Q3 2023 OneSpaWorld Holdings Ltd Earnings Call
Yeah.
Good day, and they'll come through the one spot one quarter 2023 earnings conference call, all participants will be and I listen only mode should you need assistance. Please signal a constant specialist by pressing the star T followed by zero.
After today's presentation, there will be an opportunity to ask questions.
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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 style World third quarter 20 twenty-three earnings common webcast before we begin I'd like to remind you that certain statements and information made available on today's webcast, maybe dean to constitute forward looking statements.
Forward looking statements reflect our judgment and analysis.
As of today and actual results may differ materially from Karen expectations based on a number of factors affecting our business.
Accordingly, you should not place undue reliance on these forward looking statements.
More and more thorough discussion of the risks and uncertainties associated with a forward looking statements to be made in this conference called webcast. We refer you to the disclaimer regarding forward looking statements that is included in our third quarter 20 twenty-three earnings release.
Which was furnished to the S. P C. 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.
Company may refer to a certain adjusted non-GAAP metrics on this call.
An explanation of these metrics can be found in our earnings release issued earlier this morning.
Joining me today, Alright, Leonard flux men Executive Chairman, Chief Executive Officer, and President and Stephen Lazarus, Chief Financial Officer, and Chief operating Officer.
Will begin with a review of our third quarter 2023 performance.
I didn't update on our operation and our key priorities.
Steven will provide more details on the financial and our fiscal year 2023 guidance I would now like to turn the call over to letter.
Thank you Alison good morning, and welcome to one small world third quarter 2023 results Conference cool.
I'm delighted to speak to you today and share another quarter of strong results, which wants to gain exceeded our expectations.
Third quarter source maintain a positive momentum with stellar performance across key financial and operational metrics.
Driven by our unwavering focus on the execution, how about key priorities.
To this and we continue to introduce innovative product offerings.
Empower a cruise ship stopped to provide unsurpassed service levels.
Drive efficiencies through technology enhancements.
Introduce a health and wellness centers are nisha builds and win new contracts.
As a result, we achieved our best ever third quarter revenue income from operations.
Just it EBITDA.
And raised a full year revenue and adjusted EBITDA guidance by more than the performance we delivered in this quota.
As we look ahead, we are very encouraged by the healthy demand environment, we have seen.
Customers around the World continued to appreciate the unparalleled value of proposition cruising offers at our strategies are driving strong demand.
Touching on performance highlights over the third quarter.
Total revenues grew 33 per cent, reaching a record $216.3 million.
It would just it EBITDA increased 36%.
A record $24.9 million.
The expansion in a ship called continued in the quota.
The end of the third quarter, we had health and wellness centers.
189 ships compared with 176 ships at the end of the third quarter of 2022.
That year, and we now I expect to have in service 193 ships.
<unk> 10, new bills introduced throughout 2023.
We saw strength across key operating metrics, including a 22 per cent increase in.
The average week you Avenue to ship.
Compared to the third quarter last year.
High single digit increases in average gift spend at a low single digit increase in revenue shipboard stuff per day.
Penetration of retail sales in pre bookings also continued to improve.
We continue to remain highly focused on supporting operations. That's C. R ongoing initiatives to have experienced staff or 10 for subsequent contracts is exhibiting greatest success.
<unk> a proportion of experienced staff members in the first quarter of 2024 to surpass the level of experienced staff members in 2019.
At quarter, and we had 3927 cruise ship personnel.
Vessels, increasing from 3813, and 3087 cruise ship personnel of vessels.
At the end of the second quarter of 2023, and the third quarter of 2022, respectively.
We also have 24 traveling sales and revenue staff members, who you today to have made 492 ship visits equating to 3271 days of sailing.
With their primary focus to enhance onboard productivity.
There are reviewed update on <unk> cheek priorities that we shared with you earlier this year.
[noise] capture highly visible new ship growth with current cruise line partners.
Ah cruise life partners continue to introduce new ships, which adds to our growth.
Quota, we introduced health and wellness centers on six new ships.
Including two crystal cruise vessels, Crystal Serenity and Crystal Symphony.
Part of the New agreement announced earlier this year and one vessel as part of a new agreement with a door of cruises, which is a new Chinese American cruise line.
Continue to expect to introduce health and wellness centers, a 12 <unk> this year.
Second.
Continue launching high value services and products.
We continue to focus on introducing exciting products and services, which are in various stages of implementation, including Ivy therapy immunity protocols.
Facial toning devices.
Third focusing on enhancing health and wellness center productivity.
Highlights of her achievements in this regard include high signal to double digit increases.
Ross average gift spend pre booking as a percent of service revenue revenue pissed off that day and in retail spend as compared to Q3 of 2019.
And force expanding market share by adding new potential cruise line partners.
We have room to grow 1990 plus percent market share.
<unk> Maritime health and wellness market as evidenced by recent new contract wins with Virgin voyages Oceana cruises region seven C cruises celebrity cruises and most recently Ah Dora cruises.
We are very excited about our business prospects into the fourth quarter and in 2024 and beyond apart quoted the 20th twenty-three performance is off to a strong start despite it being a seasonally soft period for cruise operators.
Reposition their fleets for the winter cruising season.
In light of our output folded so far the ear and current business trends, we have raised our right and you'll guidance for the third time this year without physical your outlook increase beyond the amount we support the quota expectations.
As a result for fiscal year 2023, we now expect total revenues to increase by 45% and adjusted EBITDA to increased by 73% versus fiscal year 2022 at the <unk> guidance ranges.
Finally, before I turn the call over to Steven.
Convey that our hearts go out to all that have been impacted by the war in the Middle East the ongoing war in Ukraine.
Elizabeth lives lost <unk>.
In response, the cruise lines of altered or cancelled so Tonight <unk>.
However, we do not expect this to have a material impact on our results.
Steven.
Mmm.
Thank you <unk> good morning, everyone.
