OneSpaWorld Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 10 speakers on the call.

Operator

Good day, and welcome to the OneSpa World First Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. And now I would like to turn the conference over to Alison Malkin for some introduction. Please go ahead, Alison.

Speaker 1

Thank you. Good morning, and welcome to OneSpa World's Q1 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.

Speaker 1

For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward looking statements that is included in our Q1 2024 earnings release, which was furnished to the SEC today on Form 8 ks. 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.

Speaker 1

Leonard will begin with a review of our Q1 2024 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and our guidance. I would now like to turn the call over to Leonard.

Speaker 2

Thank you, Alison. Good morning, Welcome to OneSpa World's Q1 2024 results conference call. I'm very pleased to report another strong start to the year with our Q1 generating record results. We delivered robust double digit growth in total revenue, income from operations and adjusted EBITDA, all of which were at record setting levels. We also achieved significant accomplishments towards our strategic priorities, which provide for our ongoing growth in the current year and well into the future.

Speaker 2

In fact, the ongoing strong momentum of our business from fiscal 2023 into early 2024 resulted in the best Q1 in history of our company. The resounding success across all fronts is a testament to the superior execution of our strategy by our exceptionally talented team. Their relentless dedication to innovation, enhancement of partnerships, leveraging of our category dominance and adept navigation of our intricate business model have yielded extraordinary guest experience and outstanding service to our esteemed cruise line and destination resort partners that is translating into increased value to our shareholders. As we look ahead, the Q2 is off to a positive start and we expect the continued superior execution of our strategy combined with our ongoing ability to provide extraordinary service levels to our crews and resort partners through a differentiated luxury experience for guests and will position the company for continued success. Based on the continued strong execution by talented team, new partnerships and new initiatives, which continue to drive organic growth, we have raised our annual outlook beyond the outperformance achieved in the Q1.

Speaker 2

We currently expect total revenues to increase by 10% and adjusted EBITDA to increase by 12% at the midpoint of our guidance ranges from fiscal 2023. Additionally, in further demonstration of the confidence in our strategy, our near and long term business prospects and our strong balance sheet, our Board of Directors approved a $50,000,000 share repurchase authorization. Turning now to the highlights of the quarter. Total revenue was $211,200,000 increasing 16% from $182,500,000 in the Q1 of 2023. Income from operations increased 52% to $17,000,000 from $11,200,000 a year ago and adjusted EBITDA rose 31 percent to $25,300,000 from $19,300,000 last year.

Speaker 2

The expansion in our ship count continued during the period. At quarter end, we had health and wellness centers on 193 ships and an average ship count of 188 for the quarter compared with 179 ships and an average ship count of 173 ships at the Q1 of 2023. Also at quarter end, we had 4,080 2 cruise ship personnel and vessels compared with 3,665 at the end of the Q1 of 2023. We also saw strength across key operating metrics recording increases in average weekly revenue per ship and average weekly revenue per shipboard staff per day above the levels achieved in the Q1 of 2023. Keep in mind that the Q1 fiscal 2023 cruise ship personnel was below full count levels as passenger load factors were still returning to normalization post COVID-nineteen.

Speaker 2

Notably in the Q1, we continued to surpass the level of experienced staff members in 2019, reflecting the success of our ongoing initiative to retain onboard staff members. These experienced staff members contribute to the delivery of double digit growth across certain key operating metrics as compared to fiscal 2023 2019. The quarter also marked a key milestone for our company as we reached the 5th year anniversary of our de SPAC public listing. As Stephen will comment momentarily, in addition to our robust revenue and profit growth, notably OneSpa World warrant holders expressed their support for the company with 98% of all outstanding warrants converted. The remaining warrants were canceled.

Speaker 2

Importantly, we also eliminated the Hoeghang of our private equity investor, which sold its final tranche of shares, simplifying our capital structure, while increasing trading liquidity and our public float. The quarter included progress towards our 4 strategic priorities. Let me share some highlights. 1st, we captured some highly visible new ship growth with current cruise line partners and added new cruise line partnerships to our fold. To this end, in the Q1, we entered into a new exclusive agreement with Royal Caribbean and Celebrity Cruises for their 40 ships currently in service and future ships entering service during the agreement term.

