicare I mean, it's it looks easy, but you know you you've got to have great knowledge about critical care et cetera, So I'm not going to dispute. The fact that AI robots could play into certain parts of our business, but medicare's massage it.
I'm not sure that's possible at this juncture.
Okay I'll leave it there thank you.
Yeah.
The next question comes from Laura Champine from Loop capital. Please go ahead.
Hi, My question is also about technology, but a little more low key so as as cruise lines roll out their own apps and that helps drive pre bookings how significant of a driver is that to your very strong growth.
And weekly revenue per ship this quarter and at what phase are we in that rollout of technology to spike better pre booking trends.
Okay.
It's a great question and it's something that we're looking into right now and I was part of <unk>.
What I would say Rev Tech and.
And anything that we feel.
That data enabled decisions marketing initiatives that we can then automate what currently not only being done from this office, but to the extent that we can automate those processes over time and I'm not saying we have anything in place right now, but it's something that we're looking into.
I clearly think there's an opportunity and it's something that we have to consider just like any other C O or businesses looking at is how can we utilize AI for more efficiencies either in looking at the data that's being produced or the revenue capture anything that's going on on board and to the.
That we can integrate AI into that decision, making and give our managers better information as to what to promote et cetera, I think that will be something you know in the future that we will study and look at very very carefully.
Got it thank you.
Sure.
The next question.
I have a friend in the T Research. Please go ahead.
Good morning, guys. Congratulations on such a great quarter I'm glad to hear back to basically selling and working are under more normal circumstances.
I have to.
Kind of a factor.
Fact checking question it seems to me that productivity on board.
It's up about 16% versus Q1 of 2019 for staff member at M. I, often Steven you probably have those numbers.
Hello.
Yeah.
I'm going to pull that versus 2019, I habits versus 22, I'll come back to you on that.
Okay, so still even versus 2022 oh, that's a significant increase from 542 at this point relative to 449.
Yeah, but remember US here in Q1 of 2022, you know we had probably one month of.
Really good activity and then recon came along and that certainly impacted stuffing I think it impacted spend a little bit so to compare it to Q1, there is an army contract in there.
But still it's a it's a very very decent improvement year over year.
Which is why I went back to 2019, because that was a year, where the whole industry was doing very well.
Hum.
Okay. So.
I'll catch up with Stephen and a little bit later than.
I Wonder in terms of you mentioned that the med should be more positive this year.
Versus last year and.
Is that the airlift has gotten just as expensive as it was last year and last year, we had a lot of logistical difficulties in terms of North Americans getting to Europe .
Do you expect that this year, we'll have more demand a more people flying into into Europe , or do you expect Europeans once demand.
Oh, you know I think we can only take a look at.
What we are seeing out of sort of the bigger international Trans Atlantic you know.
People that are talking about them on pricing.
And that they're saying.
You know a lot of airfare.
Booking into Europe .
I think I mentioned that about a month ago I think other airlines have come out that the similar routes and then let's say that despite pricing.
<unk> continues to be strong.
I think based upon that to the end and reiteration by the booking window with the cruise line. It seems to me that without.
Similar.
Impact from Covid in Europe , we will get a good mix of both a European customer and maybe more north Americans. This year and even we will see more Europeans coming out into you know then we did which we have started to see since they lifted the restrictions coming into the U S. As long as you vaccinate.
So I think it works both ways, both in Alaska and the med.
Alaska tends to be frequented by.
Europeans and Americans, but I do feel more positive momentum and confidence going into Europe . This year.
Based upon data that we've certainly taken a look at.
Okay that makes sense.
In terms of Alaska, you had mentioned that you are seeing a good start but it's really early into the season. They are still pretty cold I imagine our opinion, Florida I wouldn't want to be in Alaska. In early may. So I guess, we'll have to see how the season, there develops and again I think analyst.
Might play a role.
And my last question is.
In terms of liquidity priorities at this point, you've done such a great job in terms of extinguishing.
What was pretty much are the most imminent and necessary.
So how should we look at the balance sheet going forward sort of on a one two year basis.
But on a one year basis.
I think we you know we continue to evaluate uses of cash given interest rates, where they are perhaps coming up again later. This afternoon, our priority is likely to be paying down debts, but we will continue to evaluate best uses of cash in treating a potential dividend payment although realistically.
Don't think that's imminent I did just wanted to follow up regarding your question as it relates to 2019, so that increase it has improved productivity to our it's approximately a 17% increase that is what I had 16% plus so yeah.
Okay. Good [laughter].
Thank you.
Okay. So if we look towards the end of the fiscal year 2020 three what do you think.
How much debt do you think you might.
Have on your balance sheet, you know give us a range, obviously you can't be too specific.
Well, but it's you know it's just over 200 million now so it really depends on how much we pay offs.
Can.
You've given your EBITDA guidance.
He's pretty much translates as you know through two unlevered after tax free cash flow.
So it'll be somewhere in the range of using some or all of that cash depending on what other things you may wonder.
The address I don't want to give a specific number just yet to be honest.
I understand.
Thank you Stephen Thank you Lennart.
Okay. Thanks.
Thank you.
Are there any further question. Please press star followed by one.
Yeah.
Yeah.
So far there are no more questions from your phone.
Right. Thank you everybody for joining us today, we look forward to speaking with you when we report our second quarter results in August Thanks for joining today bye for now.
Ladies and gentlemen, this concludes our conference call. Thank you for attending today's presentation. You may now disconnect Goodbye.
Yeah.
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