We are pleased to report strong third quarter results and continued momentum across all key operational and financial matrix.
What is improvements job balance sheets.
More details on my third quarter that'd be reported this morning.
Total revenues with $216.3 million, an increase of 33% from $162.2 million in the third quarter of 2022.
The increase was attributable <unk> have reached Chubb count, increasing 11% to 108 o'clock health and wellness centres on bullshit upgrading during the quarter compared with an average ship Council of 167 health and wellness centers on board ships operating during the third quarter of 2022.
And our initiatives to drive revenue growth each of our onboard health and wellness centers, <unk> guess engagement and experiences.
Your service and product offering innovations and a disciplined execution about complex operating protocols.
Bored and corporate teams.
Cost of services were $146.1 billion compared to $110.6 million in the third quarter of 2022.
The increase was primarily attributable to cost associated with increased service revenues of $175.8 million in Lakota format, <unk> health and wellness Sanchez S. E N. One named compared with service review of $132.8 million.
Quarter of 2022.
Cost of products with $34.5 million compared to $25.3 million in the third quarter of 2022.
This increase was primarily attributable to cost associated with increased product. We haven't used all 40.4 million in the quota from upgrading helped him <unk> compared to product revenues of $29.5 million.
Third quarter of 2022.
Product costs in the third quarter of 2023 benefited from retail price increases implemented onboard vessels ahead of an increase in the cost of those products. This resulted in an approximate can 60 basis point margin improvement in the corner.
Mid income was $23.4 million or <unk>, <unk> <unk> <unk> <unk>.
<unk> <unk> <unk> <unk> <unk> <unk> in the third quarter of 2022.
The 17 and a half million increase was primarily attributable to the 7.1 million dollar positive change in the value of Orange liabilities <unk>.
7.1 million positive change in income from operations and a 3.4 million dollar decrease and uncertain textbook Netflix related to Florida, and Texas exposure.
Both of the companies participation in a text Amnesty program and easily settled in August 2023.
The changing K value of the outstanding order insuring. The three months ended September 30th 23 wasn't getting a $7.4 million compared to a game of $300000. During the three months ended September 30th 22.
Change into the value of Orange liabilities was the result of changes in market prices are common stock and other observable inputs driving the value of the financial instruments.
Just admit income increased 75 per cent to $22 million or Justin <unk> of 22 pennies.
Compared to adjusted net income of 12.5 million or adjusted net income put I'll need to check all 13 pennies in the third quarter of last year.
Adjusted EBITDA increased city six per cent to $24.9 million compared to adjusted EBITDA or 18.3 million.
Third quarter of 2022.
Turning to the balance sheet total cash at September 30th 23 was $28 million compared to $30 million at June 23, after giving me fit your repayment of $20 million on a first <unk> during the quarter.
Total <unk> financing fees at September 30th was $163 million compared to $223 million at September 30th 2022.
The deep freeze primarily resulted from the full repayment of $2500 on the second lead to log.
And the city 6.6 million dollar repayment on the first <unk> since September 30th of last year.
In the third quarter, we repay $20 billion in that first.
<unk>.
And as a result since the second quarter of 2022, we have repaid a total of 69.1 million.
The instruments.
I live in Austin, Tex free cash flow was $62.2 million compared to $26.1 million in the nine months ended September 30th 2022.
The company expects to continue to generate positive cash flow from operations in the fourth quarter of 2023 and two out of 2024.
Moving onto our guidance, we are increasing our fiscal year gardens for the third time this year to reflect the updated unexpected third quarter performance and our expectations for the fourth quarter.
Professional 23, vanilla shake total revenues in the range of 792, two $797 million estimate 20th this represents an increase of 45% from the actual physical 2022 revenues.
$146.3 million.
Adjusted EBITDA nice fix it in the range of $86 million to $88 million.
<unk>. This represents an increase of 73% from actual physical 2022, adjusted EBITDA of $50.4 million reached.
<unk> 23 operating on 193 cruise ships and at 54 land based results.
For the fourth quarter, we expect total revenue in a range of $193 million to $198 million and adjusted EBITDA in the range of 20 million to $22 million.
Overall, we feel confident about opposition and growth initiatives.
Encourage further momentum in the business and expect to continue as successful growth <unk> a medium coke.
With that will open up for questions. Please operator.
Thank you.
Taking the question and answer session to ask a question you may prefer again, one on your <unk> phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
My question has been that you would like to withdraw your question. Please <unk>.
The interest of time, please send it to your phone to one question on one <unk> a new <unk> for further questions. At this time, we will <unk>.
Our first question comes from Gregory.
Yes. Please go ahead.
Thank you all good morning, let's start off with service pricing could you share your current views on pricing heading into the fork your holidays.
And if possible into next year after seeing any pressure points and consumer spend that'd be impact if for how much they range pricing over the next year.
Mmm.
Yeah, Good morning, Greg.
We've actually seen very little pressure on pricing at all.
Where.
We continue to hold pricing, where we've had it discounting.
Early on show the days witness history, but certainly not below.
Increased level, so there's still a hallmark pricing on a couple of services on <unk>.
And you know, we will obviously reintroduce hallmark pricing through the Christmas new year period across most of the better so right now as we said our ships are.
What should I say, the the cruise lines all repositioning the ships longer cruises et cetera. So we still have not seen pressure on pricing thus far so we're in good shape.
Excellent here thanks.
And that's with a follow up can I ask you about the commentary you're providing about your staff you experienced staff.
At higher level.
<unk>.
Could you discuss what is driving that better return to see Trent.
So we've mentioned, perhaps some private calls and it's something we wanted to call out this call experienced staff tend to produce at a much higher level definitely after two and a half three contracts.
We see the productivity improve retail attachment improve.
And just the experience level and then ultimately tried minutes are up into management, if they capable of such a move we continue to reinforce training. We continue to take care of their will the wellbeing on board.
They're busy doing well.
