Sorry for running late. It's on me, not on management. I'm Sharon Zackfia with William Blair. Thanks for joining us today. So we have the team from OneSpaWorld. We have Leonard Fluxman, Chairman and CEO, and Stephen Lazarus, who has so many titles at this point. So I think COO, President, CFO, did I get them all?
Yes.
OK, perfect. I think we'll start off with asking about the pre-announcement this morning. So obviously, very good year. Pre-announced preliminary fourth quarter results. I think there was a little bit of a downtick in the revenue guide for the fourth quarter, almost negligible, but if you'd like to give any color behind that, and then a reiteration of the EBITDA expectation.
Yeah, thanks, Sharon. Thanks for having us again this year. So the only wobble, if you want to call it a wobble, was November leading into Thanksgiving, and the balance of November were not as strong. It didn't perform as well as we expected, and certainly as we guided. So we took a deep dive. There was nothing there that showed us any sort of anything on the data other than maybe spend was a little bit up. So we bundled a little bit more, which is typically what we do when you're trying to drive traffic, and the spend's not where we want it to be. But overall, I mean, once December came back strong, and I mean, certainly Christmas and New Year cruises were phenomenal, we were like, OK. We were anticipating, well, what if it didn't pick up?
Then we'd obviously have to look at guidance, et cetera. But it picked up very, very nicely. Retail was back. Spend was up. Penetration was where it needed to be, around about the 11% marker. So all of the metrics were where they needed to be, and spend was definitely where we wanted to be, maybe even more during Christmas, New Year, which it typically is. But this was, on record, the best New Year cruises we've ever had. So we felt good enough, obviously, to guide on the fourth quarter with that information and 2026, yeah.
And then I think the first outlook at 2026 was very much in line with what we were all expecting, with maybe a little bit of a wrinkle in the decision to kind of close down the land-based Asia facility. So if you could talk about that. Maybe not super surprising, given it hasn't been a huge focus of Wall Street. But how does that help you? And I would assume that helps margins somewhat as well.
So there were two components to the reorganization. One component, which is a much smaller component, was the decision to exit the Asia land-based operation, which impacts the 2026 revenue number and has no impact on the EBITDA number. And therefore, by reference, you can assume that they weren't making money. Therefore, no impact to the bottom line. The other part of it, which is the more significant part, only on the top line, is the change specifically in Europe with some of the reorganization that we did. And simplistically speaking, we exchanged revenue for management fee. So instead of recognizing revenue on a certain cruise line over in Europe, we'll now be recognizing a management fee, which is akin to the profit that we would have been making on the revenue anyway, hence the statement about the no change in the EBITDA.
A positive result that comes from the reorganization but was not the reason or impetus for the reorganization is that it preserves the tax status of the company. So you should simply look at it as a bit of a take give, rather, on revenue, no change on EBITDA, no change in the management or the way we run the business.
I think one of the thematics we've heard from you guys consistently has been this health of the consumer and really the appetite for your services, particularly in the maritime segment. What are the trends that you're seeing as we enter here in 2026 that you think will be impactful?
So we certainly see acupuncture, med spa, wellness as a trend is huge. We just need more space and more staff. That's a limiting factor or the ceiling. We could go faster. We could do much more revenue in the mix. Remember, acupuncture, med spa is still less than 10% of total revenue. It's about 8%. And even though it's growing 10% a year, it's going to be very hard to catch up or meaningfully impact on a weighted average basis the rest of the revenue, because those are growing as well, but maybe not as much as 10%. So I think you're going to see more and more mainstream services being offered in the med spa wellness space, particularly wellness. And I think there's a number of different things that we're looking at.
Obviously, can't talk about, but certainly, if you take a look around ICR this year, I see a lot of companies all talking about wellness, nutrition, the impact of all the blood markers and everything else, and making decisive decisions about your health, your longevity, and I think, to me, the biggest vertical in this space is longevity, and we're looking at a couple of different options as to how to bolt it on to the offering and be accretive, and I think we'll get there this year.
One of the other really consistent trends has been this strength in guest spend, and I know when we think about the longer-term algorithm, roughly half of your revenue growth, I think over time, is anticipated to come from higher guest spend. Can you talk about the drivers that are helping bolster that guest spend, and if there's any change in the way we think about the composition of those drivers going forward?
