OneSpaWorld Holdings Ltd. Aktie

Greetings, and welcome to OneSpaWorld First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Allison Malkin, partner with ICR. Thank you. You may begin.

Thank you. Good morning, and welcome to OneSpaWorld's First Quarter 2026 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 first quarter 2026 earnings release, which was also furnished to the SEC today on Form 8-K.

We do not undertake any obligation to update or alter any information regarding 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. 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, President, Chief Operating Officer and Chief Financial Officer. Leonard will begin with a review of our first quarter of 2026 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and guidance. Following our prepared remarks, we will turn the call over to the operator to begin the question-and-answer portion of the call. I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's First Quarter 2026 Earnings Conference Call. We began the year with continued strong momentum in the first quarter, reporting better-than-expected top and bottom line results. The period marked our 20th consecutive quarter of record total revenues and adjusted EBITDA, evidencing the strength of our global operations and the disciplined execution of our strategy by our outstanding team.

Our highly trained and motivated staff delivered exceptional experiences for our health and wellness center guests, driven by ongoing innovation in our product and service offerings. The long-standing strength reinforces our leading position in the global operations of health and wellness services at sea. I continue to be very proud of our exceptional team members worldwide for their unwavering commitment and the outstanding performance, which has led to our ongoing strong results.

As outlined in our earnings release, based on our first quarter performance and favorable momentum, we currently expect to deliver 10% growth in total revenues and adjusted EBITDA for the second quarter at the midpoint of our guidance ranges, excluding the results of exited and reorganized operations.

Turning to the highlights of the quarter. Total revenues increased 13% to $247.6 million. Income from operations increased 36% to $22.9 million. Net income increased 40% to $21.3 million and adjusted EBITDA increased 21% to $32.2 million. At quarter end, we operated health and wellness centers on 208 ships with an average ship count of 202 for the quarter. This compares to a total of 199 ships and an average ship count of 193 ships at the end of the first quarter of fiscal 2025.

Also at quarter end, our cruise ship health and wellness centers were staffed with 4,585 personnel compared with 4,240 personnel on vessels on March 31, 2025. We continue to focus on 4 key priorities to deliver this growth, delivering meaningful progress on each quarter to -- on each during the quarter. Let me share some of those highlights. First, we captured highly visible new ship growth with current cruise line partners. During the quarter, we introduced health and wellness centers on 2 new shipbuilds, Norwegian Cruise Line's Luna and Disney Adventure, which launched their maiden voyages in March.

These launches reinforce our strong positioning alongside leading global cruise operators and our commitment to elevating and differentiating our health and wellness centers to bring innovative and breakthrough technology to our guests. To this end, on NCL's Luna, we introduced TrueFlex, the new noninvasive muscle sculpting minispa service. As mentioned, we remain on track to introduce health and wellness centers on 6 new shipbuilds this year.

Second, we continue to expand high-value service and products. Our higher-value services, including MediSpa, IV therapy and Acupuncture continue to enhance onboard productivity and expand our addressable market. To this end, the quarter saw us deliver breakthrough innovation in our MediSpa services with the continued rollout of next-generation technology, including thermas, transculpt, CoolSculpting, IV therapy and Acupuncture LED light therapy. These new technologies generated strong double-digit growth for those treatments in Q1.

We will continue to scale these services across additional ships while introducing new offerings in support of travelers' increasing commitment towards longevity and wellness. Based on the success of TrueFlex on NCL Luna, we plan additional rollouts. During the quarter, we accelerated the rollout of NIAGEN plus NAD boosting intravenous solution across all 90-plus ships offering IV services following strong initial pilot results.

At quarter end, MediSpa services were available on 155 ships, up from 148 ships at the end of the first quarter of 2025. We expect to have MediSpa services on 157 ships by year-end 2026. Third, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of across-the-board increases in key operating metrics, including revenue per passenger per day, weekly revenue and revenue per staff per day.

Additionally, prebooked revenues grew 17% and remain a driver of sales productivity with these appointments, continuing to generate 30% more guest spend than services booked on board. Finally, staff retention at 77% improved, increasing 5 percentage points from Q1 of 2025, reflecting the strength of our onboarding engagement and retention initiatives. We're proud of our reputation as an employer of choice and strive to create an environment that fosters retention.

These and other onboard employee initiatives have contributed to the improved retention. Importantly, expense staff generates significantly higher revenue per day versus first staff contract. We continue to invest in developing our future onboard leadership and enhancing training programs, which are key drivers of sales productivity and overall onboard performance.

Fourth, we remain -- we maintained our strong and durable balance sheet and generated robust free cash flow. During the quarter, we returned $5.1 million to shareholders through our quarterly dividend and reduced debt by $1.3 million under our term loan facility. Our consistent free cash flow generation continued to support both our capital allocation priorities and investment in future growth.

Overall, we remain confident that 2026 will reflect another year for our company as we execute our proven and highly visible growth strategies by our exceptional team. We believe we are well positioned to further establish our leadership as the preeminent global operator of health and wellness services at sea, delivering value for our cruise line partners, elevated experience for our guests and strong returns for our shareholders. With that, I'll turn the call over to Stephen, who will provide more details on our first quarter results and guidance. Stephen?

Thank you, Leonard. Good morning, everyone. We had an outstanding start to the year with total revenues and adjusted EBITDA increasing 13% and 21%, respectively, from the 2025 first quarter. We set first quarter records for total revenues and adjusted EBITDA, and our performance included broad-based strength across all key operating and financial metrics, underscoring our unique capabilities in the operations of health and wellness centers at sea and destination resorts on land.

In addition, our asset-light business model and ongoing successful growth continue to deliver robust cash flow generation, which we utilized to invest in our future, further strengthen our balance sheet and return value to shareholders. Of particular note, we continue to accelerate investments by integrating AI technologies into our health and wellness center and shoreside operations intended to drive incremental revenue, cash flow and earnings growth.

Let me provide an update on these activities, beginning with revenue enhancement. We continue to refine our machine learning algorithmic engine to improve revenue and utilization, which is progressing well and is now available on 190 vessels. In addition, work continues on the implementation of a true dynamic price optimization model that we will start to introduce with prebooking of services for voyages.

We remain confident that adding these AI tools will improve utilization and yields by leveraging advanced recommendations and algorithmic optimization. As it relates to operational efficiency and scalability, we continue to experience early success with our AI assistant, which helps our managers receive and respond immediately to questions. This maritime agent is autonomously resolving 94% of tickets with response times in seconds and has now been deployed on 191 vessels.

Our work will continue with upcoming projects that relate to customer-facing chatbots. These will address, for example, guest product and service inquiries and automate certain customer service activities. Finally, automation and streamlining is part of our broad-based efficiency initiative to continue to explore and develop solutions to reduce repetitive work, simplify operations shoreside and improve scalability at our corporate locations.

While early, we continue to be very excited about the work we are doing, which is another example of our commitment to leverage cutting-edge technology to strengthen our market position and deliver value to shareholders. I will now share further details about our first quarter results that we reported earlier this morning.

Total revenues increased 13% to $247.6 million compared to $219.6 million for the first quarter of 2025, driven by a 4% increase in revenue days and a 2% increase in average guest spend and by fleet expansion from 2026 new shipbuilds, contributing $23.1 million, $5 million and $1.2 million, respectively, to the increase in total revenues, of which $5.4 million was attributable to increased guest prebooked services.

Growth in our maritime total revenues was offset by a $1.2 million decline in destination resorts total revenue, partially due to the closure of hotels where we had previously operated. Cost of services increased $20.2 million attributable to the $25 million increase in service revenue compared to the first quarter of 2025. Cost of product increased $2.5 million attributable to the $2.9 million increase in product revenues compared to the first quarter of 2025.

Administrative expenses were $6.2 million compared to $4.2 million in the first quarter of 2025. This increase was primarily due to $1.9 million in third-party fees for certain management and logistics services as a result of our previously announced restructuring, which were previously performed internally by company staff and as such, the related costs have shifted from salary benefit and payroll taxes to administrative expenses. Salary benefit and payroll taxes were $8.4 million compared to $11 million in the first quarter of 2025.

The decrease was primarily attributable to the nonrecurrence of $2.5 million in separation-related expenses incurred during the first quarter of 2025 associated with the termination of the company's former Chief Commercial Officer. The variance also reflects a reduction in internal personnel costs in the first quarter of 2026, resulting from the transition of certain management and logistics services to third-party providers, as I just noted, partially offset by higher merit and incentive-based compensation.

Net income was $21.3 million or net income per diluted share of $0.21 as compared to net income of $15.3 million or net income per diluted share of $0.15 for the first quarter of 2025. This increase was primarily attributable to a $6 million improvement in operating income and the nonrecurrence of the aforementioned $2.5 million.

Adjusted net income was $28 million or adjusted net income per diluted share of $0.27 as compared to adjusted net income of $22.6 million or adjusted net income per diluted share of $0.22 for the first quarter of last year. Adjusted EBITDA was $32.2 million compared to adjusted EBITDA of $26.6 million in the first quarter of 2025. 2025 included $1.1 million of nonrecurring cash severance expense.

Turning to the balance sheet. We continue to possess a strong balance sheet at quarter end with total cash of $17.3 million after giving effect to paying $5.1 million in quarterly dividends and repaying $1.3 million of our term loan facility. In addition, we had full availability of our $50 million revolving line facility, giving us total liquidity of $67.3 million as of March 31, 2026. Total debt, net of deferred financing costs was $82.8 million at quarter end. Also at quarter end, we had $37.5 million remaining on our $75 million share repurchase program adopted in April 2025.

We remain focused on disciplined capital allocation, supported by our strong cash flow generation and balance sheet flexibility. We will continue to prioritize investing in the business, returning capital to shareholders through our quarterly dividend, opportunistically repurchasing our common shares and reducing debt while maintaining the flexibility to pursue additional opportunities to enhance shareholder value over time.