This is definitely an incredibly environment for them to and money.
And save money to the extent that they they wish to do that given that most of the expenses on board are taken care of so we're starting to see that retention number improve and with that comes greater experiencing quite a productivity.
Thank you very much.
Sure.
Our next question comes from Steve <unk>.
Yeah, Hey, guys. Good morning so.
<unk> I think you heard I I I think I heard you correctly that you talked about how the fourth quarter is already off to you know it seems like a pretty strong start. So you know if that's the case is it fair to thank the trends did you witness through October where essentially running it it's similar levels to what you witnessed during the third quarter I guess, what I'm just trying to understand here you know has there been.
Any real change and you know spend levels.
And then maybe held a quarter you know played out from you know from a sequential standpoint.
Yeah, there cause the third quarter, Steve stand in a bunch of other metrics were extremely strong I mean, as you know the second and third quota tend to be that way, but we actually saw improvements in an average gift spend.
Stopped utilization.
<unk> quote of staff as the third quotas thoughts with a longer cruises at all can go up and down just depending on how long those cruises, but you know we're we're very very encouraged by what we've seen even at the beginning of what we term the South Dakota.
The ship's repositioning <unk> back to the Caribbean back from Alaska or out of the Mediterranean in troubled areas and so.
From what we've seen today I'm very encouraged by <unk>, but what I've seen so far in October. So yeah continues continues to hold a strong pattern of demand.
Gotcha. Thanks for that and then you know look I know, it's early I know you're not prepared to give 2024 guidance yet you know, but as we look into next year. You know is there anything we should be thinking about in terms of seasonality or you know or other factors that potentially could.
You know, whether that's help or whether that's hurt your operating performance as we just kind of thinking about 2020, <unk> 24 more from you have a big picture perspective.
No not that I can see I mean, I look at the close the clothes in bookings from the cruise lines demand pricing.
60, 65% booked through 24, I mean, I guess, we'll hear more from the cruise lines as their report, but certainly as we heard from Royal in N. C. L. Today. It seems that demand continues to be strong and look the value that cruising today provides guess <unk>.
He had a somewhat inflationary environment is still an incredible you know vacation and value vacation, we continue to see demand for our services. We continue to see the cruise lines focus more on the pre booking in which we know.
We know guess spend more if they pre book and I think <unk>.
Collaboration that we are experiencing with that cruise line banners and partners.
Is at a level, where they're saying the benefits to from that people bookings. So I think we'll see them focus more on that you know outside of things. We just can't control state geopolitical events as you know cruise lines will cancel the move away from trouble, which they started they will have that already I don't see.
Outside of anything macro that's out there things that could sort of change my my my view on on the demand for cruising, which seems to be outperforming any other vacation experience to date.
Okay Gotcha makes sense. Thank you very much Leonard appreciate it.
Course nice too.
Our next question comes from sharing <unk>.
Williams there please.
[laughter].
Hi, good morning.
I guess I'm curious on the revenue per staff per day, I mean, it it's holding at extremely high levels, particularly when you look at kind of what you were doing pre pandemic.
And I'm wondering if that this claim as you look forward is the main opportunity and continuing to increase.
The revenue for staff per day or is it by adding more staff and I'm trying to figure out kind of how high realistically. We can think about that <unk> Avenue <unk> kind of on an annual basis I know there's seasonality there.
[laughter].
Tough question, but a good ones Sharon so.
We continue to focus with sales and revenue stuff that as I mentioned about out there all the time.
Today with the data the matrix, we have we can really drove down and see who's not performing way. The under performance is coming from which my data do we need to shore up.
I think the team has done an excellent job throughout this here and in the last two quarters of last year is focusing on the underperformance and raising them to the level of the higher performance. So we wanted to get everybody up to as an M. B pluses I think our team is doing an excellent job focusing on that and we have the data.
Now, where we can see it.
Earlier than we've ever done before and that was all the preparation that we did as a pre pandemic period.
And pandemic period, so you know.
I I think executions a function of vigilance earlier.
<unk> of data acting on their data and reinforcing trading where it's needed so.
We will balance staff across different itineraries.
As needed.
And you know, we we will make sure that the balance is there so that stuff continue.
To be busy we don't want them not to be busy, but we also want them to have the requisite dress that they need so yeah. It's a continue balancing act at the same time I focus in 2024 is going to be looking at what is the best use of stop do we have one less massage therapists and add somebody.
<unk> and <unk> acupuncture, which is outperforming so we wanted to make sure that we're putting the right stuff on the right ship for the rights itinerary for the right demographic I think that will continue to support a revenue pissed off today and to 2024.
Thanks for that and then I guess I'll follow up question on that I mean, it seems like just given the trends in the business that you're gonna do elaborate pretty quickly in 2024, and probably can beat that free at some point in 25, I just want a level set that Steven at that kind of a realistic outlook cause I I assume.
That you know keeping that on the balance sheet is not kind of very advantageous for you get in uhm, you're kind of tax free status.
<unk> that is absolutely the case.
We do have a portion of the date that to be allocated to the U S, which helps we we we do they will get the interest mortgage benefits from that but <unk>. It really doesn't make sense to taking the ears.
Listen to 10% interest rate, so did pay that and will continue to be a hopeless.
Texas Cashflow.
Do think I'm at a point in time.
It doesn't have to be mutually exclusive like the company will get to a point, where we will consider that had been used for a total chocolate cake to shareholders as we deem appropriate.
Okay. Thank you.
Our next question comes from <unk>.
<unk>.
Great. Thanks, a lot of nice job in the quarter. So you called out a number of key initiatives and priorities can you rank them, an order of magnitude and 80 unlocks we should be looking for it.
[noise] next you know, we're always looking obviously for market share pick ups right. There's there's not that many out there we still continue to focus on that we did pick up one more.