Speaker 2

In addition, at quarter end, we added Arroyo Cruises to our list of partners, where we operate all health and wellness facilities beginning late 2024, thereby strengthening our market leading competitive position and providing further evidence of our best in class operating capabilities. We expect to end fiscal 2024 operating on about 198 vessels. 2nd, we continue to launch high value services and products. Our innovation pipeline is robust this year with introductions of cryotherapy body services and new cryotherapy and LED facial services to complement the new technology driven by Elemis Biotech 2.0 facial. Additionally, we continue to introduce LightStem therapy, augmenting other acupuncture services, which has dramatically improved acupuncture revenue on the vessels where we have introduced this protocol.

Speaker 2

3rd, we focused on enhancing health and wellness center productivity. We grew key maritime operating metrics at double digit rates, supported by a sustained pipeline of strategic initiatives to increase pre booking, the number of treatments declined and the number of passengers utilizing the spa. As we previously discussed, pre booking guests spend on average 30% more than those who book on board, while allowing us to better optimize staffing, facilities and service capacities to drive higher health and wellness center economics. We also continue to drive higher revenue services by simplified service menus and modified treatment lens, which contribute to growth in average spend per guest. Average guest spend also benefit from refinement in length of service and pricing architecture of certain services, which resulted in increases in service frequency and a mix towards higher price services and products.

Speaker 2

We also increased our Medispa offering with services on 142 ships at the end of the Q1 of 2024, up from 122 ships in 2023. We continue to expand our Medi spa offering to 148 ships this year. 4th, we further enhanced our financial position and flexibility. In addition to the simplification of our capital structure, we utilized our strong cash flow to repurchase our common shares and repaid $20,000,000 of our 1st lien term loan during the quarter. This brought total debt reduction to $94,100,000 since the Q2 of 2022, which has substantially lowered ongoing interest expense.

Speaker 2

And first, our Board of Directors approved a $50,000,000 share repurchase program, further demonstrating the confidence in our strategy and long term growth opportunities. Overall, we remain excited about our business outlook. We expect a strong start to the year, coupled with visible growth opportunities made possible by the advantages we possess in the operation of health and wellness centers at sea and a destination with sports on land, further buoyed by highly favorable market dynamics across the cruise line industry to position us for another record setting year in 2024. With that, I will turn you over to Stephen, who will comment on our Q1 financial results. Steven?

Speaker 3

Thank you, Leonard. Good morning, everybody. We are pleased to report a strong start to the year with better than expected top and bottom line results, along with further improvements to our balance sheet. I will share some more details on our Q1 that we reported this morning. Total revenue was $211,200,000 up 16 percent as compared to $182,500,000 in the Q1 of 2023.

Speaker 3

The increase principally was attributable to our average ship count increasing 9% to 188 health and wellness centers onboard ships operating during the quarter, compared with our average ship count of 173 health and wellness centers onboard ships operating during the Q1 of 2023. In addition, we benefited from our initiatives to drive revenue growth and profitability in each of our onboard health and wellness centers through enhanced pre booking of guest services, onboard guest engagement and experiences, our guest service and product offering innovations and the disciplined execution of our complex operating protocols by our onboard and corporate teams. Cost of service was $144,000,000 compared to $126,300,000 in the Q1 of 2023. The increase was primarily attributable to costs associated with increased service revenues of $172,200,000 in the quarter from our operating health and wellness centers at sea and on land, compared with service revenues of $150,100,000 in the Q1 of 2020 3. Cost of products was $33,500,000 compared to $28,300,000 in the Q1 of prior year.

Speaker 3

The increase being primarily attributable to costs associated with increased product revenue of $39,000,000 in the quarter from our operating health and wellness centers at sea and on land compared to product revenues of $32,300,000 in the Q1 of 2023. Net income was $21,200,000 or net income per diluted share of 0.21p as compared to a net loss of $15,900,000 or net loss per diluted share of 0.17p in the first quarter of prior year. The $37,100,000 increase in net income was attributable to a $29,600,000 positive change in the fair value of our warrant liabilities, a $1,700,000 decrease in interest expense and a $5,800,000 positive change in income from operations. The change in the fair value of our warrant liabilities as you know during the quarter ended March 31, 2024 was a gain of 7 point $7,000,000 compared to a loss of $21,900,000 during the quarter ended March 31, 2023. The net gain in the change in fair value of warrant liabilities was a result of the remeasurement to fair value of the warrants exercised during the Q1 of 2024 and changes in market prices of our common stock and other observable inputs deriving the value of these financial instruments.