As it relates to guidance, for the full year 2026, we now expect total revenue in the range of $1.014 billion to $1.034 billion and adjusted EBITDA in the range of $129 million to $139 million. This represents growth of 9% at the midpoint of the guidance ranges for both metrics. Please keep in mind that fiscal 2025 reported total revenues includes $23 million associated with the reorganization of operations in the United Kingdom and Italy, and the exit of land-based operations in Asia, all previously announced.

For the second quarter of 2026, we are introducing guidance for total revenue in the range of $257 million to $262 million and adjusted EBITDA in the range of $32.5 million to $34.5 million. This represents growth of 10% at the midpoint of the guidance ranges for both metrics. This guidance reflects our confidence in our ability to deliver sustained momentum and the visibility of our growth pipeline while acknowledging the dynamic environment we find ourselves in. With that, we shall open the call for questions. Robert, if you could please take over. Thank you.

[Operator Instructions] Our first question comes from Randy Konik with Jefferies.

I guess, first, I just want to get some perspective on the rise in higher-value services that you talked about. I know you've added more MediSpas to more ships over time. But can you give us some perspective on what -- how that penetration has changed, let's say, high value versus low value or traditional services? How that's kind of morphed over the last couple of years? And are there any particular high-value services that the consumer is choosing?

And when you look at the penetration today versus maybe where it was a year or 2 ago on a same-store basis, where could we take high-value services from a penetration standpoint as a percent of total services given? Where do you think that goes from here? And because that could provide some nice lift in AUR going forward?

Yes. Thanks, Randy. I mean, obviously, some good observations there. We continue to innovate and stack new services into MediSpa services, which are having and are being very well received and the spend continues to improve across specifically the new technologies, which I mentioned like the LUNA, the [ Trueflex ], some of the Sage, the FLX and certainly the NAD, IVs that we've introduced, all of this is helping to produce better spend in our MediSpas.

And as you know, we continue to roll out another 5 or 6 this year, and we will continue to add some of these higher-end services. So extensively, we've moved away from just offering injectables and fillers to a complete menu of IVs and other aesthetic services, but it still shows that even at the higher price points, some of these new technology-driven services are having a very high impact in terms of demand, and we're very thrilled with it. So we continue to roll out as fast as we can.

Super helpful. Just one last question. You made a leadership addition in -- for the resort spas, I guess, a couple of months ago. Maybe give us some perspective on that individual and what your plans are long term for that piece of the business?

Yes. So we added a new person in resorts to drive business development and strategy. And thus far, only 60 days in, we've seen a potential pipeline that she's working on, which is very exciting. Hopefully, we can convert some of these leads that we have in the pipeline, which is much more than we had before.

And so the strategy in bringing her on board was now to take a look -- a much harder look and put much more energy and investment behind finding new opportunities within the U.S. and Caribbean, not the Asian market, which we're winding down. And so we're very excited with the early results and early indications of some of the leads that she's brought to the business. And I think that's going to be a decent driver. We saw resorts certainly perform better in the first quarter versus Q1 of 2025. So yes, all around, very encouraged by the early results since she joined.

Our next question comes from Steve Wieczynski with Stifel.

So Leonard, I want to ask about the improvement in productivity, especially around that revenue per staff per day. Wondering if you can give a little bit more detail as to what are some of the things that are actually driving that metric right now? And maybe help us think about how much more upside do you think you can kind of extract from a productivity perspective moving forward?

Yes. Steve, look, I certainly think some of the newer ships that we introduced last year, plus similar ships in the fleet with these incredible spas, many spa facilities, thermal suites, are all helping to drive that additional revenue per passenger per day as well as the average revenue spend from guests. So it seems that all the innovation is taking well, and we pilot these, obviously, to make sure they do.

So I think it shows that even at the high end of the range of some of these med spa service, Acupuncture red light therapy, we continue to see high demand. So it's a healthy increase, 6% productivity increase. We're thrilled with that, but I think a large part of it is the bigger spas, larger spas and certainly, our innovation platform continues to drive additional spend.

Okay. Got you. And then I want to ask about guidance, probably more so for the back half of the year. I guess what we started to see at this point is some softness. And I think the cruise lines would say this is your cruise partners would say this as well in terms of some softness in that North American to Europe demand and a slight uptick in cancellations again from that North American to Europe guest. So wondering if you guys have contemplated any slowdown in that European demand in the back half of the year or in your guidance? Or it's something you're just not overly concerned with at this point?

We're certainly cognizant of the geopolitical backdrop, which is certainly not improving. And I'm sure concerns have caused some people perhaps to cancel or hold off until they book versus last year. So I think we're certainly hearing from the cruise lines, and I'm sure you are as well that there have been cancellations, which is understandable.

But I don't know. It seems like it can still continue to book through the end of May or June. We'll see. I mean maybe the geopolitical situation changes. But we've thought about this and included it as part of the guidance in the back half. So it's not that we didn't consider that there could be some potential drop-off in demand, but our guidance includes that.

Steve, obviously, bear in mind, as you're very well aware, generally, we're servicing about 11% of the guests on board. And so that provides us with a layer of insulation against some of that softness should it occur on the one hand. And then on the other hand, the reality is we've seen over time that no matter what happens in the world, the cruise lines are excellent marketers and they fill their ships to capacity day in and day out. So while we are aware of it and we have taken it into account, I think we'll get through it.

Our next question comes from Max Rakhlenko with TD Cowen.

On a really nice quarter. So I just want to touch on first the callout in seemingly improving prebooking revenues. So what was the unlock in the quarter? And what does it inform you of where it can go over the medium term? And then if you can tie just comments on AI, as I know that, that's something that you're working on for prebooking as well.

Yes. So prebooking services, as I mentioned, were up 17%. The reason it's kind of flattish at the 22% is fundamentally just because we don't include some of the services in men's spa, acupuncture in there, which we're starting to consider whether we can include some of that in the prebooking menu. And we probably will move to that as we start to move towards a more dynamic pricing, AI-driven discount dynamic model over time, which Stephen mentioned earlier on. So that's certainly helping drive that additional spend because it's up so much more than it was last year, but it's still flat, which means the rest of the business continues to grow nicely as well.

And Max, by way of clarification, the AI initiative specifically as it relates to dynamic pricing on prebooking is not yet in play. So anything that you're seeing thus far is not influenced by that.

Right. Yes. That's helpful. And then...

Go ahead, Mak. Sorry.

I was just going to ask, so you guys touched on looking to do seemingly more in wellness and longevity. Obviously, that's a key theme across a number of verticals. So just curious, what do you see as the top opportunities? And I know that we've long discussed potentially getting in some services where a customer starts something on the ship and then they potentially continue using it once their vacation ends. So just curious if you could touch on both of those topics and what we could see ahead.

We remain very focused on the longevity and health and wellness vertical of our business, which is included right now in MediSpa. I think there are things that we're working on trying seeing and testing to see if, in fact, we can layer it in. If and when we do, we'll tell you about it, but there's certainly a lot of things and opportunities that we're looking at with respect to engaging with the passenger on board through seminars, et cetera, on the longevity side and then continuing with certain therapies, supplementation, et cetera, post cruise.

I think that's certainly the direction we will go in. We're just sorting through what the right opportunity is and the right vehicle to do it in. It does not mean we need to do M&A to do that. We can do it through a joint venture or a partnership. So those are the things that we're looking at right now, but we're just not ready to execute or pull the trigger on any one of them that we're considering. But I can tell you it's very exciting.

Our next question comes from Gregory Miller with Truist Securities.

I'd like to ask a couple of questions as it relates to the geographies of where your ships are located this year. And to start off with 1Q, there is a greater concentration with Caribbean routes. And I'm curious how impactful was a higher concentration of Caribbean itineraries to your 1Q performance?

Yes. So we love Caribbean performance. It's the best for us. North American passengers, definitely the best spenders on a global basis. So concentration, as we've mentioned before, in the Caribbean is not a negative for us. Now how that impacts, obviously, the different cruise line banners is different to us, but we certainly love being in the Caribbean because it gives us the 7-day program model, which is the most effective for us.

Okay. Shifting region -- Stephen, did you want to say something?

No, go ahead.

Shifting to Europe. I'm curious, I'm not sure if this has been discussed in prior earnings calls. But when I think about what's going on in the Middle East today and if there are cruise passengers that might shift from, say, an Eastern Med itinerary to a Western Med or Northern Med or Northern Europe, is there any material difference in terms of the quality of earnings from, say, Eastern Mediterranean itineraries versus Western or Northern Europe?

The short answer is there's no difference to us.

[Operator Instructions] Our next question comes from Assia Georgieva with Infinity Research.

Congratulations on a fantastic quarter. Just to kind of follow up on that up 17% prebooked. Do you expect that to again be up in Q2 and possibly in Q3, you have Legend of the Seas coming in. So I imagine newer ships may create more excitement. They may attract people who are more experienced and willing to pay the premium for a new ship and therefore, kind of help the mix. Do you think that would be part of the plan?

I'll say, yes, it's definitely the strategy, and we continue to focus through every business quarterly review that we do with our banners on the opportunities within prebooking, improving the journey for the guest as they come on to the site. I think together with the fact that once we develop the AI dynamic component of this, it will also help us from a yield perspective. But our real focus is obviously getting the cruise lines as focused and providing the resources possible to help us with this, but it's improving. So they get it. It's just a question of resource allocation.

So we can expect a continuation of the year-on-year growth in sort of the mid-teens, that would be a reasonable...

I'm not sure whether it continues at this clip. Obviously, if it stayed at the same kind of double-digit rate that it's improving, certainly over the last 3 quarters, we'd be very, very happy with that.

Okay. I think that's fair enough. And sort of a related question. As you probably know, we track about 40,000 voyages every week. And what we noticed is in week 3, so March 20 or so, a significant price cut for World Caribbean International, to some extent, celebrity for European voyages for Q2. And of course, one concern is that as the quality of passenger comes down despite this being North American passengers in Europe, that it may impact you somewhat. Have you seen any of that during the month of April? I just wondered if -- and it seems to be very much a Q2 phenomenon. Q3 seems much better. So I just wondered if you saw any of that.