At the end of the day it could be perhaps focusing on other segments of cruising whether it be river cruising maybe there's more to pick up there will be a set the ships are smaller spas or even smaller than what we have on some of the small luxury ship. So.
We focus on where the opportunity is we think.
There could be some forthcoming but.
It's too early to say, what what what are we working on and what will develop right.
So I would say Mark a chair and you ship introductions continued to be a high priority, but at the same time you know we want to focus on productivity at the same time as launching an expanding our menus on board, particularly in the wellness and many spot area, that's gonna be a focus over.
The next two years and I would say that that's a key focus of US is how we can admit that we can increase our footprint. How we can increase most staff.
By convincing the cruise lines that there's definitely an opportunity there given the high ticket prices and ultimately to the extent that we can move those two modalities to Ah ha.
A higher level of.
Participation in a total gross revenue, that's obviously going to help expand revenue opportunities on board.
135 ships that we have met the spawn.
Got it that's very helpful. And then can you speak to the level of conservatism embedded in the four G guidance as data from the cruisers seemed to suggest that you are being quite modest and your outlook.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question you may press star, then one on a touch-to-one phone, to withdraw your question, please press star, then please note this event at being recorded.
Yeah, I I I don't Wanna get too far ahead of <unk> guidance I think.
My mind.
Accurately to the extent that we have an opportunity in this sort of south Dakota to outperform so be it.
Allison Malkin: I would now like to turn the conference over to Allison Malkin, all of ICR, please go ahead. Thank you, good morning and welcome to one-spot-a-world third quarter, 2023 earnings conference webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's webcast may be deemed to constitute forward-looking statement. These forward-looking statements reflect our judgment and analysis only as of today. And actually results may differ materially from current expectations, based on a number of factors affecting our business.
You know, there's still a lot of balls in the air that.
You know who knows what happens, but I I I just feel that.
Oh gosh, we've raised guidance each quarter since we popped out of the first quarter I think.
If you've noticed long enough, we definitely a little bit.
Conservatism in case, something does sort of wobble around but.
We're pretty confident about where this fourthquarter is gonna end up.
Got it and just very quickly any early thoughts on 2024, given such strong bookings called out by your cruise partners and just any learnings from this year that will help you outperformed next year.
Allison Malkin: Accordingly, you should not place undereliance 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 webcast, we refer you to the disclaimer regarding forward-looking statements. That is included in our third quarter, 2023 earnings release, which was furnished to the SEC today on 4MAKA. 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-get metrics on this call.
<unk>, it's early to start talking about 20th you before we typically do that sort of the week of ICR will give a high level guidance and feel.
We're still receiving input from the cruise lines with respect to change that <unk> et cetera. It could be some changes until we can totally circled.
The wagons here and everything I think it's too early to comment at this juncture, but.
We'll have that guidance at typically yes, we do you know the first or second week of January.
Got it alright, thanks, a lot guys, Betsy dogs and happy holidays.
Allison Malkin: An explanation of these metrics can be found in our earnings release issued earlier this morning.
Thank you you too.
Our next question comes from.
Luke <unk>.
Thanks for taking my question I, just wanted a little more detail on there's a sentence in the press release about deploying enhanced technologies to drive productivity could you be more specific on on what types of things you're referring to there.
You know I think it's looking at scheduling that's the most important thing that we do is we looked at scheduling the day, we fail obviously, the first day and location day is very important.
Allison Malkin: Joining me today are Leonard Fluxman, Executive Chairman, Chief Executive Officer and President and Steven Lazarus, Chief Financial Officer and Chief Operating Officer.
Look at.
Allison Malkin: Leonard will begin with the review of our third quarter, 2023 performance and provide an update on our operations and our key priorities. Then, Steven will provide more details on the financials and our fiscal year 2023 guidance.
That that demand.
We look at the pre booked demand, we look at where the gaps are and we focus on that.
Leonard Fluxman: I would now like to turn the call over to Leonard. Thank you, Allison.
We have a lot more.
And a marketing tool kit that we used for promotions et cetera bundling.
Getting more and more people to have more frequent services as opposed to just one and all of that is paying off.
Leonard Fluxman: Good morning and welcome to one-spall world's third quarter, 2023 results conference call. I'm delighted to speak to you today and share another quarter of strong results, which once again exceeded our expectations. The third quarter source maintain our positive momentum with stellar performance across key financial and operational metrics driven by our unwavering focus on the execution of our key priorities. To this end, we continue to introduce innovative product and offerings, empower our cruise ship stop to provide unsuppose service levels, drive efficiencies through technology enhancements, introduce our health and wellness centers on new ship builds and win new contracts.
Got it and and then follow up to a prior question.
Got we're looking at good looking bookings from the public companies how different do the private cruise line booking trends tend to be relative to public company booking Tran.
Leonard Fluxman: As a result, we achieved our best-ever third-quarter revenue income from operations and adjusted EBITDA and raised our full-year revenue and adjusted EBITDA guidance by more than the art performance we delivered in this quarter. As we look ahead, we are very encouraged by the healthy demand environment we are seeing. Customers around the world continue to appreciate the unparalleled value of opposition, cruising offers, and our strategies are driving strong demand. Touching on performance highlights of the third quarter, total revenue is grew 33% reaching a record 216.3 million dollars and adjusted EBITDA increased 36% to a record 24.9 million dollars.
Yeah look over all of <unk>. This year have moved very positively across both the public of non-public companies.
They tend to you know.
Tend to move in Lockstep I would imagine it's the same I mean, sometimes you've seen some of the higher end, perhaps not move with the same level.
But generally speaking I would say the confidence that the cruise lines see around.
You know near in bookings and into 24 should be some of the across the entire industry.
Understood. Thank you yep.
Yep.
Our next our next question comes from <unk>.
Yeah My first.