Speaker 3

Adjusted net income was $19,300,000 or adjusted net income per diluted share of 0.19p as compared to adjusted net income of $12,300,000 or adjusted net income per diluted share of 0.13p in the Q1 of last year. Adjusted EBITDA was $25,300,000 compared to adjusted EBITDA of $19,300,000 in the prior year, an increase of 31%. Turning to the balance sheet. Cash at March 31, 24, totaled 66.6 $1,000,000 In the Q1, we repaid $20,000,000 on our first lien term loan. Since the Q2 of 2022, we have repaid a total of $94,100,000 in debt instruments reducing our ongoing interest expense.

Speaker 3

At quarter end, total debt net of deferred financing costs was $138,600,000 compared to $202,600,000 at the end of the Q1 last year. As previously announced, our $20,000,000 credit facility reached its expiration on March 19, 2024. Given our strong liquidity profile, we do not currently plan to renew this facility and we'll continue to evaluate entering into a new line of credit in the future. Additionally, we utilized $7,700,000 in cash to repurchase 606,000 shares of our common stock during the Q1. In the Q1, unlevered after tax free cash flow was $24,100,000 compared to $17,900,000 in the Q1 of 2023.

Speaker 3

That translates to a 95% conversion rate for unlevered after tax free cash flow to EBITDA in the quarter. As it relates to the warrant exchange, on March 26, 24, we announced that all remaining public warrants had been converted into common shares and exercised or canceled. This generated $51,700,000 in net cash proceeds in the quarter. Over the 5 year exercise period, a total of $24,000,000 warrants were exercised, generating net proceeds to the company after deducting applicable fees of approximately $54,000,000 And as previously announced, dollars 19,300,000 warrants were exchanged for the company's common shares pursuant to a privately negotiated warrant agreement with certain holders of the warrants. I'm delighted to say that there are now only 21,600 pipe warrants remaining and those are the only warrants remaining for the company.

Speaker 3

As announced, our Board of Directors approved a $50,000,000 share repurchase program, which will be executed opportunistically using available cash. The company's fully diluted share count is expected to approximate $105,000,000 as of June 30, 2024, as most of the warrants aforementioned were converted for cash. This expectation does not consider any future share repurchase activity. Going forward, we will continue to evaluate all opportunities to utilize our strong cash flow generation for the benefits of our shareholders. Moving on to our guidance.

Speaker 3

As mentioned, we are increasing our fiscal year guidance based upon our our better than expected Q1 performance and favorable outlook while introducing expectations for the Q2. For the full fiscal year 2024, we now expect total revenue in the range of $860,000,000 to $880,000,000 versus our previous guidance of $850,000,000 to $870,000,000 Adjusted EBITDA is now expected in the range of $95,000,000 to 100 $5,000,000 versus our previous guidance of $90,000,000 to 100,000,000 24 operating on 198 cruise ships and at 51 resource. For the Q2, we have introduced guidance expecting total revenue in the range of $216,000,000 to $221,000,000 and adjusted EBITDA in the range of $24,000,000 to $26,000,000 and our Q2 guidance assumes an ending ship count of 195 and the resort count of 51. Importantly, we feel very confident about our positioning and growth outlook as we look ahead for the balance of 2024. We are pleased with the continued momentum we are experiencing in the Q2 and expect to continue our track record of strong operational results throughout the year.

Speaker 3

With that, we will open up the call for questions. Maurice, if you could please go ahead and open the

Operator

call. Thank you very much. We will now begin the question and answer session. We'll start with a question from Steve Wieczynski from Stifel. Steve, please go ahead.

Speaker 4

Hey, guys. Good morning.

Speaker 3

So I want

Speaker 4

to start with the revised guidance for the last three quarters of the year. And I think this is now your, I don't even know, 3rd, 4th straight quarter in which you've materially beat kind of the midpoint of your guidance range. So I guess as we think about the last three quarters of 2024, just wondering how you're thinking about or what you're embedding in terms of the way you're thinking about your customer base. And if you're assuming that spend levels stay status quo or you're embedding some conservatism in there just because you really just don't know where the consumer is going to go? I'm just trying to understand how you're thinking about spend levels for the last three quarters of the year.