Yes. No, we've certainly read the same headlines and sort of the analyst reports on what's going on with Europe second quarter. We have not -- the ships -- a lot of the ships have started to reposition to Alaska and Europe at this point. And the early indications are is that we're certainly using every marketing tool necessary when necessary, if not necessary, we're not going to discount any more than we need to. And so we're monitoring it very closely, but thus far, we've seen no impact of a lower passenger perhaps not going to Europe. But then again, as we mentioned, we focus on the best 11% every single week, week in and week out to produce the results that we do. So I think we're going to be fine.

Fair enough. And last question, again, kind of a follow-up to Europe. One of your banners is moving away from the longer 10, 11, 14-night itineraries. And you just mentioned the sweet spot of 7 nights, especially in the Caribbean. Should that help somewhat? Or is Europe a different animal given how port of the itineraries are? Or is it still marginally helpful, I wonder?

Marginally helpful. I mean we think that 7 days is the best sweet spot because over the years and certainly the data suggests that the spend doesn't improve on a longer cruise. It's just the same wallet spread out over more days. So we love 7-day cruising.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Leonard Fluxman for closing comments.

All right. Thank you again for joining us today. We look forward to speaking with many of you at upcoming investor conferences and when we report our second quarter results in July. Thank you for joining us today.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Good morning, and welcome to the OneSpaWorld Fourth Quarter and Fiscal Year 2025 Earnings Conference 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, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to OneSpaWorld's Fourth Quarter and Fiscal Year 2025 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 in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter and fiscal year 2025 earnings release, which was furnished to the SEC today on Form 8-K.

We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. 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, President, Chief Operating Officer and Chief Financial Officer.

Leonard will begin with a review of our fourth quarter 2025 performance and provide an update on our key priorities for 2026. Then Stephen will provide more details on the financials and guidance. Following our prepared remarks, we will turn the call over to the operator to begin the question-and-answer portion of the call.

I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's Fourth Quarter and Fiscal Year 2025 Earnings Call. It's a pleasure to speak with you all today about our record fourth quarter. The period capped a year of exceptional performance underpinned by innovation across our global operating platform and the delivery of extraordinary guest experiences and excellent results for our cruise line and destination resort partners.

During the quarter, we advanced our strategic priorities, driving growth in key operating metrics and introducing 2 new ship builds. This served to further cement our market leadership and resulted in double-digit growth in total revenues and adjusted EBITDA. Our unique capabilities and the successful execution of our strategy have produced 19 consecutive quarters of year-over-year growth or fourth consecutive year our record performance of both metrics.

We continue to identify ways to elevate our positioning, increase efficiency and accelerate growth. Innovation, AI and the reorganization of certain operations that year held included the strategic decision to exit land-based health and wellness centers in Asia and reorganized operations in the United Kingdom and Italy have us poised to achieve this objective. We begin 2026 even more strongly positioned to maximize our powerful standing as the preeminent operator of health and wellness centers at sea.

I'm extremely proud of the team that assisted in delivering the year-end equally confident that the year ahead will represent another year of outstanding performance. At year-end, we operated health and wellness centers on 206 ships with an average ship count of 199 for the quarter. This compares with a total of 999 ships at year-end and an average ship count of 188 ships in fiscal 2024. We -- also at year-end, we had 4,582 cruise ship personnel on vessels compared with 4,352 cruise ship personnel and vessels at year-end in fiscal 2024.

Along with our strong financial results, the quarter year and year included noteworthy progress towards our key strategic priorities. Let me share some of those highlights with you. First, we captured highly visible new ship growth with current cruise line partners. We continue to solidify our market leadership, introducing 2 new health well centers, the board 2 new shipbuilds Disney Destiny and Star Sika during the quarter, which brought our total ship build to 8 for the year.

In 2026, we'll introduce health and wellness centers on 6 new ship builds 3 of which are expected to commence voyages in the first half of the year. Second, we continue to expand higher-value services and products. These higher-value services include medispa and acupuncture, to name a few, increases our addressable market and help to grow some shipper revenue performance. We continue to introduce these services to more ships and expand offerings with the latest innovations and adding to our growth.

In addition, we continue to elevate the innovation in our MedSpa services with the expansion of further rollout of next-generation technology with [ the March ] FLX CoolSculpting Elite and acupuncture LED, which offer improved results and reduced treatment time by up to 50%. These new technologies generated between 23% and 40% revenue growth in Q4 versus last year.

In addition, the adoption of LED light therapy with acupuncture remains a high conversion add on to treatment. At year-end, Medi-spa services were available on 150 seeships, up from 147 ships at year-end of fiscal '24. We expect to have medispa offerings on 157 ships by year-end 2026. Thirdly, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of across-the-board increases in key operating metrics, including revenue per passenger per day, weekly revenue, pre-cruise revenue and revenue per staff per day.

Our unique ability to identify onboard and retain staff is leading to this performance. We continue to be known as a great place to work and take pride in being a desired employer striving to create an environment that fosters retention. These and other onboard employee initiatives have led to a 4 percentage point increase in staff retention versus 2024. Importantly, experienced staff generates significantly higher revenue per day versus first stop contract.

And lastly, we possess a strong and durable balance sheet, which, combined with our ongoing successful growth enabled us to advance each of our capital allocation objectives in the quarter. These are invest in our future growth, return value to our shareholders and reduce debt. During the year, we returned nearly $93 million to shareholders during the year through our stock buyback and quarterly dividend and reduced outstanding debt.

Our asset-light business model delivers consistent after tax free cash flow. With this, combined with our positive long-term growth prospects, has made us poised to continue to advance our value creation objectives going forward. We remain confident in our ability to continue our strong performance in 2026. Our positive outlook is supported by the continued innovation of our product and service offerings and the unwavering commitment to service excellence by outstanding staff, further buoyed by the implementation of emerging AI technologies that enhance our unique global positioning.

These growth drivers are complemented by the contribution from the annualization of new ships that entered service in 2025, 6 of which commenced [ voyages ] in the second half of the year as well as the introduction of 6 new health and wellness centers beginning voyages in 2026. In summary, we believe our highly visible revenue growth, along with the continued discipline with which we execute our asset-light business model, positions us very well to deliver strong results for our stakeholders and shareholders in the near and long term.

As Stephen will share momentarily, we have reiterated our 2026 guidance and expect total revenues, excluding revenues associated with restructured operations and adjusted EBITDA to increase high single digits at the midpoint of the range.

With that, I will turn the call over to Stephen, who will provide more details on our third quarter financial results and guidance. Stephen?

Thank you, Leonard. Good morning, everyone. We ended the year on a high note, delivering record performance in total revenues and adjusted EBITDA in the fourth quarter and continued strong and predictable cash flow generation. This record performance reflects our investment in breakthrough technology applications across our business, reinforcing our market-leading strengths and deepening our cruise line and resort partnerships.

At year-end, we implemented strategic actions to focus operational and capital investment on our highest growth and most profitable operations, exiting land-based health and wellness centers in Asia and reorganizing operations in the United Kingdom and Italy. In addition, our initiatives in AI will serve to accelerate our strategic growth initiatives and increase efficiency, further building our revenue and profitability growth potential. Let me provide some highlights prior to reviewing our financials and guidance. First, as it relates to revenue enhancements. As I mentioned with our Q3 results, we have implemented a machine-learning algorithmic engine to improve revenue and utilization, which is progressing well.

In addition, we recently began work and allows us to implement a true dynamic price optimization model that we will start to introduce with prebooking. Today, we have over 11,500 itineraries that are open for prebooking, which makes it virtually impossible to have true dynamic pricing with only humans involved.

And we're confident that adding these genetic AI tools will improve utilization and yields. By leveraging advanced recommendations and algorithmic optimization, this initiative aims to unlock additional revenue and improve utilization. Second, on the operational efficiency and scalability side, we are seeing early success with our rollout of our onboard virtual assistant. This AI assistant, helps our managers receive and respond to questions immediately and meaningfully reduce health desk hours.

For example, this tool enables our managers to close voyages and start booking the next cruise faster than before. Currently, 80% of all questions are answered within seconds by the virtual assistant, which is compared to perhaps a day or more if only humans were involved. Our virtual assistance tool has now been deployed across 180 vessels, up from 40 vessels in the third quarter.

Third, automation and streamlining is part of our broad efficiency initiative to continue to explore and develop solutions to reduce manual work simplify operations shoreside and improved scalability at our corporate locations. Although still in the early stages, our steering committee needs regularly to analyze different metrics such as time to implementation, cost of implementation, potential impact and difficulty, return on investment and the prioritization of where to focus next.

This is very exciting work for all of us, has strong buying across our organization, and we hope will further enhance productivity, operational scalability and our key operating metrics over time. Overall, our AI initiatives demonstrate our commitment to leveraging cutting-edge technology to strengthen our market position and deliver value for our shareholders.

Turning now to a review of the fourth quarter and fiscal year, starting with the quarter. Total revenue increased 11% to $242.1 million compared to $217.2 million for the fourth quarter of 2024. Growth was driven by fleet expansion from 2025 new ship builds, a 2% increase in revenue days and a 1% increase in average gas spend contributing $15.5 million, $8.7 million and $2.1 million, respectively, the increase in total revenues. Of this $2.8 million was attributable to increased gas spend from prebook services. Growth in our Maritime total revenue was offset by a $1.3 million decrease in destination resorts total revenue partially due to the closure of hotels where we had previously operated.

Cost of services increased $18.5 million attributable to the $21.5 million increase in service revenues compared to the fourth quarter of 2024. Cost of product increased $3.4 million attributable to the $3.4 million increase in product revenue compared to the fourth quarter of 2024. -- a $0.3 million quarter-over-quarter increase in freight expense related to the timing of purchases and $0.3 million of nonrecurring inventory write-off charges in the fourth quarter of 2025 related to the exit from its -- from our land-based health and wellness centers in Asia.