Leonard Fluxman: The expansion in our ship count continued in the quarter. At the end of the third quarter, we had health and wellness centers on 189 ships compared with 176 ships at the end of the third quarter of 2022. At year end, we now expect to have in service 193 ships, including 10 new builds introduced throughout 2023. We saw strength across key operating metrics, including a 22% increase in average week revenue per ship as compared to the third quarter last year.
<unk>.
Yeah. It took some quota great job I had a couple of quick questions first of all one of your major cruise partners is.
Kind of going into more.
Longer more exotic.
Is that structural change going to affect you.
Three four.
Or do you think given possibly a higher level you know nothing of generating client that it shouldn't have an impact.
Leonard Fluxman: High single-digit increases in average guest spend and a low single-digit increase in revenue per ship would start today. Penetration of retail sales and pre-bookings also continued to improve. We continue to remain highly focused on supporting operations at sea. Our ongoing initiatives to have experienced staff return for staff's up-and-contracts is exhibiting greater success and we expect our proportion of experienced staff members in the first quarter of 2024 to surpass the level of experienced staff members in 2019.
You know in the scheme of 180 292 ships it'll be on in this here.
I mean, we've.
We've had cruises move into those longer itineraries, we've had many more will cruises and we've seen in the last year.
We still know that the sweet spot is obviously the seven day market.
So Kenneth impact.
Some of the cruises.
Yeah, a little bit Sarah.
It will be built into a guidance next year if it's so.
<unk> I, just don't see it being a material impact at all.
Leonard Fluxman: At quarter end, we had 3,927 cruise ship personnel on vessels increasing from 3,813 and 3,087 cruise ship personnel on vessels at the end of the second quarter of 2023 and the third quarter of 2022 respectively. We also have 24 traveling sales and revenue staff members who year-to-date have made 492 ship visits equating to 3,271 days of sailing with their primary focus to enhance onboard productivity.
I think it's more <unk>.
Companies moving back into more Normalised itineraries as opposed to perhaps what they've had as they come out the pandemic. So I'd have to see this being a big change from what we saw in 2019, but we had those cruises.
Alright, that's good news and kind of a related question I think we will have more into my ducks in 2024.
Then we would have typically relative to 2019.
That would probably be sort of a short time.
I would imagine.
Yeah, I'd agree yeah exactly.
Leonard Fluxman: Now, I'll review and update our key priorities that we shared with you earlier this year. First, capture highly visible new ship growth with current cruise line partners. Our cruise line partners continue to introduce new ships, which adds to our growth. In the quarter, we introduced health and wellness centers on six new ships, including two crystal cruise vessels, crystal serenity and crystal symphony, as part of the new agreement announced earlier this year and one vessel as part of a new agreement with Adora Cruises, which is a new Chinese American cruise line.
Alright, and lastly, maybe Steven you touched on this when you were answering this question.
Right, that's a payment it's.
[noise] levels, which is great and trying to get.
Returning capital to shareholders and was thinking buybacks or possibly a dividend program.
Both will be considered a determination will be made depending on what the stock prices what interest Rachel etcetera. So.
Leonard Fluxman: We continue to expect to introduce health and wellness centers on 12 shipbuilds this year. Second, continue launching higher value services and products. We continue to focus on introducing exciting products and services, which are in various stages of implementation, including IV therapy, immunity protocols, and facial turning devices. Third, focusing on enhancing health and wellness center productivity. Highlights of our achievements in this regard include high single to double digit increases, across average guest spend, pre-booking as a percent of service revenue, revenue per stock per day, and in retail spend as compared to Q3 of 2019.
The bold and the company will try and make the best decision Quachaun.
Wow, Steven [laughter] that was a very diplomatic way of telling me I'm not going to answer this question.
No he's not saying that at all I say what is really saying is you can see the free cashflow generation from this company you can see the rate at which we paying down debt clearly at some point whether it be at the end of 24 will have a much better idea of where we are on.
On that.
Kelly, that's the best use of cashed right now and to the extent than that we continue to see the same optimism in our business, we will start to return capital.
Either of those phones I don't think he's trying to be cute at all.
Leonard Fluxman: And fourth, expanding market share by adding new potential cruise line partners. We have room to grow a 90 plus percent market share in the outsourced maritime health and wellness market as evidenced by recent new contract wins with Virgin Voyages, Oceana Cruises, Region 7C Cruises, Celebrity Cruises, and most recently Adora Cruises. We are very excited about our business prospects into the fourth quarter and in 2024 and beyond. Our fourth quarter of 2023 performance is off to a strong start, despite it being a seasonly softer period for cruise operators, as they reposition their fleets for the winter cruising season.
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Thank you guys are getting great clutter and you know.
Much for providing even better guidance for Q4.
Okay. Thank you.
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Question I would like to turn the conference back over to the management.
Alright, I just wanted to thank everybody for joining us on the call today, but before I leave I just wanted to thank alright.
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Work, so closely with with us with all of our associations support staff.
Leonard Fluxman: In light of our art performance so far in the year and current business trends, we have raised our annual guidance for the third time this year, with our fiscal year outlook increased beyond the amount we surpassed third quarter expectations. As a result for fiscal year 2023, we now expect total revenues to increase by 45 percent and adjusted EBITDA to increase by 73 percent versus fiscal year 2022 at the midpoint of our guidance ranges.
<unk> contributions and commitment to achieving the operational excellence evidenced by you know the third quarter results.
And expected fourth quarter results. So thank you everybody. We look forward to speaking with you on the next critical.
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Leonard Fluxman: Finally, before I turn the call over to Stephen, I want to convey that our hearts go out to all that have been impacted by the war in the Middle East, the ongoing war in Ukraine, and the innocent lives lost. In response, the cruise lines have altered or canceled certain itineraries. However, we did not expect this to have a material impact on our results.
