Good morning, and welcome to the OneSpaWorld First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Allison Malkin. Please go ahead.

Thank you. Good morning. And welcome to OneSpaWorld's first quarter fiscal 2022 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. The COVID-19 pandemic continues to have a significant impact on our operations, cash flow and financial position. The uncertain and dynamic nature of current conditions and its ongoing impact could materially alter our outlook. 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 during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter 2022 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 and Chief Executive Officer; and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our first quarter performance and provide an update on our operations and our key priorities. Then, Stephen will provide more details on the financials and our liquidity. I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's first quarter 2022 results conference call. I'm pleased to report a very positive start to the year despite the COVID-19, Omicron variance negative impact on scheduled voyages, occupancy rates and onboard staffing in the quarter. I'm equally proud of our corporate team and our onboard and resort spa leadership who mitigated Omicron's impact on our staff and our operations, while always assuring our extraordinary standard of guest experience. Financially, the quarter included a significant increase in revenue compared to the fiscal 2021 first quarter, making -- marking our fifth consecutive quarter of sequential revenue growth. We reported positive adjusted EBITDA and adjusted net income with a better-than-expected cash burn rate. Operationally, we saw continued growth across key operating metrics, while maintaining our floaters return to service. As we look ahead, we continue to expect our performance trends to accelerate quarterly and generate sequential revenue growth with our annual performance expected to deliver positive adjusted EBITDA and positive adjusted net income. Turning to highlights of the quarter, total revenues were $87.7 million, up from $5.6 million in the first quarter of 2021, and improving sequentially from fourth quarter 2021. The growth reflects contributions from health and wellness centers that reopened on 120 ships -- 127 ships that resumed operation and the contribution from 48 destination resort spas. Adjusted EBITDA was positive $2.3 million with positive contribution from our health and wellness centers on both cruise ships and in destination resort spas on land, and we ended the quarter with total liquidity of approximately $44 million. We had many accomplishments for the quarter, most notably, our floaters return to service continued. The quarter saw us ready and trained staff to re-embark on additional 15 cruise ships. In addition, we commenced services and bought…

Thank you, Leonard. Good morning, everyone. As Leonard mentioned, the first quarter saw the focused execution of our team and return to service drives significant growth in sales and a positive operating performance despite the Omicron variance negative impact in the quarter of approximately $17 million to revenue. We are very proud of our team and staff for their commitment to OneSpaWorld and their dedication to providing service excellence is exemplary, especially given the extraordinary circumstances of the pandemic and for our Eastern European staff members who are impacted by Russia's war in Ukraine. I will now share some of the highlights of the first quarter. Total revenues were $87.7 million compared to $5.6 million in the first quarter of 2022, and up from $85.7 million compared to the fourth quarter of 2021, even with the impact of the Omicron variant. The three months ended March 31, 2022, revenues were derived primarily from our 127 health and wellness centers, onboard ships having resumed voyages and our 48 open and operating destination resort health and wellness centers. Cost of services were $62.7 million compared to $7.5 million in the 2021 first quarter. The increase was primarily attributable to costs associated with increased service revenues of $66.6 million in the quarter from our operating health and wellness centers at sea and on land and increased costs related to the resumption of our operations at our health and wellness centers at sea and on land. Cost of products were $14.7 million compared to $1.3 million in the 2021 first quarter. The increase was primarily attributable to costs associated with increased product revenues of $15.5 million in the quarter from the operating health and wellness centers at sea and on land. Our net loss was $6.3 million compared to a net loss of $45.6…

Certainly. Thank you. We will now begin the question-and-answer session. And the first question will come from Steve Wieczynski with Stifel. Please go ahead.

Hey, guys. Good morning. So, I know Stephen called out the $17 million in revenue, Omicron impact in the first quarter, but I want to dig into that a little bit more. And I guess the question would be, could you help us think about the cadence of that -- the $2 million you posted in EBITDA in the quarter. Just trying to understand what you guys think the actual impact from Omicron on the EBITDA line was. And would you have seen sequential EBITDA growth over the fourth quarter?

So, yes, Steve, it was a big headwind. The Omicron is actually, you know, when we spoke about it at ICR, we anticipated somewhere in the region of as high as $10 million top line. And based on our margin profile, you can figure out what the EBITDA, I mean it typically falls down at about 10%, 11%. The impact, so when you have close to a $20 million impact from Omicron headwinds related to cruise cancellations, quarantines on our staff services canceled, ships taken out of service, load factors going down to almost as low as when the cruise industry got back into service in June, July of last year, all of that impacted top line substantially and as well EBITDA probably close to the number we almost reported as positive EBITDA -- adjusted EBITDA. So, I would say about a $2 million headwind on EBITDA there.