Admin expenses were $4.9 million compared to $5.8 million in the fourth quarter of 2024, with the decrease being primarily attributable to higher professional fees incurred in the prior year quarter, including approximately $700,000 related to incremental public company costs such as Sobeys [ Oly ] compliance. Salaries, benefits and payroll taxes were $8.9 million compared to $9.3 million in the fourth quarter of 2024.

This decrease was primarily attributable to lower incentive-based compensation of approximately $500,000 in compared to the fourth quarter of prior year. Restructuring expenses were $2.7 million in the fourth quarter of 2025 attributable to the aforementioned reorganization of operations in the United Kingdom and Italy and the exiting of resort health and wellness operations in Asia. Long-lived asset impairment was $3 million compared to $400,000 in the fourth quarter of 2024. due to exiting resort operations in Asia, the fourth quarter of 2025 included a $2.8 million impairment charge with respect to the value of associated long-lived assets. $2.2 million attributable to intangible assets and $600,000 attributable to property and equipment and right-of-use assets.

Net income was $12.1 million or net income per diluted share of [ 12p ] as compared to net income of $14.4 million or net income per diluted share of [ 14p ] for the prior year. The decrease was primarily attributable to the recognition of these restructuring expenses and on of asset impairments totaling $5.7 million during the current quarter. partially offset by $4.4 million improvement in income from operations.

Adjusted net income was $24.3 million or adjusted net income per diluted share of [ 24p ] as compared to adjusted net income of $21.4 million or adjusted net income per diluted share of [ 20p ] in the fourth quarter of prior year. And finally, adjusted EBITDA was $31.2 million compared to adjusted EBITDA of $26.7 million in the fourth quarter of 2024.

For the fiscal year, total revenue of $961 million increased 7% compared to $895 million from the prior year. Adjusted net income rose 15% to $102.9 million. or multiline per diluted share from adjusted net income of $89.7 million or $0.85 per diluted share in 2024. And adjusted EBITDA increased 10% in to $123.3 million as compared to adjusted EBITDA of $112.1 million in fiscal 2024.

Our strong balance sheet included total cash of $17.5 million at year-end, reflecting the disbursement of $17.5 million throughout the year in quarterly dividend payments, investment of $75.4 million to repurchase $3.9 million of our common shares and payment of $50 million on our term loan. In addition, we had full availability of our $50 million revolving line of credit, giving us total liquidity of $67.5 million at year-end.

Total debt, net of deferred financing costs was $84 million at December 31, 2025, compared to $96 million at December 31, 2024. Also at quarter end, we had $37.5 million remaining on our prior $75 million share repurchase authorization. We expect the disciplined execution of our growth initiatives and strong cash flow generation driven by our asset-light business model to enable the payment of our ongoing quarterly dividend while evaluating opportunities to repurchase our shares and retire debt. We believe this positions us well to create long-term value for our shareholders.

Turning now to guidance. We are reaffirming our fiscal 2026 outlook and begin the year with strong momentum and confidence to deliver another record performance. Based on our market outlook, outstanding team proven strategies and execution, scaling innovations, new ship builds and strong capitalization, we expect fiscal 2026 total revenues to exceed the $1 billion mark for the first time.

Total revenues are expected in the range of $1.01 billion to $1.03 billion, representing high single-digit increases at the midpoint of our guidance range from actual 2025 results, excluding exited and reorganized operations mentioned previously. Adjusted EBITDA continues to be expected in the range of $128 million to $138 million, representing high single-digit increases at the midpoint of our guidance from actual fiscal 2025 results.

And for the first quarter of 2026, we expect total revenue in the range of $241 million to $246 million, with adjusted EBITDA expected in the range of $30 million to $32 million. Please bear in mind that exited and reorganized revenue contributed $5.3 million to first quarter 2025 revenue and $23 million to fiscal 2025 revenues.

And with that, we will open the call up for questions. Gary, if you could take over, please.

[Operator Instructions] Our first question today is from Steve Wieczynski from Stifel.

This is Jackson Gibb on for Steve Wieczynski. I wanted to dig in a little further on the AI integration. And with another quarter under your belt, -- is there any more color you can give on the potential benefits you guys could realize from this investment, whether that's on the cost side or the revenue side?

And any updated thoughts on how that might impact margins? Up to this point, you guys have kind of talked about these initiatives starting to show up meaningfully in the second half of 2026. Is that cadence still accurate? And would we be correct to assume you have not factored in any of this potential impact to current full year guidance? .

Yes, Jackson. As previously mentioned and you reiterated, we did say that we will begin to talk about that after our second quarter results with more specificity. So -- we remain on track to do that. We are encouraged, obviously, by the initial results, and that is reflected in the incremental rollout of these initiatives, 2 vessels and starting of additional initiatives as well. So we remain pleased with where we're at. And to your last point, yes, our current guidance does not include potential impact from these initiatives.

Okay. Got it. And then switching gears for my follow-up. I was hoping to get a little bit more detail around how consumer trends are shaping up, specifically attachment rates and how you're going about discounting. Are you seeing any differences worth calling out in these metrics or anything that stands out as far as changes in spend patterns across different brands, geographies, ship sizes, et cetera. And then how are you thinking about your ability to take price throughout 2026 relative to price action taken in 2025?

So I'll address the last part first. as you know, in 2025, we effectively did not take service price increases. We do always continue to evaluate that. And if there's opportunity to do so. In 2026, we will certainly address an actional comments. Again, from a guidance perspective, we are not assuming any service price increases embedded at this point in time. We'll see how things play out.

With regards to the consumer, we had previously mentioned in the fourth quarter of last year, a little bit of softness in November, and we did not see that reoccur in December, which was great. So far year-to-date, we are definitely seeing overall higher prices being accepted by the consumer. So on a net basis, we are selling at a higher price. There may be slightly additional discounting. But at the end of the day, the net that's going to the customer offering, which remains high.

And it's also therefore a reflection of, as you will have noted, our first quarter guidance, which we feel good about and is about consensus, and we think is a reflection of what we anticipate going forward with the consumer.

The next question is from Gregory Miller with Truist.

I'd like to ask first about the dynamic price optimization model that you spoke about in your prepared remarks. Melissa, missed it on the -- in your remarks this morning, have you discussed in terms of detail in terms of the rollout? Are there certain banners or itineraries or vessels that you're going to start this implementation first? Or is this going to be a broader rollout across the fleet.

Specifically as it relates to that initiative, Greg, the first place we will begin with is actually on prebooking -- so effectively, it will cover 94% of the vessels that today are on that prebooking platform. I would like to say it's still relatively early stages. Obviously, we're excited about it because, as mentioned, the share volume of itineraries available on the prebooking platform, make it effectively impossible for humans to have a true dynamic pricing impact that can literally look at day-to-day even ultimately, hour to hour where we might on adjusted.

So are excited about it when we roll it out, the phases will be #1, pre-booking once we get that working and finalized, there will be a relatively quick rollout to the remaining vessels. But realistically, we're talking here into the back half of the year.

Okay. Shifting gears, I was on 1 of your ships recently. And I noticed that the spa menu appeared reformatted. It looked like the offers were perhaps more condensed and just different stylistically than what I've seen in the past. And I'm curious if you have any intentions of a broader rollout of reformatting your spa menus in terms of the offerings that you're presenting to passengers on board.

No. Actually, we took a very proactive approach in doing that. So I'm glad you noticed. We decided to condense and rather focus guest choice on sort of the more popular items versus a full Chinese menu of everything and anything as opposed to the top choices that everybody takes. But also a focus to moving people into specific price points and time slots. So it's a much more manageable and conversion into the higher treatment rates, particularly around face and body -- so I just think narrowing the aperture to the more popular treatments that we want to sell with a higher retail attachments is sort of the strategy and science behind a narrower mainly.

We have no intention of broadening it because at the -- from what we did and looked at it statistically, there was just no purpose in having an extensive menu that we did would have like 3 years ago.

Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

All right. Thank you, everybody, for joining us today. As Stephen mentioned, we've got off to a great start here in the first quarter and look forward to speaking with you all on our next investor call as well as conferences that we may attend through the first quarter entering the second quarter. So thank you, and look forward to speaking to you next time. Thank you.

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

Good day, and welcome to the OneSpaWorld Third Quarter 2025 Earnings Call. [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 Third Quarter 2025 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 in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 2025 earnings release, which was furnished to the SEC today on Form 8-K.

We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. 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, President, Chief Operating Officer and Chief Financial Officer. Leonard will begin with a review of our third quarter 2025 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and guidance. Following our prepared remarks, we will turn the call over to the operator to begin the question-and-answer portion of the call.

I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's Third Quarter 2025 Earnings Conference Call. It's a pleasure to speak with you all today to share our record third quarter results, which were delivered at the high end of guidance, marking our 18th consecutive quarterly period of year-over-year growth in total revenues and adjusted EBITDA. Our sustained rates of growth demonstrates the power of our complex global operating platform and our team's unwavering commitment to deliver exceptional experiences for our guests and outstanding performance for our cruise line and destination resort partners. In addition, our execution of our asset-light business model continues to generate strong free cash flow, enabling us to create significant value for shareholders through an increasing quarterly dividend, share repurchases, accelerated debt paydown and strategic investments across our operations.

Turning now to the highlights of the quarter. Total revenues, income from operations and adjusted EBITDA represented all-time records and net income was a third quarter record. Total revenues increased 7% to $258.5 million compared to $241.7 million in the third quarter of 2024. Income from operations increased 5% to $26.3 million compared to $25 million in the third quarter of 2024. Net income increased 13% to $24.3 million compared to $21.6 million in the third quarter of 2024, and adjusted EBITDA increased 6% to $35 million compared to $33 million in the third quarter of 2024. At quarter end, we operated health and wellness centers on 204 ships with an average ship count of 199 for the quarter. This compares with a total of 196 ships and an average ship count of 195 ships at the end of the third quarter of fiscal 2024. Also at year-end -- at quarter end, sorry, we had 4,466 cruise ship personnel on vessels compared with 4,204 cruise ship personnel on vessels at the end of the third quarter of fiscal 2024.

