Q2 2025 OneSpaWorld Holdings Ltd Earnings Call
If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to hand, the call over to Allison Malkin of ICR. Please go ahead.
Thank you good morning, and welcome to one Star World Second quarter 2025 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 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.
A more thorough discussion of the risks and uncertainties associated with the forward looking statements may 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 2025 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.
In addition, the company may refer to certain 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 <unk>, Executive Chairman, and Chief Executive Officer, and Stephen Lazarus, President Chief Operating Officer, and Chief Financial Officer, Leonard will begin with review of our second quarter 2025 performance and provide an update on our key priorities.
Steven will provide more details on the financials and guidance following our prepared remarks, we will turn the call over to the operator to begin the question and answer portion of the call I would now like to turn the call over to Leonard.
Thank you Alison good morning, and welcome to <unk> second quarter 2025 earnings Conference call.
To speak to you today to share better than expected second quarter results, which completed a strong first half of the year for our company.
Our ongoing strength reflects the efforts of our outstanding team that continues to leverage our powerful global operating platform and our strategic investments to drive innovation productivity.
Profitability across our operations.
Highlights of our second quarter, where total revenues increased 7% to a record $247 million.
Compared to two $224 million 9 million in the second quarter of 2024.
Income from operations increased 17% to a record $22 $1 million.
<unk> to $18 8 million in the second quarter of 2024.
Net income increased 27% to $19 9 million.
Compared to $15 8 million in the second quarter of 2024.
And adjusted EBITDA increased 13% to a record $30 5 million compared to $27.1 million in the second quarter of 2024.
At quarter end, we operated health and wellness centers on 200 ships with an average ship count of $100.
One for the quarter.
Compares with a total of 197 ships at an average ship count of 188 at the end of the second quarter of fiscal 2024.
Also at the quarter end, we had 4365 cruise ship personnel on vessels compared with 4300 cruise ship personnel on vessels at the end of the second quarter of fiscal 2024.
This quarter marks meaningful progress on our key priorities.
To shift some of those highlights with you first.
Captured highly visible new ship growth with current cruise line partners and added new cruise line partnerships 12 fold.
We continue to solidify our market leadership during the quarter.
Our partnership with Windstar cruises, and introducing a new health and wellness center onboard the newly launched Oceania or Laura.
For the year, we remain on track to introduce health and wellness centers on an additional seven new ship builds commencing voyages in the second half of the year.
Second we continue to expand higher value services and products.
These higher value services, including Medi Spa, IV therapy, and acupuncture to name a few helped to grow sales productivity.
In the quarter, we continued to introduce these services to more ships and expand offerings with the latest innovations adding to our growth.
To this end we continue to elevate the innovation in our Medi Spa services with expansion of our rollout of next generation technology with Marsh F. L X.
Cool sculpting elite.
Which offer improved results and reduced treatment time by up to 50%.
These new technologies generated over 20% growth for these treatments in Q2 versus last year.
In addition, Accupuncture remains a sought after service.
With very strong adoption of Leds light therapy as a high conversion add on treatment that quarter end very spa services were available on 147 ships up from $1 44 ships at the end of 'twenty 'twenty four second quarter.
We continue to expect to have many small offerings on 151 ships this year.
Third we focused on enhancing health and wellness center productivity.
This is best reflected in the delivery of across the board growth in key operating metrics, including revenue per passenger per day weakly revenue pre cruise revenue and revenue per staff per day driven by.
One staff retention, which remains a key contributor to our consistent gains in operating metrics as experienced team members are driving incremental revenue through more effective customer recommendations.
We continue to invest in best in class training and our recently redesigned our talent talent management process to further support productivity and long term growth in our operating metrics.
Our enhanced sales training continues to fuel increases in the number of guests using the Spa service frequency service spend and retail and average spend per guest.
Additionally, pre booking revenue as a percentage of services remains strong at 23%.
During this quarter, we introduced pre booking on as remark cruises.
Fourth we ended the quarter with a very strong balance sheet, which allowed us to invest in our growth, while returning value to shareholders through our quarterly dividend payments we.
We remain confident in our outlook as we begin the second quarter of the year with our business continuing its favorable momentum at the start of the third quarter.
In addition to the introduction of seven new health and wellness centers, beginning the voyages for the remainder of 2025.