So I don't know if you recall, about two and a half, three years ago, we changed the menu offering. And we've constantly reworked some of the services in that to push people into longer duration, higher price, and more frequency. And that's worked very well. So we're trying to get people away from sort of your typical 50-minute massage into the 75. It's a much more relaxing process. It gives us a better opportunity to sell at a higher price, as well as attach more retail. So that's certainly been a big driver. Let's not forget, massage drives a tremendous amount of business, more than 60%. And the rest is hair, nails, med spa, and everything else. So the fact that we were able to address the mix of services within body has certainly helped us move the needle. And there is good demand.
Our guest spend today is the highest it's ever been. And outside of a little bit coming off the high point in November, I mean, December was right back, right where we wanted it. And certainly, as we started the New Year cruises, they were exceptional.
How do you think about your ability to maintain that pricing power across different macro environments?
You know, I think we've got a lot of macro different environments. We've got 18 different demographics, different cruise lines. Some of them carry passengers that are not the same as what you find on, perhaps, Celebrity or Holland or something like that. And so you have the lower end. But it's interesting, even on the lower end, while you might not be selling your $300 cream or collagen or whatever else, they're still paying for the services. So to get them to buy into a little bit of retail, I think we'll be able to maintain the guest spend. Now, that having been said, look, there'll be some tax break infusion. I think a lot of consumer stocks are starting to see that coming back and have helped us. But look, we did very well this year, and there was a lot of nervousness around the consumer.
So if that comes into play in a positive way, obviously, that helps us, yeah.
There's been a lot of improvement in pre-booking. I think the biggest difference in your business relative to maybe pre-pandemic has been really pre-booking and how that's been such a benefit. But it's still not perfect. I think I've been quoted as saying it takes five or six clicks to get to the spa, and it's hidden under other different cruise lines. So can you talk about pre-booking and why that benefits you and the potential upswing from here?
Last year, in one of our meetings, you clearly showed me how badly designed some of them didn't even have an app. You couldn't even do a pre-book on the phone. You could only do it through the website by logging on, and nobody wants to do that. People just want to click away on their phone, so I think the cruise lines are trying to go as fast as they can, not as fast as we'd like, to get pre-booking to where it needs to be. I mean, from their perspective, you look at some of the leaders in pre-booking. They're closer to 50% on some of the different options that you can do, whether it be shore excursion, a couple of different things that you can do. We would like to see them put us front and center on the mobile app.
I think we'll see more of that. There's only one cruise line who allows you to book while you're on board. All the others are still catching up. So look, we're trying to do a lot in our business review discussions, trying to focus them on what they can do to enhance that number, because it's still only around about 22%. We'd love it to be 30%.
Yeah. I mean, it does seem that some of the major cruise lines are really trying to pilot getting to onboard booking for a variety of things, hopefully by year-end 2027, if not earlier. So I know that's a big initiative, hopefully, that will help with the spa as well.
I hope they catch up on that.
But can you explain, I think philosophically, it's always interesting, why do people spend so much more when they pre-book versus just booking on the ship?
It's that wonderful concept of the forgotten wallet. It's booked. It's spent. I can do more on board, right? So I think that benefits it. I also think families, particularly families, when they're going cruising, even some couples, you want to do as much as you can to organize your day in advance. And a lot of families do that, particularly the wives. They're very organized. And so I think if you're not into pre-booking, if you don't have a pre-booking capability, you're way behind the curve. So as we sit with our different cruise line partners and show them how far behind they are from, say, the top spot or number one spot, it's a long way. And so they have a lot of work to do. We'd love to help them.
We're happy to invest in it, because a pre-booked guest spends 35% or more than somebody who just comes on board and hasn't pre-booked. So there's higher frequency. There's better spend. We can manage that yield better on the pre-book side. So it all pertains to a much better spend for the guest.
One of the more nascent initiatives that you talked about, some in 2025, were the machine learning and AI initiatives that I think, Stephen, you're spending a lot of your time on. So can you talk about the different pilots that you're doing currently and if there's any early learnings there and how we should expect those to roll out?