Speaker 4

Thanks.

Speaker 3

Steve, good morning. I'll start off in the linen Kinetics, if he wants to obviously. So as I mentioned, the first quarter saw very strong spend levels, which continued from prior year. And we have continued to see that here as you've started into the Q2. Obviously, nobody has a

Speaker 2

crystal ball with certainty around what's going

Speaker 3

to happen over the remainder of the year. We do think spend on board should remain strong. Bookings are very favorable. The booking trends that all the cruise lines have talked about and you're keenly aware of still pointing the right direction. However, having said that, in the latter part of the year, I think it's not unlikely to expect maybe a slight softening in some of the spend, which we've accounted for, but we expect generally that onboard performance will remain strong.

Speaker 4

Okay, got you. Thanks for that. And then maybe a bigger picture question, but based on your free cash flow generation, which remains obviously very strong, I mean, it's pretty clear that your balance sheet could essentially be debt free in in the next year or so. So I guess the question is, how are you guys balancing obviously, you just announced the share repurchase program, but how are you balancing a share repurchase versus a potential initiating a dividend again versus some kind of acquisition? And if you thought about some acquisition or potential acquisitions down the road, what type of acquisitions would you guys be looking at?

Speaker 4

Or what is out there that would make sense for you guys?

Speaker 3

Let me touch quickly on the cash used and then I'll let Leonard talk about the acquisition side of things. So as it relates to the buyback, the feeling was that was the most appropriate near term action to take and it aligns specifically with the $15,000,000 of cash that came in from the warrants, which as you know historically you accounted for those on a treasury basis, but because they were all converted almost all of them are converted on a cash basis, It does increase the share count. And so we felt it would be most appropriate to take that $50,000,000 and reduce the share count back to where it would have been as if those shares were converted cashless, hence the $50,000,000 buyback and it doesn't really change any of our thinking overall around continuing to pay off debt at these interest rates and potentially a subsequent introduction of a dividend. So all of those things remain on the table. We have exhibited that for the past two quarters not only able to do one thing where we have in the last two quarters paid off debt and bought back shares.

Speaker 3

So as we move forward, we'll continue to evaluate what we feel are the most appropriate ways of returning cash to shareholders. And I will let Leonard answer the part on the acquisitions.

Speaker 2

So Steve, I mean, it's interesting times. I mean, we haven't found, although we've been presented a lot of ideas by bankers, inbounds, and we're always getting them. It's not like there's just a pickup in that. But certainly, people are always showing us ideas. We've discussed some of these ideas, but there's nothing really compelling on the table right now.

Speaker 2

But if you look at what would make sense for us and the vision around what we would target to do is, we would want to do something that not only augments what we're doing on board, but adds incremental value to our offering on board in any of the protocols that we can do. Most likely, the best target for that is going to be in, I would call, the wellness mindful space where there's a lot of new technologies, a lot of ways in which we can learn more about our bodies, etcetera. And to the extent that there are diagnostic tools within the capabilities of that target that can enhance what we can do on board in our MedSpa and then transfer that to some kind of land based or e commerce type experience where they can continue to help and service the guests that we've started the initial consultation with. Think that would make a lot of sense because we could certainly increase the offering of supplementation on board, continue with supplementation for guests who sign up with us and take some of the seminars and educational seminars that we do on board. So not easy to find, but I'm sure we'll find something like that.

Speaker 2

But I think that fits into the vision very, very well. So A, helping us improve the offering on board, capture more guests because of interest in immunity, wellness, mindfulness, things that we can continue to do to serve our guests between cruises or even if they don't come back, they'll be able to participate in some form of nutrition counseling, supplementation, etcetera.

Speaker 4

Okay, great. Thanks guys. That's really good color. Appreciate it.

Speaker 2

Yes, sure.

Operator

And now we have a question from Sharon Zackfia from William Blair. Sharon, please go ahead.

