Q2 2023 OneSpaWorld Holdings Limited Earnings Call
Good day and welcome to the one spot World second quarter 2023 earnings call.
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Now I'd like to turn the conference over to Allison Malkin ICR. Please go ahead.
Thank you good morning, and welcome to one style World second quarter 2023 earnings call and webcast before we begin I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward looking statements. These forward looking statement.
This reflects our judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting our business. Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our second quarter 2023 earnings release, which was furnished to the SEC today.
The form 8-K, we.
We do not take 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.
Explanation of these metrics can be found in our earnings release issued earlier this morning joining.
Joining me today are Leonard Flaxman, 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 second quarter 2023 performance and provide an update on our operations.
Our key priorities.
Steven will provide more details on the financials and our fiscal year 2023 guidance.
I would now like to turn the call over to Leonard.
Thank you Alison good morning, and welcome to <unk> second quarter 2023 results conference call.
I'm pleased to share outstanding second quarter results that completed an excellent first half of the for our company.
The period saw acceleration in our positive momentum with better than expected performance across key financial and operating metrics.
Given by the relentless focus on the execution of our strategy by a highly talented team.
Buoyed by extraordinary operating platform.
As a result, we achieved our best ever second quarter revenue income from operations.
Adjusted EBITDA.
Our ongoing strength in accelerating momentum evidence our unwavering focus on the best again.
So I think a cruise ship and destination resort partners by providing exceptional customer experiences, but every guest.
Continuously innovating our operations to drive productivity gains across our health and wellness centers.
C N on land.
In recognition of our unique capabilities, our innovative offerings and dearing services levels.
We were awarded a new agreement with Crystal cruises.
Be the exclusive provider of Spa Salon, Medi Spa, and fitness services onboard crystal newly refurbished crystal Serenity and Crystal Symphony as well as any additional vessels introduced into service during the term of the agreement.
These two vessels will be reintroduced into service during the third quarter.
We are more excited than ever about our business prospects. So third quarter 'twenty to 'twenty three performance is off to an excellent start with our summer itineraries across key destinations in Europe . That's.
Generating particular strength.
We continue to focus on the advancement of I guess services product offerings and guest experiences.
Look forward to adding a health and wellness centers onboard eight ship hopes that will be introduced into service during the second half of the year joining the oceana that's.
Quite Virgin Voyager resilient Lady that commence service in the second quarter.
Thus, bringing our total new ship, both count to 10 for the 'twenty to 'twenty three petsko yeah.
In recognition of our strong first half performance and favorable outlook.
We have raised our annual guidance for the second time this year without fiscal year outlook increase beyond the amount, we support second quarter expectations.
As you May recall, we increased our fiscal year 'twenty to 'twenty three revenue guidance by $50 million.
<unk> adjusted EBITDA guidance by $6 million, when we reported first quarter results in May.
We are very pleased to share our performance has accelerated further.
Which has led to a raising fiscal 2022 total revenue guidance.
I am an additional $16 million and our adjusted EBITDA guidance by an additional $10 million. This is the annual outlook, we provided in the first quarter.
As a result for fiscal year 'twenty to 'twenty three we now expect total revenues to increase by 43% and adjusted EBITDA to increase by 65% versus the fiscal year 2022 that's it.
Mid point of our guidance ranges.
Turning to the highlights of our second quarter total revenues grew by 57%, reaching a record $200 million, while adjusted EBITDA more than doubled to a record $21 $6 million.
The expansion in our ship count continued in the quarter at the end of the second quarter, we had health and wellness centers on 183 ships compared with 172 ships at the end of the second quarter of 2022.
At year end, we now expect to have service on 192 ships, including 10 new builds.
We saw strength across key operating metrics, including a 30% increase in revenue per ship per day as compared to the second quarter last year and high single digit increases in average guest spend and revenue per stop today.
Penetration of retail sales and pre bookings also continued to increase.
We're excited to have now completed the full implementation of the pre booking platform on all N C. All ships.
And as of today, 89% so by ships have pre booking capabilities.
At quarter end, we had 3813 cruise ship personnel on vessels increasing from 3665.
202778 cruise ship personnel on vessels at the end of the first quarter of 'twenty to 'twenty three.
Second quarter of 2022 respectively.
We continue to focus on our key priorities, namely to capture highly visible new ship growth.
With current cruise line partners as.