Absolutely, so as you know, we had previously talked about 40 vessels where we were piloting a revenue enhancement feature, and the KPIs that we're looking at specifically there is how our utilization and revenue growth performing versus a statistical projection of where they might have been performing, and when I tell you that we're now rolling out onto 80 vessels, the answer is in there in and of itself, and we expect to be on 185 vessels by the end of the second quarter, so all indications there are pointing in the right direction with regards to the revenue enhancement project that we had talked about previously.
And then in terms of other applicability, where you think AI can be impactful in your business and how you view kind of a multi-year arc of AI and how it works within OneSpaWorld?
Sure. So we basically divide it into two broad categories, right? What can we do from a revenue enhancement and efficiency standpoint? And then what do you do from a scalability standpoint, which helps lower cost per se? As I mentioned, the revenue focus is currently on the machine learning algorithm that we're working on to improve revenue and utilization, progressing well. And then now we have just begun a true dynamic price optimization model. And we'll start that with pre-booking. It's virtually impossible today, because when you look at the pre-booking universe of itineraries that are available, there are 11,500 itineraries that are open for pre-booking. And so you can't have enough human eyes on that to truly do a pre-booking capability with that. But that is what we're looking at. We will start adjusting future voyages and prices on a real-time basis.
And we are confident it will help improve utilization and yield through these agentic AI tools. So that will be next. On the revenue side, on the efficiency and scalability side, we've begun with, for example, we've talked about before rolling out our onboard artificial intelligent virtual assistants, which helps our managers get questions answered immediately on board, whereas in the past, it may have taken a day, depending on where you were geographically, et cetera. Now 80% of all questions by the managers are being responded to within seconds. Very helpful to them, because, for example, if you have a question and you can't close your voyage, you can't start your next voyage. And that might have taken a day. Now it's taking a minute, and you're done. You can start on your next voyage. You can drive revenue. And obviously, it also helps us reduce our helpdesk hours.
So then you start to see some of the scalability. And then in addition to that, we're also looking at what we can do on a shore side basis. How do we improve scalability at corporate? There are a tremendous amount of projects that we're working on. I will tell you, it's literally a couple of hundred. And there's a steering committee that looks at what should we work on next. Leonard and I sit on the committee. We meet at least once a month and through different metrics, like time to implementation, cost to implementation, potential impact, difficulty, how many people across the organization will be impacted by it, what's the return on investment, where we go next. And we make a determination as to which project we work on next. So it's all very exciting and has a high degree of interest at a senior management level.
Frankly, even from our board, very, very interested in progressing down that path to help us grow revenue and then ultimately also grow margin.
When you talk about the real-time dynamic pricing for pre-booked spending, are you fully integrated then into all of the cruise line partners so that you can implement that? Or will there be some that'll be on a lag?
We're on about 90% of all the ships right now. It will remain at about that number. The others simply don't have the capability and systems in order for us to get there. So the universe of availability is already there. And now it'll just become something that gets the dynamic pricing implemented.
I think one other interesting dynamic with OneSpaWorld, and I have to kind of lean over here to see the time. You didn't really go through a Great Resignation, like a lot of other companies that we follow. In fact, your staff retention has been remarkable and continues to improve. Can you talk about what staff retention looks like today versus pre-pandemic? And why is that a good thing for you to have the same people on board longer?
Yeah. So that's been a really, I mean, we started that initiative last year even more so than the pre-pandemic planning that we did, which was kind of getting staff back to sea committed. And so we brought a tremendous contingent back of experienced staff, less training, less money spent on travel, et cetera. So the initiative post-pandemic has been, how do we get our retention above 70%? Last year, we've been at about 76% and building. And really, what we want to focus on is how do we bring back our A drivers? How do we bring back more top managers? Because every single day that you have a manager out there who's great, that's a night and day difference for that cruise. So a huge focus on building more great managers.
But at the same time, the retention factor, when I first started in this business, was less than 30%. It's more than doubled. Now you'd say, oh, how long have you been here? Yeah, I've been here a long time. But getting staff to say 76% of them returning, they generate much more revenue second and third year. I mean, outside of the fact that you don't have to train so much, they're just more productive. So we want to continue that trend, continue to build. It lowers the cost of investment in training. Not that we want to do that. It's just a function of people. So it's been a remarkable turnaround.