Stephen Lazarus: Stephen, thank you Leonard, good morning everyone. We are pleased to report strong third quarter results and continued momentum across our key operational and financial metrics, as well as improvements to our balance sheet. I will now share more details on our third quarter that we reported this morning. Total revenues were $216.3 million, an increase of 33 percent from $162.3 million in the third quarter of 2022. The increase was attributable to our average ship count increasing 11 percent to 185 health and wellness centres on board shifts operating during the quarter, compared with an average ship count of 167 health and wellness centres on board shifts operating during the third quarter of 2022, and our initiatives to drive revenue growth in each of our onboard health and wellness centers through enhanced guest engagement and experiences.
Stephen Lazarus: Our guest service and product offering innovations and the discipline execution of our complex operating protocols by our onboard and corporate teams. Positive services were $146.1 million compared to $110.6 million in the third quarter of 2022. The increase was primarily attributable to cost associated with increased service revenues of $175.8 million in the quarter, from our operating health and wellness centers at sea and on land compared to service revenue of $132.8 million in the third quarter of 2022.
Stephen Lazarus: Cost of products were $34.5 million compared to $25.3 million in the third quarter of 2022. This increase was primarily attributable to cost associated with increased product revenues of $40.4 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $29.5 million in the third quarter of 2022. Product costs in the third quarter of 2022 benefited from retail price increases implemented onboard vessels ahead of an increase in the cost of those products.
Stephen Lazarus: This resulted in an approximately 60 basis point margin improvement in the quarter. Met income was $23.4 million on net income per dollar due to share of 16 payers as compared to net income of $5.5 million on net income per dollar due to share of six payers in the third quarter of 2022. The $17.5 million increase was primarily attributable to the $7.1 million positive change in the fair value of warrant liabilities. A $7.1 million positive change in income from operations and a $3.4 million decrease in uncertain tax benefits related to foreign tax exposure as a result of the company's participation in a tax MSD program in Italy settled in August 2023.
Stephen Lazarus: The change in fair value of the outstanding warranty during the three months in the September 3023 was a gain of $7.4 million compared to a gain of $300,000 during the three months in the September 2022. The change in fair value of warrant liabilities was the result of changes in market prices of our common stock and other observable inputs deriving the fair value of the financial instruments. Adjusted net income increased 75% to $22 million or just with net income per value to share of 22 pennies as compared to a just with net income of $4.5 million or just with net income per value to share of 13 pennies in the third quarter of last year.
Stephen Lazarus: Adjusted EBITDA increased 36% to $24.9 million compared to adjusted EBITDA of 18.3 million in the third quarter of 2020. Ltd. The company expects to continue to generate positive cash flow from operations in the fourth quarter of 2023 and throughout 2024. Moving on to our guidance, we are increasing our fiscal year guidance for the third time this year to reflect our better than expected third quarter performance and our expectations for the fourth quarter.
Stephen Lazarus: Adjusted EBITDA is now expected in a range of $86 to $88 million. At the midpoint, this represents an increase of 73% from actual fiscal 2022 adjusted EBITDA of $50.4 million. We expect to end fiscal 2023 operating on 193 cruise ships and at 54 land-based resorts. For the fourth quarter, we expect total revenue in the range of $193 to $198 million and adjusted EBITDA in the range of $20 million to $22 million.
Stephen Lazarus: Overall, we feel confident about our positioning and growth initiatives. We are encouraged by the momentum in the business and expected to continue our successful growth in the near and medium curve. With that, we will open our call for questions, please operator. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone tone. If you're using a speaker fan, please pick up your hands that go for pressing the keys.
Stephen Lazarus: If at any time your question has been adjust and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow up and you may lead you for further questions. At this time, we will pause momentarily to a similar roster.
Gregory Miller: The first question comes from Gregory Mueller with twist. Thank you.
Leonard Fluxman: Good morning. I like to start off with service pricing. Could you share your current views on pricing heading into the 4Q holidays and if possible, into next year, have you seen any pressure points in consumer spend that may impact if or how much you may raise pricing over the next year? Yeah, good morning Greg. We've actually seen very little pressure on pricing at all where we continue to hold pricing where we've had it, discounting only on shoulder days when necessary, but certainly not below our increased level.
Leonard Fluxman: So there's still hallmark pricing on a couple of services on some banners and you know, we will obviously reintroduce hallmark pricing through the Christmas New Year period across most of the year. So right now, as we said, our ships are, I should say, the cruise lines are repositioning their ships, longer cruises, et cetera. So we still have not seen pressure on pricing thus far.
Leonard Fluxman: So we're in good shape. Excellent here.
Leonard Fluxman: Thanks. And then for the follow up, I thought I asked you about the commentary you're providing about your staff, your staff are turning at higher levels than in the past, but can you discuss what is driving that better return to sea trend? So as we've mentioned, perhaps some prior calls and something we wanted to call out this goal, experience staff tend to produce at a much higher level, you know, definitely after two and a half, three contracts.
Leonard Fluxman: We see the productivity improves, retail attachment improves, and just the experience level and then ultimately we try to move them up into management that they kept will have such a move. We continue to reinforce training. We continue to, you know, take care of their well being on board. They're busy, they're doing well. This is definitely an incredible environment for them to earn money and save money to the extent that they wish to do that, given that most of the expenses on board are taken care of. So we're starting to see that retention number improve and with that comes greater experience and greater productivity.
Leonard Fluxman: Thanks very much. Sure.
Steve Lasinski: Our next question comes from Steve Lasinski with Steve, please go ahead. Yeah, hey guys, good morning. So Leonard, I think you heard, I think I heard you correctly that you talked about how the fourth quarter is already up to, you know, seems like a pretty strong start. So, you know, if that's the case, it's fair to think that trends that you witnessed through October were essentially running it at similar levels to what you witnessed during the third quarter.
Steve Lasinski: I guess what I'm just trying to understand here, you know, is there been any real change in, you know, and spend levels and then maybe how the quarter played out from a sequential standpoint. Yeah, the third quarter Steve stand in a bunch of other metrics were extremely strong, I mean as you know the second and third quarter can to be that way, but we actually saw improvements in average guest spend. Stop utilization, you know, as the third quarter stops, as the third quarter starts, with the longer cruises, you know, can go up and down, just depending on how long this cruise is off.
