Executive Summary / Key Takeaways

• OneSpaWorld is the dominant global provider of wellness services on cruise ships, leveraging decades of operational expertise and strategic partnerships to capitalize on the robust cruise industry recovery and consumer prioritization of experiences.
• The company is driving growth through fleet expansion, increasing guest spend via enhanced productivity and the strategic rollout of higher-value services like Medi-Spa, supported by investments in next-generation technology.
• Recent financial performance, including Q1 2025 results at the high end of guidance with 4% revenue growth and 5% Adjusted EBITDA growth (excluding severance), demonstrates continued positive momentum despite some softness in the smaller land-based segment.
• A strong balance sheet, significant debt reduction, and a balanced capital allocation strategy, including a new $75 million share repurchase program and quarterly dividends, underscore management's confidence and commitment to shareholder value.
• While facing risks from potential shifts in consumer spending and challenges in the land-based business, OSW's market leadership, operational execution, and technological focus position it for continued high single-digit growth in fiscal 2025, as reaffirmed by management guidance.

The Tide Turns: OneSpaWorld's Dominance in Experiential Wellness

OneSpaWorld Holdings Limited stands as the pre-eminent global operator of health and wellness centers onboard cruise ships, a position cultivated over a foundational history spanning more than 50 years, culminating in the current entity established in 2017. This deep-rooted expertise and extensive network have cemented its status as the market leader in the maritime spa industry, reportedly exceeding the size of its closest competitor by more than 18 times. The company's core business model revolves around providing a comprehensive suite of premium health, fitness, beauty, and wellness services and products, primarily to cruise ship passengers, complemented by operations in land-based destination resorts and product sales via its timetospa.com website.

At its heart, OneSpaWorld is a global services company, intricately woven into the guest experience offered by its cruise line and resort partners. Its strategic approach is multifaceted: deepening partner relationships, relentlessly innovating its service and product offerings, enhancing productivity across its operations, and optimizing its capital structure to deliver value. This strategy is built upon a formidable global infrastructure encompassing staff recruitment, training, logistics, and supply chain management – capabilities that management views as a significant, difficult-to-replicate competitive advantage.

The company operates within a competitive landscape that includes the wellness offerings of the cruise lines themselves (like Royal Caribbean's Vitality at Sea or Carnival's spas), other resort spa operators (such as those within Marriott or Hyatt properties), and increasingly, indirect competitors offering at-home or virtual wellness solutions. While cruise lines and large hotel chains offer wellness as part of a broader hospitality package, OneSpaWorld differentiates itself through specialization, premium branding, and exclusive partnerships with leading wellness brands like ELEMIS, Dysport, and Kérastase. This focus allows OSW to offer more specialized and potentially more efficient treatments compared to the more generalized services often found within competitors' integrated offerings. However, the scale and diversified revenue streams of larger competitors like Royal Caribbean (RCL) and Carnival (CCL), coupled with their brand recognition, present challenges in overall market share capture, particularly as wellness becomes a more integrated part of the core cruise offering. In the resort space, OSW competes directly with established hotel brands, facing challenges from property renovations and regional demand fluctuations, requiring a focus on enhancing penetration and capture rates to compete effectively.

A key differentiator for OneSpaWorld lies in its commitment to integrating advanced technology into its service delivery. While not a technology company in the traditional sense, its operational platform is increasingly enhanced by technological applications. This includes the rollout of next-generation medi-spa technology, such as CoolSculpting Elite, which management highlights as offering improved results and reducing treatment time by up to 50% for certain procedures. Similarly, the integration of technologies like the Elemis Biotec 2.0 facial and LightStim therapy complements existing services like acupuncture, contributing to higher-value offerings and increased demand. The company is also exploring the potential of artificial intelligence, currently in early development stages, with the stated goal of identifying opportunities to enhance productivity both onboard and in back-office functions. The "so what" for investors is that these technological investments are not merely cosmetic; they are intended to directly impact the company's ability to offer premium, efficient services that command higher price points, improve staff productivity, and strengthen the competitive moat by offering experiences potentially superior to less specialized rivals. While specific, quantifiable benefits like precise cost reductions or efficiency gains from future AI applications are not yet detailed, the strategic intent is clear: leverage technology to drive operational excellence and revenue growth.