Speaker 5

Hi, good morning. It's really a nice surprise to continue to hear about the resiliency in your business. We're not hearing that throughout the broader experience of space outside of Cruise. I guess when we think about a consumer that maybe is looking for more value more broadly, I And how do you think you're communicating that? Because you're obviously doing that very well.

Speaker 5

Or do you think the consumer is just in a different mindset once they get on that ship and the wallets open up? I'm also curious on pre booking, which is obviously a big positive for you. Does the pre booking cadence for future cruises look as good as it has been? I'm just wondering if we're seeing any reticence on that end that might come to play kind of further down the pike?

Speaker 2

Thanks, Sharon. Yes, look, I mean, we're extremely pleased with the resilience of the onboard spend. As I did mention on the call, we've made some simplifications of the offering menu services. The offering is much easier to navigate for our guests. And obviously, we're trying to focus on how to get them to spend at the highest level of that service offering, which would then accompany that offering with the potential to do more retail, which is where we're focused on right now.

Speaker 2

And as you saw, retail during the quarter was quite strong. So we're not seeing pushback on price on service or on retail. We're moving into the Q2 where ships seasonally move to other geographies, but so far so good and we expect the Q2 to continue just as well. I think the pre book, we still are new in terms of the pre book rollout on NCL, which is an incredibly great opportunity for us where it wasn't there in the Q1 of 2023. So we introduced that late 2023.

Speaker 2

And so the cadence of that is still starting to bleed through the numbers and will positively impacted probably by the third quarter whilst we take on all the ships. So, we continue to do as much, as we can in terms of optimizing what people are choosing on the pre book front, which is yield management. And we'll continue to invest in that as we move forward, not only in our own IT capabilities, but together with the cruise lines and helping them focus on it because a big focus for them as well is how to get people into all of their pre booking amenities that they offer. And certainly, as we've demonstrated to them what certain banners are doing versus others, we're able to get their attention on how to grab more of that pre book. So I think we're optimistic that that number will continue to grow and clearly, it is positively impacting top line for us.

Speaker 5

Can you still hear me?

Speaker 3

Yes. Yes.

Speaker 5

Okay. Sorry, my phone cut out for a second. I wanted to follow-up on that because I think you're making some incremental investments in tech and AI this year. What you're doing there in 2025 and beyond?

Speaker 2

So across the company, Sharon, we're investing in back office automation with AI capabilities. We're in the early stages of navigating where we're going to go first, what's the lowest hanging fruit that we can tackle and improve in terms of efficiencies. And then on the other side, on the flip side on board, we're going to look, as we mentioned before on other calls, how we can use AI to improve our marketing offerings, replicating best in class across all of the ships or at least all of the ships in that geography with that demographic. So I think all of those capabilities are being the architecture is in play right now. We're planning on it.

Speaker 2

We have a kickoff meeting very soon on where we're at and next steps to follow. So together with the enhancement that we've made in data collection and data capabilities, which is helping us improve performance on a weekly basis. We're able to triage it much quicker than before, as we've mentioned on prior calls, and we'll continue to invest in that platform, as we move forward. And it's becoming more and more of an everyday tool versus just being able to flash our revenue on a Monday. So the team is immersed in data, figuring out where the weak points are, where the weak managers, if there are some need help, how we get more training to them quicker and how we focus on improving sell through and attachment.

Speaker 5

Thank you so much.

Speaker 2

Of course.

Operator

And our next question comes from Max Roquelinco from TD Cowen. Max, please go ahead.

Speaker 6

Great. Thanks a lot. So first, what's your latest thinking around the number of ships that we should be modeling for you guys over the next few years given your own wins, including one that you discussed this morning with us as well as some more data points coming across at an industry level? And then when you combine the new ships with your own initiatives that you're discussing, what's the latest thinking around the medium term revenue growth profile for the company over the next few years?

Speaker 3

Max, we continue to have 5 vessels in total coming into service, new builds that is in 2024. And then in 2025, there are 8 of those. One of those numbers goes up likely depending on when Virgin announces the brilliant lady coming into service. So in terms of the ship new ship introduction numbers, those continue to look good. They continue to support our thesis that we believe we can grow revenues in the high single digit rate and we remain committed and have reiterated that, that is a medium term growth rate on the top end.

