Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenues increased 12% to a record $224.9 million compared to $200.5 million in the second quarter of 2023.
- Income from operations increased 40% to a record $18.8 million compared to $13.4 million in the second quarter of 2023.
- Adjusted EBITDA increased 25% to $27.1 million compared to $21.6 million in the second quarter of 2023.
- Unlevered after-tax-free cash flow increased 18% to $23.8 million compared to $20.1 million in the second quarter of 2023.
- The Board of Directors adopted an annual cash dividend program, with an initial quarterly dividend payment of $0.04 per common share.
Negative Points
- Cost of services increased to $150.8 million from $137.2 million in the second quarter of 2023.
- Cost of products rose to $37.1 million compared to $32.2 million in the second quarter of 2023.
- Net income per diluted share was $0.15, which, while positive, reflects a modest increase compared to the overall revenue growth.
- The company continues to carry debt, with total debt reduced to $123.8 million as of June 30, 2024.
- Pre-booking revenue as a percentage of services remains at 23%, indicating room for improvement in this area.
Q & A Highlights
Q: Leonard and Stephen, my first question relates to product spend. I'm curious how product spend is trending post-treatment today. The second quarter revenues looked quite strong. Are you seeing any changing trends and what types of products or price points are resonating more with your guests today?
A: (Stephen Lazarus, CFO & COO) Product demand and service demand continues to be very strong. We see many benefits associated with some of the new services we've rolled out, the many simplifications. Retail attachments are just where we need them, and there's room to improve as we continue to simplify menu choices.
Q: To my understanding, you look at United States high-end resorts for benchmarking in terms of spa menu pricing. How much is the US resort spa menu pricing a potential ceiling for you in terms of your own spa menus?
A: (Leonard Fluxman, CEO) We always look at land-based high-end resorts. We go across many different categories of demographic and consumer. We are still quite value-oriented compared to luxury or high-end resorts. There may be an opportunity down the road, not right now, but certainly for 2025, we will look at the opportunity where we can take further pricing.
Q: Curious if you can provide some additional color on the implied fourth quarter revenue and margin guidance. Seems like it could be pretty conservative on both top and bottom line.
A: (Stephen Lazarus, CFO & COO) The fourth quarter seasonally is a softer quarter for us. Ships reposition and we come out of the more productive summer vacation period. Our implied margin for the fourth quarter at the midpoint is 11.9% on an EBITDA basis, which is not far short of where we've delivered in the first and second quarter. It gives us the opportunity to do any promotional activity if needed.
Q: What's the strategy around the growth profile of the dividend? How are you thinking about balancing it with continuing to pay down debt?
A: (Stephen Lazarus, CFO & COO) We like the flexibility to allocate between share repurchases, debt paydown, and the dividend. We are comfortable carrying some debt as it is at a very manageable level. Opportunistically, stock repurchases may come into play over time, and there's certainly the opportunity to grow the dividend depending on interest rates.
Q: Can you talk about what tech enhancements are helping drive productivity and what you have coming down the pike?
A: (Leonard Fluxman, CEO) We have not rolled out any AI enhancements yet; they are still in the development phase. We are identifying opportunities, particularly onboard and in supply chain. We saw a pickup in the number of guests coming through our spas, and the simplification of our menus is helping promote both service demand and retail attachment.
Q: Can you talk about what the drivers are of product margin and where it can go?
A: (Stephen Lazarus, CFO & COO) Medi-spa services do not significantly impact product attachment. The biggest driver of product margin improvements is continued productivity and the lack of discounting required to promote sales. We have a long-term supply agreement with Elemis, which helps manage costs.
Q: Have you looked at additional product lines you could add, or M&A to build an e-commerce business?
A: (Leonard Fluxman, CEO) We don't have a need for additional product lines. Elemis' lineup is more than enough for us to continue to grow. We do sell Elemis on e-commerce, and we continue to look at expanding the e-commerce side, but there's nothing immediate right now.
Q: With greater occupancy opportunity, might you be able to continue to grow beyond the ship count?
A: (Stephen Lazarus, CFO & COO) Occupancies have pretty much returned to historical levels. When ships get above 100% occupancy, it's typically with kids, who are not our target audience. The marginal increment for us is not significant when occupancy exceeds 100%.
Q: How do you view the different demographic target markets for ships like Utopia, Icon of the Seas, and Silversea?
A: (Leonard Fluxman, CEO) Royal Caribbean's approach is smart, offering different choices for families and younger demographics. Our training and operations cater to different types of itineraries and demographics. We see opportunities in both family-oriented and party-oriented ships.
Q: What is the opportunity in 2025 for pre-booking penetration versus this year?
A: (Leonard Fluxman, CEO) We think pre-booking will continue to move upwards as we onboard different banners and improve the pre-booking experience with our cruise line partners. We provide content and views of available services to enhance the pre-booking journey.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