Leonard Fluxman: But, you know, we're very, very encouraged by what we've seen even at the beginning of what we term the softer quarter. As these ships, repositioned into the upenaries back to the Caribbean, back from Alaska, out of the Mediterranean and troubled areas. And so, from what we've seen today, I'm very encouraged by by what I've seen so far in October. So yeah, continues to hold a strong pattern of demand. Gotcha, thanks for that.
Leonard Fluxman: And then, you know, look, I know it's early, I know you're not prepared to give 2024 guidance yet. You know, but as we look into next year, you know, is there anything we should be thinking about in terms of, you know, seasonality or, you know, or other factors that potentially could, you know, whether that's helper, whether that's hurt your operating performance. As we just kind of think about 2024 more from a big picture perspective.
Leonard Fluxman: You know, not that I can see, I mean, I look at the close, the close in bookings from the cruise lines demand pricing, you know, 60 to 65% book through 24. I mean, I guess we'll hear more from the cruise lines as they report, but certainly as we heard from Royal and NCL today, it seems that demand continues to be strong. And look, the value that cruising today provides guests in a somewhat inflation environment is still an incredible, you know, vacation and value vacation.
Leonard Fluxman: We continue to see demand for our services, we continue to see the cruise lines focus more on the pre-booking in, which we know, we know guests spend more if they pre-book. And I think the collaboration that we are experiencing with our cruise line banners and partners is at a level where they're seeing the benefits too from that pre-booking. So I think we'll see them focus more on that. You know, outside of things, we just kind of control Steve, geopolitical events as you know, cruise lines will cancel the move away from trouble, which they've started doing, or have done already.
Leonard Fluxman: I don't see outside of anything macro that's out there. Things that could sort of change my view on the demand for cruising, which seems to be outperforming any other vacation experience today. Okay, gotcha, makes sense. Thank you very much, Leonard. Appreciate it. Cool, thanks, Steve.
Sharon Zackfia: The next question comes from Sharon. That's the Elizabeth William Blair.
Leonard Fluxman: Please go ahead. Hi, good morning. I guess I'm curious on the revenue per staff per day. I mean, it's holding at extremely high levels, particularly when you look at kind of what you were doing pre-pandemic. And I'm wondering if at this point, as you look forward, is the main opportunity and continuing to increase? The revenue per staff per day, or is it by adding more staff? I'm trying to figure out kind of how high realistically we could think about that revenue per staff per day going kind of on an annual basis.
Leonard Fluxman: I know there is feasibility there. Good question, but a good one, Sharon. So we continue to focus with our sales and revenue stuff that I mentioned are out there all the time. Today with the data, the metrics we have, we can really drill down and see who's not performing. Where the underperformance is coming from, which modality we need to shore up. I think the team has done an excellent job throughout this year, and in the last two quarters of last year, is focusing on the underperformance and raising them to the level of the higher performance.
Leonard Fluxman: So we want to get everybody up to A's and B pluses. I think our team is doing an excellent job focusing on that, and we have the data now where we can see it earlier than we've ever done before, and that was all the preparation that we did in the pre-pandemic period and pandemic period. So, you know, I think executions of function of vigilance, earlier retrieval of data, acting on that data and reinforcing training where it's needed.
Leonard Fluxman: So, we will balance staff across different equineries as needed, and, you know, we will make sure that the balance is there, so that staff continue to be busy. We don't want them not to be busy, but we also want them to have the requisite rest that they need. So yeah, it's a continued balancing act. At the same time, our focus in 2024 is going to be looking at, what is the best use of stock?
Leonard Fluxman: Do we have one less massage therapist and add somebody in our Medisparo Acupuncture, which is our performing? So, we want to make sure that we're putting the right staff on the right ship for the right titanary, for the right demographic. I think that will continue to support our revenue path today in 2024. Thanks for that, and then I guess I'll follow up question on that, and it seems like just given the trends and the business that you're going to deliver pretty quickly.
Leonard Fluxman: In 2024 and probably could be that free at some point in 25. I just want to level set that Steven if that kind of a realistic outlook, because I assume that, you know, keeping that on the balance sheet is not kind of very advantageous for you given your kind of tax free status. Correct, we're just speaking that is absolutely the case. We do have a portion of the debt that we allocate to the US, which helps, where we do therefore get the interest to the rich, then I put it from that.
Leonard Fluxman: But outside of that, it really doesn't make sense to taking the access to the interest rate. So, that's how we'll continue to be focused on our Texas cash flow. I do think I would appoint in time.
Stephen Lazarus: It doesn't have to be mutually exclusive like the company will get your point where we will consider having used for returning capital to share how this as we deal with programs. Thanks for that.
Leonard Fluxman: Yes, thank you.
Maksim Rakhlenko: The next question comes from Max Rakhlenko with Powering and Companies. Please go ahead. Great, thanks a lot and nice job in the quarter. So, you co-bought a number of key initiatives and priorities. Can you rank them in order of magnitude and any key unlocks we should be looking for? Max, you know, we're always looking obviously for market share pickups, right? There's not that many out there. We still continue to focus on that.
Maksim Rakhlenko: We did pick up one more. At the end of the day, it could be perhaps focusing on other segments of cruising, whether it be river cruising, maybe there's more to pick up. They'll be effective to ship the smaller, farther even smaller than what we have on some of the small luxurieships. So, you know, we focus on where the opportunity is. We think there could be some forthcoming, but, you know, it's too early to say what we're working on and what we'll develop, right?
Maksim Rakhlenko: So, I would say market share and new ship introductions continue to be a high priority, but at the same time, you know, we want to focus on productivity at the same time as launching and expanding our menus on board, particularly in the wellness and many spot area. And that's going to be a focus over the next two years. And I would say that that's a key focus of ours is how we can augment that, how we can increase our footprint, how we can increase more staff by convincing the cruise lines that there's definitely an opportunity there, given the high ticket prices.