Performance Reflecting Strategic Execution

OneSpaWorld's recent financial performance underscores the effectiveness of its strategy, particularly within its dominant maritime segment, against the backdrop of a recovering and currently robust cruise industry. For the three months ended March 31, 2025, the company reported total revenues of $219.6 million, a 4% increase compared to $211.2 million in the same period of 2024. This growth was primarily fueled by operational improvements: a 2% increase in Revenue Days, contributing $5.3 million to revenue, and a 2% increase in average guest spend, adding $4.7 million. A notable contributor to this increased volume and spend was a $2.3 million increase in pre-booked revenues.

Profitability metrics also showed positive trends on an adjusted basis. Income from operations stood at $16.8 million in Q1 2025, slightly down from $17.0 million in Q1 2024, impacted by $2.5 million in nonrecurring severance expense related to an executive departure. However, adjusted EBITDA, which excludes this cash severance expense, increased 5% to $26.6 million from $25.3 million in the prior year quarter, demonstrating underlying operational leverage.

Net income for Q1 2025 was $15.3 million, a decrease from $21.2 million in Q1 2024. This change was primarily attributable to a significant $7.7 million benefit recognized in Q1 2024 from the change in the fair value of warrant liabilities, an item not present in Q1 2025 as all warrants were exercised or canceled in 2024. Partially offsetting this was a favorable $1.8 million decrease in interest expense in Q1 2025, driven by lower debt balances and reduced effective interest rates. Adjusted net income, which provides a clearer view of core operational profitability, increased to $22.6 million ($0.22 per diluted share) in Q1 2025 from $19.3 million ($0.19 per diluted share) in Q1 2024.

Operational metrics highlight the continued expansion and productivity gains in the maritime business. The average ship count increased to 193 in Q1 2025 from 188 in Q1 2024, with the period-end count reaching 199 vessels. Average Weekly Revenue Per Ship rose to $84,177 from $81,708, and Average Revenue Per Shipboard Staff Per Day improved to $562 from $549. These gains are attributed by management to factors including improved staff retention, enhanced sales training, and the strategic simplification of service menus, which facilitates better customer recommendations and higher spend.

In contrast, the smaller destination resort segment experienced a decline, with total revenue decreasing by approximately $1.5 million in Q1 2025 compared to the prior year. This was linked to the closure of some hotels where the company operated spas and ongoing renovation projects at other locations, as well as some regional softness in demand. The average resort count decreased to 49 from 51, and Average Weekly Revenue Per Resort fell to $15,247 from $16,791. This segment's performance underscores a key challenge outside the core maritime strength, requiring focused efforts on penetration and capture rates in existing locations.

The expansion of high-value services continues to be a strategic focus and a driver of increased guest spend. Medi-Spa services were available on 148 ships by the end of Q1 2025, up from 142 a year prior, with a target of reaching 151 ships in fiscal 2025. Management noted that specific treatments utilizing new technologies in this area generated over 20% growth in Q1 2025 compared to the prior year, demonstrating the demand for these premium offerings. Pre-booking remains a critical component of the strategy, representing 23% of service revenues and associated with guests who spend over 30% more onboard. While penetration varies by cruise line partner, the company continues initiatives to enhance the pre-booking experience and drive this metric higher, viewing it as a significant opportunity.

Financial Strength and Shareholder Returns

OneSpaWorld maintains a solid financial position, characterized by a strengthening balance sheet and a commitment to returning capital to shareholders. As of March 31, 2025, the company held $23.8 million in cash and cash equivalents and restricted cash. Coupled with full availability on its $50 million revolving credit facility, total liquidity stood at a robust $73.8 million.

The company has made significant strides in reducing its debt burden. Total debt, net of unamortized debt issuance costs, was $97.4 million at the end of Q1 2025. Since December 31, 2023, the company has repaid a total of $60.9 million in debt instruments. The current debt structure includes a $100 million term loan facility maturing in September 2029, with quarterly amortization payments. The company is in compliance with all financial covenants under its credit agreement, including maintaining a maximum consolidated total leverage ratio of 4.0 to 1.0 and a minimum fixed charge coverage ratio of 1.25 to 1.0. The scheduled principal repayments are manageable, with the majority ($80 million) due in the final year of the term.

