Good day, and welcome to the OneSpaWorld Fourth Quarter 2024 Earnings Call. All participants will be in listen-only mode [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning, and welcome to OneSpaWorld's Fourth Quarter and Fiscal 2024 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 statements reflect 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 on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter 2024 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. An explanation of these metrics can be found in our earnings release issued earlier this morning. Joining me today are Leonard Fluxman, 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 fourth quarter and fiscal 2024 performance and provide an update on our key priorities as we begin fiscal 2025. Then Stephen will provide more details on the financials and fiscal 2025 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, Allison. Good morning, and welcome to OneSpaWorld's fourth quarter and fiscal year 2024 earnings conference call. It's a pleasure to speak with you today and share our fourth quarter results, which concluded another excellent year of financial and operational accomplishments. Our team delivered a strong finish to an outstanding year of growth with fiscal 2024 marking our second consecutive year of record performance, which continues to evidence the combined power of our global operations, innovation across our business, outstanding team and a strong financial position, all of which are focused on delivering extraordinary experiences for our health and wellness center guests and invaluable service to our cruise line and destination resort partners. I want to especially recognize our dedicated, passionate and enormously capable team whose steadfast commitment and contributions every day produced our robust results. We begin fiscal 2025 strongly positioned and expect to deliver another year of record performance. And as outlined in our press release issued earlier this morning, given our strong fiscal 2024 performance and our positive outlook for 2025, we are affirming our recently provided full fiscal year 2025 guidance. Touching on highlights of the quarter. Total revenues increased 11% to $217.2 million compared to $194.8 million in the fourth quarter of 2023. For the full year, total revenues increased 13% to a record $895 million compared to $794 million in fiscal year 2023. Income from operations increased 37% to $17.2 million compared to $12.6 million in the fourth quarter of 2023. For the full year, income from operations increased 44% to $78.1 million compared to $54.2 million in fiscal year 2023. And finally, adjusted EBITDA increased 14% to $26.7 million compared to $23.4 million in the fourth quarter of 2023. For the full year, adjusted EBITDA increased 26% to a record $112.1 million…

Thank you, Leonard. Good morning, everybody. We are extremely pleased with our performance throughout fiscal year 2024 which delivered record revenue, income from operations and adjusted EBITDA. Additionally, we continue to enhance our capital structure and ended the year with a strong balance sheet and strong cash flow generation. I’ll now share further details on our fourth quarter and year results that we reported earlier this morning. Total revenues increased 11% to $217.2 million compared to $194.8 million for the fourth quarter of 2023. The increase in each of service revenue and product revenue were driven by fleet expansion, which contributed $11.2 million, a 5% increase in our guest spend which positively impacted revenue by $8.6 million and $3.1 million of higher onboard penetration from more guests. Contributing to the increased volume and spend was $3.5 million in increased prebooked revenue on health and wellness centers. Cost of service were $145.3 million compared to $131.8 million in the fourth quarter of 2023, with the increase being primarily attributable to costs associated with our increased service revenue of $75.8 million in the quarter from our operating health and wellness centers at sea and on land compared with service revenue of $139 million in the fourth quarter of 2023. Similarly cost of products were $35 million compared to $30.7 million in the fourth quarter of 2023, with the increase being primarily attributable to the increased costs associated with product revenue of $41 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $35.9 million in the fourth quarter of 2023. Net income was $14.4 million or net income per diluted share of $0.14 as compared to a net loss of $7.3 million or net loss per diluted share of $0.07 for…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi, good morning. Thanks for taking my question. On the Medi-Spa Leonard, did you say that same spa revenue was up more than 30%? And if so, can you talk about kind of those kinds of increases [Technical Difficulty] or ticket or kind of what the leading factor is there?

Sorry, Sharon, you broke up at the end. But can you just repeat the second part?

Yes, sorry. I was asking about the durability in same spa revenue on Medi-Spa, whether that's primarily driven by ticket or traffic?

So indeed, Medi-Spa, which has been a huge focus of ours to grow. Obviously, it's just an incredible part of our offering, higher prices on a single ticket. Volume continues to increase and the outcome of the 30% year-over-year growth on same spa has been a result of major focus also adding more staff in that modality. And so to the extent that we can load up more doctors and nurses to take care of the demand and the volume that we're seeing, we will see this continue to grow. So a large focus has been there for 2024 and will continue through '25. To the extent we can get incremental real estate or staffing, all of that contributes to better growth.

Okay. So then the primary driver is just more passengers part taking in Medi-Spa. So it's not more Medi-Spa visits per passenger, if that makes sense.

It's a little bit of more passengers coming in. Obviously, we're limited to the extent that on some ships, we don't have more than, say, a doctor or two doctors. On the ships that we have a doctor and two nurses, we definitely can extend the real estate by sharing different rooms for different modalities, and that's been a part of the utility, at least the facility utilization maximization strategy that we continue to follow across all modalities on board. So yes, it's definitely paying off.