Maksim Rakhlenko: And ultimately, to the extent that we can move those two modalities to a higher level of participation in our total gross revenue, that's obviously going to help expand revenue opportunities on board. You know, the 135 ships that we have many spot on.
Leonard Fluxman: God, that's very helpful. And then can you speak to the level of conservatism embedded in the four two guidance as data from the cruisers seem to suggest that you are being quite modest in your outlook? You know, I don't want to get too far ahead of us because we raise guidance, I think, in my mind, accurately to the extent that we have an opportunity in this sort of softer quarter to outperform, so be it.
Leonard Fluxman: You know, there's still a lot of balls in the air that, you know, who knows what happens. But I just feel that, you know, gosh, we've raised guidance each quarter since we've popped out of the first quarter. I think, if you've known us long enough, we've definitely heard a little bit on conservatism in case something does sort of wobble around, but, you know, we're pretty confident about where this fourth quarter is going to end up.
Leonard Fluxman: Got it. And just very quickly, any early thoughts on 2024, given such strong cooking, cold out by your cruise partners, and just any learnings from this year that will help you outperform, last year. You know, Maks, it's early to start talking about 24. We typically do that sort of the week of ICR. We'll give a high level guidance and feel. We're still receiving inputs from the cruise lines in respect to change, like senatories, etc.
Leonard Fluxman: There could be some changes until we've totally circled the wagons here and everything. I think it's too early to comment at this juncture, but we'll have that guidance out typically as we do, you know, the first or second week of January. Got it. All right, thanks a lot, guys. Best regards and happy holidays.
Laura Champine: Thank you, too.
Leonard Fluxman: Our next question comes from Laura Champine with Luke Capital, please go ahead. Thanks for taking my question. I just wanted a little more detail on, there's a sense in the press release about deploying enhanced technologies to drive productivity. Could you be more specific on what types of things you're referring to there? You know, I think it's looking at scheduling. It's the most important thing that we do is we look at scheduling the day we sail.
Leonard Fluxman: Obviously, the first day and location day is very important. We look at that demand. We look at the pre-booked demand. We look at where the gaps are and we focus on that. We have a lot more in our marketing toolkit that we use for promotions, etc, bundling, you know, getting more and more people to have more frequent services as opposed to one and all of that's paying off. Got it.
Leonard Fluxman: And then follow up to a prior question, but you've got, we're looking at good looking bookings from the public companies. How different do the private cruise line booking trends tend to be relative to public company booking trends? You know, look, overall load factors this year have moved very positively across both the public and non-public companies. They tend to, you know, they tend to move in lockstep. I would imagine it's the same.
Leonard Fluxman: I mean, sometimes you've seen some of the higher end perhaps not move at the same level, but generally speaking, I would say the confidence that the cruise line see around, you know, near end bookings and into 24 should be similar across the entire industry. Understood. Thank you. Yep.
Assia Georgieva: Our next question comes from Agio, Georgiello with Inmedi research, please get ahead. Good morning, nice excellent quarter. Great job. I had a couple of quick questions. First of all, one of your major cruise partners is kind of going into more longer, more exotic itinerary. Is that structural change going to affect you in 2024? Or do you think given possibly a higher level, you know, revenue generating client, that it shouldn't have an impact?
Assia Georgieva: You know, in this game of the 180 to 190 ships that would be on in this year, Assia, I mean, we've had cruises move into those longer itineraries, we've had many more world cruises than we've seen in the last year. We still know that the sweet spot is obviously the seven-day market, so can it impact some of the cruises? Yeah, a little bit. It will be built into a guidance next year if it so.
Assia Georgieva: I just don't see it being a material impact at all. I think it's more companies moving back into more normalized itineraries as opposed to perhaps what they've had as they've come out the pandemic. So I don't see this being a big change from what we saw in 2019 where we had those cruises.
Leonard Fluxman: All right, that's good news and kind of a related question. I think we will have more dry dogs in 2024 than we would have typically relative to 2019. That will probably be sort of a short-term event, I would imagine. Yeah, I agree. Yep, exactly. All right.
Assia Georgieva: And lastly, maybe Steven, you touched on this when you were answering Sharon's question with that repayment at such significant levels which is great and trying to get returning capital to shareholders. Are we thinking by-backs or possibly a dividend program? Both will be considered a determination will be made depending on what the stock price is, what interest rates are, etc. So I think the board and the company will try and make the best decision while shareholders.
Assia Georgieva: Well, Steven, that was a very diplomatic way of telling me I'm not going to answer this question. No, he's not saying that at all. I say what he's really saying is, you can see the free cash flow generation from this company, you can see the rate of which we are paying down debt. Clearly, at some point, whether it be at the end of 2004, we'll have a much better idea of where we are on debt.
Assia Georgieva: Clearly, that's the best use of cash right now and to the extent then that we continue to see the same optimism in our business, we will start to return capital in either of those forms. I don't think he's trying to be cute at all. Well, and I didn't mean it that way. I guess I was trying to be cute. But he is a very good diplomat. I will say. Agreed. Thank you, guys. Again, great quarter. And, you know, thank you so much for providing even a better guidance for Q4. Of course, thank you.
Operator: This concludes our question and answer session.
Leonard Fluxman: I would like to turn the conference back over to the management who are in closing remarks. Right, I just want to thank everybody for joining us on the call today, but before I leave, I just want to thank our entire leadership team that works so closely with us. With all of our associates, should put stuff for their step-wise contributions and commitment to achieving the operational excellence evidenced by, you know, the third quarter results and expected fourth quarter results.
Leonard Fluxman: So thank you, everybody. We look forward to speaking with you on the next quarter call.
Operator: The conference has now concluded.
Operator: Thank you for attending today's presentation.