As well as evaluating opportunities with new operators.
We have demonstrated success in advancing this priority.
Evidenced by entry into a new agreement with Crystal cruise lines and additional tenders shipbuilders here.
Second increased guest spend and frequency.
Capacity utilization and retail revenues highlights how our achievements in this regard include a high single to double digit increase across average guest spend.
Booking as a percentage of service revenue.
Revenue for softer day, any retail spend as compared to Q2 of 2019.
With that I will turn the call over to Stephen who will comment on our second quarter results Steven.
Yeah.
Thank you Dan and good morning, everyone.
We are very pleased to report strong second quarter results and continued momentum across all key operating and financial metrics as.
As well as further improvements to our balance sheet.
I will now share more details on the second quarter that we reported this morning.
Revenues were $225 million.
Compared to $127 4 million Polish in the second quarter of 2022.
This increase was primarily attributable to our every ship count of 177 health and wellness centers onboard ships operating during the quarter.
Compared with every ship count of 144 health enrollment centers on board ships operating during the second quarter of 2022.
As well as higher occupancy of the every chips in service in the respective quarters.
Cost of services were $137 $2 million compared to $87 million in the second quarter of 2022.
This was primarily attributable to costs associated with increased service revenues of $163 $2 million in the quarter from our operating health and wellness centers and she doesn't land.
Paid service revenues of $136 million in the second quarter of 2022.
Cost of products with $32 2 million compared to $23 3 million in the second quarter of 2022.
The increase was primarily attributable to costs associated with increased product revenues of $32 $3 million in the quarter from our operating health and wellness centers at sea and on land.
Compared to product revenues of $23 8 million in the second quarter of 2022.
Net loss was $3 $2 million or net loss per diluted share of three pennies as compared to net income of $55 1 billion with net income per diluted share a 46 page in the second quarter of 2022.
The decrease was primarily attributable to the negative change in the fair value of warrant liabilities.
The change in the fair value of the outstanding warrants during the three months ended June 30th 2023 was a loss of $12 $2 million compared to a gain of $58 $5 million. During the three months ended June 30th 2022.
The decrease in the change in fair value of warrant liabilities. What's the result of changes in market prices of our common stock and other observable inputs deriving the value of our financial instruments and the exchange of approximately 95% of the public warrants and approximately 50% of the sponsor.
Orange for the company's common shares that we concluded in April 'twenty two 'twenty three.
Excluding the change in fair value of warrant liabilities.
The improvement in the second quarter of 2023 was primarily a result of a $12 4 million.
Movement in income from operations derived primarily from the increase in the number of health and wellness centers on board ships operating during the quarter.
Adjusted net income was $15 million or adjusted net income per diluted share or 15% is as compared to adjusted net income of $4 million or adjusted net income per diluted share a full page in the second quarter of 'twenty to 'twenty two.
Adjusted EBITDA was $21 $6 million compared to adjusted EBITDA of $91 million in the second quarter of prior year.
Turning to the balance sheet cash at quarter end was $30 million compared to $24 million at the end of the first quarter.
In the quarter, we were paid the final 5 million on the second lien term loan and prepaid $15 $5 million on the first lien term loan.
Total debt net of deferred financing costs at quarter end was $182 $5 million compared to $232 million at the end of the second quarter last year.
This decrease reflects the $25 million repayment of the second lien term loan and the $7 million pay down of our revolving facility as well as $17 $1 billion. We paid on the first lien term loans since June 30 of last year.
In the second quarter.
But after tax free cash flow was $21 billion compared to $7.8 million in the second quarter of 2022.
The company expects to continue to generate positive cash flow from operations in the third quarter of 2023 and throughout the fiscal year.
As it relates to our capital structure, our private equity shareholders. Steiner leisure is now an approximate 8% holder with around 8 million shares after the secondary offering completed in the second quarter and subsequently executing a little 140 fault block trade.
In addition to improving the liquidity of our stock. This also has reduced their holdings significantly.
Moving on to guidance.
We are increasing our fiscal year guidance based on our better than expected first half performance and a favorable momentum which has led to us raise your expectations for the back half of the year.
For fiscal 2023, we now expect total revenue in the range of 717 million to 719 billion.
And adjusted EBITDA to be in the range of $80 million to $86 million. We expect to end fiscal 2023 operating on 100 like cheap cruise ships and at 54 land based health and wellness centers.