Reflecting its strong cash flow generation and confidence in the business outlook, the company has prioritized returning value to shareholders. In February 2025, the board declared a quarterly dividend of $0.04 per share, which was paid in March 2025. A subsequent dividend of $0.04 per share was declared in April 2025, payable in June 2025. Furthermore, the company actively utilizes share repurchases. In Q1 2025, $37.9 million was used to repurchase 2.09 million common shares under the previously authorized program. On April 30, 2025, the board approved a new share repurchase program authorizing the repurchase of up to $75 million of common shares, replacing the prior program. Management views share repurchases as opportunistic, based on an assessment of the stock's value relative to its perceived intrinsic worth. This balanced approach to capital allocation – investing in growth, paying dividends, and repurchasing shares – is a key component of the company's strategy to enhance long-term shareholder value.

Outlook and Key Considerations

Looking ahead, OneSpaWorld reaffirmed its full fiscal year 2025 guidance, signaling confidence in its ability to sustain momentum. The company expects to achieve high single-digit revenue and adjusted EBITDA growth rates at the midpoints of its guidance ranges compared to fiscal 2024. For the second quarter of 2025, specific guidance was provided, with total revenue expected in the range of $235 million to $240 million and adjusted EBITDA in the range of $28 million to $30 million.

This outlook is underpinned by several key assumptions and strategic drivers. The company anticipates continued growth from fleet expansion, with plans to add health and wellness centers on an additional eight new ships in 2025, albeit with the majority commencing voyages in the fourth quarter, meaning their full impact will be realized in 2026. Continued expansion of high-value services, particularly Medi-Spa offerings targeting 151 ships, and ongoing productivity enhancements are also expected to contribute to revenue and margin growth. Management noted favorable trends continuing into early Q2 2025, with no significant increase in discounting or deterioration in guest spending observed thus far, which is a critical assumption for their guidance.

However, the investment thesis is not without risks. A potential moderation or significant slowdown in consumer spending, particularly discretionary spend on services like those offered by OneSpaWorld, could impact onboard productivity and necessitate increased promotional activity, potentially pressuring margins. Management indicated that a significant slowdown could push results below the low end of their guidance range, although they currently see no signs warranting such concern. Challenges in the land-based resort business, including the impact of hotel renovations and regional demand fluctuations, are expected to persist and require focused operational improvements. While tariffs are not anticipated to have a material impact due to the nature of the company's supply chain, broader economic or geopolitical events affecting the cruise industry or travel in general could indirectly influence performance. Furthermore, while OSW is the market leader, competition from cruise lines' own wellness offerings and other resort operators, such as Marriott (MAR) and Hyatt (H), as well as the evolving landscape of at-home wellness solutions, requires continuous innovation and effective execution to maintain market share and pricing power. The company's ability to further enhance pre-booking penetration is also partially dependent on the strategic priorities and resource allocation of its cruise line partners.

Conclusion

OneSpaWorld Holdings Limited is a market-leading provider uniquely positioned within the growing experiential travel sector, particularly benefiting from the robust demand for cruise vacations. Its long operational history, extensive global footprint, and strategic focus on premium wellness services, enhanced by technological integration, provide a solid foundation for continued growth. Recent financial results demonstrate effective execution against its strategy, driving revenue and adjusted EBITDA growth despite some headwinds in the smaller land-based segment.

The company's strong balance sheet, disciplined capital allocation, and commitment to shareholder returns further enhance its investment appeal. While risks related to consumer spending and challenges in the resort business warrant monitoring, OneSpaWorld's dominant position in the maritime market, coupled with its initiatives to expand high-value offerings and improve productivity, supports management's reaffirmed outlook for high single-digit growth in fiscal 2025. For investors seeking exposure to a specialized leader capitalizing on favorable trends in the cruise and wellness industries, OneSpaWorld presents a compelling narrative of operational excellence and strategic growth.