We are also excited by developing initiatives employing emerging AI technologies to enhance our unique global positioning towards delivering increased exceptional experiences for our guests and service to our partners.
We believe this along with continued discipline with which we execute our asset light business model positions us well to deliver strong results for our stakeholders and shareholders in fiscal 2025 and beyond.
As Stephen will share momentarily, we have affirmed our annual revenue guidance and have increased our 2025 adjusted EBITDA guidance.
With that I will turn the call over to Stephen who will provide more detail on our second quarter results and guidance Stephen.
Thank you Linda good morning, everyone.
We are indeed pleased with our second quarter performance, which saw total revenue increased 7% adjusted EBITA rise, 13% with continued strong and predictable cash flow generation.
We continue to expand our innovation production services and leverage our strong operating platform and technology enhancements, which enabled us to deliver revenue growth at increasing rates of profitability.
Additionally, our capital efficient asset light business model.
<unk> generates strong free cash flow.
The return of $4 1 million to our shareholders through our quarterly dividend.
We are very excited to be making strides and embracing AI within one stall world.
We are currently piloting an AI driven initiatives focused on increasing revenue by enhancing yield improvements through machine learning powered recommendations and algorithmic optimization.
And in parallel we are advancing a second group of initiatives centered on efficiency and automation using AI to streamline operations and reduce manual effort and drive scalable process improvements across the organization.
Turning now to a review of the quarter.
Total revenue increased 7% to $247 million compared to $224 9 million for the second quarter of 2024, the increase in service revenue and product revenues were driven by a 4% increase in average guest spend which positively impacted revenue by <unk>.
Million.
A 1% increase in revenue days, which positively impacted revenue by four and four 5 million and fleet expansion, which contributed $3 5 million.
Countries due to the increased volume and spend was $2 7 million in increased pre booked revenue at our health and wellness centers, including included in our ship count as of June 30 of 2020 slides.
This was partially offset by a $900000 decrease in our land based small business, partially due to the total hotels, where we had previously operated.
Cost of services increased $10 $4 million attributable to the $12 $5 million increase in service revenue and.
And cost of products increased $2 8 million.
It's about two to $3 $3 million increase in product revenue versus the prior quarter.
Salaries and benefits.
Were $8 $8 million compared to $9 2 million in the second quarter of 2020 for the decrease was primarily due to a $700000 decrease in incentive based compensation expense versus the second quarter of 2024.
Net income was $19 $9 million or net income per diluted share of <unk> 19, pennies compared to net income of $15 8 million or net income per diluted share of <unk> <unk> for the second quarter of 2020 for the.
The change was primarily attributable to a $3 $3 million increase in income from operations.
And a benefit from $800000 decrease in net interest expense. The decrease in interest expense was primarily due to lower debt balances and a lower effective interest rate.
Adjusted net income was $24 8 million or adjusted net income per share of <unk> 25, <unk> as compared to adjusted net income was $21 7 million or adjusted net income per diluted share of 20 pennies for the second quarter of prior year.
Adjusted EBITA improved to $35 million compared to adjusted EBITDA of $27 1 million in the second quarter of last year.
Moving on to the balance sheet, we continue to possess a strong balance sheet at quarter end with total cash of $36 $2 million after paying the $4 $1 million in support of our quarterly dividend. In addition, we had full availability on our $50 million revolving loan facility, giving us total liquidity of 80 <unk>.
$6 2 million as of quarter end total debt net of deferred financing cost was $96 $2 million as of quarter end compared to $98 $6 million as of December 31, 2024 also at quarter end, we had full availability of our.
Our $75 million share repurchase authorization.
We expect the disciplined execution of our growth initiatives and strong cash flow generation driven by our asset light business model.
Able to payment of ongoing quarterly dividends, while evaluating opportunities to repurchase our shares under the $75 million authorization and to retire debt. We believe this positions us well to create long term value for all stakeholders.
Turning to guidance as we look ahead, we are excited about our business and continue to expect total revenue for fiscal 2025 to increase in the high single digit range, reflecting our strong first half performance and our positive outlook as well as the addition of seven new health and wellness centers on cruise ships.
Beginning voyages during the second half of this year adjusted.
Adjusted EBITDA is now expected to increase by 9% at the midpoint of our guidance as we deliver increased productivity from our enhanced products and services.