Speaker 6

Got it. Okay. And then nice job on raising the full year guidance. Curious, how does the team now view the EBITDA margin power of the business and then opportunities to expand past the high end, which is now at 11.9% for the year. So curious if you could just rank order the line items which have the greatest opportunity for further margin expansion from current levels?

Speaker 3

So as it relates to margin expansion, I think it's always comes back to what we talk about, which is where our focus lies. And again, I don't want to sort of imply anything that is misinterpreted, right? But for us, the focus certainly remains on absolute dollar generation. We've talked at length about how generating revenue on board with a highly variable cost model provided that it's marginally that this marginal contribution always makes sense even to the extent that you need to do promotional or just activity, which in fairness to date has not been required a lot. But as we move forward, perhaps if consumer spending weakened slightly, we would certainly entertain that.

Speaker 3

So just as an overarching theme, the focus for us is not necessarily EBITDA margin in and of itself because if it was then we could simply drive that at the absolute cash into the business. And so we will always do that as long as it's on a marginal contribution basis. The biggest way that happens on board is through the demand and through the improvement in the marketing programs. But again, it's difficult, right? We know that 85% of the model on board is variable in nature.

Speaker 3

And so driving that percentage up is more challenging. There is some benefit that you get as revenue grows and the company continues to scale that we get the benefit of leveraging some of the fixed costs that we have at a corporate level, which obviously don't go up in lockstep versus what revenue goes up, but does go up more on a step basis. So for us, the focus is going to be on driving the total revenue. And while we hope that the margin will continue to improve, the absolute dollars is where our focus will remain.

Speaker 6

Great. Thanks a lot. That's super helpful. Best regards and good luck

Speaker 5

in the second quarter.

Speaker 3

Thanks, Daniel.

Operator

And our next question comes from Laura Champine from Loop Capital. Laura, please go ahead.

Speaker 7

Thanks for taking my question. I hear that the share repurchases are not incorporated in the outlook for 105,000,000 diluted shares in Q2. But any color you can give because you do have that cash on your balance sheet already on the timing of potential share

Speaker 3

We want to be opportunistic, Laura, when there's weakness in the stock is when we will be most aggressive in terms of the buyback. So, no, unfortunately, I don't think we would signal specific timing on when that would occur as the focus will be to utilize it on an opportunistic basis.

Speaker 7

Understood. That's helpful. I don't want to read too much into a small thing, but your products segment did grow a little bit faster than services. Is there anything going on from a product innovation or a promotion perspective that's helping drive that line?

Speaker 2

So Laura, as I mentioned before, I mean the simplification of our menu skews towards services and the choice of those services tend to result in a higher sell through of product generally across face and body. I think with some of the new cryotherapy body services, facial LED, etcetera, we're starting to see those results come through. And there is a very heightened focus on getting retail attachments improved over 2023. Even with the increased pricing in services, we saw some catch up there. And so we continue to have and prioritize sell through as a big focus of what we're doing at the same time as ensuring that we are providing the guest with a very luxurious and good service overall.

Speaker 5

Understood. Thank you.

Speaker 2

Yes. Thank you.

Operator

Another question comes from Gregory Myler from Truist Securities. Gregory, please proceed.

Speaker 8

Thank you. Good morning. I thought to ask about the new banner announcement and your expectations with Aurora in terms of the wellness spend from the guests that I presume are largely from the Gulf region of the world? Any behavior of the kind of wellness spend habits that they may have on that ship? Thanks.

Speaker 3

That's a

Speaker 2

great question. I think it's still early to tell, how this plays out. I mean, it's a new cruise line. It's a new part of the world for us to operate in. Lilly has operational and its own logistical challenges because of culture, etcetera.

Speaker 2

But we are positioned to do everything that we have discussed with the operators and we'll see. I mean, this is new territory. It's a new geography, new demographic that's focusing extensively in the Gulf, as you say. But I think we'll start to see how to adapt to that model. I mean, it's not like we haven't done work in the region before on land.

Speaker 2

So I think we're going to be fine and I think the cruise line hopefully will be successful.

Speaker 8

Thanks. And then as a follow-up, Norwegian, as you know, put out some new ship orders. And over time, some of these ships will be larger in terms of passenger capacity. I'm curious at an early stage, do you have any sense of the implications for you all in terms of potentially the size of your wellness facility on the new vessels, increase in staff, potential changes to the thermal suite, There's anything that you could share at this time that would be interesting to hear.