You touched a little bit on MediSpa earlier. I'm curious on that. Is the limit to how quickly MediSpa can grow, is it a function of the doctors and medical professionals you can get or the space you have on the ships? Or can you walk us through that? Because it's amazing, maybe for people who don't know in the room, how much people will spend on MediSpa when they're on a cruise ship.
It is amazing. In some cases, some of the modalities that we offer, it can be as much as three times the price of the cruise, and they're happy to spend it. Our limiting factor, just in light of time, is two things. One is real estate, recapped. If you don't have the space, you can't necessarily offer it. Some of the smaller ships, we just can't do Medi-Spa. We'd love to, but we just don't have the real estate or the berthing, and the other limiting factor, even on the bigger ships, is you can't get enough berths for more nurses. We've been able to introduce a couple of new nurses on a lot of the bigger ships, which helped tremendously. I mean, a great doctor on a ship can do, I mean, if I had to tell you, no, I can't. OK.
I mean, it's just incredible what some of these guys can generate. And the nurses as well. And we've also put on NAD now as an IV. We're going to continue to add, maybe even go into the side of peptides. We're going to add longevity type things. So I think if we could uncap real estate and berthing by looking at the facility utilization tool that we built into the metric now and focusing on where we can have dual-licensed folks who have to have a certain amount of time off. But if we don't have demand in here, but they can do something else, or we can take somebody out and have another nurse on board, I'm going to do that every single day, because the money that generate in Medi-Spa, it can be eight, nine-fold that of a massage.
So we're making the business case as we go. Certainly, on the new builds, we want to see as much space dedicated to these areas. We might even want to take out certain non-productive areas and grab more real estate. But the caveat to that is, would they give us more staff? So it's a business case we're following in conversations with our cruise line partners. In some cases, we're winning. And in other cases, there's always pushback, because everybody else wants more staff. So look, numbers win over. I need more staff. I want more staff. Where you can show them real metrics and data, which we can now, I mean, the conversation turns around.
I think one of the big benefits of your business model has been how asset-light it is. The cruise companies build out the spas. And if you build it, then you guys come. Can you talk about, with that cash flow, which has clearly reinflected into a very, very positive territory over the past few years, how do you think about the allocation between debt pay down, share repurchases, dividends, et cetera?
Sure. So I think it's worth reminding folks that in 2025, we returned $92.9 million to shareholders through share repurchases of $75.4 million, dividends of $17.5 million, and we invested an additional $15 million into early debt pay down while maintaining positive cash flow and continuing to vest capital into the business to fund future growth, so it's a really, really good place to be in terms of the prioritization. Stock buybacks remain the number one priority on an opportunistic basis. We will continue with the dividend and grow it slowly over time, and then the third place where we'll put money as appropriate is to continue to reduce the debt, which is already at a very, very manageable level, and a percentage of EBITDA is way less than 1, so it's very, very manageable with the cash flow servicing the debt, not a problem at all.
So a really good place to be from a cash flow perspective.
And I think I have time for one more question. So the only pushback that I think I ever really get on OneSpaWorld is the concentration of your cruise line clients. I mean, there are several really large ones out there. And there are memories that are long about the kind of basis point wars that might have happened 10 or 15 years ago in the contract renewal cycles. Can you talk about how the climate is different today and how you work with your cruise line partners versus maybe 10 or 15 years ago?
Yeah. Look, 10 or 15 years ago, it was all about grabbing another buck or two and whatever. And they didn't really care. I think post-pandemic or right before the pandemic, we started to see a different conversation, which we were driving, which was, guys, look, you make the lion's share of the pie. Let's grow the pie, the totality of the pie. We all do better. And so it didn't resonate, perhaps, as much pre-pandemic as it has afterwards. And that's really been a function of how the discussions go versus let's take a little bit here or there or whatever. So you can slice the pie up as much as you want. But ultimately, you're going to worsen the guest experience, the quality of that experience, which they don't want and we can't afford to do, because it's our brand.
The conversations have become much more about how do we grow this business together and it's collaborative in nature, which is wonderful. Because then you want them to invest behind certain things that are doing well. They're open to that discussion more so than they were 10 years ago. I think that's a good turn in what's happened with our relationships.
Great. Thank you. Thanks, everyone, for joining. Happy New Year.
Thank you.
Thank you.
Thank you.