The quarter marked meaningful progress in our key priorities. Let me share some of those highlights. First, we captured highly visible new ship growth with current cruise line partners. We continue to solidify our market leadership during the quarter, introducing new health and wellness centers on board for new ship builds during the quarter, Royal Caribbean Star of the Seas, Virgin Brilliant Lady, Princess Cruises, Star Princess and Celebrity Xcel. For the year, we remain on track to introduce health and wellness centers on to 2 additional new ships commencing voyages in the fourth quarter, giving us a total of 8 new ship builds in 2025. Second, we continue to expand higher-value services and products. These higher-value services, including MedSpa, IV therapy and Acupuncture to name a few, helped to grow sales productivity with strong double-digit increases in the quarter. We continue to introduce these services to more ships and expand offerings with the latest innovations in adding to our growth.

In addition, we continue to elevate the innovation in our medi-spa services with the expansion of our rollout of next-generation technology with the Thermage FLX and CoolSculpting Elite, which offer improved results and reduced treatment time by up to 50%. These new technologies generated between 40% and 60% growth for these treatments in Q3 versus last year. In addition, Acupuncture remains in high demand with equally strong growth rates. The adoption of LED light therapy within this service remains a high conversion add-on treatment. At quarter end, Medi-Spa services were available on 150 ships, up from 144 ships at the end of the third quarter last year. We continue to expect to have Medi-Spa offerings on 151 ships this year. Third, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of across-the-board increases in key operating metrics, including revenue per passenger per day, weekly revenue, pre-cruise revenue and revenue per staff per day. Without a doubt, our unsurpassed ability to identify, onboard and retain staff is leading to this performance.

In fact, staff retention remains a key contributor to our consistent gains in operating metrics as experienced team members are driving incremental revenue through more effective customer recommendation. The quarter saw a 5-point increase in staff retention versus Q3 2024 with experienced staff generating significantly higher revenue per day versus first contract staff. We continue to take pride in being a desired employer and strive to create an environment that fosters retention. In addition, we continue to invest in best-in-class training and have recently redesigned our talent management processes to further support productivity and long-term growth in our operating metrics across all of our staff members.

Our enhanced sales training continues to fuel increases in the number of guests using the spa, service frequency, service spend and retail and average guest spend per guest. Fourth, we possess a strong and durable balance sheet, which, combined with our ongoing successful growth, enabled us to advance each of our capital allocation objectives in the quarter. These are to invest in future growth, return value to our shareholders and reduce debt. To this point, in the third quarter, we were active on our stock buyback. We paid our quarterly dividend and reduced outstanding debt. Additionally, as Stephen will share, the Board approved a 25% increase in our quarterly dividend payment to $0.05 per share, which reflects our company's consistent after-tax free cash flow generation and positive long-term growth prospects. As we close out the year, we remain confident in our outlook with our business continuing its favorable momentum at the start of the fourth quarter.

In addition to the introduction of 2 new health and wellness centers beginning voyages through year-end, we are also excited by our developing initiatives employing emerging AI technologies to enhance our unique global positioning toward delivering increasing exceptional experiences for our guests and service to our partners. We believe this, along with the continued discipline with which we execute our asset-light business model, positions us well to deliver strong results for our stakeholders and shareholders in the near and long term. As Stephen will share momentarily, we have increased our 2025 guidance at the midpoint of our previous ranges for annual revenue and adjusted EBITDA.

With that, I will turn the call over to Stephen, who will provide more details on our third quarter results and guidance.

Stephen?

Thank you, Leonard. Good morning, everyone. We are pleased with our third quarter performance, which included record results in total revenue and adjusted EBITDA and continued strong and predictable cash flow generation. We continue to expand our innovation, products and services and leverage our strong operating platform and technology enhancements to deliver strong revenue and profit growth while employing our balanced capital allocation strategy to reduce capital to shareholders. Fueled by our strong cash flow generation, driven by our capital-efficient asset-light business model that generates predictable strong free cash flow, we returned $4.1 million to our shareholders through our quarterly dividend payment and $17.6 million from the repurchase of 816,000 common shares during the quarter, while repaying $11.3 million on our term loan facility.

Also reflecting our positive long-term outlook, we opportunistically returned an additional $15 million to our shareholders from the repurchase of an additional 722,000 common shares thus far in the fourth quarter. And our Board approved a 25% increase in our quarterly dividend payment to $0.05 per share. Before I provide details on our third quarter results, I would like to provide additional perspective on our AI initiatives.

These initiatives are expected to deliver measurable improvements across key areas of our business with actions in place to enhance revenue, create operational efficiencies to drive greater profitability as we grow while increasing the speed of our decision-making through automation and streamlining of our business processes. Here are some highlights of each initiative. First, as it relates to revenue enhancement, we have implemented a machine learning-powered project designed to optimize yield and revenue, which is actively being tested on 40 vessels. By leveraging advanced recommendations and algorithmic optimization, this initiative aims to unlock additional revenue by optimizing utilization.

Second, operational efficiency. In this regard, we are seeing early success with our automated problem resolution and inquiry tool, which has now been deployed across 180 vessels. This technology has led to dramatic improvements in response times and reduce the need for help desk hours. Third, automation and streamlining, which is part of our broader efficiency initiative to continue to explore and develop automation solutions to reduce manual work and streamline operations. Although still in the early stages, these efforts are expected to enhance productivity and operational scalability over time and are expected to further increase our key operating metrics. Overall, our AI initiatives demonstrate our commitment to leveraging cutting-edge technology to strengthen our market position and deliver value to our shareholders.

Turning now to a review of the fourth quarter -- third quarter. In total, for the third quarter, total revenue increased 7% to $258.5 million compared to $241.7 million for the third quarter of 2024. The increase in service revenue and product revenues were driven by a 4% increase in average guest spend, fleet expansion due to 2025 new builds and a 1% increase in revenue days, which positively impacted revenues by $7.8 million, $6.8 million and $3.2 million, respectively. Contributing to the increased volume and spend was $2.7 million in increased prebooked revenue at health and wellness centers on board, and this was offset by a $1 million decrease in our destination resort revenue, partially due to the close of hotels where we had previously operated. Cost of services increased $12.5 million attributable to the $13.6 million increase in service revenue compared to the third quarter of 2024.

Service margin was a healthy 17.3%, up versus both the first and second quarter of 2025, but marginally below the same quarter a year ago, simply due to mix. Cost of product increased $2.7 million attributable to the $3.2 million increase in product revenue. Salary, benefits and payroll taxes were $8.4 million compared to $8.6 million in the quarter prior year. Net income was $24.3 million or net income per diluted share of $0.23 compared to net income of $21.6 million or net income per diluted share of $0.20 for the third quarter of 2024. The change was primarily attributable to a $1.3 million increase in income from operations and a benefit from a $1.1 million decrease in net interest expense. The $1.1 million decrease in net interest expense was primarily due to lower debt balances and lower effective interest rates.

Adjusted net income was $30.4 million or adjusted net income per diluted share of $0.29 as compared to adjusted net income of $27.3 million or adjusted net income per diluted share of $0.26 for the third quarter of 2024. And adjusted EBITDA was $35 million an improvement from $33 million in the third quarter of 2024. Moving on to the balance sheet. We continue to possess a strong balance sheet at quarter end with total cash of $30.8 million after giving effect to the repayment of $11.3 million in debt, repurchasing $17.6 million of our common shares and paying $4.1 million in support of our quarterly dividend.

In addition, we had full availability of our $50 million revolving line facility, giving us total liquidity of $80.8 million as of September 30, 2025. Total debt was $85.2 million at September 30, 2025, compared to $98.6 million at December 31, 2024. Also, at quarter end, we had $57.4 million remaining on our $75 million share repurchase authorization. And post quarter end, we repurchased an additional 722,000 outstanding common shares, returning another $15 million to shareholders. Therefore, as of today, we have $42.4 million remaining on that $75 million share repurchase program.

We continue to expect the disciplined execution of our growth initiatives and strong cash flow generation driven by our asset-light business model to enable the payment of ongoing quarterly dividends while evaluating opportunities to repurchase our shares and retire debt. We believe this positions us well to create long-term value for our shareholders. Turning now to guidance. As we look ahead, we are excited about our business and continue to expect total revenue for fiscal 2025 to increase in the high single-digit range, reflecting our strong year-to-date performance and our positive outlook as well as the addition of 2 new health and wellness centers on cruise ships beginning voyages during the fourth quarter. Adjusted EBITDA is now expected to increase by 10% at the midpoint of our guidance range as we deliver increasing productivity from our enhanced products and services.

For the full fiscal year 2025, we expect total revenue in the range of $960 million to $965 million, which represents an increase of 8% at the midpoint versus fiscal year 2024 and adjusted EBITDA is expected in the range of $122 million to $124 million, which represents an increase at the midpoint of 10% versus fiscal 2024. For the fourth quarter of 2025, we expect total revenue in the range of $241 million to $246 million and adjusted EBITDA is expected in the range of $30 million to $32 million. And with that, we will open up the call for questions. Bailey, if you could please do that.

[Operator Instructions] Our first question comes from Steven Wieczynski with Stifel.

So Leonard or Stephen, I'm wondering about how we should think about the benefits from some of this AI technology you guys have been implementing. And what I mean by that is, if we look at margins in the second quarter, they were up about 70 basis points year-over-year. And in the third quarter, they were down about 20 basis points. So not sure if you can help us think about maybe the cadence of how margin expansion or contraction should look moving forward as you kind of go through and implement some of this technology.

So as we talked about last quarter when we started talking about some of these initiatives, we've mentioned then and we continue to say today that it's likely the second quarter of next year when we start to become more specific about one of -- what those expected improvements will be. We are encouraged with what we see thus far, but frankly, it's just too early to commit to specific increments, et cetera, but we hope to be able to do that by the second quarter of next year.

So as we think about the fourth quarter and the first quarter, basically assume nothing is in there, correct?