Okay. And then my second question was on the services gross margin. I know that there is a lot of variable costs there, but the expansion year-over-year was a little bit less than what we've seen recently. Is there -- are we kind of in a more normalized run rate for that gross margin on services? Or is there anything that's kind of weighing that down a little bit?

There is nothing weighing it down, Sharon in the fourth quarter. As you know, total revenue is less in the third quarter. And so in the third quarter, we just saw a little bit of incremental flow-through covering a proportion of the fixed cost. Yes, it is primarily variable, but there are some fixed costs. And so when the revenue levels are significantly higher, we did see some benefit from that. There is nothing fundamental though as it relates to that decrease in the fourth quarter.

Great. Thank you.

And the next question comes from Steve Wieczynski with Stifel. Please go ahead.

Hi guys. God morning. iHi gI want to stay on the margin side of the story. So if we look at the midpoint of your guidance for the year, you're expecting a margin, I think it's probably right around 12.5% or somewhere in that range, which is essentially flat with kind of where you were for 2024. So I just want to understand a little bit better why there wouldn't be some opportunity for margin expansion this year, given the opportunity not only to take price on board, but you obviously have higher prebooking activity as well, which I think would add to spend levels once folks are on board. So just wondering what I'm missing in terms of maybe some of the headwinds that might be out there on the cost side of things.

No, Steve, there aren't any -- you're not missing anything as it relates to headwinds on the cost side of things. We're not experiencing anything specifically as it relates to that. I think simply put, we would say a flat margin profile in the numbers presented thus far is something that we feel very comfortable with. As you know, we have not built in any pricing into that have been provided to date. And so with our focus all the time being on absolute dollar generation, maintaining margin would be something that we feel comfortable with at this point in time. To the extent there is opportunity for pricing, et cetera, we may see that improve at a slight rate. But at the end of the day, from a headwind perspective, there certainly is nothing.

Okay. Got you. And then second question, capital allocation. Just Leonard, maybe wondering how you guys are thinking about balancing dividend growth versus share repurchases. And obviously, a move today, the market isn't reacting well to your release. And would these types of uncharacteristic moves in your stock be the type of things where you get more aggressive on the buyback? Just trying to understand how you guys are kind of thinking about buyback versus dividend growth now.

Yes. So Steve, we absolutely, on a day like this, we'll take a look at it and see if it is the right price to go at. We have an algorithm. I think we're getting close to that range. So to the extent it's slightly dilutive or neutral, we will continue to buy stock. I think buying stock to the extent it's at the right price we will continue to pick it up. As Stephen said, we have quite a substantial amount left on the authorization, and so we'll continue to utilize that. And then the dividend is in place right now, but we expect to grow this dividend over the next couple of years. I mean, it is not a tremendous yield right now, but it's a start, and we will continue to look at it, evaluate it and determine how we can continue to grow this with the excess cash that we can continue to accumulate.

Okay. And one quick housekeeping, if I could, Steve, do you have the projected ship count by quarter? Just want to kind of understand where you guys are on a quarterly basis given the 9 ships look like they probably won't be coming more into the -- probably more into the fourth quarter.

Yes. I can tell you specifically. I mean there is only one ship that comes in, in Q1, 2 ships in Q2, 1 in Q3 and the remainder are all in Q4.

Okay. So everything is kind of fourth quarter loaded this year.

Yes, you really only get 1/12, Steve, of most of the capacity, but you get a full-year in 2026, which is great.

Appreciate it. Thanks guys.

And the next question comes from Gregory Miller with Truist. Please go ahead.

Thanks, good morning. A couple of questions for you on your guidance. Start off with 1Q. I'm curious, were norovirus incidents materially impactful to your 1Q '25 outlook?

Not at all.

Okay. And then as it relates to the dry docks, could you provide some more detail in terms of how we should be thinking about dry dock impact over the course of this year, if there was any quarterly cadence or any anticipation of above-average dry docks in the second quarter as well? Thanks.

The first quarter was normal, [Technical Difficulty].

Appreciate. That’s it from me.

And the next question comes from Laura Champine with Loop Capital. Please go ahead.

Thanks for taking my question. Historic or in the past few quarters, you've talked about restructuring your product architecture to have kind of a clear, good, better, best product offering, and that was resulting in trade-up. Is that changing in Q1?

So we continue to do pricing transformation SKU rationalization. That is been a process throughout last year to bring into focus which of our products are not necessarily in the top 50 or 30 selling products. And so we're starting to do that rationalization. Some of the benefits paid off last year. We will continue to focus on that, Laura. But yes, it's -- when you're moving across 199 ships, it takes a little work. So it's not a quick process. It's not a flip of a switch or anything. And then banner by banner, we have to make sure that we have it right. So in some cases, we will take a look at it, we'll test it and then determine if we are at the right place, if we've over-rationalized or if we've done pricing transformation that's working or not working, and we make subtle changes and tweak it all the time.