What was the third quarter, we expect total revenue in the range of $205 billion to $210 billion and adjusted EBITDA in the range of $21 million to $23 million.
Our third quarter guidance assumes an ending ship count of 188, and then based health and wellness centers 50 full.
In addition, as it relates to our share count assuming an average share price of $13 in the quarter.
Year to date diluted share count would be approximately 121 million shares.
Overall, we feel very confident about our positioning and growth initiatives. We are encouraged by the strong start to the second half and expect a favorable momentum to continue throughout the year.
With that we will open up the call to questions. Kyle If you could go ahead. Please.
Thank you.
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South to one question and one follow up.
First question comes from Steven We can ski with Stifel. Please go ahead.
Yeah, Hey, guys good morning.
So I want to start with.
The revised guidance.
As we think about this it's the second straight quarter in which you are you've materially.
You know beat the midpoint of your guidance range. So you know.
As we think about the back half of the year, just wondering how maybe give us some color in terms of how youre thinking about your customer base I think before you were kind of assuming that you know again with very limited visibility around your business. It's tough to you know to really.
Continued to model out these elevated spending level. So just trying to understand how you're how you might be thinking about your customer base.
You know through the back half of the year.
Yeah, So Steve as you may recall, when we gave guidance after the first quarter.
To your point.
We're quite sure yet of how strong.
The European Alaska Summer seasons would be although we were confident based upon the forward bookings based upon the strength, we have heard from the cruise lines with respect to visibility as well as the airlines mentioning just a heavily booked they will for the summer we.
Back to the summer to start off well, which it did and I think there was a little conservatism in the guidance around that together with the fact that you know we're really done, though I still don't know to what extent if any.
There is some kind of recessionary approved but I think we've.
We executed an incredible second quarter and we've got off to a very good July so far so that somebody is working its way out and performance has been where we expected and perhaps in some cases, it's stronger than we expected and our consumer remains incredibly resilient.
So I think that's all wraps up into the positive guidance that Steven mentioned previously.
Okay Gotcha.
And then second question.
It was around attachment rates and wondering what maybe you're seeing at this point you know from your customers as they come in.
They use your facilities are they still spending the same amount after that that the treatments are pretty good pretty good pace a pretty good clip.
And I guess, that's you know to US it's one of the things we want to watch pretty closely to make sure you had folks might be coming in to use your.
No your facilities, but are they still kind of spending after they're essentially finished hopefully that kind of makes sense.
Yeah no. The there look spend is a function of two things its spend on the service the selection of the service the cost of that service.
And whether they're trading up trading down and in fact, we've seen guest spend move out.
In the second quarter, that's up you know too.
2%, that's up seven 7% against 2019, 7% against 2022 at the same time. So guests spend continues to move positively the retail attachment rate was up again and so.
Retail also is as strong and that that continues to be a sign of a strong consumer with attachment pre booking as a percentage of service is up as well now to 24% so.
Guess penetration is now at normal historical levels up just slightly over 11%, but that ties in very very.
Normally with the load factors, which are not back to historical low taxes of 103%.
Okay got you that's good to hear thanks, guys appreciate it and congrats on a very solid quarter.
Thank you.
Our next question comes from Sharon Zackfia William Blair. Please go ahead.
Hi, good morning.
And I guess as we've been talking about the recovery in your business, but we've kind of always thought of 2019 margins as kind of the bogey.
I'm not mistaken you met that here in the second quarter and I think that.
Back half margins are about 2019, and I know you've been discounting last one you just talked about kind of a positive mix shift I'm just wondering as you've seen they can see them are kind of coming out of the pandemic have your thoughts changed on kind of what the potential margin opportunity is for the company.
Just so so fair enough.
Go ahead Steven.
Okay.
You know, it's a great question because margin is something wild.
While as you know our primary focus is on growing absolute dollars and we're always in favor of as long as there is incremental.
Our revenue and therefore, you've got to be had marginal contribution will probably hit a discounts et cetera, because having staff on board that all working just doesn't make sense.
Your point is valid in that we've seen continued strong demand on board.
It hasn't waned since dependent at kindred and so part of it.
A big part of that is reflected in the improved EBITDA margins. We've also done a lot of work around improving the way we operate our board with our marketing initiatives etcetera, So while I wouldn't be prepared necessarily at this point to say.