Our guidance does not assume a significant deterioration in cash spending on board or a slowdown increasing activity.
For the fiscal year 2025, we expect total revenue in the range of $950 million to $970 million and adjusted EBITDA is expected in the range of $117 million to $127 million, which represents an increase from our previous range for adjusted EBITDA of 100.
$50 million to $125 million.
For the third quarter of 2025, we expect total revenue in the range of $255 million to $260 million and adjusted EBITDA is expected in the range of $33 million to $35 million.
With that Andrea if you could please open the call to questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing mckee.
To withdraw your question. Please press Star then two.
Please limit yourself to one question and one follow up if you have further questions you may reenter the question queue.
At this time, we will pause momentarily to assemble the roster.
And our first question comes from Steve licensee of Stifel. Please go ahead.
Hey, guys good morning.
So leonard or Steven what I wanted to dig in a little bit more around some of the strategies that it sounds like youre going to help you enhance your profitability, which sounds like it's you know it's very much AI driven.
Look to us once filed world in terms of the story was never really about margin enhancement given the.
The revenue share agreements, but it sounds like that now might be changing so guess what I'm trying to understand here is just maybe how material. This could be over time in terms of improvement.
Whether that's in flow through our margins whatever whichever way you want to think about it.
Yeah, Steve Good morning.
Let me take that question because I think that's a really really.
State of exciting initiatives that we're working on and throughout the organization has tremendous optimism. So we break it down broadly into two categories on the on the.
One hand, there is specific focus on yield improvement and driving revenue on board through AI machine learning algorithm make recommendations and optimization, which we are currently.
Letting that is proprietary one small world intellectual property that has been built and the initial results are optimistic and we hope it will help us expand.
Revenue opportunity on board, but.
In terms of margin the opportunities primarily lies below the line inefficiency in autumn of automation.
That is way through a second set of initiatives, we're doing multiple things, we're using a generic AI cross platform automatic automation for example, email agents calendar agents presentation agents to name a few which will drive productivity they will.
Help us scale, our operations without adding having to add people and we hope will ultimately lead to increased flow through there's also gen. AI enhanced knowledge work and documentation query some of which is already in place for example, and so just one quick example, right instead of suddenly.
To call in and inquire about what the benefits might be or leave policy might be in having to take somebody's time to answer that the system now I'll answer that for you literally in one minute. So that's all really good it's really exciting we've added five new employees to this project people that are full.
Focused and specialized on this.
As director of data scientists and data architect and AI business analyst and a software integration engineer. So people that are Super Smart and we believe will ultimately help us take a really nice step forward overall in this entire arena.
So will that will the brunt of this be kind of keen or.
More out into 2026. This is that's kind of the way we should think about it.
Yes.
That is the way you should think about it exactly.
And then <unk>.
Second question just wanted to ask about the <unk>.
The revenue guidance for the year in terms of maintaining that.
It seems like spend rates attachment rates pre.
Pre booking all seem to be really strong through it sounds like in terms of your commentary through July so.
Just trying to understand maybe.
What kind of keeps you from not raising that range now or at least no EBIT upping the low end of that range and that's all for me. Thanks guys.
Yeah. So we continue to remain very comfortable around where the consumer is that demand on board and how we are progressing from a revenue optimization standpoint.
Really what it comes down to is the introduction of the timing of the new vessels and the majority of those coming out in the fourth quarter and perhaps.
During the fourth quarter so.
That is all it comes down to is to use just timing of when we expect ships to be coming into service.
Okay Fair enough. Thanks, guys I appreciate it.
Okay.
Next question comes from Max <unk>.
Eddie Cowen. Please go ahead.
Hey, Thanks, a lot guys and congrats on a really nice second quarter. So my first question is just wanted to dig down a little bit more in terms of what youre seeing in the state of the consumer and the onboard spend any changes or leading indicators that you guys normally follow that help inform your view on the state of the consumer.
And just how that's impacting your outlook for second half here.
So I think the way in which we look at it is through the metric lens that and Thats, basically, saying, our operational metrics and financial metrics onboard continuing to indicate the strength in the consumer not only in terms of demand, but the actual spend itself.
And all of those metrics were positive we remain positive and a lot of.
The positive spend in the quarter contributed to the over delivery.
Delivery so.
We are.