Okay, great. And then, I don't know if you're going to answer this question, but have you seen EBITDA accelerate sequentially from March into or through April, I should say?

So, we are seeing substantially better load factors, and they've been growing sort of kind of started to climb out of the trough post Omicron towards the end of February and now climbing. Some banners have done an exceptional job and are getting load factors well above -- even some of them are well above 80%. Others are close to 80% but some of them are still getting there. So, the load factors are improving and will continue to improve from what we've seen. And similarly, our performance continues to improve alongside those load factors. So, the outlook as the load factors improve, as we move into Alaska, which is going to have more ships than any other season we've seen before, we're also going to see a pretty strong demand for the Mediterranean as well. So, I think we're very encouraged about the next quarter or second quarter that we've already entered into. And a lot of the have already started. Even some of the Alaska cruises have just started to and some of the early reports look promising.

And my second question would just be, I want to make sure that through April, obviously, there's a fear out there, the consumer is slowing or potentially going to slow. I just want to make sure that you guys -- you have not seen that at all on board any of your ships or even on the land-based side of things?

No, we have not.

Perfect. Okay, thank you, guys, appreciate it.

Okay.

The next question is from Sharon Zackfia from William Blair. Please go ahead.

Hi, good morning. I guess the question, it's pretty hard on the outside to understand all of the excess costs that you have that are associated with the backend staffing as the ships have returned to sea. I guess with that in mind, in the back half of this year, you'll be kind of more or less fully staffed. So, how do we think about the gross margins either for product or service as it relates to kind of 2019 levels? I mean both of those have been, I guess, in this quarter are roughly 300 basis points below 2019. Do you think you get closer to parity with 2019 and the back half of this year, or are there other things we need to think about that might continue to weigh on that for the remainder of this year?

Once we move into the final quarter of the year, Sharon, I do think we start getting back to parity. The third quarter, there's still a few ships coming back in. So, it could be close. But certainly, as we approach the end of the year full complements back, we expect occupancies on board to have significantly improved. We do expect margins then to have improved, too.

Great. Thank you for that. And then, as we look past 2022, can you give us an update on what your capacity growth looks like in the Maritime segment kind of for '23 and '24?

Yes. So, we've already taken, as we mentioned, five newbuild Sharon, this year, right. We're still expecting some newbuilds coming on through the remainder of the year. This should be during 2022, there should be a total of 12 OSW ships, so, another seven to be introduced. These are newbuilds outside of the total number, which I mentioned, which was getting us up to the 178 by year-end. And then, as you look out through 2023, there are approximately 10 OSW ships newbuilds. In 2024, we're looking at about a five or six OSW ships.

Great, thank you.

Thank you. And the next question will come from Steph Wissink from Jefferies. Please go ahead.

Hi, good morning everyone. We have a few questions, so we wanted to start with the ships that have returned to sea, are those proportionately larger? Is there anything within the portfolio of ships on the water versus those that are still in waiting to return that we should be conscious of when we're thinking about revenue per ship?

All the newbuilds are large ships and those generally, as you know, generate substantially larger revenues than the smaller ships. So, those will obviously have a positive effect as we move in to introducing them later on this year. And as you do recall, ships that were retired during the COVID period was significantly smaller, older and generated less revenues than the ones that are being introduced as we go through the next couple of years.

Okay. That's helpful. So, if we think about pre-pandemic versus maybe the next 12 to 24 months, we should be looking at the pre-pandemic revenue per ship average as being somewhat discounted versus what the possibility is. Am I hearing you correctly in terms of portfolio of ships post-pandemic will be more favorable in revenue per ship average?

Yes. I mean in general, you could say the cruise ships that have been introduced, and we introduced the best and largest ships first like Wonder of the Seas, Mardi Gras, big ships that are coming into service, Bilss with Encore. These are the larger ships that are coming into service. The smaller ships they typically put into service and to I wouldn't say lesser important revenues but geographies, the geographies where passenger size and load factors are going to be typically lower like as soon as Asia or Australia starts to get going. And certainly, we've just heard Australia is now reopened for cruising, which is good. So, those typically are the smaller cruise lines.

All right, very helpful. And then, I wanted to just give you a chance to talk a little bit more about some of the KPIs, the pre-book level being low to mid-single digits higher your revenue per visit. I think you said up in the mid- to high teens, might have been high teens. Just talk a little bit about some of those productivity enhancements through training and menu design that you've been implementing? And can you give us a sense of maybe what more opportunity there might be as you're thinking about kind of the post-pandemic revenue per ship and productivity?