Got it. I think that you called out in your press release a $20 million increase in revenues just from prebookings. Would -- does your guidance imply that you continue to see increases at the same type of pace that you saw in 2024?

Look, prebooking is a huge focus, not only for all the banners that we serve. Some do it better than others, as I mentioned before. We will continue to press them for better focus better imagery, trying to get that attachment as quickly as possible because we see the spend at 30% more. And to the extent which we are getting more and more passengers through our doors, obviously, the attachment from a prebook is going to support better growth on the revenue. And to the extent that there is a mix of services in there that's helpful to margin, we will benefit from that, too.

Got it. Thank you very much.

And the final question comes from Assia Georgieva with Infinity Research. Please go ahead.

Good morning Leonard, and Stephen. A couple of quick questions. First of all, can we understand a little bit better the economics of the Medi-Spa setup? So if you have a doctor and two nurses, obviously, more real estate, greater utilization. But is the cost equation higher, for example, if you have 2 doctors and 2 nurses? And in terms of new builds, have you -- are the plans, the actual infrastructure in the spa flexible enough to where you could have an expand not only from day 1 inaugural sailing, but further down the road, the square footage that the Medi-Spa would be part of the overall spa. So that was my first question. I apologize, kind of a longish question.

Okay. So Look, the Medi-Spa economics have not changed. They are the same. So service margins are what they are. The increase in having -- or the benefit of having, say, 2 nurses and a doctor doesn't necessarily change the requirement for a larger spa. We could operate a massage room that's not maximized under our facility utilization algorithm and decide that it's better utilized by 2 nurses doing IV infusions or other similar types of services. So to the extent we need to go outside of the Medi-Spa where space is limited, we have the ability to look at that, look at our facility utilization algorithm and change up where we are offering the Medi-Spa. So I think all of that and the focus on better utilization across all of our facilities will continue to assist not only Medi-Spa, but certainly the services that are higher priced, the accuteuncture, other services where we definitely see the demand continue.

So real estate is not really a limiting factor at this point. It's more attracting the right doctors and nurses, the personnel aspect.

Look, I'm not going to say it is not a limitation. I'd like to see bigger Medi-Spa on board. I think we can certainly push the demand through that. I think there's an opportunity. We're starting to see areas that we can perhaps, repurpose in a dry dock. I mean that's not to say it's enough. But on the new builds going forward, obviously our focus is going to be on the flow, the mix of different rooms and the Medi-Spa and sort of the areas where the relaxation areas. So all of that contributes to the overall experience. But no, it is not an absolute limitation what we have today. It's more us utilizing our spa layout in the rooms at a maximum use and demand. So we continue to look at that across every banner. We'd love to have more space, but always that's a challenge.

Yes. I know you would love to have more space. And my second question is more in terms of the tone of the industry. As you know, I track about 35,000 voyages each week. And so far, wave season seems to be very strong, and I believe that some of the cruise banners have said that they've had record bookings, including P&L out of the U.K. Because you are almost like a simultaneous indicator because you're seeing what's going on board for about 1.5 months now, I imagine you are probably seeing sort of what people were planning on doing about three months ago or six months ago and now the money is actually being spent. Do you expect that the current spending would bode well for the rest of the year because it seems that way for advanced bookings. And I just wanted to compare what's happening in real time versus the advanced ticket bookings.

Yes. Look, I mean if you look at all the analyst reports that we've been reading lately, I mean, it still supports strong ticket yields. some geographies, maybe more so than others. And clearly, when you've got ticket strength and demand and less discounting, you've got a better passenger on board. So we continue to see demand for our services. So it's very early on in the year, but it's no different than every year. We sit here in January, February, and we start developing our view of the quality of the passenger. But so far, if we take a look at whether the discounting in and of itself has materially changed, it hasn't, which is a clear indicator of softness. And so that hasn't materially changed.

Okay. Thank you for that. And just one comment. I have been following you guys since November of '97, a year after the IPO. And I think today is the first time where we have discussed a leap year having an extra day. I am fully aware of the dry docks because, again, I track each voyage, each ship, each cruise company, so I can pinpoint those. But the one-day less in 2025, would that be 5% of the overall figure that you quoted for Q1? Stephen, I guess that's a question for you more.

Yes. The information we provided us is the combination of the dry docks and the day was $4.3 million.

Right. And the day is $0.3 million.

We did not provide the breakdown between the day and the dry docks.

Thank you so much.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

Thank you, Dave, and thank you, everybody, for joining our first quarter call, and we appreciate everybody's attention and enthusiasm about the story. And we look forward to seeing you in our upcoming investor conferences and when we report our first quarter results in May. Thank you very much, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.