What's the high end diesel or the fact that we can continue to deliver Q2 levels I think we're starting to get to a point, where we could probably feel comfortable around being better than we were in 2019 and that kind of a lot of it is going to depend on the consumer but for right now we would say yeah, we probably on it.
Go forward basis can be better, but if things start to fall off in terms of demand.
We will revert to the marketing activities to drive the absolute dollars to drop actually cash flow, which is ultimately what we're looking for.
Thanks for that and it was good to hear about Norwegian being fully rolled out I guess, just given I think you've done this on a lot about their brand and when does that start to kind of manifest itself more in the results that you have in terms of you know pre bucking being more meaningful on that Norwegian Brent banner.
That's a good question insurance, so supposedly I'm thrilled that we finally got it all rolled out on all the ships and in fact, the the rollout started off a little later than we expected.
But then accelerated and we completed it.
You know very recently, so for us to really start seeing the impact because we know that a pre book.
Passenger tends to spend.
Anywhere between 25% to 30% more better.
And the frequency of treatment is higher.
We do believe that it will take at least another quarter, where they're all fully loaded into the system for us to start looking at what the impact will be but.
Given given the spas on the ships and how they typically perform.
I think the pre booking component is only going to be accretive to us.
Okay, great. Thank you.
Yes sure.
Our next question comes from La Russians, tying with loop capital. Please go ahead.
Thanks for taking our question, we were particularly impressed with the acceleration and weekly revenue per ship up 27% I'm wondering how that compares to the growth in the number of passengers at the ships, where you operate meaning how much of that is.
Just more people coming back to cruising as opposed to your own efforts.
Well Kelly higher load factors moving back to the historical load factors.
You know improves our ability to generate higher average weekly revenues.
That being said our penetration rate is back to historical rates, so even though they are.
More.
Passengers on board.
The penetration in fact is exactly where we expect it to be so in and of itself.
Productivity has improved.
Taking advantage of the higher prices and discounting less has certainly allowed us to generate higher average weekly revenues and the stuff that we have on board now are starting to cycle through into second contract since the pandemic has more experience.
<unk>, we have a much fuller complement of fitness staff on board and put the stuff generates Sydney.
Sydney and one of the most are the highest revenues.
Although the modalities onboard so I think the mix of passengers the mix without stop.
A trained and experienced staff together with load factors improving have they've added to our ability to generate high average weekly revenue per ship.
Understood. Thank you.
You're welcome.
Our next question comes from next Rick Wayne Collins PG Cowen. Please go ahead.
Hi, Good morning, Stephen and later this is Bradley on for Max Thanks for taking our questions first have you seen any increases in medi spa utilization with the continued demand youre seeing overall for onboard services.
More broadly can you talk about what types of services that customers are looking for right now.
Okay.
So many spots services still continues to be less than double digits I'm God I'm obviously.
With more ships in service with Medi Spa, we have seen the uptick.
In some of the IV infusion stopped.
And so this is the immunity shots that'd be offerings I think across the board.
Medi Spa services that we're offering.
We've seen.
An increase in the take rate. So those generally are at higher prices than sort of your average spot services all of which are accretive to the average weekly revenue per ship.
Okay.
Great. Thanks, and then can you update us on how your service pricing strategies have continued to play out through the summer are you seeing any pushback at all from your consumers on that and then do you feel that there is any more opportunity to play with pricing ahead for the Alaska and our European seasons.
Yeah, So we won't be adjusting prices for each of these seasons, we got a hold limit or at which means we're holding where possible at the whole lot pricing discounting as needed but less than expected.
And every single week, we'd do a check in on the discounting their crews because that's one of my look ups as to whether there's a pressure point or anything against the pricing that we haven't thus far we have not seen anything so we are not adjusting prices.
Going forward into 2020 fall, obviously, we'd reevaluate everything at year end a pricing.
Continues to be at the higher end and end with the love of discounting to the extent that we need to take prices up we'll consider it but at this point, we haven't made that determination.
Great. Thanks, so much guys best of luck.
Okay.
[laughter].
Our next question comes from Gregory Miller.
Please go ahead.
Thanks, Good morning.
My first question.
Labor environment could you provide some additional detail on staffing and recruitment environment, and perhaps staff count expectations today relative to a quarter ago.
Yeah.
Yeah.