That would be a good assumption to assume that it's consistent with the cadence that it's been tracking at and then improvements thereafter.

Okay. And then, Leonard, I don't know if this is for you or still, Stephen, but I want to understand maybe spend patterns a little bit more on board. Maybe if you could give us some more color on what you're seeing more so in real time in terms of guest spending. I'm wondering if you've seen any changes through October, whether that's through attachment rates, a difference in spending across land-based versus maritime or really any kind of change in demand for higher-end services versus traditional treatments. Just you're just trying to understand and get a feel if guests are starting to change their behaviors at all.

Yes, Steve, I'd tell you our PPDs, our revenue per passenger per day, everything is positive. The spend is up, attachment rates are consistently good, pre-cruise revenue consistently staying strong. I mean we have not seen any kind of material reduction in spend. I mean we also look at what we're deploying in terms of marketing tools, discount rates, additional incentives, and it's very consistent with what we've seen over the past few quarters. So in short, we haven't seen anything materially change for our business so far.

Our next question comes from Sharon Zackfia with William Blair.

I think you mentioned that service margin was down a little bit on mix. Could you kind of clarify what's happening with the mix?

Yes. It's really just a function, Sharon, of where -- which cruise lines are generating slightly different revenue and the agreements that we have with those cruise lines. It's not something that was necessarily unexpected to us and nor is it something that we think based upon what we're seeing in October flows through into October. So we would expect to see margins continue to be strong. And as you know, right, I mean, 17.3% was very healthy. That was versus a second quarter of 16.6% in the first quarter of 17%. So I think we should focus on the positive there, which is that it is higher than both of those quarters, although just marginally down versus the third quarter of prior year.

Yes. I just wanted to clarify that you weren't seeing passengers kind of shift down into kind of lower price point services, but it sounds like it's ship mix, not necessarily the actual...

We're definitely not seeing them shift down. And remember, our model provides us with a degree of insulation in that we're only servicing a small proportion of the customers on board to the extent that those customers that want to spend money, enjoy their vacation and experience the spa, we're still absolutely seeing that.

Great. And then I wanted to ask a follow-up. We've been getting a lot of questions on the global minimum tax. Can you kind of talk about OneSpaWorld and how or if you will be impacted by that beginning next year?

Our expectation remains that we will not be impacted. We are still finalizing and are very deep in the process of doing some reorganizational changes to make sure that, that happens. But upon successful implementation of those changes, at this point in time, we continue to believe that we would not be impacted by global minimum income taxes.

Our next question comes from Max Rakhlenko with TD Cowen.

Nice job in the quarter. So first question, in the release, you noted that you saw a noteworthy increase in guest counts, frequency as well as average spend. Just what do you attribute that to? And then is there a way to think about the magnitude of the step-up that you may be seeing?

We -- say that again, Max. We saw an increase in traffic, which is the amount of passengers we saw, which is a function of some of the newer ships coming into service in the fourth quarter, obviously. And then the penetration rate actually moved up positively as well from the second quarter. So that just meant we were getting more of that traffic on the ships into the spas and the penetration rate increased moderately, which is a good sign. But we're also focusing the staff on facility utilization, as we mentioned on our last call, last quarter, which is how do we better utilize not only our staff, but the facilities themselves on sea days, port days, what we can do to take and try-train staff to fill in the gaps and get better utilization.

So where we see the demand remaining high, we see the utilization maxed out, we will go to the cruise lines and have a discussion not just on real estate, but more importantly, on getting an extra birth, which is never an easy discussion, but something that sometimes yields an increase. And if it does, obviously, and we show them where the demand comes from, it will be a great thing to have. So now we have the data to support the facility utilization. And as I mentioned before, it's a metric that we will produce at some point in the future, probably at the end of second quarter next year. But it's something that we're focusing on internally to improve that metric itself.

Got it. That's really helpful. And then, Stephen, how are you thinking about the right level of cash to hold on the balance sheet in the context of likely continued declines in interest rates? Should we assume that you're going to put more cash to work as what we saw both in 3Q and quarter-to-date? Or what's the plan ahead?

We'll continue to have a balanced capital allocation strategy. We like to keep $25-or-so million of cash on the balance sheet. But as you know, we do have a $50 million availability on the line of credit. And so I think the way we think about it is continued optimization of the capital allocation strategy for the near term, share repurchases would remain at the top of that -- on the top of the list. Opportunistically, though it's not programmatic, then the dividends, which, as you know, we increased by 25% now to $0.05 a quarter. And then if it makes sense, we'll pay down a little bit more of the debt or more over time, but that's the order of prioritization.

Our next question comes from Gregory Miller with Truist.

I thought I'd start off on a question on staffing. You mentioned in the prepared remarks that you redesigned the talent management process. Could you elaborate on the kind of changes you're implementing?

Yes. So we're focusing clearly, obviously, around solution selling. We're putting people into different modalities and not just sort of pinning them to one modality. So there's much more of a shared philosophy around where staff can be used, where before they'd be only used for one type of modality, which is allowing us, as I mentioned before, Greg, to get the better utilization out of our facilities. So the focus is not limiting staff just to one type of service where before we thought that might have maxed out the benefits of each of them just specializing. We see that it's better to use them across different modalities, so enhancing our facility utilization overall.

And then I'd like to shift over to the AI front. If I heard correctly, the revenue enhancement projects are on 40 vessels, which is an impressive ramp-up already compared to the piloting you were doing previously. But if I heard correctly, the operating efficiencies have been launched on 180 vessels so far. So I'm curious what's driving the disconnect of more focus at this stage on the AI implementation on the operating efficiency side versus the revenue enhancement side.

It's not a matter of more focus, Greg. It's a matter of the simplicity of rolling out one versus the other. The revenue enhancement is -- has more complexity and requires specific training for the managers on board, whereas the operational efficiency is rolling out apps, which are much simpler and can be shown how to use much more easily. So it's simply a matter of what is easier to be done.

Our next question comes from Drew May with Northcoast Research.

So a little bit of a calmer-than-expected hurricane season this year, but one saw a little more itinerary changes and extra sea days. Was there any tangible headwind or benefit you guys call out from storm activity during the quarter?

No, nothing tangible or material, Drew.

Okay. Got it. And then next question was a little bit of a step-up in the CapEx this quarter. Was that kind of related to the AI initiatives? Or is there anything else you guys could call out there?

No, those are related to the AI initiatives. We have talked about CapEx being at a slightly elevated rate this year and potentially next year as well as we make investments in those projects. So that was a big piece of it. There was a smaller piece related to rolling out some of this additional Medi-Spa equipment on board, but the majority is related to these projects.

Our next question comes from Assia Georgieva with Infinity Research.

Leonard, I wanted to follow up on your comment about adding an extra birth. I imagine with adding more staff, we might see the productivity metric come down in Q2, but that would be because of the structural change as opposed to actual productivity coming down. Is that fair? Just wanted to clarify.

Yes, it should not depress that metric. The only reason we would go to a cruise line and ask for an increased birth would be because we're not getting to the right level of penetration or productivity that we could if we had that staff member. So it would be purely accretive if we added it, not for the sake of just having it.

Correct. And again, I was trying to understand, so I don't overly focus on the metric, and I understand having more bodies, obviously, would be helpful to the overall revenue generation and penetration rates. My second question is, some of your banners seem to be making sort of a deployment shift not only in 2026, I imagine it will be in '27 and beyond to shorter voyages, including in Europe and the shift to more ships in the Caribbean and the Bahamas and also shorter voyages there. It seems that shorter voyages typically are a good thing for you. Is that the correct interpretation still?

They always -- they've always been very decent. And we try and look at 3, 4 as a 7. So we stagger it that way. We market it that way. We know on the 4-day, we've got a little bit extra time. So even though it's separate cruises, we try and structure that for the high demand periods or the at-sea period. So yes, I wouldn't say there's a material difference today than it was before. It's still -- they still prove out to be quite decent for us, yes.

So you don't see any net-net impact at this point?

Not really, no. I haven't seen anything so far, nor do we expect to see anything material.

And sort of related to that, with the further development of private island destinations, is that an opportunity to further build out your infrastructure on these private islands, basically the marquee ones? Can you discuss that a little bit?

Yes. No, we definitely are looking at it very seriously. We're talking to 1 or 2 of the banners who have additional islands that they're building out. I think there's an opportunity for us to do something alongside them. I think with the existing operations, we're looking at where we can add or improve the facilities on some of the older sort of islands. So we think there's tremendous opportunity for us to participate more so when these ships are calling at these fantastic slots in the islands, Mexico for Royal Caribbean. I mean all of them have a very nice island experience today and some are enhancing it, as you've seen with NCL and others, Royal announcing Santorini yesterday. I mean it's just very exciting because you see they're combining both the land and sea vacation and are meeting that expectation very well.

Santorini sounded really good when I heard that yesterday. So yes, it did catch my attention. And lastly, and I'll let you go. In terms of prebooked services, has that rate moved? I know it has been difficult sometimes to be fully integrated within the banner's internal prebooking engine, but they themselves seem to be doing a great job of increasing penetration, and I'm hoping that you are benefiting from that as well. Is that the case?

Well, I think it's encouraging certainly that prebooking is getting mentioned on particularly yesterday's call, I think they mentioned that it's close to 50% and continues to grow. For us, it's a high focus item. We talk about it in all of our business reviews. We have some initiatives that we're looking at in terms of AI for next year to help enhance the prebook. So I think for us, there's equally a stronger focus on the prebook because we know they spend up to 30% more than somebody who doesn't prebook. And I think prebooking is just going to continue to get stronger, not only for the cruise lines, but for us as well over time.

What is your current rate roughly, if you don't mind sharing?

It's about 22% of service revenue, which excludes Medi-Spa.

This concludes our question-and-answer session. I would like to turn the conference back over to Leonard Fluxman, Executive Chairman and CEO.