Yes. So, it's one of our top and most important focus with our business reviews that we do with our cruise line partners every single month, which we do monthly now. And we're really focusing particularly on the cruise lines that don't perhaps utilize the pre-booking engine as well as some of the others and where the opportunities exist, and we'll take them through different geographies. We'll take them through what's working, what's not working across their pre-booking platform and how we can help them and how they compare to the capabilities where some of the others invest in practice are doing a better job. And this goes all the way through from dedicated spa e-mails, call to action bookings, guest segmentation targeting, calendar views that some of the cruise lines have, flash sales and you name it, we go through it, right? And so, each of the banners are being looked at, analyzed and then we'll take the results back to them, obviously, without showing who the competitor is that's doing better or worse, but we show them where the opportunities are. And from the early onset of what we've been doing with them, we're starting to see that there's huge buy-in to how they can improve with their pre-booking performance versus other companies, percentage of service revenue, utilization, frequency, penetration, guest spend and all the factors that we focus on. So, we're utilizing the data that we've been talking about for some time now to now be able to dissect what's happening on the pre-booking and see where the opportunities are to do more.

All right, very helpful, as always. Thank you.

Yes.

The next question will come from Assia Georgieva from Infinity Research. Please go ahead.

Good morning, guys. Congratulations on yet another quarter of improving results. I wondered if we were going to look sort of through the next three quarters, is it fair to assume that EBITDA could possibly be in the $15 million range?

So, it's Stephen, I guess are you saying is it possible that for each of the next three quarters, it could be in the $15 million range?

No, we could get above $15 million cumulative quite easily for the remainder of the year -- I'm sorry, Steve.

Cumulatively, yes, cumulatively, absolutely; the answer is cumulatively, yes.

And separately, and I think, Leonard, just maybe more for you. You touched on some of the geographies, including Alaska and the Med doing well. Should we expect a standard number of European passengers we have in the past? Or are we more reliant do you think on the U.S. source passenger base, because of travel vaccination rates in similar hurdles?

I think there's a lot of pent-up demand for both Alaska and maybe even more so Med. Obviously, there has been some itinerary shifts given what's going on in Ukraine, but none of which has impacted bookings thus far because they're able to shift those itineraries pretty fast. I think the pent-up demand for travelers to go overseas, on a ship safely, get to see five or six different ports having been locked up for two years or 2.5 years, I feel very confident about the fact that you're going to see more U.S. content in the Mediterranean than maybe you saw pre-pandemic.

Great. And one last question. We tend to discuss this pretty much on every call. In terms of future uses of cash, given the fact that you would be turning cash flow positive in the current quarter. Could you remind us what your thinking is and whether you have made any new decisions or changes to your thinking?

We have not made any changes to our thinking of yet. Our prioritization with the use of cash in the near term remains the same, specifically pay down the $6 million that's drawn on the revolver, pay down the $25 million second lien, which has a high interest rate, as you know, the LIBOR plus 7.5%. And thereafter, you look at a combination of perhaps doing something with the first lien and/or and none of this has to be mutually exclusive, buying back some of the company's stock or only introducing a dividend program.

And Stephen, any chance to be able to refinance the debt? Or it would be net-net more expensive to do so than to start paying account.

In terms of the second lien, we would prefer to reduce overall the debt that's being carried by the organization so that for future disruptions that may or may not occur, there's less of a burden on the company. So, we are not planning at this point in time on refinancing that $25 million. We actually want to get rid of it in its entirety.

Sure. That makes a lot of sense. Thank you so much. Thank you, both.

Yes. You are welcome.

Ladies and gentlemen, 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. Before I close the call, I'd just like to reiterate that we're excited about our business outlook for the rest of 2022. We believe our competitive advantages as the preeminent leader in the operation of health and wellness centers at sea and a destination results on land combined with the benefits of our asset-light business model and the resiliency of the Beauty Health category to serve us well. And in tough economic times, our business has proven resilient even in times of recession as we only require a small percentage of shipboard passengers to book our services in order to achieve our operating targets. We look forward to operating on an increasing percentage of contracted ships during the second quarter and the increasing potential added from the new shipbuild that we'll take delivery of through the remaining part of the year, innovation in our product and service offering and increasing utilization rates from our effective training tools. Thank you again all for joining us today, and we look forward to speaking with you when we report our second quarter results. Thank you.

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