Right. So it's a so certainly stopping for us continues to actually be blunt about Stella achievements.
Close to about 98% stopped across all the banners. We stopped in every one of the modalities may need to be with a pressure we've seen the pressure on restarting or rehiring or bringing experience stopped back in fact, our bench is considerably stronger than it ever was before and it's true.
Really a strong point and strength of the execution that we've seen so far the stuff dashboard. If you look at it today. We're at 3000. So we're up from the 3813 that we ended the quarter at two 3884 today.
We're all moving up in on staff numbers and that just continues to strengthen our positions on all of the bad is where those services are in demand.
Thank you.
For my follow up.
Could you provide an update on the capacity utilization of our wireless facilities.
For porch days are you seeing any change or improvement there.
What are we seeing split to put their utilization pretty much where it was you know at this time.
2022 its kind of flattish we're working to continue to move that number up my target there is slightly higher than what we are achieving all of which will be accretive.
And we see opportunity for stop utilization at sea ulcer are to move up.
The one the one area that brings down any of those metrics in Sydney the longer cruises, which there was some in the quarter.
And so the longer cruises can't do have you know less utilization across a longer period of time, which isn't all that historically, that's what we've seen.
Great. Thank you want it.
You're welcome.
Sorry, our next question comes from.
Sure Jonathan.
Research. Please go ahead.
Good morning, and great job guys fantastic quarter, congratulations on the Crystal contract Uh Huh.
That was great to hear.
I have a couple of questions.
You mentioned that pre cruise bookings currently stands at about 24% did I hear that correctly.
Yeah.
And when you mentioned that they would and they would translate to about the 25% to 30% increase in actual onboard spend well definitely for it just to the NCL banner.
The entire fleet of ships.
So where we're at 89% across all of the bad news in terms of pre book.
Clearly to the extent that we've now rolled out on T. N T. L ships, obviously they came on.
Through the quarter and even at the start of the third quarter. So you know.
To the extent, we start to see that.
The N C L.
Rebook numbers start to move down.
Directions in the same way that we've seen other cruise lines, you've had it for longer than that will be accretive because the guest are better spenders.
Could you quantify the extent of additional spend that you see on the preclude pre booked.
Yeah.
Okay.
Well, we tend to see passengers do people tend to spend 25% to 30% of all of the people who've done.
Okay across all brands not just in scale.
Across the across all of our banners yes.
Okay, great. Thank you and I thank God.
All of US had a legitimate concern about.
European trends and.
Cruise lines, you've mentioned that.
The Caribbean being exceptionally strong you're playing more of a catch up how do you see that develop and.
Passenger possibly somewhat less desirable I'll give him the closer in booking trends for Europe .
You know I mean, the Caribbean, Yeah, as you well know Russia is always a very very strong.
Spend.
I tend to be a highly predictable Europe . There are more put days as you know and even to some extent the Alaska.
You know has some.
Some people its not as much of a European ports going east and west.
Across the Mediterranean. So you know in the level of spend.
I would rate Caribbean, Alaska and in Europe .
But you know the Europe season, this year has been.
Surprisingly strong, but given the number of north American, but we saw a traveling over there we are.
Expected strength in Europe , which we've seen so far and at the beginning of July . So we were very pleased with the execution so far.
Great sounds great.
One last question if I may could you talk a little bit about sort of a longer term roadmap in terms of your capital structure, let's say over the next 12 months or so.
Yeah look it's good to be back in the agreed with respect to free cash flow generation that Steve had mentioned paying down even now you know the $15 million or not first lien all of which is helping us deleverage from these you know high interest rates, which will be continue.
To be our number one focus but to the extent that we start moving into 'twenty 'twenty four we will obviously keep reviewing the capital structure internally and with our board.
To the extent that we can look at alternatives and Theyre mutually exclusive rights. It means we can look at both.
Deleveraging further as well as potentially considering in the future and at some point.
A dividend reinstatement again.
I was looking for that dividend to come in so thank you so much I appreciate it.
Youre welcome.
This concludes our question and answer session for today.
Would like to turn the call back over to Liam.
Click Smith executive Chairman, President and CEO for any closing remarks.
Right. Thank you call, especially want to thank everybody for joining us today on our second quarter call. We're excited with where the business is that we hope to continue this incredible resilience and incredible execution that we've seen.
And we'll speak to you all in on third quarter call in the early part of November . Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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