Right. Thank you all for joining us today. We look forward to speaking with many of you at our upcoming investor conferences, meetings and when we report our fourth quarter results in February. Thanks, everybody. Have a good one.

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

Good day, and welcome to the OneSpaWorld Second Quarter 2025 Earnings Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to hand the call over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning, and welcome to OneSpaWorld Second Quarter 2025 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 out 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 in this conference call and webcast. We refer you to the disclaimer regarding forward-looking statements that is included in our second quarter 2025 earnings release, which was furnished to the SEC today on Form 8-K.

We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. 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, President, Chief Operating Officer and Chief Financial Officer.

Leonard will begin with a review of our second quarter 2025 performance and provide an update on our key priorities. Then Stephen will provide more details on the financials and guidance. Following our prepared remarks, we will turn the call over to the operator to begin the question-and-answer portion of the call.

I would now like to turn the call over to Leonard.

Thank you, Allison. Good morning, and welcome to OneSpaWorld's Second Quarter 2025 Earnings Conference Call. It's a pleasure to speak to you today to share better-than-expected second quarter results, which completed a strong first half of the year for our company. Our ongoing strength reflects the efforts of our outstanding team that continues to leverage our powerful global operating platform and our strategic investments to drive innovation, productivity, and profitability across our operations.

Highlights of our second quarter were total revenues increased 7% to a record $240.7 million compared to $224.9 million in the second quarter of 2024. Income from operations increased 17% to a record $22.1 million compared to $18.8 million in the second quarter of 2024. Net income increased 27% to $19.9 million compared to $15.8 million in the second quarter of 2024 and adjusted EBITDA increased 13% to a record $30.5 million compared to $27.1 million in the second quarter of 2024.

At quarter end, we operated health and wellness centers on 200 ships with an average ship count of 101 for the quarter. This compares with a total of 197 ships and an average ship count of 188 at the end of the second quarter of fiscal 2024.

Also at the quarter end, we had 4,365 cruise ship personnel on vessels compared with 4,300 cruise ship personnel on vessels at the end of the second quarter of fiscal 2024. The quarter marked meaningful progress on our key priorities, and I'm going to share some of those highlights with you.

First, we captured highly visible new ship growth with current cruise line partners and added new cruise line partnerships to our fold. We continue to solidify our market leadership during the quarter, renewing our partnership with Windstar Cruises and introducing a new health and wellness center on board the newly launched Oceana Lara. For the year, we remain on track to introduce health and wellness centers on an additional 7 new shipbuilds commencing voyages in the second half of the year.

Second, we continue to expand higher-value services and products. These higher-value services, including medispa, IV therapy and acupuncture, to name a few, helped to grow sales productivity. In the quarter, we continued to introduce these services to more ships and expand offerings with the latest innovations, adding to our growth.

To this end, we continue to elevate the innovation in our medi-spa services with the expansion of our rollout of next-generation technology with FLX and CoolSculpting Elite which offer improved results and reduced treatment time by up to 50%. These new technologies generated over 20% growth for these treatments in Q2 versus last year.

In addition, acupuncture remains a sort of to service with very strong adoption of LED light therapy as a high conversion add-on treatment. At quarter end, medi-spa services were available on 147 ships, up from 144 ships at the end of 2024 second quarter. We continue to expect to have medi-spa offerings on 151 ships this year. Third, we focused on enhancing health and wellness center productivity. This is best reflected in the delivery of across-the-board growth in key operating metrics, including revenue per passenger per day, weekly revenue, pre-cruise revenue and revenue per staff per day driven by: one, staff retention, which remains a key contributor to our consistent gains in operating metrics, as experienced team members are driving incremental revenue through more effective customer recommendations.

We continue to invest in best-in-class training and have recently redesigned our talent management process to further support productivity and long-term growth in our operating metrics. Our enhanced sales training continues to fuel increases in the number of guests using the SPA, service frequency, service spend and retail and average spend per guest.

Additionally, prebooking revenue as a percentage of services remains strong at 23%. During this quarter, we introduced prebooking on Azimar proves. Fourth, we ended the quarter with a very strong balance sheet, which allowed us to invest in our growth while returning value to shareholders through our quarterly dividend payment. We remain confident in our outlook as we begin the second quarter of the year with our business continuing its favorable momentum at the start of the third quarter.

In addition to the introduction of 7 new health and wellness centers beginning the voyages through the remainder of 2025, we are also excited by our developing initiatives employing emerging AI technologies to enhance our unique global positioning towards delivering increased exceptional experiences for our guests and service to our partners.

We believe this, along with continued discipline with which we execute our asset-light business model positions us well to deliver strong results for our stakeholders and shareholders in fiscal 2025 and beyond. As Stephen will share momentarily, we have affirmed our annual revenue guidance and have increased our 2025 adjusted EBITDA guidance. With that, I will turn the call over to Stephen, who will provide more detail on our second quarter results and guidance. Stephen?

Thank you, Leonard. Good morning, everyone. We are indeed pleased with our second quarter performance, which saw total revenue increased 7%, adjusted EBITDA rise 13% with continued strong and predictable cash flow generation. We continue to expand our innovation, products and services and leverage our strong operating platform and technology enhancements, which enabled us to deliver revenue growth at increasing rates of profitability.

Additionally, our capital efficient asset-light business model predictedly generates strong free cash flow, yielding the return of $4.1 million to our shareholders through our quarterly dividend. We are very excited to be making strides in embracing AI within one spar world. We are currently piloting an AI-driven initiative focused on increasing revenue by enhancing yield improvement through machine learning powered recommendations and algorithmic optimization.

And in parallel, we are advancing a second group initiatives centered on efficiency and automation using AI to streamline operations, reduce manual effort and drive scalable process improvements across the organization.

Turning now to a review of the quarter. Total revenue increased 7% to $240.7 million compared to $224.9 million for the second quarter of 2024. The increase in service revenue and product revenues were driven by a 4% increase in average gas spend which positively impacted revenue by $8.5 million, a 1% increase in revenue days which positively impacted revenue by $4.5 million and fleet expansion, which contributed $3.5 million.

Contributing to the increased volume and spend was $2.7 million in increased prebooked revenue at our health and wellness centers, included in our ship count as of June 30, 2025. This was partially offset by a $900,000 decrease in our land-based spa business, partially due to the closure of hotels where we had previously operated.

Cost of services increased $10.4 million attributable to the $12.5 million increase in service revenue and cost of product increased $2.8 million attributable to the $3.3 million increase in product revenue versus prior quarter.

Salaries and benefits were $8.8 million compared to $9.2 million in the second quarter of 2024. The decrease was primarily due to a $700,000 decrease in incentive-based compensation expense versus the second quarter of 2024. Net income was $19.9 million or net income per diluted share of $0.19 compared to net income of $15.8 million or net income per diluted share of $0.15 for the second quarter of 2024. The change was primarily attributable to a $3.3 million increase in income from operations and a benefit from an $800,000 decrease in net interest expense. The decrease in interest expense was primarily due to lower debt balances and a lower effective interest rate.

Adjusted net income was $25.8 million or adjusted net income per share of $0.25 is as compared to adjusted net income of $21.7 million or adjusted net income per diluted share of $0.20 for the second quarter of prior year. Adjusted EBITDA improved to $30.5 million compared to adjusted EBITDA of $27.1 million in the second quarter of last year.

Moving on to the balance sheet. We continue to possess a strong balance sheet at quarter end with total cash of $36.2 million after paying the $4.1 million in support of our quarterly dividend.

In addition, we had full availability on our $50 million revolving loan facility, giving us total liquidity of $86.2 million as of quarter end. Total debt, net of deferred financing costs was $96.2 million as of quarter end compared to $98.6 million as of December 31, 2024. I -- also at quarter end, we had full availability of our $75 million share repurchase authorization.

We expect a disciplined execution of our growth initiatives and strong cash flow generation driven by our asset-light business model to enable the payment of ongoing quarterly dividends while evaluating opportunities to repurchase our shares under the $75 million authorization and to retire debt. We believe this positions us well to create long-term value for our stakeholders.

Turning to guidance. As we look ahead, we are excited about our business and continue to expect total revenue for fiscal 2025 to increase in the high single-digit range, reflecting our strong first half performance and our positive outlook as well as the addition of 7 new health and wellness centers on cruise ships beginning voyages during the second half of this year.

Adjusted EBITDA is now expected to increase by 9% at the midpoint of our guidance as we deliver increased productivity from our enhanced products and services. Our guidance does not assume a significant deterioration in guest spending on board or a slowdown increasing activity.

For the full fiscal year 2025, we expect total revenue in the range of $950 million to $970 million, and adjusted EBITDA is expected in the range of $117 million to $127 million, which represents an increase from our previous range for adjusted EBITDA of $115 million to $125 million. For the third quarter of 2025, we expect total revenue in the range of $255 million to $260 million, and adjusted EBITDA is expected in the range of $33 million to $35 million.

With that, Andrea, if you could please open the call to questions.

[Operator Instructions]

And our first question comes from Steve Wyszynski of Stifel.

So Leonard or Stephen, I want to dig in a little bit more around some of the strategies that it sounds like you're going to help you enhance your profitability, which sounds like it's very much AI driven. Look, to us, 1 style world in terms of the story was never really about margin enhancement given the the revenue share agreements.

But it sounds like that now might be changing. So I guess what I'm trying to understand here is just maybe how material this could be over time in terms of improvement whether that's in flow-through or margins, whichever way you want to think about it.

Yes, Steve, let me take that question because I think it's a really, really state of exciting initiatives that we're working on and throughout the organization is tremendous optimism. So we break it down broadly into 2 categories, right? On the 1 hand, there is specific focus on yield improvement and driving revenue on board through AI, machine learning, algorithmic recommendations and optimization, which we are currently piloting -- it is proprietary one-pager intellectual property that has been built.

And the initial results are optimistic, and we hope it will help us expand revenue opportunity on board, but -- in terms of margin, the opportunity primarily lies below the line in efficiency and automation. And that is where through a second set of initiatives, we are doing multiple things. We're using a genic AI cross-platform automation, for example, e-mail agents, calendar agents, presentation agents to name a few, which will drive productivity, they will help us scale our operations without having to add people.