Speaker 2

Whenever there are large vessels announced like the ones they have, we're first in line to ask for more space, particularly in the med spa area, more staff. Obviously, those are always at a premium because everybody else wants to do the same thing that's offering some amenity or service on board. So yes, we we talk to them as early as we can and try and switch it up where needed. And to the extent that we can increase the offering and footprint in Med Spa and Wellness, we'll continue to push very hard on those new ships with bigger passenger counts. But having said that, I mean NCL's spas are beautiful.

Speaker 2

They're cutting edge and I would imagine part of our discussions and negotiations with them on layouts should be positive towards getting us what we need with the MedSpa offering.

Speaker 8

I agree having seen some of these ships in person. Thanks very much.

Speaker 2

You're welcome.

Operator

And our next question comes from Assia Georgieva from Infinity Research. Assia, please go ahead.

Speaker 9

Leonard and Steven, congratulations on a great quarter and great outlook for the rest of the year. Again, March 19 thankfully is over. So just looking at both from an operational point of view, obviously, things are going very well in the we are going to be well, we are seeing growing occupancies. We are not still quite at 2019 levels across all banners. So that to me seems an opportunity.

Speaker 9

Pre bookings growing and especially as you mentioned on Norwegian, you're not quite yet on all ships. So Q3 would provide another opportunity. With the great wave season, so the third point, I guess, I'm trying to make, we have higher quality passengers. Yet one slight offset might be the fact that for one of the banners, Q late Q3 and into Q4, ticket pricing is coming down. Therefore, quality of passenger may be coming down.

Speaker 9

How would you balance this on the operational part? And secondly, in terms of equity structure, balance sheet, buybacks and the potential dividend, you're in better shape seems to me than you have been in the last 5 years. So really glad that the Board authorized the $50,000,000 opportunistic buyback. And today might not be the day for an opportunistic buyback given how well the stock has reacted. Is the €50,000,000 kind of time limited?

Speaker 9

Or is this again up to your discretion in terms of what the markets are doing? Thank you.

Speaker 2

I'm going to answer the first part. Stephen can answer the second part for you, Assia. But certainly, load factors continue to improve across all the banners. Some may not be quite still at 2019, but overall load factors are much improved versus the Q1 of 2023. And obviously, we stopped according to that improvement.

Speaker 2

So I'm not too worried about that. And to the extent that some ticket pricing looks a little weaker in the Q3, the quality of passenger who's buying that cheaper ticket is not necessarily the same passenger coming into the spa. So I'm not really concerned. And to the extent that we do need to modify anything, which I'm not sure we need to, as long as we continue to penetrate roundabout that 11%, 11.5% of the best passengers, which we target, it should not materially impact us if anything at all. I'll turn the next question over to Steven.

Speaker 9

Thank you, Leonard.

Speaker 3

Yes. Thanks, Leonard. The I see the short answer to your question is no, there is no time limit in terms of when we can utilize that authorization. So again, it will be opportunistic and we will buy on weakness.

Speaker 9

Again, today doesn't seem to be the day to do so.

Speaker 3

Probably not today. Exactly.

Operator

But I'm

Speaker 9

very glad to see the lack of opportunity today. So great job. One last question and I'm not sure that you can answer this in such a public forum. The RCL renewal, would that generally be within standard term meaning 5 years or so?

Speaker 2

Yes. It was a multiyear agreement. Yes. It continues beyond 5 years, I see. So we're in really good shape with that.

Speaker 2

So long runway on both celebrity and royal, which we're extremely pleased and honored to have been awarded that contract.

Speaker 9

Perfect. Great. Thank you so much. And again, great job and looking forward to the next call.

Speaker 2

All right. Thanks, Asiya.

Operator

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

Speaker 2

All right. Thank you. And thanks everybody for joining us today. I want to again congratulate my entire leadership team and the team across all of our ships on land, in training, all of our academies, an incredible quarter, continue to execute fantastically. Thank you so much.

Speaker 2

We look forward to speaking with all of you when we report 2nd quarter earnings results.

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Earnings Conference Call
OneSpaWorld Q1 2024
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