We're not sitting on our laurels here, saying that we have the best consumer, but we have a very very strong consumer on board.
Through the summer season here into the third quarter, which is a transition quarter, but.
The court has got off to a.
Good start or ending with it.
With that sort of a straddle crews here, but.
So far so good we have not seen any deterioration for the first six months in consumer spend so we remain very optimistic about the health of consumer.
Okay. That's awesome and then just on capital allocation, so a two parter.
First how are you thinking about cash deployment on repurchases and just a framework for us to consider given sort of what we saw in <unk> versus <unk> and then separately. This is now the fourth quarter or since you launched your dividend. So should we assume that its a growth dividend and we will see a step up next quarter or how are you approaching the dividend from here.
Thanks, a lot.
Capital allocation strategies Max has not changed we remain focused in order of precedent on stock buyback than dividend and debt repurchase.
And reiterate that those do not have to be mutually exclusive we did indeed not buyback any stock in the quarter, obviously youre aware of that.
We have talked about the stock purchases being opportunistic and buying on the weakness the stock performed really really well.
He has dropped off a little bit just in the last day or so but recognizing obviously, we're in a blackout period. So we will remain opportunistic and repurchase shares as we deem appropriate for the organization and perhaps we missed some softness in the stock as it relates to the dividend, yes Youre correct.
We have talked about next quarter would be the anniversary of when of course initiated and so an increase at that time would be the most opportune timing for us.
Yeah.
Great. Thanks, a lot guys best regards.
Thanks.
The next question comes from Tim Anderson of William Blair. Please go ahead.
Hi.
I can ask a question about the gross.
Gross margin was flat year over year and it sounds now any details on that question on pulse.
Margin for the rest of the year.
Yeah. So gross margin as you know because of the variable cost nature of our business on board is something that.
Yeah.
Slightly increase a slightly is something that we feel comfortable the box but.
As it relates to the current quarter nothing really of interest so to speak the slight change, which was really due to a mix.
Products and services being sold and then as it relates to the remainder of the year. So we remain optimistic about consumer strained onboard don't anticipate having to do incremental discounting and promotions, having said that though we don't historically guide specifically on gross.
Margins and we would expect EBIT margin to improve a little bit as is reflected in some of the numbers. So we'll see how it plays out but I think the takeaway should be that we feel good about where things are at and what we anticipate for the remainder of the year.
The next question comes from Gregory Miller of True Securities. Please go ahead.
Thanks, Good morning.
I'd like to first ask about the thermal suites, and if you could share some detail on.
Our latest trends and spend or behavior are you seeing any spend shifts more to the thermal suites of other parts of the wellness operation.
Or or or as thermal sweet spend pretty steady and I'm thinking more from a same vessel comparison.
From new vessels or expanded facilities on select ships.
The thermal suites are definitely continuing to be a high demand I mean, some other ships have much larger thermal suites clearly the demand for those thermal suites will change geographically so.
Alaska, we'll see very high.
Utilization, just because people like to hang out there and sort of watch the topography as they sit there, but it's also a great way for us to get people into the spa.
Begin to promote some services, but and extend that time in the spa. So we'd love to see thermal suites on some of the banners become a little larger because there's definitely multi use purposes for the thermal suites, we can actually do IV therapy, whilst there really.
Thing, we can do a number of other things whilst they are getting prepared for a particular service. So I would say the demand is steady but seasonally you can you can see a slight shift upwards, particularly with.
With itineraries such as Alaska.
Thanks, and shifting too.
Oh, another one region of the World <unk> had a little more time with our ROI and I'm curious if you could share.
Any commentary on how that banner starting to trends or.
And any other expectations you have for either ROI or Mitsui as that comes online.
And time.
Yes. So these are both very early new brands adjust.
Adjusting to market trends and challenges.
Yeah, I think is starting to look at expanding.
Where they're offering the cruises I think it's been very much UAE focused I think then it goes on and the same for Mitsui I think they are going to go and do more outreach on a global basis and not just specifically within say, Japan or the U R E.
<unk> <unk>.
Load factors are still a little challenging not quite where they need to be and I think they'll get there I think once they open the aperture and start selling cruises on a wider basis.
I think so too will the load factors improve but it's early days.
Thank you Leonard.
Yeah, you're welcome.
The next question comes from FBR.
GBS of Infiniti Research. Please go ahead.