And we hope will ultimately lead to increased flow-through. There's also 10 AI in France knowledge work and documentation query, some of which is already in place, for example. And so just one quick example, right, instead of somebody having to call in and inquire about what their benefits might be or lead policy might be and having to take somebody's time to answer that. The system now will answer that for you literally in 1 minute. So it's all really good. It's really exciting.

We've added 5 new employees to this project, people that are focused and specialized on this a director, a data scientist, a data architect and AI business analyst and a software integration engineer. So people that are super smart and we believe will ultimately help us take a really nice step forward overall in this entire arena.

The brunt of this be kind of seen or more out into 2026. Is that kind of the way we should think about it?

Yes. That is the way you should think about it exactly.

Okay. And then second question, just want to ask about the revenue guidance for the year in terms of maintaining that. It seems like spend rates, attachment rates, prebooking, I mean, all seem it sounds like in terms of your commentary through July. So just trying to understand maybe what kind of keeps you from not raising that range now or at least even up in the low end of that range? And that's all for me.

Yes. So we continue to remain very comfortable around where the consumer is at, demand on board and how we are progressing from a revenue optimization standpoint. Really, what it comes down to is the introduction of the timing of the new vessels and the majority of those coming out in the fourth quarter and perhaps later in the fourth quarter. So -- that is all it comes down to Steve. It's just timing of when we expect ships to be coming into service.

The next question comes from Max Rakhlenko of TD Cowen.

Congrats on a really nice second quarter. So my first question is just wanted to dig down a little bit more in terms of what you're seeing in the state of the consumer and the onboard spend. Any changes or leading indicators that you guys normally follow that help inform your view on the state of the consumer and just how that's impacting your outlook for second half year?

So I think the way in which we look at it is through the metric lens, Matt, and that's basically saying our operational metrics and financial metrics on board continue to indicate strength in the consumer, not only in terms of demand, but the actual spend itself. And all of those metrics were positive and remain positive and a lot of the positive spend in the quarter contributed to the over delivery.

So we are -- we're not sitting on our laurels here saying that we have the best consumer, but we have a very, very strong consumer on board through the summer season here into the third quarter, which is a transition quarter. But -- the quarter has got off to a good start or ending with a sort of a straddle cruise here. But so far, so good. We have not seen any deterioration for the first 6 months in consumer spend. So we remain very optimistic about the health of consumer.

Okay. That's awesome. And then just on capital allocation. So 2-parter First, how are you thinking about cash deployment on repurchases and just a framework for us to consider given sort of what we saw in 1Q versus 2Q? And then separately, this is now the fourth quarter since you launched your dividend. So should we assume that it's a growth dividend and we'll see a step-up next quarter? Or how are you approaching the dividend from here?

Capital allocation strategies, Max, have not changed. We remain focused in order of precedent on stock buyback, then dividends and debt repurchase. -- and reiterate that those do not have to be mutually exclusive. We did indeed not buy back any stock in the quarter. Obviously, you're aware of that. We have talked about the stock purchases being opportunistic and buying on weakness. The stock performed really, really well, perhaps dropped off a little bit just in the last day or so. But recognizing, obviously, we're in a blackout period.

So we will remain opportunistic and repurchase shares as we deem appropriate for the organization and perhaps when there's some softness in the stock as it relates to the dividend, yes, you're correct. We have talked about next quarter would be the anniversary of when it was initiated. And so an increase at that time would be the most opportune timing for us.

The next question comes from Tania Anderson of William Blair.

I just wanted to ask a question about the gross margin. It was flat year-over-year. And I just wanted to know any details on the push and pulls for gross margin for the rest of the year?

Yes. So gross margin, as you know, because of the variable cost nature of our business on board is something that structural increases slightly is something that we feel comfortable about. But as it relates to the current quarter, nothing really of interest, so to speak, the slight change was really due to a mix of products and services being sold -- and then as it relates to the remainder of the year.

So we remain optimistic about consumer spend on board, don't anticipate having to do incremental discounting and/or promotions. Having said that, though, we don't historically guide specifically on gross margins. We would expect EBITDA margin, though, to improve a little bit as is reflected in some of the numbers. So we'll see how it plays out, but I think the takeaway should be that we feel good about where things are at and what we anticipate for the remainder of the year.

The next question comes from Gregory Miller of Truist Securities.

I'd like to first ask about the thermal suite. And if you could share some detail on latest trends in spend or behavior. Are you seeing any spend shifts more to the thermal suites or other parts of the wellness operation? Or are -- or is Thermal Suite spend pretty steady. And I'm thinking more from a same vessel comparison, not from new vessels or expanded facilities on select ships?

The thermal suites are definitely continuing to be a high demand. I mean some of the ships have much larger thermal suites. Clearly, the demand for those thermal suites will change geographically. So Alaska will see a very high utilization just because people like to hang out there and sort of watch the topography as they sit there, but it's also a great way for us to get people into the par, begin to promote some services, but and extend their time in the spa.

So we would love to see thermal suites on some of the banners, become a little larger because there's definitely multi-use purposes for the thermal suite. We can actually do IV therapy whilst they're relaxing, we can do a number of other things whilst they're getting prepared for a particular service. So I would say the demand is steady, but seasonally, you can see a slight shift upwards, particularly with itineraries such as Alaska.

And shifting to another region of the world. You've had a little more time with Aroa, -- and I'm curious if you could share -- any commentary on how that banner starting to trend or any other expectations you have for either Arora or Mitsui as that comes online in time?

Yes. So these are both very early new brands adjusting to market trends and challenges. Roya, I think, is starting to look at expanding where they're offering the cruises. I think it's been very much UAE focused. I think they need. And the same for Mitsui. I think they're going to go and do more outreach on a global basis and not just specifically within, say, Japan or the OE.

So load factors are still a little challenging, not quite where they need to be. And I think they'll get there. I think once they open the aperture and start selling cruises on a wider basis, I think so, too, will the load factors improve, but it's early days.

The next question comes from Assia Georgieva of Infinity Research.

Congratulations on a great quarter. I had a couple of questions. We're pretty much caught on occupancy post industry restart. But yet, we are seeing some increases in like brands. How important is occupancy to your revenue generation? I understand that most of those additional passengers may be kids -- so probably less important than making sure that we are back to 70% plus levels of occupancy in general for the. I don't know if that makes sense.

It does make your question is accurate. So is your own answer accurate, which means yes. During this time of the year, you do get a lot more kids on Board. So load factors are higher because the kids are all in those additional bunks in single cabins. So -- we typically have that every single year during this time of the year when people go on vacation. But during the third and fourth quarter, they settled back to the normalized load factors. But yes, load factors continue to hold very nicely.

Great. And I think I heard you say that this might not be the best cruise passenger ever, but it's a strong passenger at this point and no deterioration during the first half of the year. Is that correct?

No, let me clarify. What I'm saying is we have a good passenger on board. We certainly see across 200 ships. Clearly, that's a lot of different passengers. And on some ships, it's not your best, but they're still good. So you've got to you got to use your marketing toolkit a lot more, and you got to be a little bit more outward on your offerings.

And so yes, on certain of the vessels, it's still a very, very good passenger, but there are stronger passengers on some of the ships, but that's normal. So I'm not saying anything other than the fact that there's a very good consumer on board across all the ships.

And the more challenging ones, would those be kind of further down market? Is there any sort of way to summarize where you're seeing the need for more marketing?

I think it depends on the itinerary geography. It also depends on the age of the ship or the facilities, et cetera. So all of those typically are challenges best passengers going into ships and the ships are slightly more discounted. So they go on. So I think it's a plethora of opportunity for a guest to pick where they want to be and how much they want to pay for their trip. So I don't think this is anything different to what we've seen historically and it falls in line with new ships come out, they go into the best itineraries, best passages, obviously. So it's a domino effect where we see best ships coming out and they price the highest, but that's normal, but nothing changes.

Great. And can I ask a second question with regard to AI. So I understand it's a below-the-line help, if you will, on the cost side. And with some of the EBITDA margin expansion for the back half of the year related to these efforts? Or it's too soon to see that in this part of that yes. Okay.

No, no. AI will not impact either the revenue opportunities that Stephen spoke about or cost efficiencies that you clarified as well. We expect that to probably have a -- start having some kind of an impact that we can measure beginning, I would say, almost the second quarter of next year once we fully rolled out a couple of other initiatives. So we're really in a testing phase right now.

All right. Okay. This makes sense. Is there any logic to try to apply AI tools to the precruise to expanding the pre-cruise portion of the business? Or is that more -- not an issue, but working with the cruise lines in terms of embedding the pre-cruise booking opportunity within their own precruise engines?

Look, I think there's always opportunity to improve pre-cruise, whether we utilize AI or we can get the cruise lines to focus more resources on it. It's a work in progress, I would say, right now. I think there's real opportunity on some of the banners where we're not perhaps quite up to the 23%. So I think our teams are working closely with them.

To the extent we can get them to incorporate new thinking around AI, obviously, we'd love to do that, but the adoption rate is pretty slow. So we go to the meetings on a quarterly basis. We show them where the opportunity is, and we follow through and see if them adopt and some of them don't.

So it's one of the #1 items. I think they're focused on it, not only in terms of other prepaid opportunities on Board. But for us, it's super important to continue to try and get that metric a little higher over time.

Sure. Yes. And last question, could you remind us what sort of multiple you get for every dollar spent on free crews, I think for the industry to generally 1.5x more spend if they book pre-cruise?

As of January, the pre-cruise passenger generally spend about 30% more than somebody who doesn't pre-book.

This concludes our question-and-answer session. I'd like to turn the call over to Leonard Fluxman for any closing remarks.

Right. Thank you, Andrea. Thanks again for joining us today. all. We look forward to speaking with many of you at our upcoming investor meetings and when we report our third quarter results in October. Thanks for joining today. Bye-bye.

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