Good morning, guys, congratulations on a great quarter.
I have a couple of questions, we're pretty much caught on occupancy post.
Industry restart.
But yet we are seeing some increases it to like brands how important is occupancy.
Your revenue generation I understand that the most of those additional passengers maybe kids, so probably less important than making sure that we are back to 100% plus levels.
Levels of occupancy in general for the cabins I don't know.
That makes sense.
Yes.
It doesn't it.
Your question is accurate so as your own answer accurate, which means yes.
This time of the year, you do get a lot more kids on board the load factors are higher.
Because the kids are all in those additional bunk in single cabin. So we.
We typically have that every single year. During this time of the year when people go on vacation.
But during the third fourth quarter, they settle back to the normalized load factors, but yeah load factors continue to hold very nicely.
Great and I think I heard you say that this might not be the best cruise passenger everybody to strong passenger.
Disappointed no deterioration during the first half of the year is that correct.
No let me clarify what I'm, saying is we have a good passenger on board.
We certainly see.
Across 200 ships clearly that that's a lot of different passengers and on some ships you know it's not your best but they still good. So you got to you got to use your marketing toolkit, a lot more and you've got to be a little bit more afterwards on your offerings and so yeah.
On certain of the vessels, it's still a very very good passenger but they are stronger passengers on some of the trips, but that's normal.
I'm not saying anything other than the fact that there's a very good consumer on board across all the ships.
And the more challenging ones would those be kind of further down market.
Is there any sort of a way to summarize where you're seeing the.
The need for more and more marketing.
I think it depends on the itinerary geography. It also depends on the age of the ship for the facilities et cetera. So all of those typically are challenges.
Yeah. Your best passengers go within two of ships and.
The ships are slightly more discounted so they go on those so I think the plethora of opportunity for guests to pick where they want to be and you know how much they want to pay for their trip. So I don't think there's anything different to what we've seen historically.
And it falls in line with new ships come out they go into the best Itineraries best passengers. Obviously, so you know it's it's it's a domino effect where.
We see best ships coming out and they price the highest but that's normal that I think changes.
Great and can I ask a second question with regard to AI, So I understand.
It's below the line.
Help if you will on the cost side and what some of the EBITDA margin expansion for the back half of the year.
Related to these efforts or it's too soon to see that.
As part of that.
Yeah, Okay. Thank you.
No no.
Oh, AI AI will not impact.
Either the revenue opportunities that Stephen spoke about or cost efficiencies steady Eddie clarified as well we expect that.
Two probably havent start having some kind of an impact that we can measure beginning I would say almost the second quarter of next year. Once they are fully rolled out a couple of other initiatives, but we're really in a testing phase right now.
Alright, Okay. This makes sense.
Is there any logic to try to apply AI tools to the pre cruise to expanding the pre cruise portion of the business or is that war.
Nishu, but are working with the cruise lines in terms of embedding the.
The pre cruise booking opportunity within their own pre cruise engines.
Look I think there's always opportunity to improve pre cruise whether we utilize AI are we can we can get the cruise lines to focus more resources on it.
Work in progress I would say right now.
I think there's real opportunity on some of the banners, where we're not.
Perhaps quite up to the 23%. So I think our teams are working closely with them.
To the extent, we can get them to incorporate new thinking around AI, obviously, we'd love to do that but the adoption rates pretty slow. So we go to the meetings on a quarterly basis.
Show them, where the opportunity is and we follow through and see if some of them adopt and some of them done. So it's one of the number one item. So I think they're focused on it not only in terms of other prepaid.
Opportunities on board, but for US it's it's super important to continue to try and get that metric a little higher over time.
Sure Yeah.
And last question could you remind us what type of multiple you get for every dollar spent on pre cruise I think.
For the industry to generally until the half times more spend if they book pre cruise.
As of January the pre cruise passengers generally spend about 30.
30% more than somebody who doesn't provoke.
Great great. Thank you so much.
Thank you Stefan.
This concludes our question and answer session I'd like to turn the call over to Leonard Bachmann for any closing remarks.
Alright, thank Andrea Thanks, again for joining us today, all we look forward to speaking with many of you at our upcoming Investor meetings and when we report our third quarter results in October thanks for joining today.
Hi.
The conference has now concluded you for attending today's presentation and you may now disconnect.